WINDTREE THERAPEUTICS INC /DE/ - Quarter Report: 2022 June (Form 10-Q)

Unless the context otherwise requires, all references to “we,” “us,” “our,” and the “Company” include Windtree Therapeutics, Inc., and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements provide our current expectations or forecasts of future events and financial performance and may be identified by the use of forward-looking terminology, including such terms as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “will,” “should,” “could,” “targets,” “projects,” “contemplates,” “predicts,” “potential” or “continues” or, in each case, their negative, or other variations or comparable terminology, though the absence of these words does not necessarily mean that a statement is not forward-looking.

We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to many risks and uncertainties that could cause actual results to differ materially from any future results expressed or implied by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Examples of such risks and uncertainties, which potentially could have a material adverse effect on our development programs, business and/or operations, include, but are not limited to the following:

Pharmaceutical, biotechnology, and medical technology companies have suffered significant setbacks conducting clinical trials, even after obtaining promising earlier preclinical and clinical data. In addition, data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. After gaining approval of a drug product, medical device or combination drug/device product, pharmaceutical and biotechnology companies face considerable challenges in marketing and distributing their products and may never become profitable.

The forward-looking statements contained in this Quarterly Report on Form 10-Q or the documents incorporated by reference herein speak only as of their respective dates. Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict them all. Except to the extent required by applicable laws, rules or regulations, we do not undertake any obligation to publicly update any forward-looking statements or to publicly announce revisions to any of the forward-looking statements, whether as a result of new information, future events or otherwise.

You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q in conjunction with Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements.

Trademark Notice

AEROSURF®, AFECTAIR®, SURFAXIN®, SURFAXIN LS™, WINDTREE THERAPEUTICS® (logo),

WINDTREE THERAPEUTICS™, and WINDTREE™ are registered and common law trademarks of Windtree Therapeutics, Inc. (Warrington, PA).

ITEM 1.      Financial Statements

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

WINDTREE THERAPEUTICS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Notes to Condensed Consolidated Financial Statements (unaudited)

Note 1 – The Company and Description of Business

We are a clinical-stage biopharmaceutical company focused on the development of novel therapeutics intended to address significant unmet medical needs in important acute care markets. Our development programs are primarily focused on the treatment of acute cardiovascular diseases and secondarily on acute pulmonary diseases. Our lead product candidate, istaroxime, is a first-in-class, dual-acting agent being developed to improve cardiac function in patients with acute heart failure, or AHF, with a potentially differentiated safety profile from existing treatments. Istaroxime demonstrated significant improvement in both diastolic and systolic aspects of cardiac function and was generally well tolerated in three Phase 2 clinical trials. Istaroxime has been granted Fast Track designation for the treatment of AHF by the U.S. Food and Drug Administration, or FDA. Based on the profile observed in our Phase 2 clinical studies in AHF, where istaroxime significantly improved cardiac function and systolic blood pressure in acute decompensated heart failure patients, we initiated a Phase 2 global clinical study to evaluate istaroxime for the treatment of early cardiogenic shock (Society for Cardiovascular Angiography and Interventions Stage B shock), a severe form of AHF characterized by very low blood pressure and risk for hypoperfusion to critical organs. We completed this Phase 2 global clinical study and, in April 2022, announced positive topline results with istaroxime in raising systolic blood pressure. In May 2022, we presented the study results at the European Society of Cardiology Heart Failure Meeting in Madrid, Spain.

Our heart failure cardiovascular portfolio also includes sarco endoplasmic reticulum Ca2+ -ATPase 2a, or SERCA2a, activators which activate SERCA2a. This research program is evaluating these preclinical product candidates, including oral and intravenous SERCA2a activator heart failure compounds. As potential oral agents, these candidates would be developed for chronic heart failure. In addition, our cardiovascular drug product candidates include rostafuroxin, a novel product candidate for the treatment of hypertension in patients with a specific genetic profile. We are pursuing potential licensing arrangements and/or other strategic partnerships and do not intend to advance this product candidate without securing such an arrangement or partnership.

Our pulmonary product candidate portfolio consists of a KL4 surfactant platform to address a range of serious respiratory conditions in children and adults. In January 2022, we completed enrollment of 20 patients in our Phase 2 study of lucinactant (KL4 surfactant) for patients with severe novel coronavirus, or COVID-19, associated acute respiratory distress syndrome, or ARDS. The study demonstrated that intratracheal administration of reconstituted lyophilized lucinactant was generally safe and well tolerated. Oxygenation and other physiological parameters were stable to improved after dosing, supporting the feasibility of this treatment approach to develop a potential treatment for critically ill patients with ARDS due to COVID-19 or other causes.

Previously, we were also developing AEROSURF (lucinactant for inhalation), a novel drug/medical device combination product for noninvasive delivery of aerosolized KL4 surfactant using our aerosol delivery system, or ADS, technology for the treatment of respiratory distress syndrome in premature infants. In order to focus our resources on the development of our istaroxime pipeline, we suspended all internal AEROSURF clinical activities in November 2020, and in January 2022 we began to reduce all other costs related to the KL4 surfactant platform that were not already transferred to our licensee in Asia, Lee’s Pharmaceutical (HK) Ltd., or Lee’s (HK), under the terms of our License, Development and Commercialization Agreement between us and Lee’s (HK) dated as of June 12, 2017, as amended, or the Asia License Agreement. To support the future development of our KL4 surfactant platform in markets outside of Asia, including the U.S., we are pursuing a potential licensing transaction.

