First Wave BioPharma, Inc. - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For the fiscal year ended December 31, 2021

or

 For the transition period from ___________ to  ___________

Commission file Number 001-37853

FIRST WAVE BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)

777 Yamato Road, Suite 502

 (Address of principal executive offices)

 (Registrant’s telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 S-T (§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 ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on June 30, 2021, which is the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the Nasdaq Capital Market on such date, was approximately $67.1 million.

There were 16,700,640 shares of the registrant’s common stock, par value $0.0001 per share (the “Common Stock”), outstanding as of March 28, 2022.

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		Page
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	29
Item 1B.	Unresolved Staff Comments	54
Item 2.	Properties	55
Item 3.	Legal Proceedings	55
Item 4.	Mine Safety Disclosures	55
PART II		55
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	55
Item 6.	Reserved	57
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 8.	Financial Statements and Supplementary Data	65
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	65
Item 9A.	Controls and Procedures	65
Item 9B.	Other Information	66
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	66
PART III		67
Item 10.	Directors, Executive Officers and Corporate Governance	67
Item 11.	Executive Compensation	73
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	78
Item 13.	Certain Relationships and Related Transactions, and Director Independence	83
Item 14.	Principal Accountant Fees and Services	84
PART IV		86
Item 15.	Exhibits and Financial Statement Schedules	86
Item 16.	Form 10-K Summary	88
Signatures		89
Index to Consolidated Financial Statements		F-1

●	our ability to regain and maintain compliance with the continued listing requirements of the Nasdaq Capital Market;

●	our ability to satisfy our payment obligations under the First Wave Acquisition (as defined below);

●

statements regarding the impact of the COVID-19 pandemic and other geopolitical events, including the war in Ukraine and their effects on our operations, access to capital, research and development and clinical trials and potential disruption in the operations and business of third-party vendors, contract research organizations (“CROs”), contract development and manufacturing organizations (“CDMOs”), other service providers, and collaborators with whom we conduct business;

●	our current and future capital requirements and our ability to raise additional funds to satisfy our capital needs;

●	the integration and effects of our acquisitions, including the First Wave Acquisition, and other strategic transactions;

●	the accuracy of our estimates regarding expense, future revenue and capital requirements;

●	our ability to continue operating as a going concern;

●	our plans to develop and commercialize our product candidates, including niclosamide and the biologic  adrulipase (formerly MS1819);

●	our ability to initiate and complete our clinical trials and to advance our principal product candidates into additional clinical trials, including pivotal clinical trials, and successfully complete such clinical trials;

●	regulatory developments in the U.S. and foreign countries;

●	the performance of our third-party vendor(s), CROs, CDMOs and other third-party non-clinical and clinical development collaborators and regulatory service providers;

●	our ability to obtain and maintain intellectual property protection for our core assets;

●	the size of the potential markets for our product candidates and our ability to serve those markets;

●	the rate and degree of market acceptance of our product candidates for any indication once approved;

●	the success of competing products and product candidates in development by others that are or become available for the indications that we are pursuing;

●	the loss of key scientific, clinical and nonclinical development, and/or management personnel, internally or from one of our third-party collaborators; and

●	other risks and uncertainties, including those listed under Part I, Item 1A., “Risk Factors” of this Annual Report.

ITEM 1.

BUSINESS

(i)

it has a reduced particle size (D(90) between 5 and 9 µM) as compared to regular non-micronized niclosamide (approximately D(90) ≥ 60µM) with greater surface to solvent ratio;

(ii)

low oral bio-availability with minimal systemic absorption / exposure;

(iii)

improved dissolution with broader distribution allowing for higher local GI concentrations (up to approximately 200 times based on preclinical study results); and

(iv)

it exhibits anti-inflammatory effects while avoiding steroid-related complications and adverse events.

●	devote sufficient personnel and facilities required for the performance of its assigned tasks;

●	make available appropriately qualified personnel to supervise, analyze and report on the results obtained in the furtherance of the development program; and

●	deploy such scientific, technical, financial and other resources as is necessary to conduct the development program.

