Matinas BioPharma Holdings, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2022

OR

For the transition period from         to         

Commission File Number: 001-38022

MATINAS BIOPHARMA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

1545 Route 206 South, Suite 302

Bedminster, New Jersey 07921

(Address of principal executive offices) (Zip Code)

908-484-8805

(Registrant’s telephone number, including area code)

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

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

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 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, a 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.

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 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2022, there were 216,864,526 shares of the registrant’s common stock, $0.0001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

MATINAS BIOPHARMA HOLDINGS, INC.

Form 10-Q

Quarter Ended September 30, 2022

Table of Contents

Matinas BioPharma Holdings, Inc.

Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements

Matinas BioPharma Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Unaudited

The accompanying notes are an integral part of these condensed consolidated financial statements

Matinas BioPharma Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Unaudited

The accompanying notes are an integral part of these condensed consolidated financial statements

Matinas BioPharma Holdings, Inc.

Condensed Consolidated Statements of Cash Flow

Unaudited

The accompanying notes are an integral part of these condensed consolidated financial statements

MATINAS BIOPHARMA HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(Tabular dollars and shares in thousands, except per share data)

Note 1 – Description of Business

Matinas BioPharma Holdings Inc. (“Holdings”) is a Delaware corporation formed in 2013. Holdings is the parent company of Matinas BioPharma, Inc. (“BioPharma”), and Matinas BioPharma Nanotechnologies, Inc. (“Nanotechnologies,” formerly known as Aquarius Biotechnologies, Inc.), its operating subsidiaries (“Nanotechnologies”, and together with “Holdings” and “BioPharma”, “the Company”). The Company is a clinical-stage biopharmaceutical company with a focus on identifying and developing novel pharmaceutical products.

Note 2 – Liquidity and Plan of Operations

The Company has experienced net losses and negative cash flows from operations each period since its inception. Through September 30, 2022, the Company had an accumulated deficit of approximately $149.0 million. The Company’s net loss was approximately $17.4 million for the nine months ended September 30, 2022.

The Company has been engaged in developing its lipid nanocrystal (“LNC”) platform delivery technology and a pipeline of associated product candidates, including MAT2203 and MAT2501, since 2011. To date, the Company has not obtained regulatory approval for any of its product candidates nor generated any revenue from product sales, and the Company expects to incur significant expenses to complete development of its product candidates. The Company may never be able to obtain regulatory approval for the marketing of any of its product candidates in any indication in the United States or internationally and there can be no assurance that the Company will generate revenues or ever achieve profitability.

If the Company obtains U.S. Food and Drug Administration (“FDA”) approval for one or more of its product candidates, the Company expects that its expenses will continue to increase once the Company reaches commercial launch. The Company also expects that its research and development expenses will continue to increase as it moves forward with additional clinical studies for its current product candidates and development of additional product candidates. As a result, the Company expects to continue to incur substantial losses for the foreseeable future, and that these losses will be increasing.

As of September 30, 2022, the Company had cash and cash equivalents of approximately $11.2 million, marketable debt securities of approximately $21.9 million and restricted cash of approximately $0.3 million. The Company believes the cash and cash equivalents and marketable debt securities on hand are sufficient to fund planned operations through 2023.

Note 3 – Summary of Significant Accounting Policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of Holdings and its wholly owned subsidiaries, BioPharma, and Nanotechnologies. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and reflect the operations of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

The Company’s significant accounting policies are described in Note 3 within the Company’s Notes to Consolidated Financial Statements included in the Company’s 2021 Form 10-K.

The Company’s management has considered all recent accounting pronouncements issued and believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

COVID-19

Since its emergence in 2019, COVID-19 has continued to spread and has adversely affected workforces, economies, and financial markets globally, and has and may continue to cause economic downturns.

The Company’s financial results for the three and nine months ended September 30, 2022 were not significantly impacted by COVID-19. However, the Company cannot predict the impact of the progression of COVID-19 on future results or the Company’s ability to raise capital due to a variety of factors, including but not limited to the continued good health of Company employees, the ability of service providers and suppliers to continue to operate and deliver, the ability of the Company to maintain operations, and any further government and/or public actions taken in response to COVID-19.

