This management's discussion and analysis of financial condition and results of
operations and other portions of this quarterly report on Form 10-Q contain
forward-looking statements that involve risks and uncertainties. All statements
other than statements of current or historical fact contained in this quarterly
report, including statements regarding our future financial position, business
strategy, new products, budgets, liquidity, cash flows, projected costs,
regulatory approvals, or the impact of any laws or regulations applicable to us
and plans and objectives of management for future operations are forward-looking
statements. The words "anticipate," "believe," "continue," "should," "estimate,"
"expect," "intend," "may," "plan," "project," "will," and similar expressions,
as they relate to us, are intended to identify forward-looking statements. We
have based these forward-looking statements on our current expectations about
future events. While we believe these expectations are reasonable, such
forward-looking statements are inherently subject to risks and uncertainties,
many of which are beyond our control. Our actual future results may differ
materially from those discussed here for various reasons. We discuss many of
these risks in Item 1A under the heading "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2021. Factors that may cause such
differences include, but are not limited to, the substantial doubt expressed
about our ability to continue as a going concern, the outcome of any legal
proceedings that have been or may be instituted against the Company related to
the merger agreement or the Merger; unexpected costs, charges or expenses
resulting from the Merger; our need for additional financing to meet our
business objectives; our history of operating losses; our ability to
successfully develop, obtain regulatory approval for, and commercialize our
products in a timely manner; our plans to research, develop and commercialize
our product candidates; our ability to attract collaborators with development,
regulatory and commercialization expertise; our plans and expectations with
respect to future clinical trials and commercial scale-up activities; our
reliance on third-party manufacturers of our product candidates; the size and
growth potential of the markets for our product candidates, and our ability to
serve those markets; the rate and degree of market acceptance of our product
candidates; regulatory requirements and developments in the United States, the
European Union and foreign countries; the performance of our third-party
suppliers and manufacturers; the success of competing therapies that are or may
become available; our ability to attract and retain key scientific or management
personnel; our historical reliance on government funding for a significant
portion of our operating costs and expenses; government contracting processes
and requirements; the exercise of significant influence over our company by our
largest individual stockholder; the impact of the novel coronavirus ("COVID-19")
pandemic on our business, operations and clinical development; the geopolitical
relationship between the United States and the Russian Federation as well as
general business, legal, financial and other conditions within the Russian
Federation; our ability to obtain and maintain intellectual property protection
for our product candidates; our potential vulnerability to cybersecurity
breaches; and other factors discussed below and in our other SEC filings,
including our Annual Report on Form 10-K for the year ended December 31, 2021.
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. The forward-looking statements included in this
quarterly report are made only as of the date hereof. We do not undertake any
obligation to update any such statements or to publicly announce the results of
any revisions to any of such statements to reflect future events or
developments. This management's discussion and analysis of financial condition
and results of operations should be read in conjunction with our financial
statements and the related notes included elsewhere in this filing and with our
historical consolidated financial statements and the related notes thereto in
our Annual Report on Form 10-K for the year ended December 31, 2021.
OVERVIEW
We are a clinical-stage biopharmaceutical company developing multiple product
candidates to address unmet medical needs. Prior to the closing of the Merger,
we focused exclusively on developing novel approaches to activate the immune
system. Our proprietary platform of Toll-like immune receptor activators has
applications in mitigation of radiation injury and radiation oncology. We
combine our proven scientific expertise and our depth of knowledge about our
products' mechanisms of action into a passion for developing drugs to save
lives. Our most advanced product candidate in this field is entolimod, an
immune-stimulatory agent, which we are developing as a radiation countermeasure
and other indications in radiation oncology.