(i)	we assumed certain of Mayoly’s liabilities with respect to adrulipase;

(ii)	we assumed all amounts currently owed to AzurRx SAS by Mayoly under the JDLA;

(iii)

we agreed to pay, within 30 days after the execution of the Mayoly APA, all amounts incurred by Mayoly for the maintenance of patents related to adrulipase from January 1, 2019 through the date of the Mayoly APA;

(iv)	we made an initial payment to Mayoly of €800,000, which amount was paid by the issuance of 40,048 shares of Common Stock at a price of $22.90 per share (the “Closing Payment Shares”); and

(v)

we agreed to pay to Mayoly an additional €1,500,000, payable in a mix of cash and shares of Common Stock as follows (the “ Milestone Payments”): (i) on December 31, 2019, a cash payment of €400,000 and 20,024 shares of Common Stock (the “2019 Escrow Shares”) and (ii) on December 31, 2020, a cash payment of €350,000 and 17,521 shares of Common Stock (the “2020 Escrow Shares” and, together with the 2019 Escrow Shares, the “Escrow Shares”).

●

US10,912,746; US10,905,666; US10,292,951; US10,772,854; US10,744,103; US10,799,468; US10,849,867; and related continuation applications as well as corresponding worldwide patent filings all entitled “Methods and Compositions for Treating Conditions Associated with an Abnormal Inflammatory Process.” The expiration date of the issued patents is September 1, 2036; and

●

A PCT International application filed in 2020 and corresponding U.S. and foreign patent applications directed to compositions and methods for treating conditions characterized by an abnormal inflammatory response such as an autoimmune disorder, colitis, autoimmune colitis, an inflammatory bowel disease, Crohn’s disease and ulcerative colitis. Any national designated patent application from this filing upon issuance will have an expected expiration in 2040.

●	US10,980,756 and corresponding PCT International and foreign patent applications directed to the use of niclosamide for the treatment of COVID-19 gastrointestinal infections. The expiration of the issued patent is March 31, 2040.

●

PCT/FR2006/001352 patent family (including the patent EP2035556 and patent US8,334,130 and US8,834,867) “Method for producing lipase, transformed Yarrowia lipolytica cell capable of producing said lipase and their uses” describes a method for producing Yarrowia lipolytica acid-resistant recombinant lipase utilizing a culture medium without any products of animal origin or non-characterized mixtures such as tryptone, peptone or lactoserum, in addition to its uses. The European patents expire June 15, 2026, U.S. patent 8,334,130 expires September 11, 2028, and U.S. patent 8,834,867 expires September 15, 2026.

●	completion of extensive preclinical laboratory tests, preclinical animal studies, and toxicity data, all performed in accordance with the good laboratory practices, or GLP, regulations;

●	submission to the FDA of an IND, which must become effective before human clinical studies may begin;

●	approval by an independent IRB or ethics committee representing each clinical site before each clinical study may be initiated;

●	performance of adequate and well-controlled human clinical studies to establish the safety and efficacy, or in the case of a biologic, the safety, purity and potency, of the drug candidate for each proposed indication;

●	preparation of and submission to the FDA of a new drug application, or NDA, or biologics license application, or BLA, which must include data from required pre-clinical studies and all pivotal clinical studies and information showing that the product can be manufactured in a controlled manner;

●	a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;

●	satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the drug candidate is produced to assess compliance with cGMP; and

●	FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the drug or biologic in the United States.

●

Phase 1.  The drug or biologic is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational new drug in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.

●	Phase 2.  The drug or biologic is administered to a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse side effects and safety risks and preliminarily evaluate efficacy.

●

Phase 3.  The drug or biologic is administered to an expanded patient population, generally at geographically dispersed clinical study sites to generate enough data to statistically evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational product and to provide an adequate basis for product approval.

●

Phase 4.  In some cases, the FDA may condition approval of an NDA or BLA for a drug candidate on the sponsor’s agreement to conduct additional clinical studies after approval. In other cases, a sponsor may commit to conducting or voluntarily conduct additional clinical studies after approval to gain more information about the drug. Such post-approval studies are typically referred to as Phase 4 clinical studies.

