The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our 2021 Annual Report on Form
10-K, filed with the
Forward Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" that
involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially
from those expressed or implied by such forward-looking statements. The
statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, referred to herein as the Exchange Act.
Forward-looking statements are often identified by the use of words such as, but
not limited to, "anticipate," "believe," "can," "continue," "could," "estimate,"
"expect," "intend," "may," "will," "plan," "project," "seek," "should,"
"target," "will," "would" and similar expressions or variations intended to
identify forward-looking statements. These statements are based on the beliefs
and assumptions of our management based on information currently available to
management. Such forward-looking statements are subject to risks, uncertainties
and other important factors that could cause actual results and the timing of
certain events to differ materially from future results expressed or implied by
such forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below and those
discussed in the section titled "Risk Factors" included in our most recent
annual report on Form 10-K, as well as any amendments thereto, as filed with the
? We have a history of operating losses, expect to incur additional operating
losses in the future, and may never be profitable;
? Our cost of operations could increase significantly more than what we expect
depending on the costs to complete our development program for DefenCath and
Neutrolin;
? We will need to finance our future cash needs through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. Any additional funds that we obtain may not be on terms favorable
to us or our stockholders and may require us to relinquish valuable rights;
? The FDA considers the resubmission of the NDA for DefenCath, our lead product
candidate, complete, but the onsite inspection by the FDA and subsequent
approval may be delayed and cannot be guaranteed;
? Our only product Neutrolin is only approved in
development in
regulatory approvals we need to market our product candidates outside of the
? Final approval by regulatory authorities of our product candidates for
commercial use may be delayed, limited or prevented, any of which would
adversely affect our ability to generate operating revenues;
? Successful development and commercialization of our other products is
uncertain;
? If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur costs that
could harm our business;
? The successful commercialization of Neutrolin will depend on obtaining coverage
and reimbursement for use of Neutrolin from third-party payors;
? Changes in funding for the FDA and other government agencies or future
government shutdowns or disruptions could cause delays in the submission and
regulatory review of marketing applications, which could negatively impact our
business or prospects;
? The ongoing COVID-19 pandemic, or other pandemic, epidemic or outbreak of an
infectious disease may materially and adversely impact our business, including
our preclinical studies and clinical trials;
? Clinical trials required for our product candidates may be expensive and
time-consuming, and their outcome is uncertain;
? Even if approved, our products will be subject to ongoing government regulation
and regulatory approvals;
? Competition and technological change may make our product candidates and
technologies less attractive or obsolete;
? Healthcare policy changes, including reimbursement policies for drugs and
medical devices, may have an adverse effect on our business, financial
condition and results of operations;
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? If we lose key management or scientific personnel, cannot recruit qualified
employees, directors, officers, or other personnel or experience increases in
compensation costs, our business may materially suffer;
? If we are unable to hire additional qualified personnel, our ability to grow
our business may be harmed;
? We face the risk of product liability claims and the amount of insurance
coverage we hold now or in the future may not be adequate to cover all
liabilities we might incur;
? We may be exposed to liability claims associated with the use of hazardous
materials and chemicals;
? Negative
business strategy, which relies on funding from the financial markets or
collaborators;
? If we materially breach or default under any of our license agreements, the
licensor party to such agreement will have the right to terminate the license
agreement, which termination may materially harm our business;
? If we and our licensors do not obtain protection for and successfully defend
our respective intellectual property rights, competitors may be able to take
advantage of our research and development efforts to develop competing
products;
? Ongoing and future intellectual property disputes could require us to spend
time and money to address such disputes and could limit our intellectual
property rights;
? The decisions by the European and German patent offices may affect patent
rights in other jurisdictions;
? If we infringe the rights of third parties we could be prevented from selling
products and forced to pay damages and defend against litigation;
? We currently have no internal marketing and sales organization and currently
rely and intend to continue to rely on third parties to market, sell, and
distribute Neutrolin outside of the
of DefenCath in the
agreements with third parties to market and sell DefenCath or any other product
after approval or are unable to find a sales partner or establish our own
marketing and sales capabilities, we may not be able to generate significant or
any product revenues;
? If we or our collaborators are unable to manufacture our products in sufficient
quantities or are unable to obtain regulatory approvals for a manufacturing
facility, we may be unable to meet demand for our products and we may lose
potential revenues;
? Corporate and academic collaborators may take actions that delay, prevent, or
undermine the success of our products;
? Data provided by collaborators and others upon which we rely that has not been
independently verified could turn out to be false, misleading, or incomplete;
? We rely on third parties to conduct our clinical trials and pre-clinical
studies. If those parties do not successfully carry out their contractual
duties or meet expected deadlines, our product candidates may not advance in a
timely manner or at all;
? We will depend on third party suppliers and contract manufacturers for the
manufacturing of our product candidates and have no direct control over the
cost of manufacturing our product candidates. Increases in the cost of
manufacturing our product candidates would increase our costs of conducting
clinical trials and could adversely affect our future profitability;
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? We will need additional financing to fund our activities in the future, which
likely will dilute our stockholders;
? Our executive officers and directors may sell shares of their stock, and these
sales could adversely affect our stock price;
? Our common stock price has fluctuated considerably and is likely to remain
volatile, in part due to the limited market for our common stock and you could
lose all or a part of your investment;
? A significant number of additional shares of our common stock may be issued at
a later date, and their sale could depress the market price of our common
stock;
? Provisions in our corporate charter documents and under
an acquisition of us, which may be beneficial to our stockholders, more
difficult;
? Security breaches and other disruptions could compromise our information and
expose us to liability, which would cause our business and reputation to
suffer; and
? Because do not intend to pay cash dividends on our common stock, our
stockholders will not be able to receive a return on their shares unless the
value of our common stock appreciates and they sell their shares.