Following the closing of the Merger, as a result of the integration of Cytocom's
business, we are also now developing novel immunotherapies targeting autoimmune,
inflammatory, infectious diseases and cancers based on a proprietary, multi
receptor platform, or the AIMS platform, designed to rebalance the body's immune
system and restore homeostasis. These therapies are designed to elicit directly
within patients a robust and durable response of antigen-specific killer T cells
and antibodies, thereby activating essential immune defenses against autoimmune,
inflammatory, infectious diseases, and cancers. We believe that our technologies
can meaningfully leverage the human immune system for prophylactic and
therapeutic purposes by eliciting killer T-cell response levels not achieved by
other published immunotherapy approaches. Our immunomodulatory technology
restores the balance between the cellular (Th1) and the humoral (Th2) immune
systems. Immune balance is regulated through T-helper cells that produce
cytokines. The Th1 lymphocytes help fight pathogens within cells like cancer and
viruses through interferon-gamma and macrophages. The Th2 lymphocytes target
external pathogens like cytotoxic parasites, allergens, toxins through the
activation of B-cells and antibody production to effect to dendritic cells,
which are natural activators of killer T cells, also known as cytotoxic T
-cells, or CD8+ T cells. Furthermore, the Cytocom technology antagonizes the
toll-like receptors to inhibit proinflammatory cytokines.
Prior to the closing of the Merger, we conducted business in the U.S. directly
and in Russia through two subsidiaries, one of which is wholly owned, BioLab 612
(which was dissolved in November 2020), and one of which is owned in
collaboration with a financial partner, Panacela. As of the closing of the
Merger, we also now conduct business through Old Cytocom and its subsidiaries,
ImQuest Life Sciences Inc, ImQuest BioSciences Inc., ImQuest Pharmaceuticals,
Inc., and Lubrinovation Inc. In addition, we conduct business with a former
subsidiary, Incuron, which will pay us a 2% royalty on future commercialization,
licensing, or sale of certain technology we sold to Incuron. We also partner in
a joint venture, GPI, with Everon Biosciences, Inc ("Everon").
The Company is developing therapies designed to directly elicit within patients
a robust and durable response of antigen-specific killer T-cells and antibodies,
thereby activating essential immune defenses against autoimmune, inflammatory,
infectious diseases, and cancers. Statera has clinical or preclinical programs
for Crohn's disease (STAT-201), hematology (Entolimod), pancreatic cancer
(STAT-401) and COVID-19 (STAT-205).
In the next 12 months, the Company expects to initiate several clinical trials,
including a pivotal Phase 3 trial for its lead drug candidate, STAT-201, in
pediatric Crohn's disease, as well as studies of STAT-205 in 'long haul'
COVID-19, STAT-401 in pancreatic cancer, and the TLR5 agonist entolimod as a
treatment for anemia and neutropenia in cancer patients.
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Recent Developments
Nasdaq Noncompliance
On October 6, 2022, the Company had a hearing before the Panel, the Company
presented its plan to evidence full compliance with NASDAQ'S filing requirement
and all other applicable requirements for continued listing on NASDAQ and
request an extension of time to do so. The Company is taking definitive steps to
evidence compliance with the NASDAQ listing criteria as soon as possible;
however, there can be no assurance that the Panel will grant the Company's
request for continued listing or that the Company will satisfy the NASDAQ
listing criteria within any extension period that may be provided to the Company
by the Panel. The Company plans to update the market promptly following receipt
of the Panel's determination after the hearing.
On October 11, 2022, the Company was notified by the Staff of NASDAQ that the
Company's common stock would be subject to delisting due to the Company's
non-compliance with the minimum Stockholders' Equity requirement set forth in
Nasdaq Listing Rule 5550(b)(1) and non-compliance with Listing Rule
5250(e)(2)(D) regarding notifying Nasdaq of the Company's intention to issue
additional shares. Each of these matters serve as an additional and separate
basis for delisting the Company's securities from NASDAQ. The Panel will
consider these matters in their decision regarding the Company's continued
listing on NASDAQ. The Company intends to present its views with respect to
these additional deficiencies to the Panel in writing no later than October 18,
2022.
