DIFFUSION PHARMA Introduction
This discussion and analysis contains information related to historical and prospective events intended to enable you to assess our financial condition and results of operations. The information contained in this discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report, as well as the risks and uncertainties discussed under the headings, "Item 1A - Risk Factors" and "Note Regarding Forward-Looking Statements."
Overview
Diffusion is a biopharmaceutical company that has historically focused on developing novel therapies that may enhance the body's ability to deliver oxygen to the areas where it is needed most. Our most advanced product candidate, TSC, has been investigated and developed 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.
Ongoing Evaluation of Strategic Opportunities
In early 2022, we identified the pursuit of an opportunistic transaction with
the potential to complement and diversify our portfolio of product candidates as
one of our key strategic objectives for the year. The intended purpose is to
reduce the Company's overall risk profile as an investment and enhance long-term
value for our stockholders. In pursuit of this objective, during the fourth
quarter of 2021 and first half of 2022, our management team held conversations
with several potential counterparties and, in
There is no assurance the Board's review will result in any transaction being consummated. Any further comments or disclosures regarding the strategic review process will be made from time to time as and when we determine an update is appropriate.
Financial Summary
As of
Our accumulated deficit as of
• our ongoing strategic review process;
• any additional studies we may undertake to evaluate our current or future
product candidates, including other preclinical and clinical studies to
support the filing of any NDA 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;
• research and development related to any other product candidates we may
acquire or in-license in the future; and
• investments in operational, financial, and management information systems.
Subject to the outcome and timing of our ongoing strategic review process, we
currently expect that our existing cash, cash equivalents and marketable
securities as of
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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.
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 consists of interest earned from our cash, cash equivalents and marketable securities
Income Tax Benefit
The Company recorded no income tax benefit or expense during the year ended
Our NOLs and tax credit carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and state tax authorities. NOL and
tax credit carryforwards may become subject to an annual limitation in the event
of a greater than 50.0% cumulative change in the ownership interest of
significant stockholders over a three year period, as defined under Sections 382
and 383 of the Internal Revenue Code as well as similar state provisions. The
amount of the annual limitation is determined based on the Company's value
immediately prior to the ownership change, and subsequent ownership changes may
further affect the limitation in future years. In 2019, due to the significant
changes to our stockholder base as a result of the equity financing we completed
during that year, we performed an analysis under Section 382 of the Internal
Revenue Code and, as a result, reduced the magnitude of our NOL carryforwards to
account for the ownership changes. In addition, the cumulative benefit of our
NOLs was remeasured, resulting in tax expense recognized during the year ended
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Results of Operations for Year Ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021: Year ended December 31, 2022 2021 Change Operating expenses: Research and development$ 7,237,165 $ 8,499,414 $ (1,262,249 ) Intangible asset impairment charge - 8,639,000$ (8,639,000 ) General and administrative 8,735,015 7,445,277 1,289,738 Depreciation - 93,416 (93,416 ) Loss from operations (15,972,180 ) (24,677,107 ) (8,704,927 ) Interest income 380,752 137,487 243,265 Loss from operations before income taxes (15,591,428 ) (24,539,620 ) 8,948,192 Income tax benefit - 443,893 (443,893 ) Net loss$ (15,591,428 ) $ (24,095,727 ) $ 8,504,299
Research and development expenses were
The decrease in intangible asset impairment charge is related to the
nonrecurring
General and administrative expenses were
The decrease in depreciation for the year ended
Interest income was
The decrease in income tax benefit of
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Liquidity and Capital Resources
Working Capital The following table summarizes our working capital as ofDecember 31, 2022 and 2021: December 31, 2022 2021 Cash and cash equivalents$ 10,113,706 $ 37,313,558 Marketable securities 12,408,940 - Prepaid expenses, deposits and other assets 112,406 510,015 Total current liabilities 2,417,336 2,927,684 Working capital$ 20,217,716 $ 34,895,889
We expect to continue to incur net losses for the foreseeable future. We intend to use our existing cash and cash equivalents for working capital purposes, to support our ongoing strategic review process and, subject to the outcome thereof, to fund the research and development of our product candidates.
Cash Flows The following table sets forth our cash flows for the years endedDecember 31, 2022 and 2021: December 31, Net cash (used in) provided by: 2022 2021 Operating activities$ (14,969,114 ) $ (14,501,789 ) Investing activities (12,235,738 ) 4,000 Financing activities 5,000 33,295,752
Net (decrease) increase in cash and cash equivalents
Operating Activities
For the year ended
Net cash used in operating activities of
Net cash used in operating activities of
Investing Activities
Net cash used in investing activities during the year ended
Financing Activities
For the year ended
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Net cash provided by financing activities of
Net cash provided by financing activities of
Capital Requirements
Historically, including during the year ended
While we currently believe we have adequate cash resources to fund our current operations for at least 12 months following the issuance of our financial statements included in this Annual Report (subject to the outcome and timing of our ongoing strategic review process), we anticipate that we will likely need additional funding in the future to support our research and development activities and other operations 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 continue to be challenging or deteriorate. If we are unable to obtain additional financing when needed, we may need to curtail portions of our operations, terminate, significantly modify, or delay the development our product candidates, or obtain funds on terms that may require us to relinquish rights to our technologies, product candidates or other assets that we might otherwise seek to develop or commercialize independently or receive superior value. 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, or fund acquisitions or other transactions through the issuance of such securities, 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
Recently Issued Accounting Pronouncements
The information in Note 3, Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements set forth in, "Part II - Item 8 - Financial Statements" of this Annual Report is incorporated herein by reference.
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