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OFFON

PLX PHARMA INC.

(PLXP)
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PLX PHARMA : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/14/2021 | 07:33am EDT
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 to PLx Pharma
Inc. and its subsidiary. The information contained herein is current as of the
date of this Quarterly Report (March 31, 2021), unless another date is
specified. We prepare our interim financial statements in accordance with U.S.
Generally Accepted Accounting Principles ("U.S. GAAP"). Our financials and
results of operations for the three months ended March 31, 2021 and 2020 are not
necessarily indicative of our prospective financial condition and results of
operations for the pending full fiscal year ending December 31, 2021. 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 the United 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 specialty pharmaceutical company focused on our clinically-validated
and patent-protected PLxGuard™ drug delivery platform designed to provide more
effective and safer products. The PLxGuard drug delivery platform works by
targeting the release of active pharmaceutical ingredients to various portions
of the GI tract. We believe this platform has the potential to improve the
absorption of many drugs currently on the market or in development, and to
reduce the risk of stomach erosions and ulcers associated with certain drugs.



VAZALORE, available in two doses 325 mg and 81 mg, is approved by the U.S. Food
and Drug Administration ("FDA"). VAZALORE is a novel formulation of aspirin
clinically shown to provide fast, reliable and predictable platelet inhibition
for patients with vascular disease and diabetic patients who may be candidates
for aspirin therapy as compared to the current standard of care, enteric-coated
aspirin. It is also clinically shown to reduce the risk of stomach erosions and
ulcers as compared with immediate-release aspirin, after seven days of
treatment.



Our commercialization strategy will target the over-the-counter ("OTC") market,
taking advantage of the existing distribution channels for aspirin. We intend to
market VAZALORE to the healthcare professional and the consumer through several
sales and marketing channels.  Our product pipeline also includes other oral
NSAIDs using the PLxGuard drug delivery platform that may be developed,
including PL1200 Ibuprofen 200 mg and PL1200 Ibuprofen 400 mg, for pain and
inflammation in Phase I clinical stage.



                                                                            

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Critical Accounting Policies



Our consolidated financial statements have been prepared in accordance with U.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 the Consolidated
Financial Statements (unaudited) 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 with U.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:


Impact of COVID-19 Pandemic on Financial Statements




On March 11, 2020, the World Health Organization declared the outbreak of
COVID-19 as a "pandemic", or a worldwide spread of a new disease. Many countries
imposed quarantines and restrictions on travel and mass gatherings to slow the
spread of the virus and have closed non-essential businesses.



In response to COVID-19, the Company has not experienced a disruption or delay
in the development of VAZALORE. However, the extent to which COVID-19 may impact
our business will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, such as the duration of the pandemic,
travel restrictions and social distancing in the United States and other
countries, business closures or business disruptions and the effectiveness of
actions taken in the United States and other countries to contain and treat the
pandemic. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



The Company has not experienced any significant negative impact on its March 31, 2021 unaudited consolidated financial statements related to COVID-19.



Use of Estimates



The preparation of our unaudited consolidated financial statements in conformity
with U.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 unaudited consolidated financial statements, estimates are used
for, but not limited to, the impairment assessment of goodwill, 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.



Hierarchical levels, directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

? Level 1: Quoted prices in active markets for identical assets or liabilities

that the organization has the ability to access at the reporting date.

? Level 2: Inputs other than quoted prices included in Level 1, which are

either observable or that can be derived from or corroborated by observable

data as of the reporting date.

? Level 3: Inputs include those that are significant to the fair value of the

asset or liability and are generally less observable from objective resources

and reflect the reporting entity's subjective determinations regarding the

      assumptions market participants would use in pricing the asset or liability.








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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 manufacturing and regulatory activities, and
include fees paid to various entities that perform research-related services for
the Company.



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 the Unaudited Consolidated Financial Statements included
elsewhere herein.