On October 26, 2022, the Company received a determination from the
Panel granting the Company's request for the continued listing of its common
stock on Nasdaq, subject to the Company's satisfaction of certain interim
milestones and, ultimately, the Company's compliance with all applicable
criteria for continued listing on Nasdaq, including the $1.00 bid price and $2.5
million stockholders' equity requirements as set forth in Nasdaq Listing Rules
5550(a)(1) and 5550(b)(2), respectively, by no later than January 31, 2023. The
Company is taking definitive steps to timely evidence compliance with the terms
of the Panel's decision; however, there can be no assurance that it will be able
to do so.
Forbearance Agreement
On April 18, 2022, Avenue and the Company entered into a Forbearance Agreement
regarding the Loan Agreement. Pursuant to the Forbearance Agreement, the parties
agreed that from the effective date of the Loan Agreement until May 31, 2022
(the "Forbearance Period"), it will refrain and forbear from exercising certain
remedies arising out of the events of default or any other present or future
event of default under the Loan Agreement or supplement. Under the Forbearance
Agreement, Avenue shall not seize, sweep, or by any means take control of,
directly or indirectly, any funds from any of the Company's bank accounts; and
(ii) during the Forbearance Period, the Loans may be prepaid in whole or in part
at any time, subject to the repayment and prepayment terms of the Loan
Agreement. In addition to the terms of the Forbearance Agreement, certain terms
of the Loan Agreement were amended, including changing the Agreement Effective
Date to April 18, 2022, and revisions to certain definitions of Agreement
terminology.
Bankruptcy Petition
On August 16, 2022, certain former employees of the Company and certain
third-party vendors of the Company (collectively, "Petitioning Creditors") filed
an involuntary petition in the United States Bankruptcy Court for the District
of Colorado (No. 22-13051-JGR) against the Company seeking relief under Chapter
11 of the United States Bankruptcy Code. The Company believes the involuntary
petition is improper and wrongfully filed and is seeking dismissal of the
petition.
Lay Sciences
On September 2, 2022, the Company entered a Binding Letter of Intent ("LOI")
with Lay Sciences, Inc. ("Lay"), pursuant to which the Company will manufacture,
and test IgY polyclonal antibody products created by Lay. The LOI provides for
an exclusivity period of ninety (90) days (the "Exclusivity Period") for
negotiating and finalizing a definitive agreement (the "Definitive Agreement").
During the Exclusivity Period, which begins from the date of the LOI, Lay will
not engage in activities with any third party in relation to the acquisition of
the Company. Pursuant to the LOI, (i) Lay shall complete technology transfer to
the Company? and (ii) the Company shall (A) assist Lay in testing its current
and future products for activity and purity, In consideration of the
manufacturing right granted to the Company by Lay, the Company shall (i) issue
500,000 shares of preferred stock of the Company to Lay and (ii) pay up to
$500,000 to Lay within 30 days of the execution of the LOI. As of the date of
this filing the Company hasn't issued any shares of preferred stock or paid any
cash consideration.
Continuing Capital Needs
We are a clinical-stage company and we have generated insignificant revenue from
product sales to date. Our ability to generate revenue sufficient to achieve
profitability will depend heavily on the successful development and eventual
commercialization of one or more of our product candidates. Since inception, we
have incurred significant operating losses. For the six months ended June 30,
2022 and 2021, we incurred net losses of $11.2 million and $11.9 million,
respectively. As of June 30, 2022, we had an accumulated deficit of
$140.7 million.
We expect to incur significant expenses and operating losses for the foreseeable
future as we advance our lead candidates through clinical trials, progress our
pipeline candidates from discovery through pre-clinical development, and seek
regulatory approval and pursue commercialization of our candidates. In addition,
if we obtain regulatory approval for any of our candidates, we expect to incur
significant commercialization expenses related to product manufacturing,
marketing, sales, and distribution. In addition, we may incur expenses in
connection with the in-license or acquisition of additional technology to
augment or enable development of future candidates. Furthermore, we expect to
incur additional costs associated with operating as a public company, including
significant legal, accounting, investor relations and other expenses that Old
Cytocom, our predecessor for accounting purposes, did not incur as a private
company prior to the Merger.
