ZYNERBA PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited interim consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report and the audited consolidated financial statements and notes thereto for
the year ended
Overview
Company Overview
We are the leader in pharmaceutically-produced transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders. We are committed to improving the lives of patients and their families living with severe, chronic health conditions including Fragile X syndrome, or FXS, autism spectrum disorder, or ASD, and 22q11.2 deletion syndrome, or 22q.
Cannabinoids are a class of compounds derived from Cannabis plants. The two primary cannabinoids contained in Cannabis are cannabidiol and tetrahydrocannabinol, or THC. Clinical and preclinical data suggest that cannabidiol may have positive effects on treating behavioral symptoms of FXS, ASD and 22q.
We are currently developing Zygel, the first and only pharmaceutically-produced cannabidiol formulated as a permeation-enhanced gel for transdermal delivery and manufactured without the presence of THC, which is patent protected through 2030. Five additional patents expiring in 2038 are directed to methods of use relating to Zygel, including methods of treating FXS and ASD.
In preclinical animal studies, Zygel's permeation enhancer increased delivery of
cannabidiol through the layers of the skin and into the circulatory system.
These preclinical studies suggest increased bioavailability, consistent plasma
levels and the avoidance of first-pass liver metabolism of cannabidiol when
delivered transdermally. In addition, an in vitro study published in
Zygel is being developed as a clear gel and is targeting treatment of behavioral
symptoms of FXS, ASD and 22q. We have received orphan drug designations from the
17
Table of Contents
Clinical Development Programs
Our clinical programs for Zygel include ongoing and planned clinical trials evaluating Zygel in the treatment of behavioral symptoms of FXS, ASD and 22q.
[[Image Removed: Graphic]]
* FDA Orphan Drug and Fast Track designations;
** FDA Orphan Drug designation
As of
FXS
CONNECT-FX Trial
In
RECONNECT Trial
In
RECONNECT is an 18-week trial that is expected to enroll approximately 200
children and adolescents, aged three through 17 years, at approximately 25
clinical sites in
18
Table of Contents
approximately 40 patients will have partial methylation of their FMR1 gene. Patients will be randomized 1:1 to either Zygel or placebo. Randomization will be stratified by gender, methylation status and weight.
The primary endpoint for the trial will be the change from baseline to the end of the treatment period in the ABC-CFXS Social Avoidance subscale in patients who have complete methylation of their FMR1 gene. The ABC-CFXS Social Avoidance subscale is the same primary endpoint used in the CONNECT-FX trial.
Key secondary efficacy endpoints include: (i) the change from baseline to the end of the treatment period in the ABC-CFXS Irritability subscale in patients who have complete methylation of their FMR1 gene; (ii) the percent of patients with any improvement on the Caregiver Global Impression of Change, or CaGI-C, at the end of the treatment period for Social Interactions among patients with complete methylation of the FMR1 gene; (iii) the percent of patients rated as improved on the Clinical Global Impression- Improvement, or CGI-I, scale among patients with complete methylation (100%) of the FMR1 gene; and (iv) the change from baseline to the end of the treatment period in the ABC-CFXS Social Avoidance subscale among all randomized patients (complete and partial methylation of the FMR1 gene).
Top-line results for the RECONNECT trial are expected in the second half of 2023. All patients who complete dosing in the RECONNECT trial will be eligible to enroll in our ongoing open-label extension trial.
ASD
Phase 2 BRIGHT Trial
In
Phase 3 Program
We plan to advance our clinical program in ASD with two Phase 3 trials, the first of which is expected to start in the second half of 2022. We are finalizing the Phase 3 trial protocol and will submit an Investigational New Drug application to the FDA prior to commencing the pivotal program. In 2021, we received guidance from the FDA that included an agreement on utilizing the irritability subscale of the ABC-C as the primary endpoint to support an indication for the treatment of irritability in ASD. This is the same endpoint that was utilized in the BRIGHT trial and the same primary endpoint utilized in the pivotal trials for the two existing FDA approved treatments for ASD.
22q
Phase 2 INSPIRE Trial
In
19
Table of Contents
Impact of COVID-19
We continue to closely monitor the status of the COVID-19 pandemic, including
its potential impact on our clinical development plans, patient recruitment and
overall clinical trial timelines going forward. In response to the impact of
COVID-19, for our current clinical development programs, we implemented multiple
measures consistent with the
Operations
We have never been profitable and have incurred net losses since inception. Our
net losses were
Financial Operations Overview
The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.
Research and Development Expenses
Our research and development expenses relating to our product candidates consisted of the following:
? expenses associated with preclinical development and clinical trials;
? personnel-related expenses, such as salaries, benefits, travel and other
related expenses, including stock-based compensation;
? payments to third-party CROs, CMOs, contractor laboratories and independent
contractors; and
? depreciation, maintenance and other facility-related expenses.
