MARIZYME, INC. This discussion covers the three months and nine months ended
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, research and development plans and costs, the impact of COVID-19, the timing and likelihood of regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop future product candidates, the timing and likelihood of success of the plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in the Part II, Item 1A under the heading "Risk Factors." The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
OVERVIEW
Key elements of our strategy include:
? Advancing development of three medical technology platforms - DuraGraft,
MATLOC and Krillase - each of which is backed by a portfolio of patented or
patent-pending assets;
? Advancing DuraGraft, our endothelial damage inhibitor, or EDI, for the Food
and Drug Administration , or FDA, De Novo classification process. We filed a
pre-submission letter for DuraGraft with the FDA in November 2021 and we
expect to submit the De Novo request for DuraGraft to the FDA in 2022; and
? Progressing the development of Krillase through planning an animal clinical
study which will be conducted in 2022 and we expect will facilitate our entry
into the pet health market and generate revenue through the sale of
Krillase-based dental hygiene products.
We have incurred losses for each period from inception. Our net loss was
approximately
20 Our Products DuraGraft®
Through our acquisition of the Somah assets in
DuraGraft is an endothelial damage inhibitor, or EDI, indicated for cardiac
bypass, peripheral bypass, and other vascular surgeries. It carries CE marking
and is approved for marketing in 18 countries worldwide on three continents
including, but not limited to, the
According to market analysis reports, the size of the coronary artery bypass
graft ("CABG") procedures market globally was approximately
In 2020, the
For 2022, our main business priority is applying for FDA clearance of DuraGraft
for CABG procedures through a De Novo classification request. We also plan to
finalize the development of fat grafting procedures using DuraGraft for plastic
surgery procedures in the
Following the FDA approval of DuraGraft, which we expect to obtain in 2023, we
will seek to commercialize DuraGraft in the
MATLOC 1
On
The excitement over microfluidics, also known as lab-on-a-chip technology, lies
in its potential for producing revolutionary, timely, accessible, and practical
point-of-care devices; devices that are patient-centric (one-to-many, rather
than doctor centric, one-to-one) and support self-care and independence.
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MATLOC 2, the Company's next-generation point-of-care device in development, is designed to provide a fully integrated, quantitative diagnostic assessment of estimated glomerular filtration rate, or eGFR, using a blood-based biomarker. eGFR is a key measure of kidney function health and/or stage of kidney disease and our MATLOC 2 device is designed to provide a fully integrated, complete diagnostic assessment for CKD, potentially eliminating the need for lab visits and in-person assessment.
The COVID-19 pandemic has accelerated the ongoing transformation in healthcare. Connected consumer electronic devices are enabling 24/7 home-based digital healthcare. We believe that consumers have the desire and are now becoming empowered to manage their own healthcare and that they will seek to utilize our point-of-care MATLOC 1 device.
With our lab-on-chip technology and MATLOC 1 device in development, we are striving to achieve earlier detection and slowing of the progression of CKD, allowing patients and healthcare systems to reduce the enormous costs of kidney failure, transplant, and/or dialysis. After completing the technology for CKD assessment, we plan to explore the commercial potential of other biomarkers for chronic diseases to be measured at point-of-care.
MATLOC 1, upon FDA approval, which we anticipate but cannot guarantee, is expected to be marketed and sold through an experienced medical device distribution partner network with a focus on nephrologists in hospitals, ambulatory surgery centers and private practices, to better assess patients and slow the progression of CKD.
Krillase
Through our acquisition of
Krillase, derived from Antarctic krill, shrimp-like crustaceans, is a combination of endo- and exopeptidases that safely and efficiently breaks down organic material. As a "biochemical knife," Krillase can potentially break down organic matter, such as necrotic tissue, thrombogenic material, and biofilms produced by microorganisms. As such, it may be useful in the mitigation or treatment of multiple disease states in humans. For example, Krillase may promote faster healing, support the grafting of skin for the treatment of chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals.