As a result, we will need additional financing to support our continuing
operations. Until such time as we can generate significant revenue from product
sales, if ever, we expect to finance our operations through a combination of
public or private equity and debt financings or other sources, which may include
collaborations with third parties. We do not expect that our existing cash and
cash equivalents will enable us to fund our operating expenses and capital
expenditure requirements beyond the third quarter of 2022.
Adequate additional financing may not be available to us on acceptable terms, or
at all. Our inability to raise capital as and when needed could have a negative
impact on our financial condition and our ability to pursue our business
strategy. We will need to generate significant revenue to achieve profitability,
and we may never do so. For these reasons, our financial statements contain
a paragraph in substantial doubt is expressed about our ability to continue as a
going concern within one year of the date of financial statements.
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Financial Overview
Our discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with GAAP. The preparation of these financial statements requires us to make
estimates and judgments that affect our reported amounts of assets, liabilities,
revenues, and expenses.
On an ongoing basis, we evaluate our estimates and judgments, including those
related to accrued expenses, income taxes, stock-based compensation,
investments, and in-process research and development. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
reported amounts of revenues and expenses that are not readily apparent from
other sources. Actual results may differ from these estimates.
Our revenue, operating results, and profitability have varied, and we expect
that they will continue to vary on a quarterly basis, primarily due to the
timing of work completed under new and existing grants, development contracts,
and collaborative relationships. Additionally, we expect that as a result of the
Merger, our business, financial condition, results of operations and cash flows
will be materially different in future periods than in the past. Accordingly,
our past results are not likely to be indicative of our future performance.
Revenue
The Company generates revenue from (i) its Clinical Research Organization
services ("CRO services") provided by its ImQuest subsidiary, and (ii) grant
awards from the National Institutes of Health for multiple studies in research.
We have no products approved for sale. Other than the sources of revenue
described above, we do not expect to receive any revenue from any candidates
that we develop until we obtain regulatory approval and commercializes such
products, or until we potentially enter into collaborative agreements with third
parties for the development and commercialization of such candidates.
At the inception of a contract for CRO services, once the contract is determined
to be within the scope of ASC 606, the Company assesses the goods or services
promised within each contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct. The
Company then recognizes as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance
obligation is satisfied.
There is no explicit guidance within ASC 606 to account for grant revenue, and
since the Company is a for-profit entity, it must look to other Financial
Accounting Standards Board guidance in order to account for funds received from
grants. The Company has determined it is appropriate to apply ASC 450 -
Contingencies.
Under ASC 450, the recognition of a gain contingency occurs at the earlier of
when the gain has been realized or the gain is realizable. The gain is realized
when the Company performs the research under the grant and submits the expense
reimbursements to the NIH and is approved under the terms of the grant the funds
are then received. The Company determined ASC 450 is appropriate because the
realization of the gain is contingent on whether the Company meets the
performance requirement. Once the Company performs the research, submits the
financial report for approval, and the cash disbursement occurs, the contingency
is thus resolved, and the recognition of grant revenue is realized.
Research and Development Expenses
Research and development ("R&D") costs are expensed as incurred. Advance
payments are deferred and expensed as performance occurs. R&D costs include the
cost of our personnel (which consists of salaries, benefits and incentive and
stock-based compensation), out-of-pocket pre-clinical and clinical trial costs
usually associated with contract research organizations, drug product
manufacturing and formulation, and a pro-rata share of facilities expense and
other overhead items.
Advertising and Marketing Costs
Advertising costs are expensed as incurred and included in operating expenses on
the statements of operations. The Company incurred advertising and marketing
expense for the six months ended June 30, 2022 and 2021 of $56,400 and $2,795,
respectively.
General and Administrative Expenses
General and administrative ("G&A") functions include executive management,
finance and administration, government affairs and regulations, corporate
development, human resources, and legal and compliance. The specific costs
include the cost of our personnel consisting of salaries, incentive and
stock-based compensation, out-of-pocket costs usually associated with attorneys
(both corporate and intellectual property), bankers, accountants, and other
advisors and a pro-rata share of facilities expense and other overhead items.
