CONTRAFECT Corp - Quarter Report: 2022 March (Form 10-Q)

 

 

 

 

 

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s Common Stock outstanding as of May 10, 2022 was 39,332,721.

 

 

 

 

The information in this Quarterly Report on Form contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, our ability to continue as a going concern, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As more fully described under the heading “Risk Factors” contained elsewhere in this Quarterly Report on Form many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Quarterly Report on Form with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targets , including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis. is also a frequent source of biofilm-dependent infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy. Exebacase is being studied in a pivotal Phase 3 superiority study to evaluate its safety, tolerability, efficacy and pharmacokinetics when used in addition to background standard of care therapy for the treatment of bacteremia, including right-sided endocarditis in adult patients.

The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $280.7 million as of March 31, 2022. For the quarter ended March 31, 2022, the Company used $11.8 million of cash in operations. The Company has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues its clinical trials. As of March 31, 2022, the Company had approximately $42.3 million in cash, cash equivalents and marketable securities, which, without additional funding, the Company believes will not be sufficient to meet its obligations within the next twelve months from the date of issuance of these consolidated financial statements. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all. As such, under the requirements of Accounting Standard Codification (“ASC”) management may not consider the potential for future capital raises in its assessment of the Company’s ability to meet its obligations for the next twelve months, and substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date the financial statements were issued. If the Company is unable to obtain funding, the Company would be forced to delay, reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations or continue as a going concern.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

On August 14, 2020, the Company filed a shelf registration statement on Form (the “Form with the SEC. The Form was declared effective by the SEC on August 31, 2020. The Form allows the Company to offer and sell from up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities.

On March 22, 2021, the Company completed an underwritten public offering under the Form of 11,500,000 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share, resulting in net proceeds to the Company of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.

On March 10, 2021, the Company entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, the Company will receive funding of up to an estimated $86.8 million to advance the development of exebacase. The base period for the BARDA Contract includes government funding of up to $9.8 million to reimburse expenses for to support the conduct of the ongoing Phase 3 clinical trial and futility analysis. Following successful completion of the base period, the BARDA Contract provides for approximately $77.0 million of additional BARDA funding for five option stages in support of the completion of the Phase 3 clinical trial of exebacase, further clinical and studies, manufacturing, supply chain, clinical, regulatory and administrative activities. The contract (base period plus option exercises) is up to approximately six years.

 

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The accompanying financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited consolidated financial statements. The Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, including all related disclosures and the complete listing of significant accounting policies as described in Note 2 thereof, are included in the Company’s Annual Report on Form that was filed with the SEC on March 25, 2022.

In the opinion of management, the unaudited financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for interactions with the European Economic Area. This subsidiary is dormant or is otherwise Any inter-company accounts have been eliminated in consolidation.

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, the Company’s ability to raise capital and the effects of the novel coronavirus, or on the Company’s business, operations and financial performance and position.

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

 

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The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Marketable securities of investments in corporate debt securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as pursuant to ASC 320, . The Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Marketable securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive loss in stockholders’ equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. The fair value of these securities is based on quoted prices for identical or similar assets. Realized gains and losses are included in interest income in the consolidated statement of operations on a specific-identification basis.There were no realized gains on sales of marketable securities for the three months ended March 31, 2022 or 2021. There were no marketable securities that had been in an unrealized loss position for more than 12 months as of March 31, 2022 or 2021.

The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. The fair value of the Company’s warrant liabilities is based upon unobservable inputs, as described further below.

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

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The Company had no liabilities classified as Level 1 or Level 2. The carrying amounts reported in the accompanying financial statements for accounts payable and accrued approximate their respective fair values due to their short-term maturities. The fair value of the warrant liabilities is discussed in Note 4, “Fair Value Measurements.”

The Company accounts for stock-based compensation in accordance with ASC 718, which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, directors, and including employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis.

The fair value of options is calculated using the Black-Scholes option pricing model on the date of grant based on key assumptions such as stock price, risk free interest rates, expected volatility, expected term, and expected dividend yield. The Company’s estimates of these assumptions are based on historical data and judgment regarding future trends and factors.

The Company recognizes a receivable, which is included in other current assets on its consolidated balance sheet, and the related reduction in its research and development expenses when the actual reimbursable costs have been incurred and there is reasonable assurance that the Company has complied with the conditions of the applicable government contract or grant agreement and the amounts will be received. The Company recognized a reduction to its research and development expense in the amount of approximately $2.1 million and $0.9 million for the three months ended March 31, 2022 and 2021 respectively. The receivable for government contracts and grant agreements as of March 31, 2022 and December 31, 2021 was approximately $3.5 million and $4.1 million, respectively, and is included in other current assets on the consolidated balance sheet. The Company has approximately $6.0 million of committed government contract and grant agreement funding remaining as of March 31, 2022.