We are currently focused on developing a Krillase-based product for the
dissolving of plaque and biofilms on teeth for the pet health dental market. In
addition, our Krillase platform team is planning a pet health study, and we
expect that the results of this study may enable us to introduce our Krillase
products into the pet health market in
22
Our strategic plan for Krillase is, first, to leverage and maximize near-term revenue generating opportunities with Krillase products for commercial or clinical applications with low regulatory risk, such as in the pet health market, and second, to develop products for applications of the Krillase platform that address unmet medical needs or address medical market needs better than existing products in the marketplace, in clinical applications with higher regulatory risk but significant commercial potential.
Our Competitive Strengths
We believe that the following competitive strengths will enable us to compete effectively:
? Superior, first-in-class vascular graft storage and flushing solution.
Management believes that the DuraGraft platform provides a significant and
substantial competitive advantage over current methods. Having received CE
marking in Europe , DuraGraft is certified for marketing in Europe as an
endothelial damage inhibitor.
? Early detection at point-of-care. Through our MATLOC platform, we plan to
provide the ability to quantitatively screen and diagnose for CKD at
point-of-care. We believe that the platform's lab-on-chip technology's low
threshold of detection and sensitivity will enable earlier screening and
diagnosis of CKD while the point-of-care capabilities of our MATLOC device(s)
will allow for testing outside of a lab setting.
? Superior dental cleaning method. Our Krillase platform could provide a
significant and substantial competitive advantage by achieving superior pet
dental cleaning through the reduction of plaque and tartar build up.
Our Growth Strategies
We will strive to grow our business by pursuing the following key growth strategies:
? Commercialize DuraGraft and related products. ? Commercialize MATLOC 1 and related products. ? Commercialize Krillase and related products. ? Acquire more life science assets.
The strategic plans described above will require capital. We expect to raise a substantial portion of the required capital in our planned future offerings. There can be no assurances, however, that we will be able to raise the capital that we need to execute our plans or that capital, whether through securities offerings, either private or public, will be available to us on acceptable terms, if at all. An inability to raise sufficient funds could cause us to scale back our development and growth plans or discontinue them altogether.
KEY HIGHLIGHTS FOR THE THREE AND NINE MONTHS ENDED
Financing
In 2021 and 2022, the Company offered units (the "Units Offering") comprised of
convertible notes and warrants, with the intent to raise up to
? In 2021 the Company issued an aggregate of 4,260,594 units for gross proceeds
of $7.4 million .
? During the nine months ended September 30, 2022 the Company issued an
additional 4,180,071 units for gross proceeds of $7.3 million .
In aggregate, the Company received
Reverse Stock Split
On
As a result of the reverse stock split, there are approximately 10,207,212 shares of common stock outstanding, not including the shares of common stock included in the units that the Company expects to issue in this public offering or upon any exercise of the Over-Allotment Option or of any warrants included in the units issued to investors or of the representative's warrant. No fractional shares have been or will be issued, and no cash or other consideration has been or will be paid. Instead, the Company issued one whole share of the post-reverse stock split common stock to any stockholder who otherwise would have received a fractional share as a result of the reverse stock split. The Company's existing shareholders' percentage ownership interests in the Company remains the same following the reverse stock split (subject to rounding of fractional shares).
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As of
Operational
In 2021
FINANCIAL OPERATIONS REVIEW
Component of Results of Operations
Revenue
Revenue represents gross product sales less service fees and product returns. For our Distribution Partner channel, we recognize revenue for product sales at the time of delivery of the product to our Distribution Partner. As our products have an expiration date, if a product expires, we will replace the product at no charge. Currently, all of our revenue is generated from the sale of DuraGraft in European and Asian markets where the product has the required regulatory approvals.
Direct Cost of Revenue
Direct costs of revenue include primarily product costs, which include all costs directly related to the purchase of raw materials, charges from our contract manufacturing organizations, and manufacturing overhead costs, as well as shipping and distribution charges. Direct costs of revenue also include losses from excess, slow-moving or obsolete inventory and inventory purchase commitments, if any.