●	restrictions on the marketing or manufacturing of the product;

●	complete withdrawal of the product from the market or product recalls;

●	fines, warning letters or holds on post-approval clinical studies;

●	refusal of the FDA to approve pending NDAs or BLAs or supplements to approved NDAs or BLAs, or suspension or revocation of product licenses or approvals;

●	product seizure or detention, or refusal to permit the import or export of products; or

●	injunctions or the imposition of civil or criminal penalties.

●	the product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition;

●

the prevalence of the conditions is not more than five in ten thousand persons in the European Union when the application is made, or that it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the necessary investment; and

●	that there is no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, that the drug will be of significant benefit to those affected by that condition.

●	the holder of the MA for the original orphan drug has given its consent to the second applicant;

●	the holder of the MA for the original orphan drug is unable to supply sufficient quantities of the drug; or

●	the second applicant can establish in the application that the second drug, although similar to the orphan drug already authorized, is safer, more effective or otherwise clinically superior.

ITEM 1A.

RISK FACTORS

●	We have never generated any product revenues.

●	We expect to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

●	We will need substantial additional funding, and certain terms included in our financing transactions may restrict our ability to raise such capital at the times and in the manner we may require.

●	To date, most of our development activities have been focused on our niclosamide and adrulipase product candidates, which are still under clinical development, and if niclosamide and adrulipase do not receive regulatory approval or is not successfully commercialized, our business will be harmed.

●	The COVID-19 pandemic and other geopolitical events, including the war in Ukraine could adversely impact our business, including our clinical trials.

●	We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our product candidates.

●	Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome.

●	We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

●	We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our product candidates.

●	We intend to rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

●	If we are unable to obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

●	We do not currently intend to pay dividends on our Common Stock in the foreseeable future, and consequently, any gains from an investment in our Common Stock will likely depend on appreciation in the price of our Common Stock.

●	continuing to undertake pre-clinical development and clinical trials;

●	participating in regulatory approval processes;

●	formulating and manufacturing products; and

●	conducting sales and marketing activities.

●	disagreement with the design or implementation of our clinical trials;

●	failure to demonstrate to their satisfaction that a product candidate is safe and effective for any indication;

●	failure to accept clinical data from trials which are conducted outside their jurisdiction;

●	the results of clinical trials may not meet the level of statistical significance required for approval;

●	we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

●	such agencies may disagree with our interpretation of data from preclinical studies or clinical trials;

●	failure to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; or

●	changes in the approval policies or regulations of such agencies may significantly change in a manner rendering our clinical data insufficient for approval.

●	the patient eligibility criteria defined in the protocol;

●	the size of the patient population;

●	the proximity and availability of clinical trial sites for prospective patients;

●	obtaining regulatory clearance to commence a clinical trial;

●	identifying, recruiting and training suitable clinical investigators;

●	reaching agreement on acceptable terms with prospective clinical research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time and may vary significantly among different CROs and trial sites;

●	obtaining sufficient quantities of investigational product (“IP”) for our product candidates for use in clinical trials;

●	obtaining Institutional Review Board (“IRB”) or ethics committee approval to conduct a clinical trial at a prospective site;

●	identifying, recruiting and enrolling patients to participate in a clinical trial, including delays and/or interruptions resulting from geo-political actions, such as the war in Ukraine, disease or public health epidemics, such as the coronavirus, or natural disasters;

●	retaining patients who have initiated a clinical trial but may withdraw due to adverse events from the therapy, insufficient efficacy, changing clinical protocols, fatigue with the clinical trial process, or personal issues;

●	retaining patients who may not follow the clinical trial protocols due to factors including the coronavirus epidemic; and

●	availability of funds.

●	deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;

●	deficiencies in the clinical trial operations or trial sites;

●	the product candidate may have unforeseen adverse side effects;

●	deficiencies in the trial design necessary to demonstrate efficacy;

●	fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;

●	the product candidate may not appear to be more effective than current therapies; or

●	the quality or stability of the product candidate may fall below acceptable standards.