The Company accounts for leases in accordance with Accounting Standards Update No. (Topic 842). The Company determines if an arrangement is a lease at inception and recognizes (“ROU”) assets as the present value of the lease payments plus initial direct costs, if any, less any lease incentives. Assets are classified as either operating or finance ROU assets according to the classification criteria in Topic 842. The corresponding liability is computed as the present value of the lease payments at inception. The present value of the lease payments is computed using the rate implicit in the lease, if known, or the Company’s incremental borrowing rate. Operating lease costs are charged to operations on a straight-line basis over the term of the lease. The Company’s leases are further discussed in Note 7—“Commitments and Contingencies.”

Under the Company’s policy, it does not record an ROU asset or corresponding liability for arrangements where the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.

Basic net loss per share applicable to common stockholders is calculated by dividing net loss applicable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share applicable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the dilutive net loss per share applicable to common stockholders’ calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.

On January 1, 2022, the Company adopted Accounting Standards Update . ASU improves the transparency of government assistance received by certain business entities by requiring the disclosure of (1) the types of government assistance received, (2) the accounting for such assistance, and (3) the effect of the assistance on the business entity’s financial statements. The adoption of the new guidance did not affect the Company’s consolidated financial statements.

 

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In June 2016, the FASB issued a new Accounting Standards Update, ASU amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that this new standard will have on its consolidated financial statements and related disclosures.

Marketable securities at March 31, 2022 consisted of the following (in thousands):

Marketable securities at December 31, 2021 consisted of the following (in thousands):

 

Corporate debt includes obligations issued by investment-grade corporations and may include issues that have been guaranteed by governments and government agencies. Investments classified as short-term have maturities of less than one year, and investments classified as long-term are those that have maturities of greater than one year and management does not intend to liquidate within the next twelve months. All of the Company’s marketable securities have an effective maturity of less than two years.

At March 31, 2022, the Company held 19 debt securities that individually and in total were in an immaterial unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss position at March 31, 2022 was approximately $30.6 million. The Company evaluated its securities for other than temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions. It was not more likely than not that the Company would have been required to sell the securities prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-temporarily impaired as of March 31, 202.

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 (in thousands):

 

 

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The Company issued warrants to the purchasers of its July 25, 2017 offering (the “2017 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The 2017 Warrants are at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

The Company issued warrants to the purchasers of its May 27, 2020 offering (the “2020 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 8, “Capital Structure”). The 2020 Warrants are at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:

 

The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 and 2021 (in thousands):

 

 

 

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The key inputs into the Black-Scholes option pricing model are the current value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities.

Accrued liabilities consist of the following as of March 31, 2022 and December 31, 2021 (in thousands):

 

Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive. Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding.

The following table sets forth the computation of basic and diluted net loss per share for common stockholders (in thousands, except share and per share data):

 

The following potentially dilutive securities outstanding at March 31, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been anti-dilutive:

 

In December 2010, the Company entered into a operating lease for office space and laboratory facilities in Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the term of the lease through December 2027 (the “Third Floor Lease”). The lease provides for the option to renew for two additional five-year terms. The premises were occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.

In January 2012, the Company entered into a operating lease for additional office space and laboratory facilities in the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space under the Fourth Floor Lease and was relieved of its obligations related to such space.

 

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The Company performed an evaluation of its other contracts in accordance with Topic 842 and has determined that, except for the leases described above, none of its contracts contain a lease.

The balance sheet classification of the Company’s lease liabilities was as follows (in thousands):

 

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. The leases are renewable at the end of the lease term at our option. For the purposes of determining the remaining lease term in contemplation of available extensions, the Company did not consider either renewal to be probable at this time. In determining the present value of lease payments, the Company estimated its incremental borrowing rate, or discount rate, based on the information available at the adoption date of Topic 842. The discount rate used to determine the operating lease liability was 9.93%.

As of March 31, 2022, the maturities of our operating lease liabilities were as follows (in thousands):

 

Lease costs under the terms of the Company’s leases for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

 

 

The Company has entered into the following license agreements with The Rockefeller University:

 

 

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In consideration for the licenses, the Company paid Rockefeller license initiation fees in cash and stock. The Company paid annual maintenance fees of $200,000 in each of 2021, 2020 and 2019, and are required to pay $200,000 each year thereafter until the licenses terminate. Depending on the success of its programs, the Company may also incur regulatory milestone payments up to a total of $5.0 million and royalties of up to 5% on net sales from products to Rockefeller. We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees. There were no milestone, royalty or sublicense payments made during the three months ended March 31, 2022 or 2021. The Company has made total milestone payments under the License of $810,000 as of March 31, 2022.

Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. The Rockefeller University may terminate any license agreement in the event of a breach of such agreement by the Company or if the Company challenges the validity or enforceability of the underlying patent rights. The Company may terminate any license agreement at any time on 60 days’ notice.

From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. The Company currently has no legal proceedings ongoing that management estimates could have a material effect on the Company’s financial statements.

As of March 31, 2022, the Company was authorized to issue 125,000,000 shares of common stock.

On March 22, 2021, the Company completed an underwritten public offering of 11,500,000 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share, resulting in net proceeds to the Company of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.

On May 27, 2020, the Company completed an underwritten public offering of 11,797,752 shares of its common stock and warrants to purchase an additional 8,848,314 shares of its common stock at an exercise price of $4.90 per share. The public offering price was $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $48.9 million after underwriting discounts and commissions and offering expenses payable by the Company. The Company completed a concurrent private placement to Pfizer Inc. (“Pfizer”) of 674,156 shares of common stock and an accompanying warrant to purchase an additional 505,617 shares of its common stock at an exercise price of $4.90 per share (the “Pfizer Warrant”) at a price of $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $3.0 million. No warrants were exercised during the quarter ended March 31, 2022. Warrants to purchase 22,560 shares of common stock were exercised during the quarter ended March 31, 2021.

 

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The Company issued warrants in its 2020 and 2017 offerings. These warrants contain a fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Due to this conditional obligation, the Company determined that the 2020 Warrants and the 2017 Warrants classified as liabilities in the Company’s consolidated balance sheet. At issuance, the Company determined the fair value of the 2020 Warrants and the 2017 Warrants to be $31.4 million and $12.4 million, respectively, and reclassified these balances from stockholders’ equity to warrant liability. The fair value of these warrants is at each reporting period and changes in fair value are recognized in the consolidated statement of operations (see Note 4, “Fair Value Measurements”). Additionally, the Company allocated approximately $2.2 million and $0.9 million of issuance costs to the 2020 Warrants and the 2017 Warrants, respectively, based on the proportion of the proceeds allocated to the fair value of the warrants. The allocated issuance costs were expensed as other expense in the Company’s consolidated statement of operations.

The Pfizer Warrant does not contain the same fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Therefore, the Company determined that the Pfizer Warrant should be classified as equity in the Company’s consolidated balance sheet.

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.

The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. As of March 31, 2022, no dividends have been declared or paid on the Company’s common stock since inception.

The Company has reserved for future issuance the following number of shares of common stock as of March 31, 2022 and December 31, 2021:

 

 

 

 

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The following table summarizes information regarding the Company’s warrants outstanding at March 31, 2022:

 

In July 2008, the Company adopted the 2008 Equity Incentive Plan (the “Plan”). On February 26, 2013, the board of directors approved an amended and restated plan (the “Amended Plan”) under which the number of shares of common stock available for issuance was 157,143. For new awards, the period that vested awards would remain exercisable upon termination of service was reduced from ten years to two years. The board of directors also increased the number of shares of common stock available under the Company’s Amended Plan on February 24, 2014 and April 29, 2014 to 185,714 and 235,714, respectively. As of the closing of the Company’s IPO, there were no further grants made under the Amended Plan.

In April 2014, the Company’s board of directors adopted the 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders on July 3, 2014. The 2014 Plan allows for the granting of incentive and stock options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards to the Company’s employees, members of the board of directors and consultants of the Company. On July 28, 2014, the effective date of the 2014 Plan, the number of shares of common stock reserved pursuant to the 2014 Plan was 57,143. The 2014 Plan provides for an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2015 and ending on January 1, 2024, equal to the lesser of (i) 4% of the outstanding shares of common stock on December 31 immediately preceding such date or (ii) a lesser amount determined by the Company’s board of directors. Consistent with the provision for an annual increase, an additional 4,268,682 shares of common stock have been reserved under the 2014 Plan as of January 1, 2022.

The Company recognized compensation expense for s-based compensation based on the fair value of the underlying instrument. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. A summary of stock option activity for the three months ended March 31, 2022, is summarized as follows:

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options granted during the three months ended March 31, 2022 and 2021 was $3.33 and $5.58, respectively. Total compensation expense recognized amounted to $0.9 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the total remaining unrecognized compensation cost related to unvested stock options was approximately $7.1 million which will be recognized over a weighted average period of approximately 2.70 years.

 

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You should read the following discussion and analysis of our financial condition in conjunction with the information set forth in our financial statements and the notes to those statements included in this Quarterly Report on Form and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form filed by us with the Securities and Exchange Commission (“SEC”) on March 25, 2022.