Other Income and Expenses
Other recurring income and expenses primarily consists of interest income on our
investments, changes in the market value of our derivative financial
instruments, and foreign currency transaction gains or losses.
Critical Accounting Estimates
The condensed consolidated financial statements include estimates made in
accordance with generally accepted accounting principles that involve a
significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the financial condition or results of
operations. These significant accounting estimates include the inputs to level 3
valuation techniques for valuing the identified intangible assets in the ImQuest
acquisition, valuation allowances associated with deferred tax assets, and
revenue recognition in accordance with ASC 606.
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Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Revenue
Revenue increased from $0 for the three months ended June 30, 2021 to
$0.8 million for the three months ended June 30, 2022. This increase is due
entirely to the revenues from sales of CRO services by ImQuest BioSciences.
There were no CRO services revenues in the corresponding period of 2021, as the
merger with ImQuest took place in June 2021.
Cost of Revenues
Cost of revenue increased from $0 for the three months ended June 30, 2021 to
$0.2 million for the three months ended June 30, 2022. This increase is due
entirely to the cost of revenues recorded from sales to CROs by ImQuest
BioSciences. There were no cost of revenues in the corresponding period of
2021, as the ImQuest Merger took place in June 2021.
Research and Development Expenses
R&D expenses decreased from $1.8 million for the three months ended June 30,
2021 to $1.0 million for the three months ended June 30, 2022, representing
a decrease of $0.8 million, or 46.4%. Variances are noted in the table
below. The net decrease is primarily attributable to a decrease in other
expenses for the three months ended June 30, 2022 to $0.06 million, compared to
$1.1 million for the three months ended June 30, 2021 primarily due to a
decrease in R&D employees, partially offset by increased spending on specific
R&D programs for the three months ended June 30, 2022 of $0.9 million, compared
to $0.7 million for the three months ended June 30, 2021 primarily due to
increases in R&D employees.
Three Months Ended June 30,
2022 2021 Variance
STAT-201: Crohn's disease $ 639,060 $ 251,118 $ 387,942
STAT-205: Acute and post-acute Covid-19 159,982 484,259 (324,277 )
STAT-401: Pancreatic cancer 49,362 - 49,362
STAT-601: Entolimod for acute radiation 63,639 - 63,639
Other expenses 61,561 1,080,239 (1,018,678 )
Total research & development expenses $ 973,604 $ 1,815,616 $ (842,012 )
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General and Administrative Expenses
G&A expenses decreased from $4.5 million for the three months ended June 30,
2021 to $2.4 million for the three months ended June 30, 2022, representing
a decrease of $2.1 million or 46.1%. Variances are noted in the table and
discussed below.
Three Months Ended June 30,
2022 2021 Variance
Payroll (including benefits) $ 1,259,899 $ 2,859,364 $ (1,599,465 )
Stock listing expenses 113,075 293,331 (180,256 )
Professional fees 307,316 763,223 (455,907 )
Consultants and contractors 195,482 339,274 (143,792 )
Insurance 220,387 143,132 77,255
Travel 3,338 30,012 (26,674 )
Other G&A expenses 328,937 79,538 249,399
Total general & administrative expenses $ 2,428,434 $ 4,507,874 $ (2,079,440 )
Payroll (including benefits) incudes salaries, health benefits and related
payroll costs. The decrease in payroll expense was primarily attributable to a
reduction of costs of $2.6 million for stock-based compensation incurred in the
second quarter of 2022 over the comparative cost in the same period in 2021,
partially offset by the increase in costs related to the increased employee
headcount. Growth in headcount for G&A purposes between 2021 and 2022 reflects
(i) the addition of four employees in 2021 as result of the Merger and the
ImQuest Merger, and (ii) the addition of seven new employees in total, several
of whom were hired in senior executive roles to complete the Company's
leadership team plus the addition of staff in finance, human resources,
information technology and investor relations, offset by the transfer of two
employees to R&D.
