DIFFUSION PHARMA You should read the following discussion of our financial condition and results of operations together with the unaudited interim consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations-Special Note Regarding Forward-Looking Statements" in this report and under "Part I - Item 1A. Risk Factors" in our Annual Report. These risks could cause our actual results to differ materially from any future performance suggested below.
We are a biopharmaceutical company developing novel therapies that may enhance the body's ability to deliver oxygen to the areas where it is needed most. Our lead product candidate, TSC, is being investigated to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine's most intractable and difficult-to-treat conditions, including hypoxic solid tumors like GBM.
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Business Update
Ongoing Evaluation of Strategic Opportunities
On
We are undertaking this expanded review as part of our previously disclosed, ongoing efforts to identify acquisition and partnership transactions that complement, supplement, or de-risk our current development programs and support the Board's commitment to enhancing stockholder value. Our Board has determined to expand its evaluation to a broader range of options which could include a joint venture, licensing, sale or divestiture of some of the Company's proprietary technologies or a sale of the Company, in addition to the previously announced opportunities under consideration.
Over the past two years, we have obtained encouraging data on the potential
effects of TSC on oxygenation, including the results of our Altitude,
As of
There is no timeline for this review and there is no assurance the Board's review will result in any transaction being consummated. Diffusion does not intend to comment on this process or make further disclosures until it determines an update is appropriate.
Phase 2 Trial in Patients with GBM Incorporating Innovative Imaging Methodology (Study 200-208)
While our process to evaluate strategic opportunities is ongoing, the entire Diffusion organization remains focused on executing our strategy to enhance value for our stockholders. We continue to prioritize and advance what we continue to believe to be value-creating initiatives within our standalone business, including continued progress towards the initiation of Study 200-208, further exploration of potential accelerated pathways for regulatory approval of TSC, and taking steps to preserve capital without sacrificing meaningful growth opportunities.
On
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The tissue microenvironment of tumors such as GBM is well known to be hypoxic, and therefore less sensitive to radiation therapy, an important part of standard of care therapy. As such, Study 200-208 has been designed to evaluate TSC as an adjuvant treatment to standard of care therapy for hypoxic solid tumors. The study will include a dose-escalation phase, enrolling patients in a 3+3+3 design, to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of TSC at doses of 1.5 mg/kg, 2.0 mg/kg and 2.5 mg/kg administered in combination with concomitant standard of care radiotherapy plus temozolomide. An additional 17 subjects will be treated at the highest tolerable dose identified in the dose escalation phase. The primary objective of the study is to evaluate the overall survival of patients with newly diagnosed GBM when treated with TSC administered with standard of care. Secondary objectives of the study are to evaluate progression-free survival at six months and seven months by magnetic resonance imaging, assessment using Response Assessment in Neuro-Oncology criteria.
Study 200-208 will vary in a variety of ways from the GBM trials we have conducted in the past, including three particularly notable differentiators:
• The 1.5 mg/kg to 2.5 mg/kg doses of TSC to be administered in the trial will
be 6-10-fold higher than the 0.25 mg/kg dose used in conjunction with
radiotherapy in our prior GBM trials;
• TSC will be administered five days each week approximately 30-60 minutes prior
to radiotherapy, as compared to the three days per week regimen in our prior
GBM trials; and
• The trial will incorporate an innovative use of PET scans to directly evaluate
the oxygen enhancing effects of TSC on tumor hypoxia using radiotracers, with
initial data readouts from the dose-escalation phase expected to be available
within one year of the first patient being dosed.
We currently intend to use the PET scan data from the dose escalation phase of Study 200-208 to support a discussion with the FDA on a planned pathway to approval of TSC as a treatment for newly diagnosed patients with GBM when administered as an adjunct to radiotherapy as part of standard of care therapy. We intend to initiate these discussions with the FDA concurrently with our planned enrollment of an additional 17 subjects to be treated at the highest tolerable dose identified in the dose escalation phase.