Overview

Escherichia coli (“E. coli”)

Staphylococcus aureus (“S. aureus”)

Klebsiella pneumoniae (“K. pneumoniae”)

Streptococcus pneumoniae

Acinetobacter baumannii (“A. baumannii”)

Pseudomonas aeruginosa

P. aeruginosa

S. aureus

in vitro

P. aeruginosa

K. pneumoniae, E. coli, A. baumannii

Enterobacter cloacae

Stenotrophomonas,

Achromobacter

Burkholderia

Financial Operations Overview

standard-of-care

S. aureus

S. aureus

S. aureus

S. aureus

S. aureus

End-of-Phase

S. aureus

S. aureus

S. aureus

period-of-performance

P. aeruginosa

in vivo

P. aeruginosa

E. coli

K. pneumoniae

A. baumannii

in vitro

in vitro

in vitro

in vivo

S. aureus

S. aureus

in vitro

in vivo

available-for-sale

Critical Accounting Policies and Use of Estimates

.

Results of Operations

Research and Development Expenses

General and Administrative Expenses

Other (Expense) Income

We have financed our operations to date primarily through proceeds from sales of common stock, common stock and warrants, convertible preferred stock and convertible debt and, to a lesser extent, funding received from government contracts and granting organizations. To date, we have not generated any revenue from the sale of products. We have incurred losses and generated negative cash flows from operations since inception.

Since the date of our IPO, we have funded our operations through the sale of registered securities for gross proceeds of $257.8 million, $9.6 million from the exercise of the Class B Warrants issued in our IPO, $26.0 million from the sale of securities in private placements and the receipt of $19.6 million of funding from grant agreements and government contracts.

On August 14, 2020, we filed a shelf registration statement on Form (the “Form with the SEC. The Form was declared effective by the SEC on August 31, 2020. The Form allows us to offer and sell from up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. On March 22, 2021, we completed an underwritten public offering of 11,500,000 shares of our common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share of common stock, resulting in estimated net proceeds of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by us. The terms of any future offerings under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

As of March 31, 2022, we had approximately $42.3 million in cash, cash equivalents and marketable securities which we do not believe will be sufficient to meet our obligations within the next twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form Combined with our accumulated deficit and our forecasted cash expenditures, these factors raise substantial doubt about our ability to continue as a going concern.

As such, under the requirements of Accounting Standard Codification (“ASC”) we may not consider the potential for future capital raises in our assessment of our ability to meet our obligations for the next twelve months. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to us on acceptable terms, or at all, and the terms of any public or private offerings of stock could be significantly dilutive to existing stockholders. If we are unable to obtain funding, we would be forced to delay, reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations. In accordance with the requirements of ASC we have concluded that substantial doubt exists about our ability to continue as a going concern for twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form

In the past, we have obtained grants to supplement our financings with funding, including grants from USAMRDC and our cost-sharing contract with BARDA. Our grant programs under CARB-X have ended. We may continue to pursue further funding opportunities. In addition, there can be no assurances that we will receive the maximum potential funding to the Company under any of our ongoing agreements.

The following table provides information regarding our cash flows for the three months ended March 31, 2022 and 2021 (in thousands):

 

 

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Net cash used in operating activities resulted primarily from our net losses adjusted for charges and changes in the components of working capital. Net cash used in operating activities for the three months ended March 31, 2022 increased by $2.7 million compared to the same period in 2021, due primarily to increased payments to our contract research organizations in support of our Phase 3 DISRUPT trial of exebacase and to our contract manufacturing organizations for completion of the exebacase process transfer and ongoing analytical and process validation activities in the first quarter of 2022.

For a description of our contractual obligations, see Note 7, “Commitments and Contingencies” to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form

Without additional funding, we believe we will not have sufficient funds to meet our obligations within the next twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form If we are unable to obtain funding, we would be forced to delay, reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations. In accordance with the requirements of ASC we have concluded that substantial doubt exists about our ability to continue as a going concern. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current product candidates. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will be available to us on satisfactory terms, or at all. We plan to continue to supplement our financings with funding, including grants and our cost-sharing contract with BARDA, but there can be no assurances that we will receive the maximum potential funding to the Company under such arrangements.

 

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Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. As of March 31, 2022, we had cash, cash equivalents and marketable securities of $42.3 million. Because of the short-term maturities of our cash equivalents and marketable securities, we do not believe that an increase in market rates would have any significant impact on the fair value of our cash equivalents or marketable securities. If a 50% change in interest rates were to have immediately occurred on March 31, 2022, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

While we believe our cash, cash equivalents and marketable securities do not contain excessive credit or liquidity risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

We do not own any derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative, foreign currency or other financial instruments that would require disclosure under this item.