RESULTS OF OPERATIONS


Comparison of Three Months Ended March 31, 2021 and 2020



Revenue



Total revenues were $0 for the three months ended March 31, 2021, compared to
revenues of $2,523 for the three months ended March 31, 2020. Revenue in the
2020 period is attributable to work performed under a federal grant from the NIH
which came to an end in the second quarter of 2020.



Operating Expenses



Total operating expenses were $3.6 million during the three months ended March
31, 2021, a 20% increase from operating expenses of $3.0 million during the
three months ended March 31, 2020. Operating expenses for the three months ended
March 31, 2021 and 2020 were as follows:



                                               Three Months Ended
                                                    March 31,                   Increase (Decrease)
                                              2021            2020                                 %

Operating Expenses Research and development expenses $ 959,503 $ 513,914 $ 445,589

             87 %

General and administrative expenses 2,636,329 2,493,251

       143,078              6 %
Total operating expenses                   $ 3,595,832     $ 3,007,165     $      588,667             20 %



Research and Development Expenses

Research and development expenses totaled $1.0 million during the three months ended March 31, 2021 compared to $0.5 million during the three months ended March 31, 2020. The increase in the current period reflects increased manufacturing-related activities for VAZALORE.

General and Administrative Expenses




General and administrative expenses totaled $2.6 million during the three months
ended March 31, 2021, compared to $2.5 million during the three months ended
March 31, 2020. The increase primarily reflects higher pre-launch marketing
expenses and increased non-cash stock-based compensation. This was somewhat
offset by lower compensation-related expenses combined with savings resulting
from COVID-19 travel restrictions.



                                                                            

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Other income (expense), net



Other income (expense), net totaled $7.9 million other expense and $4.5 million
of other income during the three months ended March 31, 2021 and 2020,
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.





LIQUIDITY AND CAPITAL RESOURCES



Financial Condition



The following table summarizes the primary uses and sources of cash for the
periods indicated:



                                                           Three Months Ended
                                                                March 31,
                                                          2021             2020

Net cash used in operating activities                 $ (4,282,058 )   $ (3,774,687 )
Net cash used in investing activities                 $          -     $    

(2,346 ) Net cash provided by (used in) financing activities $ 66,256,871 $ (937,500 )

Net Cash Used in Operating Activities




Net cash used in operating activities of $4.3 million and $3.8 million for the
three months ended March 31, 2021 and 2020, respectively, is higher in 2021 due
to higher operating expenses combined with the Final Payment Fee (as defined in
Note 4 of the Notes to the Consolidated Financial Statements (unaudited)) on the
Term Loan (as defined in Note 4 of the Notes to the Consolidated Financial
Statements (unaudited) offset by the timing of expense payments.



Net Cash Used in Investing Activities

Net cash used in investing activities totaled $0 and $2,346 in the three months ended March 31, 2021 and 2020, respectively.

Net Cash Provided by (Used In) Financing Activities




Net cash provided by financing activities totaled $66.3 million during the three
months ended March 31, 2021 compared to $0.9 million of net cash used in
financing activities during the three months ended March 31, 2020. The current
period reflects net proceeds from the Offering (as defined in Note 5 of hte
Notes to the Consolidated Financial Statements (unaudited)) offset by two months
of payments of the Term Loan as this was paid off in February 2021. The 2020
period represents three months of the Term Loan's principal payments.



Future Liquidity and Capital Needs

As of March 31, 2021, we had working capital of $83.5 million, including cash and cash equivalents of $84.4 million.




We have not generated any revenue from the sale of products and have incurred
operating losses in each year since we commenced operations. We expect to
continue to incur significant operating expenses and operating losses for the
foreseeable future as we continue the commercialization of 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. Although the achievement of future profitable operations
and the ability to generate sufficient cash from operations is uncertain at this
time, the Company's cash on hand at March 31, 2021 support that the Company can
fund its obligations for at least one year from the date these financial
statements were issued and mitigate the substantial doubt consideration.



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 may need to obtain additional financing in the future to
further 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.



                                                                            

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