Note 4 – Cash, Cash Equivalents, Restricted Cash and Marketable Debt Securities

The Company considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash and cash equivalents and all investments with maturities of greater than three months from date of purchase are classified as marketable debt securities. Cash and cash equivalents consisted of cash in bank checking and savings accounts, money market funds and short-term U.S. treasury bonds that mature within three months of settlement date.

Cash, Cash Equivalents and Restricted Cash

The Company presents restricted cash with cash and cash equivalents in the Condensed Consolidated Statements of Cash Flows. Restricted cash at both September 30, 2022 and December 31, 2021 of $250 thousand represents funds the Company is required to set aside as collateral, primarily for one of the Company’s operating leases and other purposes.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the total of the amounts in the Condensed Consolidated Statements of Cash Flows as of September 30, 2022, December 31, 2021, September 30, 2021 and December 31, 2020:

 Schedule of Cash, Cash Equivalents and Restricted Cash

Marketable Debt Securities

The Company has classified its investments in marketable debt securities as available-for-sale and as a current asset. The Company’s investments in marketable debt securities are carried at fair value, with unrealized gains and losses included as a separate component of stockholders’ equity. Unrealized losses and gains are classified as other comprehensive (loss)/income and costs are determined on a specific identification basis. Realized gains and losses from our marketable debt securities are recorded in other income, net. For the three and nine months ended September 30, 2022, the Company recorded unrealized losses of $181 thousand and $790 thousand, respectively. For the three and nine months ended September 30, 2021, the Company recorded unrealized losses of $53 thousand and $230 thousand, respectively. As of September 30, 2022 and December 31, 2021, the Company had net accumulated unrealized losses of $936 thousand and $145 thousand, respectively.

The following tables summarizes the Company’s marketable debt securities as of September 30, 2022:

 Schedule of Marketable Securities

Maturities of debt securities classified as available-for-sale were as follows at September 30, 2022:

 Schedule of Maturities of Debt Securities Available-for-sale

The following tables summarizes the Company’s marketable debt securities as of December 31, 2021:

Maturities of debt securities classified as available-for-sale were as follows at December 31, 2021:

Note 5 - Fair Value Measurements

The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The carrying amounts of cash equivalents, current portion of restricted cash, prepaid expenses and other current assets, accounts payable, current portion of lease liabilities and accrued expenses approximate fair value due to the short-term nature of these instruments.

A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows:

 Schedule of Fair Value Measurement of Assets and Liabilities

U.S. treasury bonds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical assets in active markets. Marketable debt securities consisting of U.S. government notes, corporate debt securities and state and municipal bonds are classified as Level 2 and are valued using quoted market prices in markets that are not active.

Note 6 – Leasehold Improvements and Equipment

Leasehold improvements and equipment, summarized by major category, consist of the following as of September 30, 2022 and December 31, 2021:

 Schedule of Leasehold Improvements and Equipment

Depreciation and amortization expense for the three and nine months ended September 30, 2022 was $89 thousand and $244 thousand, respectively, and for the three and nine months ended September 30, 2021 was $62 thousand and $179 thousand, respectively. During the nine months ended September 30, 2022 the Company purchased leasehold improvements of $221 thousand, and equipment of $629 thousand. During the nine months ended September 30, 2021 the Company purchased leasehold improvements of $57 thousand, and equipment of approximately $167 thousand.

Note 7 – Accrued Expenses and Other Liabilities

Accrued Expenses, summarized by major category, as of September 30, 2022 and December 31, 2021 consist of the following:

 Schedule of Accrued Expenses

Note 8 – Leases

The Company has various lease agreements , including leases of office space, a laboratory and manufacturing facility, and various equipment. Some leases include purchase, termination or extension options for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

The assets and liabilities from operating and finance leases are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide implicit rates, therefore the Company utilized a discount rate based on its incremental borrowing rate to record the lease obligations. The Company’s finance leases provide readily determinable implicit rates.