 

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In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

As required by Rule and Rule of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022.

As required by Rule and Rule of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that there were no such changes during the quarter ended March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

We are a clinical-stage biopharmaceutical company with no approved products, and we have not generated any revenue from product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations primarily through the sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors, and to a lesser extent, grant funding. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.

 

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Since inception, we have incurred significant operating losses. Our losses from operations for the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020 were $16.0 million, $47.3 million and $34.2 million, respectively. We have devoted substantially all of our efforts to research and development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or progress. Our expenses will increase if and as we:

 

 

 

 

 

 

We currently operate with limited resources. We have incurred significant losses since our inception and have never generated revenue or profit, and it is possible we will never generate revenue or profit. Based on our current operating plans, and without additional funding, we believe we will not have sufficient funds to meet our obligations within the next twelve months from the issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form These factors raise substantial doubt about our ability to continue as a going concern. We have relied on our ability to fund our operations primarily through public and private debt and equity financings, and, to a lesser extent, funding received from government contracts and granting organizations, but there can be no assurances that such financing or funding will continue to be available to us on satisfactory terms, or at all.

Securing additional financing may divert our management from our activities, which may adversely affect our ability to develop and commercialize exebacase or any of our other product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to obtain funding, we would be forced to delay, reduce or eliminate our research and development programs, which would adversely affect our business prospects. In addition, if we are unable to raise capital, we will also need to implement cost reductions, and any failure to effectively do so will harm our business, results of operations and future prospects.

Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock, and it may be more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our consolidated financial statements included in this Quarterly Report on Form do not include any adjustments to reflect the possible inability of the Company to continue as a going concern within one year after the issuance of such financial statements. If we are unable to continue as a going concern, you could lose all or part of your investment in our Company.

To date, we have not completed the development of any products and have not generated any revenues from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize products, including any of our current product candidates, or other product candidates that we may or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we may never generate revenues that are significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

 

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In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product candidates may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with commercializing these products.

Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development of exebacase and possibly acquire and develop new product candidates or technologies. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the pandemic, the current conflict between Russia and Ukraine and interest rate increases. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms.

 

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Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. 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.

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 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.

We are party to certain agreements with Rockefeller pursuant to which we have acquired licenses to certain patents and patent applications and other intellectual property related to a series of compounds, including exebacase to develop and commercialize therapeutics. Under our agreements with Rockefeller, we have obligations to achieve diligence minimums and to make payments upon achievement of specified development and regulatory milestones. We will also make additional payments upon the achievement of future sales milestones and for royalties on future net sales.

The timing of milestone payments under our licenses and sponsored research agreements is subject to factors relating to the clinical and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

On March 10, 2021, we executed a cost-share contract from BARDA, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. Under the terms of the BARDA Contract, the Company will receive $9.8 million in initial funding during the base period. Following successful completion of the base period, the BARDA Contract provides for approximately $77.0 million of additional BARDA funding for five option stages in support of the completion of the Phase 3 clinical trial of exebacase, further clinical and studies, manufacturing, supply chain, clinical, regulatory and administrative activities. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience. If BARDA were to eliminate, reduce, or delay funding under the BARDA Contract or prohibit reimbursement of some of our incurred costs, we would have to seek additional funding to complete our ongoing Phase 3 DISRUPT superiority trial of exebacase or advance exebacase through FDA product approval and completion of post-approval commitments.

Our BARDA Contract subjects us to various U.S. government contract requirements, including general clauses for a cost-reimbursement research and development contract, which may limit our reimbursement. In addition, if we are found to be in violation of the BARDA Contract, it could result in termination. If BARDA terminates the BARDA Contract with us for its convenience, or if we default by failing to perform in accordance with the contract schedule and terms, a significant negative impact on our cash flows and operations could result.

 

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U.S. government contracts, such as our BARDA Contract, generally contain unfavorable termination provisions, which may subject us to additional risks as compared to our competitors that have not entered into such contracts. These risks include the ability of the U.S. government to unilaterally:

 

 

 

 

 

 

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its net operating loss carryforwards and other tax attributes to offset its post-change income may be limited. As a result of our past transactions, we may have experienced an “ownership change.” At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2021, we had federal and state net operating loss carryforwards of approximately $275.5 million and $293.9 million, respectively, and federal research and development credits of approximately $5.0 million, the use of which could be limited or eliminated by virtue of one or more “ownership changes.”