●	the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

●	we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

●	the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

●	the FDA or comparable foreign regulatory authorities may fail to hold to previous agreements or commitments;

●	the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;

●	the FDA or comparable foreign regulatory authorities may fail to approve our product candidates;

●	invest significant additional cash in each of the above activities; and

●	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

●	regulatory authorities may withdraw approvals of such product;

●	regulatory authorities may require additional warnings in the product’s labeling;

●	we may be required to create a medication guide for distribution to patients that outlines the risks of such side effects;

●	we could be sued and held liable for harm caused to patients; and

●	our reputation may suffer.

●	the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

●	the inability to demonstrate effectively that the clinical and other benefits of a product candidate outweigh any safety or other perceived risks;

●	conducting clinical utility studies of our product candidates to demonstrate economic usefulness to providers and payers;

●	whether our current or future partners, support our offerings;

●	the success of the sales force and marketing effort;

●	whether healthcare providers believe our product candidates provide clinical utility relative to their cost; and

●	whether private health insurers, government health programs and other third-party payers will cover our product candidates.

●	our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

●	the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our future products;

●	the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

●	unforeseen costs and expenses associated with creating an independent sales and marketing organization.

●

the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons and entities from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;

●

the U.S. federal false claims and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;

●	the U.S. federal Health Insurance Portability and Accountability Act (“HIPAA”), which prohibits, among other things, executing a scheme to defraud healthcare programs;

●

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes requirements relating to the privacy, security, and transmission of individually identifiable health information, and requires notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;

●

the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members, which is published in a searchable form on an annual basis; and

●

state laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws that may be broader in scope and also apply to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security.

●	we may not have been the first to make the inventions covered by pending patent applications or issued patent

●	we may not have been the first to file patent applications for our product candidates or the compositions we developed or for their uses;

●	others may independently develop identical, similar or alternative products or compositions and uses thereof;

●	our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;

●	any or all of our pending patent applications may not result in issued patents;

●	we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;

●	any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages, or may be successfully challenged by third parties;

●	our compositions and methods may not be patentable;

●	hers may design around our patent claims to produce competitive products which fall outside of the scope of our patents;

●	others may identify prior art or other bases which could invalidate our patents.

●	sales or potential sales of substantial amounts of our Common Stock, including sales required for us to regain and maintain compliance with Nasdaq’s continued listing requirements;

●	delay or failure in initiating or completing pre-clinical or clinical trials or unsatisfactory results of these trials;

●	announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;

●	developments concerning our licensors or product manufacturers;

●	litigation and other developments relating to our patents or other proprietary rights or those of our competitors;

●	conditions in the pharmaceutical or biotechnology industries;

●	governmental regulation and legislation;

●	variations in our anticipated or actual operating results;

●	change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; foreign currency values and fluctuations; and

●	overall economic conditions.

●	the inability of stockholders to call special meetings;

●

the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors;

ITEM 1B.

UNRESOLVED STAFF COMMENTS

ITEM 2.

PROPERTIES

ITEM 3.

LEGAL PROCEEDINGS

ITEM 4.

MINE SAFETY DISCLOSURES

PART II

 

 

Our Common Stock is listed on the Nasdaq Capital Market, or Nasdaq, under the symbol “FWBI”.

  

Holders of Record

 

At March 28, 2022, there were 16,700,640 shares of our Common Stock issued and outstanding and approximately 161 stockholders of record.

 

Dividends

 

We did not declare any dividends on our Common Stock for the years ended December 31, 2021 and 2020, respectively. Our board of directors does not intend to distribute dividends in the future. Instead, we plan to retain any earnings to finance the development of our product candidates and expansion of our business. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

Future cash dividends, if any, will be at the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our board of directors may deem relevant. We can pay dividends only out of our profits or other distributable reserves and dividends or distribution will only be paid or made if we are able to pay our debts as they fall due in the ordinary course of business.

 

Cumulative dividends on the shares of Series B Preferred Stock accrue at the rate of 9% of the Stated Value per annum, payable semi-annually on June 30 and December 31 of each year, commencing on December 31, 2020. Dividends are payable in additional shares of Series B Preferred Stock valued at the Stated Value or in cash at our sole option.