Operating lease obligations

On September 13, 2022, the Company entered into an amendment to the operating lease agreement for its administrative office space in Bedminster, New Jersey which extends the term of the lease until June 30, 2029. Before this amendment, the lease term was scheduled to expire on July 31, 2028. (See Note 8 – Leases within the Company’s Notes to Consolidated Financial Statements included in the Company’s 2021 Form 10-K.)

The Company incurred lease expense for its operating leases of $194 thousand and $646 thousand for the three and nine months ended September 30, 2022, respectively, and $219 thousand and $626 thousand for the three and nine months ended September 30, 2021, respectively. The Company incurred amortization expense on its operating lease right-of-use assets of $138 thousand and $413 thousand for the three and nine months ended September 30, 2022, respectively, and $125 thousand and $368 thousand for the three and nine months ended September 30, 2021, respectively.

Finance Leases

The Company incurred interest expense on its finance leases of $0 and $1 thousand for the three and nine months ended September 30, 2022, respectively, and $1 thousand and $3 thousand for the three and nine months ended September 30, 2021, respectively. The Company incurred amortization expense on its finance lease right-of-use assets of $3 thousand and $15 thousand for the three and nine months ended September 30, 2022, respectively, and $9 thousand and $29 thousand for the three and nine months ended September 30, 2021, respectively.

The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases and finance leases as of September 30, 2022:

Schedule of Maturity of Operating and Finance Leases Liabilities

The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases and finance leases as of December 31, 2021:

Note 9 – Revenue Recognition, Collaboration Agreements and Other

BioNTech Research Collaboration

On April 8, 2022, the Company entered into the BioNTech Agreement to evaluate the combination of mRNA formats utilizing the Company’s proprietary LNC platform delivery technology. Under the terms of the BioNTech Agreement, the Company received an exclusivity fee in the amount of $2.75 million, and BioNTech SE will fund certain of the Company’s research expenses to be incurred under the agreement. The parties have also commenced discussions on a potential option to license (“OTL”) agreement for the Company’s LNC platform delivery technology. The term of the agreement begins on the effective date and ends on the earlier of the execution of an OTL agreement by the parties, 12-months after the effective date and termination of the agreement.

The Company assessed the BioNTech Agreement under ASC 808 Collaboration Arrangements and ASC 606 Revenue from Contracts with Customers (“ASC 606”) and concluded that the contract counterparty, BioNTech SE, is a customer based on the arrangement structure. The Company identified two material promises to deliver under the contract: (1) grant of an exclusive research license and (2) clinical research services. However, given the nature of the promises, the license and research services are not considered to be distinct from each other within the context of the contract. The Company therefore concluded that there is one combined performance obligation for both the license and research services.

The $2.75 million license fee was recorded as deferred revenue and is being recognized over the term of the contract performance obligation period, which the Company has concluded to be 12 months after the execution of the contract. The clinical research services are being invoiced as service revenue is earned on a monthly basis during the term of the contract.

As of September 30, 2022, the Company recognized approximately $2.1 million of contract research revenue from the BioNTech Agreement. For the three and nine months ended September 30, 2022, $688 thousand and $1.4 million of the contract research revenue was recognized from the license fee and $375 thousand and $750 thousand was earned from the monthly clinical research services performed by the Company. As of September 30, 2022, approximately $1.4 million of the license fee is included in deferred revenue within accrued expenses.

Cystic Fibrosis Foundation Therapeutics Development Award

On November 19, 2020, the Company entered into an award agreement (the “CFF Agreement”) with the Cystic Fibrosis Foundation (“CFF”), pursuant to which it received a Therapeutics Development Award of up to $4.2 million (the “Award”) (of which $484 thousand had been previously received) to support the preclinical development (the “Development Program”) of the Company’s MAT2501 product candidate. On November 19, 2021, the Company and CFF entered into an Amendment to the CFF Agreement which added an additional milestone payment in the amount of $321 thousand, which was received in the fourth quarter of 2021.

As of September 30, 2022, the Company has received approximately $3.6 million of the $4.5 million commitment, including the Amendment’s additional milestone payment, and a related deferred liability balance of $194 thousand and $899 thousand is included in accrued expenses at September 30, 2022 and December 31, 2021, respectively. The remainder of the Award will be paid to the Company upon the achievement of certain milestones related to progress of the Development Program, as set forth in the CFF Agreement.