Our ability to advance our development programs is dependent upon our ability to secure additional capital in both the near and long-term, through public or private securities offerings; convertible debt financings; and/or potential strategic opportunities, including licensing agreements, drug product development, and marketing collaboration arrangements, pharmaceutical research cooperation arrangements, and/or other similar transactions in geographic markets, including the U.S., and/or through potential grants and other funding commitments from U.S. government agencies, in each case, if available. We have engaged with potential counterparties in various markets and will continue to pursue non-dilutive sources of capital as well as potential private and public securities offerings. There can be no assurance, however, that we will be able to identify and enter into public or private securities offerings on acceptable terms and in amounts sufficient to meet our needs or qualify for non-dilutive funding opportunities under any grant programs sponsored by U.S. government agencies, private foundations, and/or leading academic institutions, or identify and enter into any strategic transactions that will provide the additional capital that we will require. If none of these alternatives is available, or if available and we are unable to raise sufficient capital through such transactions, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business, financial condition, and results of operations.

The reader is referred to, and encouraged to read in its entirety, “Item 1 – Business” in our Annual Report on Form 10-K for the year ended December 31, 2021 that we filed with the Securities and Exchange Commission, or the SEC, on March 31, 2022, which contains a discussion of our business and business plans, as well as information concerning our proprietary technologies and our current and planned development programs.

Note 2 – Basis of Presentation

The interim unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S., or US GAAP, for interim financial information in accordance with the instructions to Form 10-Q and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation. All adjustments (consisting of normally recurring accruals) considered for fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The consolidated balance sheet at December 31, 2021 has been derived from the Company’s audited consolidated financial statements. There have been no changes to our significant accounting policies since December 31, 2021. The accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with our annual audited consolidated financial statements and related notes as of and for the year ended December 31, 2021 contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Note 3 – Going Concern and Management’s Plans

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical and clinical studies, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, and risks associated with our international locations and activities abroad, including but not limited to having foreign suppliers, manufacturers, and clinical sites in support of our development activities.

We have incurred net losses since inception. Our net loss was $17.3 million and $37.4 million, respectively, for the three-month periods ended June 30, 2022 and 2021. Our net loss was $25.5 million and $46.4 million, respectively, for the six-month periods ended June 30, 2022 and 2021. Included in our net loss for the three and six months ended June 30, 2022 is an $11.6 million loss on impairment of goodwill, and included in our net loss for the three and six months ended  June 30, 2021 is a $37.8 million loss on impairment of intangible assets related to rostafuroxin and a related $8.3 million deferred income tax benefit (see, Note 4 – Summary of Significant Accounting Policies). We expect to continue to incur operating losses for at least the next several years. As of June 30, 2022, we had an accumulated deficit of $810.8 million. Our future success is dependent on our ability to fund and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

We are party to an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. For the six months ended June 30, 2022, we sold 1,137,246 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $1.3 million and net proceeds of approximately $1.2 million. During July and August 2022, we sold 1,221,706 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million (see, Note 8 – Stockholders’ Equity).

The shares of common stock issued and sold under the ATM Program are registered under our Registration Statement on Form S-3 (File No. 333-248874), which was declared effective by the SEC on September 29, 2020. We are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited in selling no more than one-third of the aggregate market value of the equity held by non-affiliates, or the public float, during any 12-month period. If our public float increases to $75 million or more, we will no longer be subject to such limitations.

As of  June 30, 2022, we had cash and cash equivalents of $11.4 million and current liabilities of $5.3 million. We believe that we have sufficient resources available to support our development activities and fund our business operations into the first quarter of 2023. However, we do not have sufficient cash and cash equivalents as of the date of this Quarterly Report on Form 10-Q to support our operations for at least the 12 months following the date that the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern through 12 months after the date that the financial statements are issued.

To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, management plans to secure additional capital, potentially through a combination of public or private securities offerings, convertible debt financings, and/or strategic transactions, including potential licensing arrangements, alliances, and drug product collaborations focused on specified geographic markets; however, none of these alternatives are committed at this time. There can be no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, or identify and enter into any strategic transactions that will provide the capital that we will require. Further, on June 3, 2022, we received a deficiency letter from the Nasdaq Stock Market LLC, or Nasdaq, notifying us that the closing bid price of our common stock had been below the minimum $1.00 per share for 30 consecutive business days, we are out of compliance with the requirements for continued listing on Nasdaq, and are subject to potential delisting. If we are unable to re-achieve compliance with the Nasdaq listing requirements within 180 days, or November 30, 2022, after receipt of a delisting notice, and if we are unable to obtain an extension therefore, we would be subject to delisting, which likely would further impair the liquidity and value of our common stock. The failure to obtain sufficient capital on acceptable terms when needed would have a material adverse effect on our business, results of operations, and financial condition.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Note 4 – Summary of Significant Accounting Policies

Principles of Consolidation

The interim unaudited condensed consolidated financial statements are prepared in accordance with US GAAP and include accounts of Windtree Therapeutics, Inc. and its wholly owned subsidiaries, CVie Investments Limited and its wholly owned subsidiary, CVie Therapeutics Limited; and a presently inactive subsidiary, Discovery Laboratories, Inc. (formerly known as Acute Therapeutics, Inc.).

Goodwill and Intangible Assets

We record acquired identified intangibles, which includes intangible assets (such as goodwill and other intangibles), based on estimated fair value. The acquired in-process research and development, or IPR&D, assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. IPR&D is not amortized but reviewed for impairment at least annually, or when events or changes in the business environment indicate the carrying value may be impaired. During the three and six months ended June 30, 2022, no events or changes in circumstances occurred indicating that our IPR&D intangible assets were more likely than not impaired.

During the second quarter of 2021, we determined that the fair value of the IPR&D related to our rostafuroxin drug candidate was more likely than not impaired and we performed the required quantitative impairment assessment of the related intangible asset. We recorded a loss on impairment of intangible assets of $37.8 million, recognized within operating expenses in our condensed consolidated statements of operations for the three and six months ended  June 30, 2021. No events or changes in the business environment occurred during the six months ended  June 30, 2021 to indicate that the fair value of the IPR&D related to our istaroxime drug candidate was impaired.

Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is not amortized. It is reviewed for impairment at least annually or when events or changes in the business environment indicate that its carrying value may be impaired. Our company consists of one reporting unit. In order to perform the quantitative goodwill impairment test, we compare the estimated fair value of our reporting unit to its carrying value. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment exists. If the carrying value exceeds the fair value, the difference between the carrying value and the fair value is recorded as an impairment loss, the amount of which may not exceed the total amount of goodwill. When performing our annual goodwill impairment assessment as of December 1, 2021, we estimated the fair value of our reporting unit based upon the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium. Based on the quantitative test performed, we determined that the fair value of our reporting unit exceeded its carrying value and no impairment loss was recognized as of December 31, 2021.

Throughout the year, we consider whether any events or changes in the business environment have occurred which indicate that goodwill may be impaired. For example, a significant decline in the closing share price of our common stock and market capitalization may suggest that the fair value of our reporting unit has fallen below its carrying amount, indicating that an interim goodwill impairment test is required. Accordingly, we monitor changes in our share price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for the decline in our share price, the significance of the decline, and the duration of time that our securities have been trading at a lower value. We have experienced a declining trend in the closing share price of our common stock following the announcement in April 2022 of positive topline results in our Phase 2 global clinical study of istaroxime for the treatment of early cardiogenic shock.

During the second quarter of 2022, the continued declining trend in the closing share price of our common stock suggested that the fair value of our reporting unit was more likely than not less than its carrying value. As a result, we performed the required interim goodwill impairment test consistent with the methodology that we use when performing our annual goodwill impairment assessment, including the use of the quoted market price and related market capitalization of our common stock, adjusted for an estimated control premium based on transactions completed by comparable companies. Based on the quantitative test performed, we recorded a loss on impairment of goodwill of $11.6 million, recognized within operating expenses in our condensed consolidated statements of operations for the three and six months ended  June 30, 2022.

The closing share price of our common stock has continued to decline during July and August 2022. If our share price continues to decline during the remainder of the third quarter of 2022, we may be at risk for future impairment to goodwill in the near term.

The following table represents identifiable intangible assets and goodwill as of June 30, 2022 and December 31, 2021:

Foreign Currency Transactions

The functional currency for our foreign subsidiaries is U.S. Dollars. We remeasure monetary assets and liabilities that are not denominated in the functional currency at exchange rates in effect at the end of each period. Gains and losses from the remeasurement of foreign currency transactions are recognized in other income (expense), net. Foreign currency transactions resulted in gains of approximately $0.2 million and losses of approximately $0.3 million for the three-month periods ended June 30, 2022 and 2021, respectively. Foreign currency transactions resulted in gains of approximately $0.4 million and losses of approximately $0.2 million for the six-month periods ended June 30, 2022 and 2021, respectively. 

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including intangible assets and goodwill, at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are held at domestic and foreign financial institutions and consist of liquid investments, money market funds, and U.S. Treasury notes with a maturity from date of purchase of 90 days or less that are readily convertible into cash.

Severance

In January 2022, in order to focus our resources on the development of our istaroxime pipeline, we began to reduce costs related to KL4 surfactant that were not already transferred to our licensee in Asia, Lee’s (HK), under the terms of the Asia License Agreement. These costs include certain reductions in headcount dedicated to KL4 surfactant and the decommissioning of both our analytical and technical support laboratory, which previously conducted release testing of active pharmaceutical ingredients and supportive research for our lyophilized and aerosolized KL4 surfactant, and our medical device development laboratory, which was previously used to conduct development activities and testing for our ADS technologies. In February 2022, management communicated its commitment to provide severance payments to impacted employees, provided that they remain employed with us through their expected termination dates. The total severance cost for impacted employees is approximately $0.4 million, which was ratably accrued over the service periods of the employees, and to be paid through September 30, 2022. We incurred $0.1 million and $0.4 million of expense related to these severance arrangements during the three and six months ended June 30, 2022, respectively, which is included in research and development expense. During the three and six months ended June 30, 2022, $0.2 million was paid. The related liability as of June 30, 2022 is $0.2 million and is included in accrued expenses.

Restructured Debt Liability – Contingent Milestone Payment

In conjunction with the November 2017 restructuring and retirement of long-term debt (see, Note 7 – Restructured Debt Liability), we have established a $15.0 million long-term liability for contingent milestone payments potentially due under the Exchange and Termination Agreement dated as of October 27, 2017, or the Exchange and Termination Agreement, between ourselves and affiliates of Deerfield Management Company L.P., or Deerfield. The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

Research and Development

We track direct research and development expenses by preclinical and clinical programs, which include third-party costs such as contract research organization, consulting, and clinical trial costs. We do not allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical, and regulatory operations expenses, to specific programs. Indirect research and development expenses include personnel, facilities, manufacturing and quality operations, pharmaceutical and device development, research, regulatory, and medical affairs. Research and development costs are charged to operations as incurred in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 730, Research and Development.

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities.

We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Because we have never realized a profit, management has fully reserved the net deferred tax asset since realization is not assured.

For the three and six months ended  June 30, 2021, we recorded a deferred income tax benefit of $8.3 million. The deferred tax benefit recorded for these periods relates solely to the reduction of the deferred tax liability as a result of the loss on impairment of intangible assets related to rostafuroxin.

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by giving effect to all potentially dilutive securities outstanding for the period. As of June 30, 2022 and 2021, the number of shares of common stock potentially issuable upon the exercise of certain stock options and warrants, as well as the vesting of restricted stock units, was 21.2 million and 19.9 million shares, respectively. For the three and six months ended June 30, 2022 and 2021, all potentially dilutive securities were anti-dilutive and therefore have been excluded from the computation of diluted net loss per share.

We do not have any components of other comprehensive (loss) income.