Overview
Our primary focus is on the development of our lead product candidate,
DefenCath™, for potential commercialization in
24
In
In
As previously agreed with the FDA, an interim efficacy analysis was performed
when the first 28 potential CRBSI cases were identified in our LOCK-IT-100 study
that occurred through early
The FDA granted our request for a rolling submission and review of the NDA, which is designed to expedite the approval process for products being developed to address an unmet medical need. Although the FDA usually requires two pivotal clinical trials to provide substantial evidence of safety and effectiveness for approval of an NDA, the FDA will in some cases accept one adequate and well-controlled trial, where it is a large multicenter trial with a broad range of subjects and study sites that has demonstrated a clinically meaningful and statistically very persuasive effect on a disease with potentially serious outcome.
In
In
25
On
We intend to pursue additional indications for DefenCath use as a CLS in populations with an unmet medical need that also represent potentially significant market opportunities. While we are continuing to assess these areas, potential future indications may include use as a CLS to reduce CRBSIs in total parenteral nutrition patients using a central venous catheter and in oncology patients using a central venous catheter.
The FDA regards taurolidine as a new chemical entity and therefore an unapproved
new drug. Consequently, there is no appropriate predicate medical device
currently marketed in the
In the
In
In
In
The COVID-19 pandemic and government measures taken in response have had a
significant impact, both direct and indirect, on businesses and commerce. In
response to the COVID-19 pandemic, public health measures to reduce the spread
of the virus have been implemented across much of
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Since our inception, our operations have been primarily limited to conducting
clinical trials and establishing manufacturing for our product candidates,
licensing product candidates, business and financial planning, research and
development, seeking regulatory approval for our products, initial
commercialization activities for DefenCath in the
Financial Operations Overview
Revenue
We have not generated substantial revenue since our inception. Through
Research and Development Expense
Research and development, or R&D, expense consists of: (i) internal costs associated with our development activities; (ii) payments we make to third party contract research organizations, or CRO, contract manufacturers, investigative sites, and consultants; (iii) technology and intellectual property license costs; (iv) manufacturing development costs; (v) personnel related expenses, including salaries, stock-based compensation expense, benefits, travel and related costs for the personnel involved in drug development; (vi) activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials; (vii) facilities and other allocated expenses, which include direct and allocated expenses for rent, facility maintenance, as well as laboratory and other supplies; and (viii) costs related to the manufacturing of the product that could potentially be available to support the commercial launch prior to marketing approval. All R&D is expensed as incurred.
Conducting a significant amount of development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of the clinical trials.
The process of conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the quality of the product candidate's early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates.
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Development timelines, probability of success and development costs vary widely.
We are currently focused on securing the marketing approval for DefenCath in the
We were granted a deferral by the FDA under the Pediatric Research Equity Act, or PREA, that requires sponsors to conduct pediatric studies for NDAs for a new active ingredient, such as taurolidine in DefenCath, unless a waiver or deferral is obtained from the FDA. A deferral acknowledges that a pediatric assessment is required but permits the applicant to submit the pediatric assessment after the submission of an NDA. We have made a commitment to conduct the pediatric study after approval of the NDA for use in adult hemodialysis patients. Pediatric studies for an approved product conducted under PREA may qualify for pediatric exclusivity, which if granted would provide an additional six months of marketing exclusivity. DefenCath would then have the potential to receive a total marketing exclusivity period of 10.5 years, including exclusivity pursuant to NCE and QIDP.