The measures taken in response to the ongoing pandemic have had a significant impact on the economy and, to a lesser extent, both directly and indirectly, on our business. We adjusted our business operations, with a majority of our employees working remotely. Our Phase 3 DISRUPT clinical trial was also affected, as clinical sites experienced periodic delays in new patient enrollment.

The pandemic worsened across the country earlier this year as new variants circulate and the number of infections and hospitalizations increased rapidly. We are continuing to see effects of the pandemic on our trial with our patient enrollment rate slowed during certain months. Efforts we take to mitigate slowed enrollment may not be effective and the progress of our study may continue to be adversely affected. If patient enrollment continues to be delayed during future months, our related corporate milestones, such as our planned interim futility analysis of the Phase 3 DISRUPT clinical trial, could be further delayed.

As a result of the pandemic, the spread of variants of the virus or another pandemic, epidemic or outbreak of an infectious disease, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:

 

 

 

 

 

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The extent to which the pandemic further impacts our business, results of operations and financial condition, including expenses, research and development costs, procurement of raw materials for our supply chain, and clinical trial progress, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic and future waves of infection, including the spread of variants of the virus, the availability, adoption and effectiveness of vaccines and treatments, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. Additionally, concerns over the economic impact of pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.

Our near-term business prospects are substantially dependent on our ability to develop and commercialize exebacase. We cannot market or sell exebacase or any other product candidate in the United States without FDA approval, but this approval, if ever issued, is more than a year away. To commercialize exebacase or any other product candidate outside of the United States, we will need applicable foreign regulatory approvals. The clinical development of exebacase or any other product candidate is susceptible to the inherent risks of any drug development program, including a failure to achieve efficacy across a broad population of patients, the potential occurrence of severe adverse events and the risks that the FDA or any applicable foreign regulatory authority will determine that a drug product is not approvable.

The process required to obtain approval for commercialization from the FDA and similar foreign authorities is unpredictable, and typically takes many years even after the commencement of clinical trials, depending on numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to obtain regulatory approval may change during the course of a product’s clinical development may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that any product candidates we may seek to develop in the future will never obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of a BLA from the FDA or outside the United States, until we receive similar approval from foreign regulatory authorities.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective, or in the case of biologics, safe, pure, and potent, for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA or other regulatory authorities also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program.

 

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We may fail to obtain regulatory approval for exebacase or any other product candidate for many reasons, including the following:

 

 

 

 

 

 

 

 

 

This lengthy approval process as well as the unpredictability of future clinical trial results may prevent us from obtaining regulatory approval to market exebacase or any other product candidate, which would significantly harm our business. In addition, disruptions caused by the pandemic may increase the likelihood that we encounter such difficulties or delays in obtaining regulatory review and approval. Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

Before obtaining marketing approval from regulatory authorities for the sale of exebacase or any other product candidate, we must complete preclinical development, perform extensive process validation and complete the manufacturing of our initial commercial supply of product to demonstrate robustness, stability, purity and potency of our drug product, and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

 

 

 

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If we are required to conduct additional clinical trials or other testing of exebacase or any other product candidate that we develop beyond those that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

 

 

 

 

 

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or may allow our competitors to bring products to market before we do and may impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the European Union, or EU, recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials Directive required a separate clinical trial application, or CTA to be submitted in each member state, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application to all member states concerned. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. For clinical trials whose CTA was made under the Clinical Trials Directive before January 31, 2022, the Clinical Trials Directive will continue to apply on a transitional basis for three years. Additionally, sponsors may still choose to submit a CTA under either the Clinical Trials Directive or the CTR until January 31, 2023 and, if authorized, those will be governed by the Clinical Trials Directive until January 31, 2025. By that date, all ongoing trials will become subject to the provisions of the CTR. Compliance with the CTR requirements by us and our third-party service providers, such as CROs, may impact our developments plans.

 

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It is currently unclear to what extent the United Kingdom, or UK, will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the UK Medicines and Healthcare Regulatory Agency, or MHRA, launched an eight-week consultation on reframing the UK legislation for clinical trials. The consultation closes on March 14, 2022 and aims to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The outcome of the consultation will be closely watched and will determine whether the UK chooses to align with the regulation or diverge from it to maintain regulatory flexibility. A decision by the UK not to closely align its regulations with the new approach that will be adopted in the EU may have an effect on the cost of conducting clinical trials in the UK as opposed to other countries and/or make it harder to seek a marketing authorization in the EU for our product candidates on the basis of clinical trials conducted in the UK.

If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies governing clinical trials, our development plans may also be impacted.