Stock listing expenses are made up of fees paid to maintain the listing of the
Company's common stock on The NASDAQ, the costs of an investor relations program
using outside consultants and databases, costs incurred with advisors to raise
new debt and equity required by the Company, and the costs charged by stock
transfer agents to maintain the Company's share registers. The decreased costs
in the three months ended June 30, 2022 compared to the three months ended June
30, 2021 primarily reflect stock sale commissions incurred in 2021.
Professional fees comprise fees paid for services to lawyers (other than lawyers
who are engaged for services related to R&D), accountants, and the Company's
firm of auditors. Fees paid to lawyers in the three months ended June 30, 2022
and 2021 totaled $0.1 million and $0.7 million, respectively. The decrease in
fees arose primarily from increased services in the three months ended June 30,
2021 related to the Merger and the ImQuest Merger.
Fees paid to the audit firms engaged by the Company in the three months ended
June 30, 2022 and 2021 totaled $0.2 million and $0.05 million, respectively. The
higher in fees 2022 arose primarily from fees paid to audit 2020 and 2021 in the
second quarter of 2022.
Consultants and contractors are individuals and firms hired by the Company to
provide certain investment banking and advisory services, to assist the Company
with the implementation of a new enterprise resource planning ("ERP") system, to
provide valuation reports required to complete the accounting for the Merger and
to assist with other general matters. Fees paid to consultants and contractors
in the three months ended June 30, 2022 and 2021 totaled $0.2 million and
$0.3 million, respectively. The decrease in costs was attributable primarily to
increased services in the three months ended June 30, 2021 to complete the
Merger.
Insurance expenses comprise fees and premiums paid to insurance companies from
which the Company purchased policies to protect against loss or damage to its
assets and intellectual property, to protect itself against claims for damage
caused to third parties by its clinical trials or products used in trials or
sold to customers, coverage for workers' compensation payable for injuries
suffered by its employees, and losses incurred by its directors and officers in
certain circumstances in the performance of their duties. Insurance premiums
and costs in the three months ended June 30, 2022 and 2021 totaled $0.2
million and $0.1 million, respectively. The increase was attributable primarily
to additional insurance added in 2021 to protect the Company against claims for
damage caused to third parties by its clinical trials or products used in trials
or sold to customers, and losses incurred by its directors and officers in
certain circumstances in the performance of their duties.
Travel. The Company maintains offices in a number of locations in the United
States. As a result of the Merger, new offices were added in 2021 in Colorado,
California, Maryland, and New York, requiring an increase in travel between
locations. Travel expenses decreased between the three months ended June 30,
2021 and 2022 from $0.03 million to $0.00 million, respectively.
Other G&A expenses comprise costs to operate and lease office space, non-capital
expenditures incurred for office furniture and equipment, telecommunication and
internet expenses, postage and courier costs, and bank charges. Other G&A
expenses increased year over year primarily as a result of the addition of new
office locations and employees in 2021 in Colorado, California, Maryland, and
New York.
Other Income and Expenses
Interest and other expense of $0.64 million in the three months ended June 30,
2022 was made up of a $0.28 million of interest expense and $0.36 of shares
issued for services.
Interest and other expense of $0.28 million in the three months ended June 30,
2021 relate to interest expense.
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Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenue
Revenue increased from $0 for the six months ended June 30, 2021 to
$1.8 million for the six months ended June 30, 2022. This increase is due
entirely to the revenues from sales of CRO services by ImQuest BioSciences.
There were no CRO services revenues in the corresponding period of 2021, as the
merger with ImQuest took place in June 2021.
Cost of Revenues
Cost of revenue increased from $0 for the six months ended June 30, 2021 to
$0.55 million for the six months ended June 30, 2022. This increase is due
entirely to the cost of revenues recorded from sales to CROs by ImQuest
BioSciences. There were no cost of revenues in the corresponding period of
2021, as the ImQuest Merger took place in June 2021.