Our internal clinical development efforts continue to be focused on engaging study sites and related activities that will enable us to dose the first patient in Study 200-208 in the first quarter of 2023. However, the actual timing of the study's initiation, the dosing of the first patient and subsequent downstream milestones are subject to the outcome and timing of our ongoing strategic review process described above and the pace of enrollment in the study.
ILD-DLCO Trial
In
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At the time the ILD-DLCO study was terminated, 18 of the planned 27 patients had been enrolled and treated in accordance with the planned 2:1 randomization with the 12 patients in the TSC cohort receiving a single, intravenous dose of 2.5mg/kg. Analyses of this partial dataset indicate TSC was safe and well tolerated among all 12 TSC-treated patients at the 2.5 mg/kg dose, which as noted above is the highest dose currently planned to be administered in the 200-208 Study. Although there was no significant change observed in the study's primary endpoint, diffusion of carbon monoxide into the lungs measured at 30 min post-TSC vs baseline DLCO, the TSC-treated patient cohort did statistically separate from placebo at 60 min post-dose in the 6-minute walk test when compared to the pre-dose baseline, though the change was less than the clinically meaningful change typically found in the scientific literature (30m distance gained or 20% improvement vs baseline (pre-TSC) 6-minute walk test). Further, there was no significant change in the pre-TSC vs. post-TSC Borg Dyspnea Scale measurement or heart rate recovery at completion of the 6-minute walk test.
We believe the data from the ILD-DLCO trial supporting the safety and tolerability of TSC administered at 2.5 mg/kg iv in patients with ILD-DLCO reinforce our plans to target this dose in the 200-208 Study as a treatment for newly diagnosed patients with GBM when administered as an adjunct to radiotherapy as part of standard of care therapy.
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Financial Summary
As of
• our ongoing and planned clinical trials, including Study 200-208;
• our in-license or acquisition of any additional product candidates, including
any related transaction costs;
• any additional studies we may undertake, including other preclinical and
clinical studies to support the filing of any new drug application with the
FDA;
• other research, development, and manufacturing activities designed to develop
and optimize formulation, manufacturing processes, dosage, dose forms, and
other characteristics prior to regulatory approval;
• the maintenance, expansion, and protection our global intellectual property
portfolio;
• the hiring of additional clinical, manufacturing, scientific, sales, or other
personnel; and
investments in operational, financial, and management information systems.
Subject to the outcome of our ongoing strategic review process, we currently
intend to use our existing cash, cash equivalents and marketable securities for
working capital and to fund the research and development of TSC and any future
business development activities we may undertake. We currently expect that our
cash, cash equivalents and marketable securities as of
Financial Operations Overview
Revenues
We have not yet generated any revenue from product sales. We do not expect to generate revenue from product sales for the foreseeable future.
Research and Development Expense
R&D expenses include, but are not limited to, third-party CRO arrangements and employee-related expenses, including salaries, benefits, stock-based compensation, and travel expense reimbursement. R&D activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical studies. As we advance our product candidates, we expect the amount of R&D costs will continue to increase for the foreseeable future. R&D costs are charged to expense as incurred.
Intangible Asset Impairment Charge
In the third quarter of 2021, the Company made a determination to no longer dedicate resources to the Company's DFN-529 intangible asset and any future development efforts were abandoned. In connection with this decision, the Company concluded that DFN-529 was impaired in its entirety.
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General and Administrative Expense
G&A expenses consist principally of salaries and related costs for executive and other personnel, including stock-based compensation, other employee benefit costs, expenses associated with investment bank and other financial advisory services, and travel expenses. Other G&A expenses include, facility-related costs, communication expenses and professional fees for legal, patent prosecution and maintenance, consulting, accounting, and other professional services.
Interest Income
Interest income is interest earned from our cash, cash equivalents and marketable securities.