Genentech Feasibility Study Agreement

On December 12, 2019, the Company entered into the Genentech Agreement which involves the development of oral formulations using the Company’s LNC platform delivery technology. Under the terms of the Genentech Agreement, Genentech paid the Company a total of $100 thousand for the development of three molecules, or $33 thousand per molecule, which is being recognized upon the Company fulfilling its obligations for each molecule under the Genentech Agreement. The Company recorded the upfront consideration as deferred revenue, which is included in accrued expenses on the consolidated balance sheets. As of December 31, 2021, the Company completed its obligations related to the first and second of the three molecules. During the three and nine months ended September 30, 2022, the Company did not complete its obligations related to the remaining molecule but expects to do so by December 31, 2022.

Note 10 – Income Taxes

Sale of net operating losses (NOLs) & tax credits

The Company recognized approximately $1.7 million and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively, in connection with the sale of certain state net operating losses (“NOLs”) and research and development tax credits to a third party under the New Jersey Technology Business Tax Certificate Transfer Program.

Note 11 – Stockholders’ Equity

Common Stock

On February 8, 2022, the Company issued 400,000 unregistered shares of its common stock to Rutgers, The State University of New Jersey (“Rutgers”), as partial consideration pursuant to the Second Amended and Restated Exclusive License Agreement between the Company and Rutgers. The agreement provides for (1) royalties on a tiered basis between low single digits and the mid-single digits of net sales of products using such licensed technology, (2) a one-time sales milestone fee of $100,000 when and if sales of products using the licensed technology reach the specified sales threshold and (3) an annual license fee of $50,000 over the term of the license agreement. There was also a reduction in the consideration paid to Rutgers in the event of a sublicense to a third party of the exclusive patent rights granted pursuant to the Agreement. The Company recorded a $291 thousand research and development expense related to the issuance of the 400,000 shares based on the closing price of the Company’s common stock of $0.728 on the date of issuance.

For the nine months ended September 31, 2021, the Company sold 3,023,147 shares of its common stock under its At-The-Market Sales Agreement with BTIG, LLC, at an average price of $1.90, generating gross proceeds of approximately $5.8 million and net proceeds of approximately $5.6 million. No sales of the Company’s common stock occurred during the nine months ended September 30, 2022.

Warrants

All warrants issued by the Company are exercisable immediately upon issuance and have a five-year term. The warrants may be exercised at any time in whole or in part upon payment of the applicable exercise price until expiration. No fractional shares will be issued upon the exercise of the warrants. The exercise price and the number of shares purchasable upon the exercise of the warrants are subject to adjustment upon the occurrence of certain events, which include stock dividends, stock splits, combinations and reclassifications of the Company’s capital stock or other similar changes to the equity structure of the Company. The warrants do not have a redemption feature. They may be exercised on a cashless basis at the holder’s option. The warrants are classified as equity instruments.

As of September 30, 2022, the Company had outstanding warrants to purchase an aggregate of 988,000 shares of common stock at exercise prices ranging from $0.50 to $0.75 per share, all of which are fully vested and with expiration dates between December 31, 2022 and June 21, 2023. The following table summarizes the changes in warrants outstanding during 2021 and for the nine months ended September 30, 2022:

Schedule of Shareholders Equity Warrants Outstanding

Basic and diluted net loss per common share

During the three and nine months ended September 30, 2022 and 2021, diluted loss per common share is the same as basic loss per common share because, as the Company incurred a net loss during each period presented, the potentially dilutive securities from the assumed exercise of all outstanding stock options and warrants, would have an anti-dilutive effect. The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common shareholders because including them would have been anti-dilutive as of September 30, 2022 and 2021:

Schedule of Anti-dilutive Securities Excluded from Computation of Earning Per Share

Note 12 – Accumulated Other Comprehensive (Loss)/Income

The following table summarizes the changes in accumulated other comprehensive (loss)/income by component during the nine months ended September 30, 2022 and 2021:

 Schedule of Components of Accumulated Other Comprehensive (Loss)/Income

All components of accumulated other comprehensive income are net of tax.