Professional Fees
Professional fees include legal fees relating to intellectual property
development, due diligence and corporate matters, and consulting fees for
accounting, finance, and valuation services. Professional fees paid to a related
party relate to certain consulting services - see Note 9 to the financial
statements accompanying this report for further related party disclosures. We
anticipate increased expenses related to audit, legal, regulatory, and
tax-related services associated with maintaining compliance with exchange
listing and
Salaries and Stock-Based Compensation
Salaries consists of compensation and related personnel costs. Stock-based compensation represents the fair value of equity-settled share awards on stock options and restricted share awards granted by the Company to its employees, officers, directors, and consultants. The fair value of awards is calculated using the Black-Scholes option pricing model, which considers the following factors: exercise price, current market price of the underlying shares, expected life, risk-free interest rate, expected volatility, dividend yield, and forfeiture rate.
Research and Development
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, and employee benefits for individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company's ongoing clinical trials of Duragraft, and costs related to manufacturing Duragraft for clinical trials. The Company has entered into various research and development contracts with various organizations and other companies.
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Depreciation and Amortization
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. Intangible assets acquired as a result of an acquisition or in a business combination are measured at fair value at the acquisition date. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the estimated useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis.
Other General and Administrative Expenses
Other general and administrative expenses consist principally of marketing and selling expenses, facility costs, administrative and office expenses, director and officer insurance premiums, and investor relations costs associated with operating a public company.
Other Income (Expenses)
Other income (expenses) consists of mark-to-market adjustments on contingent liabilities assumed on the acquisition of Somah assets and interest and accretion expenses related to our convertible notes issued pursuant to the units private placement.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2022 2021 Change
Revenue $ 76,012 $ 37,215 $ 38,797
Operating expenses:
Direct costs of revenue 15,503 18,356 (2,853 )
Professional fees (includes related
party amounts of $155,000 and
$90,000 , respectively) 303,574 460,378 (156,804 )
Salary expenses 330,221 517,192 (186,971 )
Research and development 708,220 241,748 466,472
Stock-based compensation 271,517 64,074 207,443
Depreciation and amortization 210,361 1,425 208,936
Other general and administrative
expenses 469,656 489,820 (20,164 )
Total operating expenses 2,309,052 1,792,993 516,059
Total operating loss $ (2,233,040 ) $ (1,755,778 ) $ (477,262 )
Other income (expenses):
Interest and accretion expense (810,598 ) (70,221 ) (737,960 )
Change in fair value of contingent
liabilities 1,491,000 194,000 1,297,000
Net loss $ (1,552,638 ) $ (1,631,999 ) $ 81,778
Revenue
We recognized revenue of approximately
Direct Costs of Revenue
The higher direct costs of revenue in the comparative Q3 2021 quarter was
predominantly due to the COVID-19 interruptions to the Company's supply chain
and limited access to raw materials for DuraGraft product. During the three
months ended
25 Professional Fees
Professional fees decreased by approximately
Salary Expenses
Salary expenses in Q3 2022 were approximately
Research and Development
Research and development expenses in Q3 2022, were approximately
Stock-Based Compensation
Stock-based compensation increased from approximately
Depreciation and Amortization
Depreciation and amortization increased approximately
Other General and Administrative Expenses
Other general and administrative expenses decreased approximately
Other Income (Expenses)
In Q3 2022, the Company incurred approximately
26
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2022 2021 Change
Revenue $ 137,821 $ 271,952 $ (134,131 )
Operating expenses:
Direct costs of revenue 26,528 168,419 (141,891 )
Professional fees (includes related
party amounts of $422,000 and
$180,000 , respectively) 1,721,479 1,445,004 276,475
Salary expenses 2,147,967 2,084,430 63,537
Research and development 3,297,986 877,936 2,420,050
Stock-based compensation 1,664,191 626,449 1,037,742
Depreciation and amortization 631,083 5,849 625,234
Other general and administrative
expenses 1,478,726 944,248 534,478
Total operating expenses 10,967,960 6,152,335 4,815,625
Total operating loss $ (10,830,139 ) $ (5,880,383 ) $ (4,949,756 )
Other income (expenses):
Interest and accretion expense (1,640,368 ) (74,410 ) (1,563,541 )
Change in fair value of contingent
liabilities (2,131,000 ) 472,000 (2,603,000 )