 

Unregistered Sales of Equity Securities

 

During the year ended December 31, 2021, there were no other sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Report on Form 10-Q.

 

 

 

You should read the following discussion and analysis in conjunction with our consolidated financial statements, including the notes thereto contained in this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under “Risk Factors Associated with Our Business” and elsewhere in this Annual Report.

 

Overview

 

We are engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e. in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.

Our adrulipase programs are focused on the development of an oral, non-systemic, biologic capsule for the potential treatment of exocrine pancreatic insufficiency (“EPI”) in patients with cystic fibrosis (“CF”) and chronic pancreatitis (“CP”). Our goal is to provide CF and CP patients with a safe and effective therapy to control EPI that is non-animal derived and offers the potential to dramatically reduce their daily pill burden.

We are developing our product candidates for a host of GI diseases where we believe there are significant unmet clinical needs and limited therapeutic options, resulting in painful, life threatening and discomforting consequences for patients. Our mission is to help protect the health and restore quality of life for the millions of people afflicted by these GI diseases.

 

COVID-19 Update

 

In March 2020, the WHO declared the novel coronavirus disease, or COVID-19, outbreak a global pandemic. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Beginning in March 2020, the majority of our workforce began working from home. Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, including delayed enrollment of new patients at certain of our clinical trial sites, and may further disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. As a result, our expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities.

 

We have implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments. Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve.

 

Financial Operations Overview

 

Revenue

 

  

Research and Development Expense

 

Conducting research and development is central to our business. Historically, the majority of our research and development expenses have been focused on the development of adrulipase and the acquisition and development of niclosamide.

 

Research and development expenses consist primarily of internal and external costs incurred for our development activities, which include, among other things:

 

 

 

 

 

 

 

 

Costs incurred in connection with research and development activities are expensed as incurred.

 

 

The probability of success for any of our current or future product candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.

 

We do not record or maintain information regarding costs incurred in research and development on a program or project specific basis. Our research and development staff, outside consultants, contractors, CROs, and CDMOs are deployed across several programs and/or indications. Additionally, many of our costs are not attributable to individual programs and/or indications. Therefore, we believe that allocating costs on the basis of time incurred by our personnel does not accurately reflect the actual costs of a project.

General and Administrative Expense

 

 

 

Liquidity and Capital Resources

 

To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities.

 

 

 

 

Our ability to issue securities is subject to market conditions. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

On September 13, 2021, we entered into the Merger Agreement with FWB. At the effective time of the Merger, the former FWB stockholders received an applicable pro rata share of (i) $3.0 million in cash and (ii) 624,025 shares of the Common Stock. The remaining non-contingent purchase price was payable to the former FWB stockholders on a pro rata basis upon our payment of (i) $8.0 million in cash, payable within 45 days of the Merger and, (iii) $7.0 million in cash, payable by March 31, 2022.

On October 29, 2021, Fortis Advisors LLC, the hired representative (in such capacity, the “Representative”) of the former stockholders of FWB, in connection with the Merger Agreement filed a complaint against us in the Court of Chancery of the State of Delaware, seeking to enforce rights to payment of $8.0 million due October 28, 2021, pursuant to the Merger Agreement and the $2 million milestone payment for initiation of the FW-UP Part 2 trial.  On November 15, 2021, we reached an agreement with the Representative to settle the litigation, under terms that, among other things, involve a substantial reduction in immediate payment obligations and deferrals of certain remaining milestone and other payment obligations over time, with an immediate payment of $2.0 million for the milestone and periodic installments of $500,000 per month payable from January 2022 through August 2022 and $1.0 million per month payable from September 2022 through July 2023 until an aggregate of $17.0 million is received.