Note 13 – Stock-based Compensation

The Company’s Amended and Restated 2013 Equity Compensation Plan (the “Plan”) provides for the granting of incentive stock options, nonqualified stock options, restricted stock units, performance units, and stock purchase rights. There were no significant modifications to the Plan during the nine months ended September 30, 2022 and 2021.

The following table contains information about the Company’s stock plan at September 30, 2022:

 Schedule of Equity Compensation Plan by Arrangements

The Company recognized stock-based compensation expense (options and restricted share grants) in its condensed consolidated statements of operations as follows:

 Schedule of Recognized Stock-Based Compensation

As of September 30, 2022, total compensation costs related to unvested awards not yet recognized was approximately $8.1 million and the weighted-average periods over which the awards are expected to be recognized was 2.4 years.

Stock Options

The following table summarizes the activity for Company’ stock options for the nine months ended September 30, 2022:

 Schedule of Stock Option Activity

Restricted Stock Awards

During the nine months ended September 30, 2022 and 2021, the Company granted restricted stock awards for 0 and 8 thousand shares of common stock, respectively. These awards are typically granted to members of the Board of Directors as payment in lieu of cash fees or as payment to a vendor pursuant to a consulting agreement. The Company values restricted stock awards at the fair market value on the date of grant. The Company recorded the value of the 2021 restricted awards as general and administrative expense of $29 thousand and $85 thousand for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, there was no unrecognized compensation costs related to restricted stock grants.

Note 14 – Commitments and Contingencies

On March 7, 2022, the Company entered into an agreement with Thermo Fisher Scientific to provide scale-up and commercial manufacturing capabilities for MAT2203. The estimated fees under the agreement, including capital equipment requirements, are approximately $7.7 million. The fees are expected to be incurred over a two-year period beginning in March 2022 through the first quarter of 2024. For the three and nine months ended September 30, 2022, the Company prepaid $2.0 million to Thermo Fisher Scientific for expenses to be incurred during beginning phases of the agreement activities. During the three and nine months ended September 30, 2022, the Company expensed $7 thousand and $45 thousand, respectively. At September 30, 2022, $1,955 thousand is included in prepaid expenses and other current assets.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, including risks and uncertainties related to the impact of COVID-19, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward- looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

Overview

We are a clinical-stage biopharmaceutical company focused on redefining the intracellular delivery of nucleic acids and small molecules through our lipid nanocrystal (LNC) platform delivery technology. Our current pipeline consists of two potent anti-infective small molecules, MAT2203 (oral amphotericin B) and MAT2501 (oral amikacin). We are also expanding the application of our LNC platform through collaborations with well-respected pharmaceutical companies whose molecules and compounds benefit from the unique capabilities of our delivery technology, which can provide oral bioavailability and facilitate non-toxic and efficient intracellular delivery. We are intent on further expansion of our LNC platform, both internally and through external partnerships, into the field of nucleic acids where delivery into cells remains a critical element of therapeutic effect.

Key elements of our strategy include:

We have incurred losses for each period from our inception. For the nine months ended September 30, 2022 and 2021, our net loss was approximately $17.4 million and $16.6 million, respectively. We expect to incur significant expenses and operating losses over the next several years. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Operations Overview

Revenue

During the three and nine months ended September 30, 2022, we generated approximately $1.1 million and $2.1 million, respectively, in contract research revenue resulting from the research collaboration with BioNTech SE and $0 and $33 thousand during the three and nine months ended September 30, 2021, respectively, resulting from the feasibility study agreement with Genentech Inc. Our ability to generate product revenue, which we do not expect to occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our early-stage product candidates.

Research and Development Expenses

Research and development expenses consist of costs incurred for the development of product candidates MAT2203 and MAT2501, and advancement of our LNC platform delivery technology, which include:

The table below summarizes our direct research and development expenses for our product candidates and development platform for the three and nine months ended September 30, 2022 and 2021. Our direct research and development expenses consist principally of external costs, such as fees paid to contractors, consultants, analytical laboratories and CROs and/or the NIH, in connection with our development work. We typically use our employee and infrastructure resources for manufacturing clinical trial materials, conducting product analysis, study protocol development and overseeing outside vendors. Included in “Internal staffing, overhead and other” below is the cost of laboratory space, supplies, research and development (R&D) employee costs (including stock-based compensation), travel and medical education.