Results of Operations for Three Months Ended
The following table sets forth our results of operations for the three months
ended
Three Months Ended
September 30, 2022
2022 2021 Change
Operating expenses:
Research and development $ 798,247 $ 2,105,815 $ (1,307,568 )
Intangible asset impairment charge - 8,639,000 $ (8,639,000 )
General and administrative 2,124,785 1,930,082 194,703
Depreciation - 19,100 (19,100 )
Loss from operations 2,923,032 12,693,997 (9,770,965 )
Interest income (124,710 ) (50,710 ) (74,000 )
Loss from operations before income tax benefit 2,798,322 12,643,287 (9,844,965 )
Income tax benefit - (443,893 ) 443,893
Net loss $ (2,798,322 ) $ (12,199,394 ) $ 9,401,072
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We recognized
The decrease in intangible asset impairment charge is related to the
nonrecurring
G&A expenses were
The decrease in depreciation for the three months ended
The decrease in income tax benefit of
Results of Operations for Nine Months Ended
The following table sets forth our results of operations for the nine months
ended
Nine Months Ended
September 30,
2022 2021 Change
Operating expenses:
Research and development $ 5,332,698 $ 6,994,866 $ (1,662,168 )
Intangible asset impairment charge - 8,639,000 (8,639,000 )
General and administrative 6,390,663 5,510,365 880,298
Depreciation - 67,302 (9,420,870 )
Loss from operations 11,723,361 21,211,533 (9,488,172 )
Other income:
Interest income (207,897 ) (146,354 ) (61,543 )
Loss from operations before income tax benefit (11,515,464 ) (21,065,179 ) 9,549,715
Income tax benefit - (443,893 ) 443,893
Net loss $ (11,515,464 ) $ (20,621,286 ) $ 9,105,822 We recognized
The decrease in intangible asset impairment charge is related to the
nonrecurring
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G&A expenses were
The decrease in depreciation for the nine months ended
The increase in interest income for the nine months ended
The decrease in income tax benefit of
Liquidity and Capital Resources
Working Capital
To date, we have funded our operations primarily through the sale and issuance
of preferred stock, common stock and convertible promissory notes. As of
Cash Flows The following table sets forth our cash flows for the nine months endedSeptember 30, 2022 and 2021: Nine Months Ended September 30, Net cash (used in) provided by: 2022 2021 Operating activities$ (11,495,802 ) $ (11,476,302 ) Investing activities (19,235,738 ) - Financing activities 5,000 33,295,752
Net (decrease) increase in cash and cash equivalents
As of
Operating Activities
Net cash used in operating activities of
Net cash used in operating activities of
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Investing Activities
Net cash used in investing activities during the nine months ended
Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Capital Requirements
We currently expect to continue to incur substantial expenses and generate significant operating losses as we continue to pursue our business strategy of developing TSC. Our operations have consumed substantial amounts of cash since inception and we currently expect to continue to spend substantial amounts of cash to advance the clinical development of TSC and any other product candidates we may in-license or acquire in the future. As of the date of this Quarterly Report, most of our cash resources for clinical development are dedicated to our ongoing and planned clinical trials. While we currently believe we have adequate cash resources to continue operations into the first quarter of 2024 (subject to the outcome and timing of our ongoing strategic review process), we anticipate that we will need additional funding in order to complete development of TSC and any other assets we may in-license or acquire which, if available, could be obtained through additional capital raising transactions, entry into strategic partnerships or collaborations, or alternative financing arrangements.
In
In the future, we may seek to raise additional funds through various sources. However, we can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient or be on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify, or delay the development of TSC or our product candidates, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. If we are unable to raise adequate additional capital as and when required in the future, we could be forced to cease development activities and terminate our operations, and you could experience a complete loss of your investment.
To the extent that we raise additional capital in the future through the sale of our common stock or securities convertible or exchangeable for common stock such as common stock warrants, convertible preferred stock, or convertible debt instruments, the interests of our current stockholders may be diluted or otherwise impacted. In particular, specific rights granted to future holders of preferred stock or convertible debt securities may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by the rules and
regulations of the
Critical Accounting Policies
As of the date of this Quarterly Report, the Critical Accounting Policies included in our Annual Report have not changed.
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