  

Consolidated Results of Operations for the Years Ended December 31, 2021 and 2020

 

The following table summarizes our consolidated results of operations for the periods indicated:

		Years Ended December 31,								Increase
		2021				2020				(decrease)
Operating expenses:
Research and development expenses		$	16,994,828			$	5,888,004			$	11,106,824
Research and development expenses - Intellectual property acquired			21,325,527				13,250,000				8,075,527
General and administrative expenses			18,384,545				7,294,764				11,089,781
Intangible asset impairment			2,351,988				-				2,351,988
Total operating expenses			59,056,888				26,432,768				32,624,120
Other expenses (income)			(519,039	)			6,238,698				(6,757,737	)
Net loss		$	58,537,849			$	32,671,466			$	25,866,383

Revenues

 

We have not yet achieved revenue-generating status from any of our product candidates. Since inception, we have devoted substantially all of our time and efforts to acquiring and developing our product candidates, including niclosamide and adrulipase. As a result, we did not have any revenue during the years ended December 31, 2021 and 2020, respectively.

 

Research and Development Expenses

 

The increase in research and development expenses, excluding expenses related to the acquired intellectual property, was primarily attributable to increases of approximately $4.4 million in clinical trial related expenses in connection with the FW-COV and FW-UP niclosamide studies and completion of the OPTION 2 and Combination studies for adrulipase, approximately $3.0 million in milestone payments to FWB related to the development of niclosamide, approximately $1.3 million in CMC related costs, approximately $1.1 million in clinical and regulatory related costs, and approximately $0.6 million in other expenses. 

The increase in research and development expenses for acquired intellectual property was primarily attributable to $8.1 million of additional expense related to the acquisition of our niclosamide drug candidates through the Merger entered into on September 13, 2021, as compared to the license agreement entered into on December 31, 2020,

General and Administrative Expense

 

 

 

Other Expense (Income)

 

Other expenses (income) for the year ended December 31, 2021 totaled approximately $(0.5) million, a decrease in expenses of approximately $6.8 million over the approximately $6.3 million recorded for the year ended December 31, 2020. Interest expense was approximately $0 million and $5.8 million for the year ended December 31, 2021 and 2020, respectively. The decreased interest expense is due to amortization of debt discount and accrued interest related to the convertible debt outstanding during the year ended December 31, 2020, that was not outstanding during the year ended December 31, 2021.

 

Net Loss

 

As a result of the factors above, our net loss for the year ended December 31, 2021 totaled approximately $56.2 million, an increase of approximately $23.5 million, or 72% over the approximately $32.7 million recorded for the year ended December 31, 2020.

 

Cash Flows for the Years Ended December 31, 2021 and 2020

 

The following table summarizes our cash flows for the periods indicated:

		Years Ended December 31,
		2021				2020
Net cash provided by (used in):
Operating activities		$	(32,288,218	)		$	(11,221,538	)
Investing activities			(10,319,488	)			87,350
Financing activities			44,763,493				17,046,121
Net increase in cash and cash equivalents		$	2,155,787			$	5,911,933

Operating Activities

 

Net cash used in operating activities during the year ended December 31, 2020 of approximately $11.2 million was primarily attributable to our net loss of approximately $32.7 million adjusted for addbacks of non-cash expenses of approximately $7.3 million, which includes accretion of debt discount of approximately $4.6 million, loss on debt extinguishment of approximately $0.6 million, amortization of approximately $0.5 million, and stock-based compensation of approximately $0.5 million and a net increase of working capital of approximately $14.2 million.

 

Investing Activities

 

Net cash provided by investing activities during the year ended December 31, 2020 of approximately $87,000 was primarily attributable to the sale of equipment related to the closure of our laboratory in France.

 

Financing Activities

 

 

Stock-Based Compensation

 

We account for share-based payment awards issued to employees and members of our Board by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation using a straight-line basis over the requisite service period, generally the vesting period.  For awards issued to non-employees, the measurement date is the date when the performance is complete or when the award vests, whichever is the earliest. Accordingly, non-employee awards are remeasured at each reporting period until the final measurement date. The fair value of the award is recognized as stock-based compensation over the requisite service period, generally the vesting period.

 

Debt and Equity Instruments

 

We analyze debt and equity instruments for various features that would generally require either bifurcation and derivative accounting, or recognition of a debt discount or premium under authoritative guidance.

 

Detachable warrants issued in conjunction with debt are measured at their relative fair value, if they are determined to be equity instrument, or their fair value, if they are determined to be liability instruments, and recorded as a debt discount.