Research and Development Expenses
R&D expenses increased from $2.8 million for the six months ended June 30,
2021 to $4.2 million for the six months ended June 30, 2022, representing an
increase of $1.4 million, or 48.5%. Variances are noted in the table below. The
net increase is primarily attributable to increased spending on specific R&D
programs for the six months ended June 30, 2022 of $1.6 million, compared to
$1.0 million for the six months ended June 30, 2021 as well as increased other
expenses for the six months ended June 30, 2022 of $2.7 million, compared to
$1.9 million for the six months ended June 30, 2021 primarily due to increases
in R&D employees.
Six Months Ended June 30,
2022 2021 Variance
STAT-201: Crohn's disease $ 639,060 $ 309,742 $ 329,318
STAT-205: Acute and post-acute Covid-19 556,815 676,141 (119,326 )
STAT-401: Pancreatic cancer
184,294 - 184,294
STAT-601: Entolimod for acute radiation 172,652 - 172,652
Other expenses 2,663,111 1,854,077 809,034
Total research & development expenses $ 4,215,932 $ 2,839,960 $ 1,375,972
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General and Administrative Expenses
G&A expenses decreased from $8.7 million for the six months ended June 30,
2021 to $6.4 million for the six months ended June 30, 2022, representing
a decrease of $2.3 million or 26.1%. Variances are noted in the table and
discussed below.
Six Months Ended June 30,
2022 2021 Variance
Payroll (including benefits) $ 3,506,472 $ 5,494,554 $ (1,988,082 )
Stock listing expenses 331,211 384,907 (53,696 )
Professional fees 851,183 1,482,148 (630,965 )
Consultants and contractors 490,314 810,563 (320,249 )
Insurance 440,586 260,370 180,216
Travel 39,570 46,276 (6,706 )
Other G&A expenses 747,447 195,945 551,502
Total general & administrative expenses $ 6,406,783 $ 8,674,763 $ (2,267,980 )
Payroll (including benefits) incudes salaries, health benefits and related
payroll costs. The decrease in payroll expense was primarily attributable to a
reduction of costs of $4.0 million for stock-based compensation incurred in the
six months of 2022 over the comparative cost in the same period in 2021,
partially offset by the increase in costs related to the increased employee
headcount. Growth in headcount for G&A purposes between 2021 and 2022 reflects
(i) the addition of four employees in 2021 as result of the Merger and the
ImQuest Merger, and (ii) the addition of seven new employees in total, several
of whom were hired in senior executive roles to complete the Company's
leadership team plus the addition of staff in finance, human resources,
information technology and investor relations, offset by the transfer of two
employees to R&D.
Stock listing expenses are made up of fees paid to maintain the listing of the
Company's common stock on The NASDAQ, the costs of an investor relations program
using outside consultants and databases, costs incurred with advisors to raise
new debt and equity required by the Company, and the costs charged by stock
transfer agents to maintain the Company's share registers. The decreased costs
in the six months ended June 30, 2022 compared to the six months ended June 30,
2021 reflect stock sale commissions incurred in 2021, partially offset by
increased public company costs following the Merger in 2022.
Professional fees comprise fees paid for services to lawyers (other than lawyers
who are engaged for services related to R&D), accountants, and the Company's
firm of auditors. Fees paid to lawyers in the six months ended June 30, 2022
and 2021 totaled $0.5 million and $1.3 million, respectively. The decrease in
fees arose primarily from increased services in the six months ended June 30,
2021 related to the Merger and the ImQuest Merger.
Fees paid to accountants in the six months ended June 30, 2022 and 2021 totaled
$0.1 million and $0.04 million, respectively. The higher in fees 2022 arose
primarily from the use of outside accounting consultants to assist with the
compilation of reports and filings required under securities laws.
Fees paid to the audit firms engaged by the Company in the six months ended June
30, 2022 and 2021 totaled $0.1 million and $0.1 million, respectively.