We expense all research and development costs as incurred. Clinical development expenses for our product candidates are a significant component of our current research and development expenses. Generally, expenses associated with clinical trials will increase as our clinical trials progress. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to increased size and duration of the clinical trials. We track and record information regarding external research and development expenses for each grant, study or trial that we conduct. We use third-party CROs, CMOs, contractor laboratories and independent contractors in preclinical studies and clinical trials. We recognize the expenses associated with third parties performing these services for us in our preclinical studies and clinical trials based on the percentage of each study completed at the end of each reporting period.
Our Australian subsidiary,
20
Table of Contents
significantly reduces or eliminates the tax credit, the actual cash refund we receive may materially differ from our estimates.
The following table summarizes research and development expenses for the three
months ended
Three months ended March 31,
2022 2021
Research and development expenses - before R&D
incentive $ 5,404,208 $ 4,949,514
Research and development incentive (257,603) (340,504)
Total research and development expenses $ 5,146,605 $ 4,609,010 We expect research and development expenses to increase for the year ending
? the number of sites included in the clinical trials;
? the length of time required to enroll suitable patients;
? the size of patient populations participating in the clinical trials;
? the duration of patient follow-ups;
? the development stage of the product candidates; and
? the efficacy and safety profile of the product candidates.
Due to the early stages of our research and development, we are unable to determine the duration or completion costs of our development of our product candidates. As a result of the difficulties of forecasting research and development costs of our product candidates as well as the other uncertainties discussed above, we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of an approved product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance, legal, human resource, investor relations and commercial functions. Our general and administrative expenses also include facility and related costs not included in research and development expenses, professional fees for legal services, including patent-related expenses, litigation settlement expenses, consulting, tax and accounting services, insurance, market research and general corporate expenses. We expect that our general and administrative expenses will increase for the next several years as we increase our headcount with the continued development and potential commercialization of our product candidates.
Interest Income
Interest income primarily consists of interest earned on balances maintained in our money market bank account.
Foreign Exchange Gain (Loss)
Foreign exchange gain (loss) relates to the effect of exchange rates on transactions incurred by the Subsidiary.
21
Table of Contents
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with
We define our critical accounting policies as those that require us to make
subjective estimates and judgments about matters that are uncertain and are
likely to have a material impact on our financial condition and results of
operations as well as the specific manner in which we apply those principles.
Critical accounting estimates and the accounting policies critical to the
process of making significant judgments and estimates in the preparation of our
consolidated financial statements are discussed in our 2021 Annual Report under
Part II, Item 7, "Critical Accounting Policies and Use of Estimates." During the
three months ended
Results of Operations
Comparison of the Three Months Ended
Research and Development Expenses
Research and development expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
Other Income (Expense)
During the three months ended
Liquidity and Capital Resources
Since our inception in 2007, we have devoted most of our cash resources to research and development and general and administrative activities. We have financed our operations primarily with the proceeds from the issuance and sale of equity securities (most notably our initial public offering, our follow-on public offerings and sales under our "at-the-market" offerings) and convertible promissory notes, state and federal grants and research services.
To date, we have not generated any revenue from the sale of products, and we do
not anticipate generating any revenue from the sales of products for the
foreseeable future. We have incurred losses and generated negative cash flows
from operations since inception. As of
22
Table of Contents
Management believes that cash and cash equivalents as of
Equity Financings
On
Debt
We had no debt outstanding as of
Future Capital Requirements
During the three months ended
We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for any of our product candidates, we will incur significant sales, marketing and manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to continue to incur significant costs to comply with corporate governance, internal controls and similar requirements associated with operating as a public reporting company.
Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
? the initiation, progress, timing, costs and results of preclinical studies and
clinical trials for our product candidates;
? the clinical development plans we establish for these product candidates;
? the number and characteristics of product candidates that we may develop or
in-license;
? the terms of any collaboration agreements we may choose to execute;
the outcome, timing and cost of meeting regulatory requirements established by
? the FDA, the
authorities;
23
Table of Contents
? the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
? the cost of defending intellectual property disputes, including patent
infringement actions brought by third parties against us;
? costs and timing of the implementation of commercial scale manufacturing
activities;
the cost of establishing, or outsourcing, sales, marketing and distribution
? capabilities for any product candidates for which we may receive regulatory
approval in regions where we choose to independently commercialize our
products;
the extent to which health epidemics and other outbreaks of communicable
? diseases, including the ongoing COVID-19 pandemic, could disrupt our operations
or materially and adversely affect our business and financial conditions; and
? the timing and outcome of the ATO's review regarding our eligibility to receive
tax credits related to the research and development tax incentive program.
To the extent that our capital resources are insufficient to meet our future operating and capital requirements, we will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. We have no committed external sources of funds. Additional equity or debt financing or collaboration and licensing arrangements may not be available on acceptable terms, if at all.
If we raise additional funds by issuing equity securities, including through the 2021 Sales Agreement, our stockholders will experience dilution.
© Edgar Online, source