 

Conversion features that are in the money at the commitment date constitute a beneficial conversion feature that is measured at its intrinsic value and recognized as debt discount or deemed dividend. Debt discount is amortized as interest expense over the maturity period of the debt using the effective interest method.

 

Intangible Assets

 

Our definite-lived intangible assets had a carrying value of approximately $0 and $2.9  million at December 31, 2021, and 2020, respectively. These assets include patents, in-process research and development and license agreements. These intangible assets were recorded at historical cost and are stated net of accumulated amortization.

 

The patents, in-process research and development and licenses are amortized over their remaining estimated useful lives, ranging from 5 to 12 years, based on the straight-line method. The estimated useful lives directly impact the amount of amortization expense recorded for these assets on a quarterly and annual basis.

Goodwill

 

Not applicable.

 

 

The audited consolidated financial statements of First Wave BioPharma, Inc., including the notes thereto, together with the report thereon of Mazars USA LLP, our independent registered public accounting firm, are included in this Annual Report as a separate section beginning on page F-1.

 

 

None.

 

 

Evaluation of disclosure controls and procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of December 31, 2021, our senior management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our senior management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of December 31, 2021 our disclosure controls and procedures were effective at the reasonable assurance level.

 

Management’s Annual Report on Internal Control over Financial Reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

 

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate as a result of changes in conditions or deterioration in the degree of compliance.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) issued in May 2013 and related COSO guidance. Based on our evaluation under this framework, management has concluded that, as of December 31, 2021, our internal control over financial reporting was effective based upon those criteria.

 

This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

 

Changes in Internal Controls over Financial Reporting.

 

There were no significant changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

None.

 

Not applicable.

PART III

 

 

Directors

The following section sets forth certain information regarding our directors. There are no family relationships between any of the directors and our Named Executive Officers.

 

Director, Title		Age
James Sapirstein – President, Chief Executive Officer, Chairman and Non-Independent Director		60
Edward J. Borkowski – Lead Independent Director		62
Charles J. Casamento – Independent Director		76
Alastair Riddell, MSc., MBChB., DSc. – Independent Director		72
Gregory Oakes – Independent Director		53
Terry Coelho – Independent Director		60

   

 

Mr. Sapirstein’s nearly 36 years of pharmaceutical industry experience which spans areas such as drug development and commercialization, including participation in 23 product launches, six of which were global launches led by him makes him a valuable asset to the Board and in his oversight and execution of our business plan.

 

 

Mr. Borkowski’s extensive healthcare and financial expertise, together with his public company experience provides the Board and management with valuable insight in the growth of our business plan. 

 

 

Mr. Casamento’s expertise and knowledge of the financial community combined with his experience in the healthcare sector makes him a valued member of the Board.

 

 

Dr. Riddell’s medical background coupled with his expertise in the life sciences industry, directing all phases of clinical trials, before moving to sales, marketing and general management, makes him a well-qualified member of the Board.

 

 

Mr. Oakes’ background of over 25 years of pharmaceutical industry and leadership experience combined with broad experience in pharmaceutical commercialization and acquisitions makes him a qualified member of the Board.

Ms. Coelho was selected as a director due to her financial background and experience as a senior financial officer of public companies.

Executive Officers

The following table sets forth information regarding our current executive officers as appointed by the Board, each to serve in such position until their respective successors have been duly appointed and qualified or until their earlier death, resignation or removal from office. Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers.

 

 

Our executive officers are appointed by and serve at the discretion of the Board, subject to the terms of any employment agreements they may have with us. The following is a brief description of the qualifications and business experience of each of our current executive officers.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

Delinquent Section 16(a) Reports

Code of Business Conduct and Ethics

 

The Board adopted a code of business conduct and ethics (the “Code”) that applies to our directors, officers and employees. A copy of this Code is available on our website at www.firstwavebio.com/investors. We intend to disclose on our website any amendments to and waivers of the Code that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. 