Consultants and contractors are individuals and firms hired by the Company to
provide certain investment banking and advisory services, to assist the Company
with the implementation of a new enterprise resource planning ("ERP") system, to
provide valuation reports required to complete the accounting for the Merger and
to assist with other general matters. Fees paid to consultants and contractors
in the six months ended June 30, 2022 and 2021 totaled $0.3 million and $0.5
million, respectively. The decrease in costs was attributable primarily to
increased services in the six months ended June 30, 2021 to complete the Merger.
Insurance expenses comprise fees and premiums paid to insurance companies from
which the Company purchased policies to protect against loss or damage to its
assets and intellectual property, to protect itself against claims for damage
caused to third parties by its clinical trials or products used in trials or
sold to customers, coverage for workers' compensation payable for injuries
suffered by its employees, and losses incurred by its directors and officers in
certain circumstances in the performance of their duties. Insurance premiums
and costs in the six months ended June 30, 2022 and 2021 totaled
$0.4 million and $0.3 million, respectively. The increase was attributable
primarily to additional insurance added in 2021 to protect the Company against
claims for damage caused to third parties by its clinical trials or products
used in trials or sold to customers, and losses incurred by its directors and
officers in certain circumstances in the performance of their duties.
Travel. The Company maintains offices in a number of locations in the United
States. As a result of the Merger, new offices were added in 2021 in Colorado,
California, Maryland, and New York, requiring an increase in travel between
locations. Travel expenses decreased between the six months ended June 30,
2021 and 2022 from $0.04 million to $0.05 million, respectively.
Other G&A expenses comprise costs to operate and lease office space, non-capital
expenditures incurred for office furniture and equipment, telecommunication and
internet expenses, postage and courier costs, and bank charges. Other G&A
expenses increased year over year primarily as a result of the addition of new
office locations and employees in 2021 in Colorado, California, Maryland, and
New York.
Other Income and Expenses
Interest and other expense of $1.8 million in the six months ended June 30,
2022 was made up of a $1.2 million of interest expense, $0.25 million of
prepayment fees, and $0.35 million for shares issued for services.
Interest and other expense of $0.4 million in the six months ended June 30,
2021 relate to interest expense.
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Liquidity and Capital Resources
At June 30, 2022, we had cash and cash equivalents of $0.6 million, which
represents a decrease of $6.2 million since the end of our last fiscal year.
This decrease was caused by our capital raise in the first quarter of 2022,
offset by our net cash used in operations of $3.9 million during the six months
ended June 30, 2022 and repayment of debt. As discussed above, we are a
clinical-stage company, have generated only insignificant revenues to date, and
have incurred cumulative net losses and expect to incur significant expenses and
operating losses for the foreseeable future as we advance our lead candidates
through clinical trials, progress our pipeline candidates from discovery through
pre-clinical development, and seek regulatory approval and pursue
commercialization of our candidates. We do not have commercial products other
than CRO services, we have limited capital resources, meaning that we are
currently generating limited revenues and cash from operations. We do not
expect our cash and cash equivalents will be sufficient to fund our projected
operating requirements or allow us to fund our operating plan, in each case,
beyond the third quarter of 2022. As a result, we will need additional
financing to support our continuing operations. Historically, we have funded
our operations through the sale of equity and debt securities, as well as the
receipt of funded grants. Until such time as we can generate significant revenue
from product sales, if ever, we expect to finance our operations through a
combination of public or private equity and debt financings or other sources,
which may include collaborations with third parties, the sale or license of drug
candidates, the sale of certain of our tangible and/or intangible assets, the
sale of interests in our subsidiaries or joint ventures, obtaining additional
government research funding, or entering into other strategic transactions.
However, we can provide no assurance that we will be able to raise cash in
sufficient amounts, when needed or at acceptable terms. We do not expect that
our existing cash and cash equivalents will enable us to fund our operating
expenses and capital expenditure requirements beyond the third quarter of 2022.
If we are unable to raise adequate capital and/or achieve profitable operations,
future operations might need to be scaled back or discontinued. The financial
statements included elsewhere in this Quarterly Report on Form 10-Q do not
include any adjustments relating to the recoverability of the carrying amount of
recorded assets and liabilities that might result from the outcome of these
uncertainties.
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