COVID-19

The COVID-19 pandemic continues to evolve, and we continue to closely monitor its impact on our business and operations, including its continued impact on our clinical development plans and timelines, and financial condition. There has been intermittent impact of the pandemic in differing geographies, and there may be continued impact, particularly in light of the surge of new COVID-19 cases relating to new variants. As of the date of the issuance of this Quarterly Report on Form 10-Q, our operations, capital and financial resources, and overall liquidity position and outlook have been impacted by COVID-19, primarily due to delays experienced in our operations, including in clinical study initiation and enrollment. The extended timelines have required us to expend more of our capital resources than planned to achieve our projected milestones. For example, our Phase 2 study of istaroxime for early cardiogenic shock in heart failure patients experienced delays in trial initiation and enrollment in 2021. Although many countries have re-opened, rises in new cases, including as the result of newly identified COVID-19 variants, have caused certain countries, states, and localities to re-initiate restrictions. The full extent, duration, or impact that the COVID-19 pandemic will have, directly or indirectly, on our financial condition and operations, including ongoing and planned clinical trials, will depend on future developments that are highly uncertain and cannot be accurately predicted. These potential future developments include the severity and transmissibility of new variants of the virus, information about any resurgences in one or more geographic locations where our current or intended clinical trial sites, our principal executive offices, research and development laboratories, or manufacturing facilities are located, and the actions taken to contain it or treat its impact. In addition, regional impact and responses to the COVID-19 pandemic have affected where a clinical trial could be executed and how various elements of the clinical trial are performed. Going forward, the pandemic could also impact how monitoring/auditing of clinical trial sites and data occur. The maintenance, or strategic re-implementation, of mitigating COVID-19 measures in one or more geographic locations where our clinical trial sites, principal executive offices, research and development laboratories, or other facilities are located remains possible and if realized, we believe there could be further impact on the clinical development of our product candidates, which may include potential delays, halts, or modifications to our ongoing and planned trials in 2022 and beyond.

We are not aware of any specific event or circumstance that would require us to further update our estimates, judgments, or revise the carrying value of our assets or liabilities as of the date of issuance of these interim unaudited condensed consolidated financial statements. These estimates may change as new events occur and additional information is obtained.

Note 5 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Fair Value on a Recurring Basis

The tables below categorize assets measured at fair value on a recurring basis for the periods presented:

Note 6 – Loans Payable

In June 2022, we entered into an insurance premium financing and security agreement with Bank Direct. Under the agreement, we financed $1.1 million of certain premiums at a 3.90% annual interest rate. Payments of approximately $126,000 are due monthly from July 2022 through March 2023. As of  June 30, 2022, the outstanding principal of the loan was $1.0 million.

In June 2021, we entered into an insurance premium financing and security agreement with Bank Direct. Under the agreement, we financed $1.3 million of certain premiums at a 3.37% annual interest rate. Payments of approximately $147,000 are due monthly from July 2021 through March 2022. As of  December 31, 2021, the outstanding principal of the loan was $0.3 million. The balance of the loan was repaid during the first quarter of 2022.

Note 7 – Restructured Debt Liability

On October 27, 2017, we and Deerfield entered into an Exchange and Termination Agreement pursuant to which (i) promissory notes evidencing a loan with affiliates of Deerfield Management Company L.P., or the Deerfield Loan, in the aggregate principal amount of $25.0 million and (ii) warrants to purchase up to 8,333 shares of our common stock at an exercise price of $2,360.40 per share held by Deerfield were cancelled in consideration for (i) a cash payment in the aggregate amount of $2.5 million, (ii) 23,703 shares of common stock, representing 2% of fully-diluted shares outstanding (as defined in the Exchange and Termination Agreement) on the closing date, and (iii) the right to receive certain milestone payments based on achievement of specified AEROSURF development and commercial milestones, which, if achieved, could potentially total up to $15.0 million. In addition, a related security agreement, pursuant to which Deerfield held a security interest in substantially all of our assets, was terminated. We established a $15.0 million long-term liability for the contingent milestone payments potentially due to Deerfield under the Exchange and Termination Agreement (see, Note 4 – Summary of Significant Accounting Policies). The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

As of June 30, 2022 and December 31, 2021, the restructured debt liability balance was $15.0 million.

Note 8 – Stockholders’ Equity

At-The-Market Program

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or in privately negotiated transactions.

We agreed to pay Ladenburg a commission of 3% of the gross sales price of any shares sold pursuant to the ATM Program. The rate of compensation will not apply when Ladenburg acts as principal.

For the six months ended June 30, 2022, we sold 1,137,246 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $1.3 million and net proceeds of approximately $1.2 million. For the six months ended June 30, 2021, we sold 552,474 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $1.7 million.

During July and August 2022, we sold 1,221,706 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million. 

The shares of common stock issued and sold under the ATM Program are registered under our Registration Statement on Form S-3 (File No. 333-248874), which was declared effective by the SEC on September 29, 2020. As of August 11, 2022, approximately $3.2 million remains available under the ATM Program. However, we are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited in selling no more than one-third of our public float during any 12-month period. If our public float increases to $75 million or more, we will no longer be subject to such limitations.

Note 9 – Stock-Based Compensation

We recognize expense in our condensed consolidated financial statements related to all stock-based awards granted to employees and non-employee directors based on their fair value on the date of grant. Compensation expense related to stock options is calculated using the Black-Scholes option-pricing model and is recognized ratably over the vesting period, which is typically three years. Compensation expense related to restricted stock unit, or RSU, awards is also recognized ratably over the vesting period, which typically has been between approximately one to three years.

A summary of activity under our long-term incentive plans is presented below:

The table below summarizes the total stock-based compensation expense included in the interim unaudited condensed consolidated statements of operations for the periods presented:

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities are based upon the historical volatility of our common stock and other factors. We also use historical data and other factors to estimate option exercises, employee terminations and forfeiture rates. The risk-free interest rates are based upon the U.S. Treasury yield curve in effect at the time of the grant.