Research and development activities are central to our business model. We expect our research and development expenses to increase because product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage human trials. Our research and development expenses reflect the reimbursement of certain MAT2501 program expenses related to the CFF award agreement. In addition, we will look to strategically expand the use of our LNC platform delivery technology through additional development work. During 2022, we are focused on advancing our lead product candidate, MAT2203, to efficacy data in the treatment of cryptococcal meningitis (CM), accelerating the development of MAT2501 and also expanding application of our LNC platform delivery technology through both internal efforts and collaborations with third parties.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions. Other general and administrative expenses include facility costs, insurance, investor relations expenses, professional fees for legal, patent review, consulting and accounting/audit services. We anticipate that our general and administrative expenses during 2022 will remain relatively consistent with expenses incurred during 2021.

Sale of Net Operating Losses (NOLs) & Tax Credits

Income obtained from selling unused net operating losses (NOLs) and research and development tax credits under the New Jersey Technology Business Tax Certificate Transfer Program was approximately $1.7 million and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Other Income, net

Other income, net is largely comprised of interest income/(expense) and dividends.

Application of Critical Accounting Policies and Accounting Estimates

A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

For a description of our significant accounting policies, refer to “Note 3 – Summary of Significant Accounting Policies” in our 2021 Form 10-K. Of these policies, the following are considered critical to an understanding of our Unaudited Condensed Consolidated Financial Statements as they require the application of the most difficult, subjective and complex judgments: (i) Stock-based compensation, (ii) Fair value measurements, (iii) Research and development costs, (iv) Goodwill and other intangible assets, (v) Basic and diluted net loss per common share, and (vi) Revenue recognition.

Recent Accounting Pronouncements

Refer to “Note 3 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and their expected impact on our financial positions and results of operations.

Current Operating Trends

Our current R&D efforts are focused on advancing our lead LNC product candidates, MAT2203, through clinical development toward an initial indication for the treatment of CM, accelerating preclinical development of MAT2501 with the assistance of the CFF, and expanding application of our LNC platform delivery technology through collaborations with third parties. Our R&D expenses consist of manufacturing work and the cost of active pharmaceutical ingredients and excipients used in such work, fees paid to consultants for work related to clinical trial design and regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies, and for other medical research addressing the potential efficacy and safety of our drugs. We believe that significant investment in product development is a competitive necessity, and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies.

We expect that all of our R&D expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants, contracts or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products. Completion of clinical trials may take several years, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

The commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy during clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays. In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur.

Results of Operations

Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021

The following tables summarizes our revenues and operating expenses for the periods presented:

Revenues. During the three months ended September 30, 2022 we generated $1.1 million from the exclusive research collaboration with BioNTech SE and no revenue during the same period in 2021.

Research and Development expenses. Research and Development (R&D) expense for the three months ended September 30, 2022 and 2021 was approximately $3.7 million and $4.6 million, respectively. The decrease in R&D expenses was primarily due to the expense related to the issuance of common stock pursuant to the Aquarius Merger Agreement in 2021 and decreased manufacturing expenses partially offset by higher compensation expense related to increased head count in 2022.

General and Administrative expenses. General and administrative expense for the three months ended September 30, 2022 and 2021 was approximately $2.8 million and $2.3 million, respectively. The increase in general and administrative expense was primarily due to increased compensation expense related to increased head count.

Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021

Revenues. During the nine months ended September 30, 2022 and 2021, we generated revenue of approximately $2.1 million and $33 thousand. The amount earned during the current year consists of contract research revenue resulting from the research collaboration with BioNTech SE while the amount earned during the prior year resulted from the feasibility study agreement with Genentech Inc.