In addition to DefenCath, we are involved in a pre-clinical research
collaboration for the use of taurolidine as a possible treatment for rare orphan
pediatric tumors. In
We are pursuing additional opportunities to generate value from taurolidine, an active component of DefenCath. Based on initial feasibility work, we have completed an initial round of pre-clinical studies for taurolidine-infused surgical meshes, suture materials, and hydrogels, which require a PMA regulatory pathway for approval.
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expense includes costs related to commercial personnel, medical education professionals, marketing and advertising, salaries and other related costs, including stock-based compensation expense, for persons serving in our executive, sales, finance and accounting functions. Other SG&A expense includes facility-related costs not included in R&D expense, promotional expenses, costs associated with industry and trade shows, and professional fees for legal services and accounting services.
Foreign Currency Exchange Transaction Gain (Loss)
Foreign currency exchange transaction gain (loss) is the result of re-measuring
transactions denominated in a currency other than our functional currency and is
reported in the condensed consolidated statement of operations as a separate
line item within other income (expense). The intercompany loans outstanding
between our company based in
28 Interest Income
Interest income consists of interest earned on our cash and cash equivalents and short-term investments.
Interest Expense
Interest expense consists of interest incurred on our convertible debt, amortization of debt discount and on financing of expenditures.
Results of Operations
Three months ended
The following is a tabular presentation of our condensed consolidated operating results (in thousands): For the Three Months % of Change Ended March 31, Increase 2022 2021 (Decrease) Revenue $ 8$ 88 (91 )% Cost of sales (2 ) (61 ) (98 )% Gross profit 6 27 (77 )% Operating Expenses: Research and development (2,288 ) (2,636 ) (13 )% Selling, general and administrative (4,751 ) (4,601 ) 3 % Total operating expenses (7,039 ) (7,237 ) (3 )% Loss from operations (7,033 ) (7,210 ) (2 )% Interest income 14 3 274 % Foreign exchange transaction loss (10 ) (5 ) 108 % Interest expense (5 ) (5 ) 4 % Net loss (7,034 ) (7,217 ) (3 )% Other comprehensive loss (37 ) (3 ) 1,070 % Comprehensive loss$ (7,071 ) $ (7,220 ) (2 )%
Revenue. Revenue for the three months ended
Cost of Sales. Cost of sales was
Research and Development Expense. R&D expense was
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Selling, General and Administrative Expense. SG&A expense was
Interest Income. Interest income was
Foreign Exchange Transaction Gain (Loss). A foreign exchange transaction loss of
Interest Expense. Interest expense was
Other Comprehensive Loss. Unrealized foreign exchange movements related to
long-term intercompany loans, the translation of the foreign affiliate financial
statements to
Liquidity and Capital Resources
Sources of Liquidity
As a result of our cost of sales, R&D and SG&A expenditures and the lack of
substantial product sales revenue, our ongoing operations have not been
profitable since our inception. During the three months ended
Net cash used in operating activities for the three months ended
Net Cash Provided by (Used in) Investing Activities
Cash used in investing activities for the three months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended
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Funding Requirements and Liquidity
Our total cash on hand and short-term investments as of
Because our business has not generated positive operating cash flow, we will need to raise additional capital in order to continue to fund our research and development activities, as well as to fund operations generally. Our continued operations are focused primarily in activities leading to the pre-launch and commercialization for DefenCath and will depend on our ability to raise sufficient funds through various potential sources, such as equity, debt financings, and/or strategic relationships and potential strategic transactions. We can provide no assurances that financing or strategic relationships will be available on acceptable terms, or at all.
We expect to continue to fund operations from cash on hand and through capital raising sources as previously described, which may be dilutive to existing stockholders, through revenues from the licensing of our products, or through strategic alliances. We expect to continue to utilize our ATM program, if conditions allow, to support our ongoing funding requirements. Additionally, we may seek to sell additional equity or debt securities through one or more discrete transactions, or enter into a strategic alliance arrangement, but can provide no assurances that any such financing or strategic alliance arrangement will be available on acceptable terms, or at all. Moreover, the incurrence of indebtedness would result in increased fixed obligations and could contain covenants that would restrict our operations. Raising additional funds through strategic alliance arrangements with third parties may require significant time to complete and could force us to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders. Our actual cash requirements may vary materially from those now planned due to a number of factors, any change in the focus and direction of our research and development programs, any acquisition or pursuit of development of new product candidates, competitive and technical advances, the costs of commercializing any of our product candidates, and costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights.
Sales of Neutrolin outside the
We currently estimate that we have sufficient cash on hand to fund operations at
least through the first half of 2023. Additional financing may be required to
build out our commercial infrastructure should we receive FDA approval and to
continue our operations should we decide to market and sell DefenCath in the
31 Contractual Obligations
We entered into a seven-year operating lease agreement in
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in
For the three-month period ended
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