Note 10 – Licensing and Research Funding Agreements

In March 2020, we entered into a Term Sheet with Lee’s (HK), pursuant to which Lee’s (HK) provided financing for the development of AEROSURF. In August 2020, we entered into a Project Financing Agreement with Lee’s (HK), or the PF Agreement, formalizing the terms of the Term Sheet, and under which we received payments totaling $2.8 million through October 2020. In November 2020, Lee’s (HK) provided notice of termination of additional funding under the PF Agreement, and we and Lee’s (HK) revised our plans for the continued development of AEROSURF. Lee’s (HK) agreed to continue the development of AEROSURF in Asia at its cost. Lee’s (HK) agreed to fund an additional $1.0 million to us in 2021 for certain transition and analytical services to be provided by us with respect to the development of AEROSURF, which will be considered “Project Expenses” under the terms of the PF Agreement. In 2021, we received payments totaling $1.0 million from Lee’s (HK) and no further amounts are due under the PF Agreement.

To repay the funds provided under the terms of the PF Agreement, until such time as we have repaid 125% of the amounts funded by Lee’s (HK) for the development of AEROSURF, we will pay to Lee’s (HK) 50% of all revenue amounts and payments received by us for any sale, divestiture, license or other development and/or commercialization of the KL4/AEROSURF patent portfolio, excluding (i) payments for bona fide research and development services; (ii) reimbursement of patent expenses and (iii) all amounts paid to us under the Asia License Agreement, minus certain deductions and certain reductions for any payments made by us with respect to third party intellectual property not previously funded by Lee’s (HK).

As of June 30, 2022, the liability balance related to the payments under the PF Agreement was $3.8 million and is recorded in other liabilities.

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing activities, includes forward-looking statements that involve risks, uncertainties and assumptions. These statements are based on our beliefs and expectations about future outcomes and are subject to risks and uncertainties that could cause our actual results to differ materially from anticipated results. We undertake no obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise. The reader should review the section titled "Forward-Looking Statements" and any risk factors discussed elsewhere in this Quarterly Report on Form 10-Q, which are in addition to and supplement the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 that we filed with the Securities and Exchange Commission, or SEC, on March 31, 2022, as supplemented by our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 filed thereafter, and our other filings with the SEC, and any amendments thereto, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis or elsewhere in this Quarterly Report on Form 10-Q.

This Management’s Discussion and Analysis, or MD&A, is provided as a supplement to the accompanying interim unaudited Condensed Consolidated Financial Statements (including the notes thereto) to help provide an understanding of our financial condition and changes in our financial condition and our results of operations. This item should be read in connection with our accompanying interim unaudited Condensed Consolidated Financial Statements (including the notes thereto) and our Annual Report on Form 10-K for the year ended December 31, 2021. Unless otherwise specified, references to Notes in this MD&A refer to the Notes to Condensed Consolidated Financial Statements (unaudited) in this Quarterly Report on Form 10-Q.

OVERVIEW

We are a clinical-stage biopharmaceutical company focused on the development of novel therapeutics intended to address significant unmet medical needs in important acute care markets. Our development programs are primarily focused on the treatment of acute cardiovascular diseases and secondarily on acute pulmonary diseases. Our lead product candidate, istaroxime, is a first-in-class, dual-acting agent being developed to improve cardiac function in patients with acute heart failure, or AHF, with a potentially differentiated safety profile from existing treatments. Istaroxime demonstrated significant improvement in both diastolic and systolic aspects of cardiac function and was generally well tolerated in three Phase 2 clinical trials. Istaroxime has been granted Fast Track designation for the treatment of AHF by the U.S. Food and Drug Administration, or FDA. Based on the profile observed in our Phase 2 clinical studies in AHF, where istaroxime significantly improved cardiac function and systolic blood pressure in acute decompensated heart failure patients, we initiated a Phase 2 global clinical study to evaluate istaroxime for the treatment of early cardiogenic shock (Society for Cardiovascular Angiography and Interventions Stage B shock), a severe form of AHF characterized by very low blood pressure and risk for hypoperfusion to critical organs. We completed this Phase 2 global clinical study and, in April 2022, announced positive topline results with istaroxime in raising systolic blood pressure. In May 2022, we presented the study results at the European Society of Cardiology Heart Failure Meeting in Madrid, Spain. We believe that istaroxime has the potential to fulfill an unmet need in early cardiogenic shock. We further believe that the data from our recently completed Phase 2 global clinical study in early cardiogenic shock will not only support that program’s continued development but will also support the continued development of our AHF program as well.

Business and Program Updates

The reader is referred to, and encouraged to read in its entirety, “Item 1 – Business” in our Annual Report on Form 10-K for the year ended December 31, 2021 that we filed with the SEC on March 31, 2022, which contains a discussion of our business and business plans, as well as information concerning our proprietary technologies and our current and planned development programs. 

Istaroxime (Early Cardiogenic Shock)

In September 2020, we initiated a small Phase 2 clinical study of istaroxime for the acute treatment of early cardiogenic shock in heart failure patients with a more severe case of heart failure to evaluate the potential to improve blood pressure. The study also evaluated the safety and side effect profile of istaroxime in this patient population. In April 2022, we announced positive topline results with istaroxime in raising systolic blood pressure, the critical clinical objective in treating patients in cardiogenic shock. In May 2022, we presented data from our positive Phase 2 study of istaroxime in early cardiogenic shock in a late-breaker presentation at the European Society of Cardiology Heart Failure Meeting in Madrid, Spain. There is a significant unmet medical need in the area of early cardiogenic shock and severe heart failure. Istaroxime demonstrated a meaningful improvement in blood pressure in clinical trials of this condition, and we believe there may be an opportunity to apply for a Breakthrough Therapy designation that could provide beneficial opportunities for the development program. In order to continue our development of istaroxime for the acute treatment of early cardiogenic shock, subject to adequate resources, we are planning to extend enrollment in this clinical trial by up to 30 patients. We believe that this extension will advance the characterization of the physiology associated with longer dosing as well as evaluate a dose titration. We also believe that this extension will further characterize the effects and potential benefits associated with SERCA2a activation and will support our clinical regulatory strategy for istaroxime. We currently do not have sufficient capital to fully execute the extension of this clinical trial.