Adverse events or other undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. It is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in previous trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by patients. Many times, side effects are only detectable after investigational products are tested in large-scale clinical trials or, in some cases, after they are made available to patients on a commercial scale following approval. For example, it is possible that exposure to exebacase could result in adverse clinical events such as localized inflammation in the region surrounding blood vessels, or having a hypersensitivity reaction, such as serum sickness or anaphylaxis.

If any serious adverse events occur, clinical trials or commercial distribution of any product candidates or products we develop could be suspended or terminated, and our business could be seriously harmed. Treatment-related side effects could also affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims. Regulatory authorities could order us to cease further development of, deny approval of, or require us to cease selling any product candidates or products for any or all targeted indications. If we are required to delay, suspend or terminate any clinical trial or commercialization efforts, the commercial prospects of such product candidates or products may be harmed, and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated. Additionally, if one or more of our product candidates receives marketing approval and we or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result, including but not limited to:

 

 

 

 

 

 

 

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could seriously harm our business.

 

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Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. These trials and other trials we conduct may be subject to delays for a variety of reasons, including as a result of patient enrollment taking longer than anticipated, patient withdrawal or adverse events. These types of developments could cause us to delay the trial or halt further development.

Our clinical trials will compete with other clinical trials that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, as some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators and clinical trial sites is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. In addition, there may be limited patient pools from which to draw for clinical studies. In addition to the rarity of some diseases, the eligibility criteria of our clinical studies will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure or to assure their disease is either severe enough or not too advanced to include them in a study. Patient enrollment depends on many factors, including:

 

 

 

 

 

 

 

 

 

 

 

These factors may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. In addition, our Phase 3 DISRUPT clinical trial has experienced, and continues to experience, some delays in patient enrollment as a result of the pandemic, as some clinical sites in high impact areas have delayed new patient enrollment as dictated by local conditions. Such delays have impacted and could further adversely affect the expected timelines for our product development and approval process and may adversely affect our business, financial condition and results of operations. Delays in the completion of any clinical trial of our product candidates increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Under our various license agreements with Rockefeller, we are obligated to use our diligent efforts to develop and commercialize licensed products, including exebacase. Rockefeller may terminate the agreement in the event of our breach of the terms of the license agreements. In the event of such termination, Rockefeller has the right to retain its license and other rights under the agreement, subject to continuing royalties and other obligations. Our breach of the agreement, including of any milestone payment, and Rockefeller’s subsequent termination of the agreement, could result in the loss of our rights to develop and commercialize exebacase, which would seriously harm our ability to generate revenues or achieve profitability.

 

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We have relied and will continue to rely on CROs for the execution of our preclinical and clinical studies and to recruit patients and monitor and manage data for our clinical programs for exebacase or any other product candidate. We control only certain aspects of our CROs’ activities, but we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards. Our reliance on the CROs does not relieve us of these regulatory responsibilities. We and our CROs are required to comply with the FDA’s regulations and GCPs requirements, which are regulations and guidelines enforced by the FDA and comparable regulatory authorities meant to protect the rights and health of clinical trial subjects. The FDA and comparable regulatory authorities enforce their regulations and GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA (or similar foreign authorities) may require us to perform additional clinical trials before approving our product candidates. We cannot assure you that, upon inspection, the FDA (or similar foreign authorities) will determine that any of our clinical trials comply with GCPs. In addition, to evaluate the safety and effectiveness of exebacase or any other product candidate to a statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail to comply with these regulations or recruit a sufficient number of patients, we may have to repeat clinical trials, which would delay the regulatory approval process.

In addition, our CROs are not our employees and we cannot control whether or not they devote sufficient time and resources to our preclinical or clinical programs. Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize exebacase or any other product candidate that we seek to develop. As a result, our financial results and the commercial prospects for exebacase or any other product candidate that we seek to develop would be harmed, our costs could increase and our ability to generate revenues could be delayed or ended.

If any of our relationships with these CROs change or terminate, we may not be able to enter into arrangements with alternative CROs or clinical study management organizations, or be able to do so on commercially reasonable terms. Switching or adding additional CROs or other clinical study management organizations involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO or clinical study management organization commences work. As a result, delays could occur, which could compromise our ability to meet our desired development timelines.

We have received Breakthrough Therapy designation for exebacase for the treatment of for the treatment of MRSA bacteremia, including right-sided endocarditis, when used in addition to SOC anti-staphylococcal antibiotics in adult patients, and we may seek Breakthrough Therapy designation for our other product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed in early clinical development. For drugs or biologics that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for clinical development. Drugs or biologics designated as Breakthrough Therapies by the FDA are also eligible for rolling review of the associated marketing application, meaning that the agency may review portions of the marketing application before the sponsor submits the complete application, as well as priority review, if the relevant criteria are met.

Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. The receipt of a Breakthrough Therapy Designation for a product candidate, including for exebacase, may not result in a faster development process, review or approval compared to conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, not all products designated as Breakthrough Therapies ultimately will be shown to have the substantial improvement over available therapies suggested by the preliminary clinical evidence at the time of designation. As a result, if the Breakthrough Therapy Designation for exebacase we have received or any future designation we receive is no longer supported by subsequent data, the FDA may rescind the designation.

 

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We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture exebacase or any other product candidates. We rely, and expect to continue to rely, on third-party manufacturers for the production of our product candidates for preclinical studies and clinical trials under the guidance of members of our organization. For example, we employ the services of Fujifilm UK to supply the active pharmaceutical ingredient for exebacase. We have not yet validated the manufacturing processes or contractually secured our commercial supplies. We do not currently have long-term supply agreements. Furthermore, the raw materials for our product candidates are sourced, in some cases, from a single-source supplier. If we were to experience an unexpected loss of supply of any of our product candidates or any of our future product candidates for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials. For example, on January 21, 2021, the President of the United States signed an executive order entitled “Executive Order on a Sustainable Public Health Supply Chain” (the “Executive Order”) which “directs immediate actions to secure supplies necessary for responding to the pandemic, so that supplies are available, and remain available to the Federal Government and State, local, Tribal and territorial authorities, as well as to America’s health care workers, health systems, and patients. The DPA, which empowers the President to issue the Executive Order, allows him to direct private companies to prioritize orders from the federal government. The Executive Order directed the President’s administration to identify shortfalls in the supply of materials needed for the pandemic response, and to use the DPA to address them, if necessary. The extent to which the pandemic and the invocation of the DPA impacts our ability to procure sufficient supplies for the development or manufacture of our products and product candidates will depend on the severity and duration of the spread of the virus, and any actions undertaken to contain or treat its effects.

We expect to continue to rely on third-party manufacturers for the commercial supply of any of our product candidates for which we obtain marketing approval. We may be unable to maintain or establish required agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

 

 

 

 

 

 

 

 

 

In the fourth quarter of 2020, we were notified by Fujifilm UK that they experienced equipment failures that would impact their manufacturing timelines. As a result, we successfully transferred manufacturing to Fujifilm USA and expect to complete the process validation and initial commercial manufacturing of drug substance with Fujifilm USA in support of a potential BLA submission for exebacase. We may still experience delays to the manufacturing timeline.

 

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If Fujifilm UK, Fujifilm USA, or any alternate supplier of an active pharmaceutical ingredient, or any supplier of finished drug product for our product candidates, experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of its agreement with us or does not devote sufficient time, energy and care to providing our manufacturing needs, we may experience delays. Moreover, as a result of the pandemic, third-party manufacturers may be affected, which could disrupt their activities and, as a result, we could face difficulty sourcing key components necessary to produce supply of our product candidates. As a result, we could experience significant interruptions in the supply of our product candidates, which could impair our ability to supply our product candidates at the levels required for our clinical trials or commercialization and prevent or delay its successful development or commercialization. For example, a lot of the exebacase investigational drug product did not meet manufacturing release specifications, resulting in the delay of our Phase 2 study.

We do not have complete control over all aspects of the manufacturing process of, and are dependent on, our contract manufacturing partners, in particular Fujifilm UK and Fujifilm USA, for compliance with cGMP or similar regulations for manufacturing both active drug substances and finished drug products. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or foreign regulatory authorities, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or drugs and harm our business and results of operations.

The pharmaceutical and biotechnology industries are intensely competitive. We compete directly and indirectly with other pharmaceutical companies, biotechnology companies and academic and research organizations in developing therapies to treat diseases. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. We compete with companies that have products on the market or in development for the same indications as our product candidates. We may also compete with organizations that are developing similar technology platforms. Competitors may develop more effective, more affordable or more convenient products or may achieve earlier patent protection or commercialization of their products. These competing products may render our product candidates obsolete or limit our ability to generate revenue from our product candidates. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less costly than exebacase and our other product candidates.

Even if exebacase or any other product candidates that we develop is approved by the appropriate regulatory authorities for marketing and sale, physicians may not prescribe the approved product. Market acceptance of exebacase or any other product candidate that we develop by physicians, patients and payors will depend on a number of factors, many of which are beyond our control, including:

 

 

 

 

 

 

 

 

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Coverage and reimbursement may not be available for exebacase or any other product candidates that we develop, which could make it difficult for us to sell our products profitably.

We currently have no marketing and sales organization and have no experience in marketing drug products. If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

We may form or seek strategic alliances in the future, and we may not realize the benefits of such alliances.

non-recurring

near-and

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

top-line