Net loss $ (14,601,507 ) $ (5,482,793 ) $ (9,116,297 )
Revenue
We recognized revenue of approximately
Direct Costs of Revenue
Direct costs of revenue decreased by approximately
Professional Fees
Professional fees increased by approximately
Salary Expenses
Salary expenses for the nine months ended
27 Research and Development
Research and development expenses for the nine months ended
Stock-Based Compensation
Stock-based compensation for the nine months ended
Depreciation and Amortization
Depreciation and amortization increased approximately
Other General and Administrative Expenses
Other general and administrative expenses increased approximately
Other Income (Expenses)
During the nine months ended
LIQUIDITY AND CAPITAL RESOURCES
To date, we have incurred significant net losses and negative cash flows from
operations. As of
Units Private Placement
During the nine months ended
Public Offering
On
28
Funding Requirements and Other Liquidity Matters
? Increase our expertise and knowledge through hiring and retaining qualified
operational, financial and management personnel, who will build efficient
infrastructure to support development and commercialization of therapies and
devices,
? Increase in research and development and legal expenses as we continue to
develop our products, conduct clinical trials and pursue FDA clearances,
? Expand our product portfolio through the identification and acquisition of
additional life science assets, and
? Seek to increase awareness about our products to boost sales and distributions
internationally.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, the Company will continue to have to raise funds beyond its current working capital balance in order to finance future development of products, potential acquisitions, and meet its debt obligations until such time as future profitable revenues are achieved.
We expect to finance our cash needs through a combination of private and public equity offerings, debt financings, government or other third-party funding, and collaborations arrangements or acquisitions. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and 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, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development or acquisition of product.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. These factors raise substantial doubt about the Company's ability to continue as a going concern.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each
of the periods indicated:
Nine Months Ended September 30,
2022 2021 $ Change
Net cash provided by/(used in):
Operating activities $ (9,266,036 ) $ (4,313,038 ) $ (4,952,998 )
Financing activities 6,375,945 1,426,949 4,948,996
Net change in cash $ (2,890,091 ) $ (2,886,089 ) $ (4,002 )
Operating Activities
Net cash used in operating activities was approximately
29 Financing Activities
Net cash provided by financing activities for the nine months ended
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary
course of our business during the nine months ended
Royalties and Other Commitments
Upon receiving the FDA clearance for the DuraGraft and other key intellectual products, the Company will:
? Grant performance warrants to Somah for 4,000,000 restricted common shares of
the Company, with a strike price determined based on the average of the
closing prices of the common shares for the 30 calendar days following the
date of the public announcement of FDA clearance;
? Pay royalties on all net sales of the product acquired from Somah of 6% on the
first $50 million of international net sales (and 5% on the first $50 million
of U.S. net sales), 4% for greater than $50 million up to $200 million , and 2%
for greater than $200 million ;
? Pay 10% of cash value of the rare pediatric voucher sales following the FDA
clearance and subsequent sale to an unaffiliated third party of a rare
pediatric voucher based on Somah's DuraGraft product;
? Grant of rare pediatric voucher warrants to purchase an aggregate of 250,000
commons shares with a term of five years and a strike price determined based
on the average of the closing prices of the common shares for the 30 calendar
days following the date of the public announcement of FDA clearance, and
? Pay a liquidation preference, up to a maximum of $20 million upon the sale by
the Company of all or substantially all of the assets relating to the Somah
products. Upon the sale of either or both of the DuraGraft or Somah derived
solid organ transplant products, the Company will pay 15% of the net sale
proceeds towards the liquidation preference maximum amount.
Lease Commitments
The Company has entered into arrangements for office and laboratories spaces. As
at
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
For a description of our critical accounting policies, please see the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies and Estimates" contained in
our 2021 Form 10-K. There have not been any material changes to the critical
accounting policies discussed therein during the nine months ended
Off-Balance Sheet Arrangements
As of
30
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