Istaroxime (AHF)

To advance istaroxime for the treatment of AHF potentially through the Phase 2 clinical program and be in a Phase 3-ready position, our strategy includes, subject to adequate resources, planning an additional Phase 2 clinical trial that will enroll approximately 300 patients in approximately 60 clinical sites globally. This trial will focus on treating heart failure patients with low blood pressure, who also tend to be diuretic resistant, as a patient population that we believe could particularly benefit from the unique profile and potential ability of istaroxime to increase cardiac function and increase blood pressure while maintaining or improving renal function. This trial will also collect data on measures that may serve as primary endpoints in a Phase 3 clinical trial, and will include an optimized dosing regimen, potentially extending the infusion time beyond 24 hours. We currently do not have sufficient capital to execute this clinical trial.

SERCA2a Activators – Preclinical Oral, Chronic, and Acute Heart Failure Product Candidates

We are pursuing several early exploratory research programs to assess potential product candidates, including oral and intravenous SERCA2a activator heart failure compounds, and believe that we can add value to our cardiovascular portfolio by advancing these SERCA2a activator candidates through preclinical studies. To further advance these product candidates, we are actively exploring potential licensing transactions, research partnership arrangements, or other strategic opportunities.

KL4 Surfactant Platform 

Our pulmonary product candidate portfolio consists of a KL4 surfactant platform to address a range of serious respiratory conditions in children and adults. In January 2022, we completed enrollment of 20 patients in our study of lucinactant (KL4 surfactant) for patients with severe COVID-19 associated ARDS and lung injury. The Phase 2 trial was designed to assess feasibility, safety, and tolerability of administration of reconstituted lyophilized lucinactant in these critically ill patients. The multicenter, single-arm study enrolled 20 critically ill patients in the U.S. and Argentina who were intubated and on mechanical ventilation due to severe COVID-19 associated ARDS. The study demonstrated that intratracheal administration of reconstituted lyophilized lucinactant was generally safe and well tolerated. Lucinactant was safely administered to critically ill, mechanically ventilated patients with severe COVID-19 associated ARDS. Oxygenation and other physiological parameters were stable to improved after dosing, supporting the feasibility of this treatment approach to develop a potential treatment for critically ill patients with ARDS due to COVID-19 or other causes.

Previously, we were also developing AEROSURF (lucinactant for inhalation), a novel drug/medical device combination product for noninvasive delivery of aerosolized KL4 surfactant using our ADS technology for the treatment of respiratory distress syndrome in premature infants. In order to focus our resources on the development of our istaroxime pipeline, we suspended all internal AEROSURF clinical activities in November 2020, and in January 2022 we began to reduce all other costs related to the KL4 surfactant platform that were not already transferred to our licensee in Asia, Lee’s (HK), under the terms of the Asia License Agreement. More specifically, since the termination of the Project Financing Agreement in November 2020, we ceased enrollment in our Phase 2b bridging study at the European Union clinical sites, reduced headcount dedicated to KL4 surfactant, and decommissioned both our analytical and technical support laboratory, which previously conducted release testing of active pharmaceutical ingredients and supportive research for our lyophilized and aerosolized KL4 surfactant, and our medical device development laboratory, which was previously used to conduct development activities and testing for our ADS technologies. While we have no direct insight into such, we are continuing to support Lee’s (HK) independent development efforts to advance AEROSURF to a Phase 2 bridging study and Phase 3 clinical trial in Asia. To support the future development of our KL4 surfactant platform in markets outside of Asia, including the U.S., we are pursuing a potential licensing transaction.

Impact of COVID-19

The COVID-19 pandemic continues to evolve, and we continue to closely monitor its impact on our business and operations, including its continued impact on our clinical development plans and timelines, and financial condition. There has been intermittent impact of the pandemic in differing geographies, and there may be continued impact, particularly in light of the surge of new COVID-19 cases relating to new variants. As of the date of the issuance of this Quarterly Report on Form 10-Q, our operations, capital and financial resources, and overall liquidity position and outlook have been impacted by COVID-19, primarily due to delays experienced in our operations, including in clinical study initiation and enrollment. The extended timelines have required us to expend more of our capital resources than planned to achieve our projected milestones. For example, our Phase 2 study of istaroxime for early cardiogenic shock in heart failure patients experienced delays in trial initiation and enrollment in 2021. Although many countries have re-opened, rises in new cases, including as the result of newly identified COVID-19 variants, have caused certain countries, states, and localities to re-initiate restrictions. The full extent, duration, or impact that the COVID-19 pandemic will have, directly or indirectly, on our financial condition and operations, including ongoing and planned clinical trials, will depend on future developments that are highly uncertain and cannot be accurately predicted. These potential future developments include the severity and transmissibility of new variants of the virus, information about any resurgences in one or more geographic locations where our current or intended clinical trial sites, our principal executive offices, research and development laboratories, or manufacturing facilities are located, and the actions taken to contain it or treat its impact. In addition, regional impact and responses to the COVID-19 pandemic have affected where a clinical trial could be executed and how various elements of the clinical trial are performed. Going forward, the pandemic could also impact how monitoring/auditing of clinical trial sites and data occur. The maintenance, or strategic re-implementation, of mitigating COVID-19 measures in one or more geographic locations where our clinical trial sites, principal executive offices, research and development laboratories, or other facilities are located remains possible and if realized, we believe there could be further impact on the clinical development of our product candidates, which may include potential delays, halts, or modifications to our ongoing and planned trials in 2022 and beyond.