Director Nomination Process

 

The Corporate Governance and Nominating Committee identifies director nominees by first considering those current members of the Board who are willing to continue service. Current members of the Board with skills and experience that are relevant to our business and are willing to continue their service as a director are considered for re-election, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Nominees for director are selected by a majority of the members of the Board. Although we do not have a formal diversity policy, in considering the suitability of director nominees, the Corporate Governance and Nominating Committee considers such factors as it deems appropriate to develop a Board and its committees that are diverse in nature and comprised of experienced and seasoned advisors. Factors considered by the Corporate Governance and Nominating Committee include sound judgment, knowledge, skill, diversity, integrity, experience with businesses and other organizations of comparable size, including experience in the biopharma industry, clinical studies, FDA compliance, intellectual property, business, finance, administration or public service, the relevance of a candidate’s experience to our needs and experience of other Board members, experience with accounting rules and practices, the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members, and the extent to which a director candidate would be a desirable addition to the Board and its committees.

Board Committees

 

The standing committees of the Board consist of the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee. Our Board has adopted written charters for each of these committees, copies of which are available on our website at www.firstwavebio.com/investors. Our Board may establish other committees as it deems necessary or appropriate from time to time.

 

Audit Committee

 

The duties and responsibilities of the Audit Committee include but are not limited to:

 

 

 

 

 

 

 

 

 

 

Compensation Committee

 

The duties and responsibilities of the Compensation Committee include but are not limited to:

 

 

 

 

 

 

Corporate Governance and Nominating Committee

 

The duties and responsibilities of the Corporate Governance and Nominating Committee include but are not limited to:

 

 

 

 

 

Summary Compensation

 

The table set forth below reflects certain information regarding the compensation paid or accrued during the years ended December 31, 2021 and 2020 to our Chief Executive Officer and our executive officers, other than our Chief Executive Officer, who were serving as an executive officer as of December 31, 2021, and whose annual compensation exceeded $100,000 during such year (collectively the “Named Executive Officers”).

Executive Compensation

 

 

 

 

Employment Arrangements and Potential Payments upon Termination or Change of Control

 

Current Named Executive Officers

 

 

In the event that Mr. Sapirstein’s employment is terminated by us for Cause, as defined in his employment agreement, or by Mr. Sapirstein voluntarily, then will not be entitled to receive any payments beyond amounts already earned, and any unvested equity awards will terminate. In the event that Mr. Sapirstein’s employment is terminated as a result of an Involuntary Termination Other than for Cause, as defined in the Agreement, Mr. Sapirstein will be entitled to receive the following compensation: (i) severance in the form of continuation of his salary (at the Base Salary rate in effect at the time of termination, but prior to any reduction triggering Good Reason) for a period of 12 months following the termination date; (ii) payment of Executive’s premiums to cover COBRA for a period of 12 months following the termination date; and (iii) a prorated annual bonus.

 

 

 

 

Outstanding Equity Incentive Awards at Fiscal Year-End

 

The following table sets forth information regarding unexercised options, stock that has not vested and equity incentive awards held by each of the Named Executive Officers outstanding as of December 31, 2021 and 2020:

 

 

 

On June 30, 2021, the Board rescinded and cancelled certain stock option awards previously made under the 2014 Plan (the “Prior Schneiderman Awards”) to Mr. Schneiderman and issued new stock options awards (the “New Schneiderman Awards”) under the 2020 Plan in an equivalent amount and with equivalent exercise price, vesting and expiration terms to the Prior Schneiderman Awards. The terms of the New Schneiderman Awards covering 28,500 shares of the Common Stock at an exercise price of $8.50 per share comprised of (i) stock options to purchase 25,000 shares of Common Stock, of which options to purchase 7,986 shares of Common Stock vested immediately upon the grant of such options and the remaining options to purchase 17,014 shares of Common Stock will vest over a term of 2 years and 1 month in 25 equal monthly installments, and (ii) options to purchase 3,500 shares of Common Stock, of which options to purchase 1,750 shares of Common Stock vested immediately upon the grant of such options and the remaining options to purchase 1,750 shares of Common Stock vest over a term of 19 months in 19 equal monthly installments.

Non-Executive Director Compensation