Research and Development expenses. Research and Development (R&D) expense for the nine months ended September 30, 2022 and 2021 was approximately $12.8 million and $10.3 million, respectively. The increase in R&D expenses was primarily due to the increased clinical trials and manufacturing costs related to the advancement of our product candidates and higher compensation expense in 2022 partially offset by a non-recurring expense related to the Aquarius Merger Agreement in 2021.

General and Administrative expenses. General and administrative expense for the nine months ended September 30, 2022 and 2021 was approximately $8.4 million and $7.7 million, respectively. The increase in general and administrative expense was primarily due to higher compensation expense.

Sale of net operating losses (NOLs). The Company recognized approximately $1.7 million and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively, in connection with the sale of state net operating losses and research and development tax credits to third parties under the New Jersey Technology Business Tax Certificate Transfer Program.

Liquidity and capital resources

Sources of Liquidity

We have funded our operations since inception through private placements and public offerings of our equity securities. As of September 30, 2022, we have raised a total of approximately $156.7 million in gross proceeds and approximately $143.9 million, net, from sales of our equity securities.

As of September 30, 2022, we had cash, cash equivalents and marketable debt securities totaling approximately $33.1 million.

Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the periods set forth below:

Operating Activities

Net cash used in operating activities was approximately $14.9 million and $11.3 million for the nine months ended September 30, 2022 and 2021, respectively. Net losses of approximately $17.4 million and $16.6 million for the nine months ended September 30, 2022 and 2021, respectively, were partially offset by working capital adjustments due to the timing of receipts and payments in the ordinary course of business. We expect that there will be an increase in cash used in operations during the remainder of 2022 and into 2023 due to higher research and development expenses as we continue to move our product candidates and delivery platform forward in their development cycles.

Investing Activities

Approximately $4.9 million of net cash was provided by investing activities for the nine months ended September 30, 2022, while approximately $16.7 million of net cash was provided by investing activities for the nine months ended September 30, 2021. The decrease of cash provided by investing activities of approximately $11.8 million was primarily due to the approximately $19.5 million decrease in proceeds received from maturities of our marketable debt securities, offset by a decrease of approximately $8.3 million in purchases of marketable debt securities and the purchase of approximately $0.6 million of leasehold improvements and equipment as compared to the nine months ended September 30, 2021.

Financing Activities

Net cash provided by financing activities was approximately $0.1 million and $7.0 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease of approximately $6.9 million is primarily due to the ATM sales during January 2021 of approximately $5.6 million, for which the Company did not have similar equity raises during the nine months ended September 30, 2022, and a decrease in the receipt of proceeds of approximately $1.3 million from the exercise of stock options.

Funding Requirements and Other Liquidity Matters

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

We expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditures requirements through 2023.

Until such time, if ever, that we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs through a combination of public and private equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. We do not have any committed external source of funds other than limited grant funding from the CFF and NIH. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

On March 7, 2022, the Company entered into an agreement with Thermo Fisher Scientific to provide commercial manufacturing capabilities for MAT2203. The estimated fees under the agreement, including capital equipment requirements, are approximately $7.7 million. The fees are expected to be incurred over a two-year period beginning in March 2022 through the first quarter of 2024.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Disclosure Controls and Procedures:

As of September 30, 2022, under the supervision and with the participation of our principal executive officer and principal financial officer we have evaluated, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 September 30, 2022.

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we filed or submitted under the Exchange Act is recorded, processed, summarized and reported within time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the above evaluation that occurred during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART - II OTHER INFORMATION

Item 1. LEGAL PROCEEDSINGS

None.

Item 1A. RISK FACTORS

There were no material changes from the risk factors set forth under Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. You should carefully consider the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 in addition to the other information set forth in this report which could materially affect our business, financial condition or future results. The risks and uncertainties described in this report and in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as other reports and statements that we file with the SEC, are not the only risks and uncertainties facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, results of operations or cash flows.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UNDER SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX

* Filed herewith.

† Indicates a management contract or compensation plan, contract or arrangement. Certain portions of this exhibit, that are not material and would likely cause competitive harm to the registrant if publicly disclosed, have been redacted pursuant to Item 601(b)(10) of Regulation S-K.