CRITICAL ACCOUNTING POLICIES

There have been no changes to our critical accounting policies since December 31, 2021. For a discussion of our accounting policies, see, Note 4 – Summary of Significant Accounting Policies and, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021, Note 4 – Accounting Policies and Recent Accounting Pronouncements. Readers are encouraged to review those disclosures in conjunction with this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Operating Loss and Net Loss

The operating loss for the three months ended June 30, 2022 and 2021 was $17.5 million and $45.4 million, respectively. The decrease in operating loss from 2021 to 2022 was due to a $37.8 million loss on impairment of intangible assets related to rostafuroxin in 2021 (see, Note 4 – Summary of Significant Accounting Policies) and a $1.7 million decrease in operating expenses in 2022, partially offset by an $11.6 million loss on impairment of goodwill in 2022.

The operating loss for the six months ended June 30, 2022 and 2021 was $25.9 million and $54.4 million, respectively. The decrease in operating loss from 2021 to 2022 was due to a $37.8 million loss on impairment of intangible assets related to rostafuroxin in 2021 and a $2.4 million decrease in operating expenses in 2022, partially offset by an $11.6 million loss on impairment of goodwill in 2022.

The net loss for the three months ended June 30, 2022 and 2021 was $17.3 million and $37.4 million, respectively. The decrease in net loss from 2021 to 2022 was due to a $37.8 million loss on impairment of intangible assets related to rostafuroxin in 2021 and a $1.7 million decrease in operating expenses in 2022, partially offset by an $11.6 million loss on impairment of goodwill in 2022, an $8.3 million deferred income tax benefit related to the reduction of the deferred tax liability in 2021, and an increase of $0.5 million in other income.

The net loss for the six months ended June 30, 2022 and 2021 was $25.5 million and $46.4 million, respectively. The decrease in net loss from 2021 to 2022 was due to a $37.8 million loss on impairment of intangible assets related to rostafuroxin in 2021 and a $2.4 million decrease in operating expenses in 2022, partially offset by an $11.6 million loss on impairment of goodwill in 2022, an $8.3 million deferred income tax benefit related to the reduction of the deferred tax liability in 2021, and an increase of $0.6 million in other income. 

Research and Development Expenses

Our research and development expenses are charged to operations as incurred and we incur both direct and indirect expenses for each of our programs. We track direct research and development expenses by preclinical and clinical programs, which include third-party costs such as contract research organization, consulting and clinical trial costs. We do not allocate indirect research and development expenses, which include product development and manufacturing expenses and clinical, medical and regulatory operations expenses, to specific programs. We also account for research and development and report annually by major expense category as follows: (i) contracted services; (ii) salaries and benefits; (iii) stock-based compensation; (iv) raw materials, aerosol devices and supplies; (v) royalties; (vi) rents and utilities; (vii) depreciation; (viii) travel; and (ix) other. We currently have sufficient capital to execute limited clinical trial work on the extension of our trial of istaroxime for early cardiogenic shock. We expect that our research and development expenses will decrease unless and until we secure additional capital. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates.

Research and development expenses are as follows: 

Research and development expenses include non-cash charges associated with stock-based compensation and depreciation of $0.3 million and $0.7 million, respectively, for the three months ended June 30, 2022 and 2021, and $1.0 million and $1.6 million, respectively, for the six months ended June 30, 2022 and 2021.

Product development and manufacturing includes (i) manufacturing operations, with our contract manufacturing organization, validation activities, quality assurance; and (ii) pharmaceutical and manufacturing development activities of our drug product candidates, including development of istaroxime. These costs include employee expenses, facility-related costs, depreciation, costs of drug substances (including raw materials), supplies, quality assurance activities, and expert consultants and outside services to support pharmaceutical development activities.

Product development and manufacturing expenses decreased $0.7 million for the three months ended June 30, 2022 compared to the same period in 2021 due to (i) a decrease of $0.4 million related to our decision in January 2022 to begin to reduce costs related to the development of the KL4 surfactant platform that were not already transferred to Lee’s (HK); a decrease of $0.1 million related to reductions in headcount for the KL4 surfactant platform; and (iii) a $0.1 million decrease in non-cash stock-based compensation expense.

Product development and manufacturing expenses decreased$0.1 million for the six months ended June 30, 2022 compared to the same period in 2021 due to (i) a decrease of $0.4 million related to our decision in January 2022 to begin to reduce costs related to the KL4 surfactant platform that were not already transferred to Lee’s (HK); and (ii) a $0.1 million decrease in non-cash stock-based compensation expense; partially offset by (iii) $0.4 million in accelerated depreciation during the first quarter of 2022 following the abandonment and decommissioning of certain manufacturing and laboratory equipment assets related to the KL4 surfactant platform.

Clinical, Medical, and Regulatory Operations

Clinical, medical, and regulatory operations include medical, scientific, preclinical and clinical, regulatory, data management, and biostatistics activities in support of our research and development programs. These costs include personnel, expert consultants, outside services to support regulatory and data management, symposiums at key medical meetings, facilities-related costs, and other costs for the management of clinical trials.

Clinical, medical, and regulatory operations expenses decreased $0.5 million for the three months ended June 30, 2022 compared to the same period in 2021 due to a decrease of $0.4 million in non-cash stock-based compensation expense and a decrease of $0.1 million in personnel costs. Clinical, medical, and regulatory operations expenses decreased$0.8 million for the six months ended June 30, 2022 compared to the same period in 2021 due to a decrease of $0.9 million in non-cash stock-based compensation expense, partially offset by an increase of $0.1 million in personnel costs.

General and Administrative Expenses

General and administrative expenses consist of costs for executive management, business development, intellectual property, finance and accounting, legal, human resources, information technology, facility, and other administrative costs.

General and administrative expenses decreased $0.5 million for the three months ended June 30, 2022 compared to the same period in 2021 due to (i) a decrease of $0.3 million in non-cash stock-based compensation expense and (ii) a decrease of $0.3 million in professional fees, partially offset by (iii) an increase of $0.1 million in personnel costs.

General and administrative expenses decreased $2.1 million for the six months ended June 30, 2022 compared to the same period in 2021 due to (i) a decrease of $1.2 million in non-cash stock-based compensation expense and (ii) a decrease of $1.2 million in professional fees, partially offset by (iii) an increase of $0.3 million in personnel costs.

Other Income (Expense), Net

Interest income relates to interest on our money market account for the three and six months ended June 30, 2022 and 2021, and relates to interest on our U.S. Treasury notes for the three and six months ended June 30, 2021.

For the three and six months ended June 30, 2022 and 2021, interest expense consists of interest expense associated with loans payable.

For the three and six months ended June 30, 2022 and 2021, other income (expense), net primarily consists of gains and losses on foreign currency translation.

LIQUIDITY AND CAPITAL RESOURCES

We are subject to risks common to companies in the biotechnology industry, including but not limited to, the need for additional capital, risks of failure of preclinical and clinical studies, the need to obtain marketing approval and reimbursement for any drug product candidate that we may identify and develop, the need to successfully commercialize and gain market acceptance of our product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development of technological innovations by competitors, and risks associated with our international locations and activities abroad, including but not limited to having foreign suppliers, manufacturers, and clinical sites in support of our development activities.

We have incurred net losses since inception. Our net loss was $17.3 million and $37.4 million, respectively, for the three-month periods ended June 30, 2022 and 2021. Our net loss was $25.5 million and $46.4 million, respectively, for the six-month periods ended June 30, 2022 and 2021. Included in our net loss for the three and six months ended June 30, 2022 is an $11.6 million loss on impairment of goodwill, and included in our net loss for the three and six months ended June 30, 2021 is a $37.8 million loss on impairment of intangible assets related to rostafuroxin and a related $8.3 million deferred income tax benefit (see, Note 4 – Summary of Significant Accounting Policies). We expect to continue to incur operating losses for at least the next several years. As of June 30, 2022, we had an accumulated deficit of $810.8 million. Our future success is dependent on our ability to fund and develop our product candidates, and ultimately upon our ability to attain profitable operations. We have devoted substantially all of our financial resources and efforts to research and development and general and administrative expense to support such research and development. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, and accordingly, our ability to execute our future operating plans.

We are party to an At-The-Market Offering Agreement with Ladenburg Thalmann & Co. Inc., or Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal through an at-the-market program, or the ATM Program. For the six months ended June 30, 2022, we sold 1,137,246 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $1.3 million and net proceeds of approximately $1.2 million. During July and August 2022, we sold 1,221,706 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million (see, Note 8 – Stockholders’ Equity).

The shares of common stock issued and sold under the ATM Program are registered under our Registration Statement on Form S-3 (File No. 333-248874), which was declared effective by the SEC on September 29, 2020. We are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited in selling no more than one-third of the aggregate market value of the equity held by non-affiliates, or the public float, during any 12-month period. If our public float increases to $75 million or more, we will no longer be subject to such limitations.

As of June 30, 2022, we had cash and cash equivalents of $11.4 million and current liabilities of $5.3 million. We believe that we have sufficient resources available to support our development activities and fund our business operations into the first quarter of 2023. However, we do not have sufficient cash and cash equivalents as of the date of this Quarterly Report on Form 10-Q to support our operations for at least the 12 months following the date that the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern through 12 months after the date that the financial statements are issued.

To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, management plans to secure additional capital, potentially through a combination of public or private securities offerings, convertible debt financings, and/or strategic transactions, including potential licensing arrangements, alliances, and drug product collaborations focused on specified geographic markets; however, none of these alternatives are committed at this time. There can be no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all, or identify and enter into any strategic transactions that will provide the capital that we will require. Further, on June 3, 2022, we received a deficiency letter from the Nasdaq Stock Market LLC, or Nasdaq, notifying us that the closing bid price of our common stock had been below the minimum $1.00 per share for 30 consecutive business days, we are out of compliance with the requirements for continued listing on Nasdaq, and are subject to potential delisting. If we are unable to re-achieve compliance with the Nasdaq listing requirements within 180 days, or November 30, 2022, after receipt of a delisting notice, and if we are unable to obtain an extension therefore, we would be subject to delisting, which likely would further impair the liquidity and value of our common stock. The failure to obtain sufficient capital on acceptable terms when needed would have a material adverse effect on our business, results of operations, and financial condition.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Cash Flows

Cash flows for the six months ended June 30, 2022 primarily consist of $12.0 million of net cash used in operating activities, $0.2 million of net cash provided by investing activities, and $0.8 million of net cash provided by financing activities. Cash flows for the six months ended June 30, 2021 consist of $13.5 million of net cash used in operating activities and $26.5 million of net cash provided by financing activities.

Operating Activities

Net cash used in operating activities was $12.0 million for the six months ended June 30, 2022 and consisted primarily of (i) a net loss of $25.5 million; and (ii) an unrealized gain on foreign exchange rate changes of $0.5 million; partially offset by (iii) a non-cash loss on impairment of goodwill of $11.6 million; (iv) non-cash stock-based compensation of $1.6 million; (v) depreciation and amortization of $0.5 million; and (vi) non-cash lease expense of $0.3 million. Changes in prepaid expenses and other current assets, accounts payable, accrued expenses, and operating lease liabilities result from timing differences between the receipt and payment of cash and when the transactions are recognized in our results of operations.

Net cash used in operating activities was $13.5 million for the six months ended June 30, 2021 and consisted primarily of (i) a net loss of $46.4 million; (ii) a non-cash deferred income tax benefit of $8.3 million; and (iii) changes in operating assets and liabilities of $1.7 million; partially offset by (iv) a non-cash loss on impairment of intangible assets of $37.8 million; (v) non-cash stock-based compensation of $4.0 million; (vi) non-cash expense related to equity consideration for a financial advisory service agreement of $0.5 million; (vii) non-cash lease expense of $0.3 million; (viii) an unrealized loss on foreign exchange rate changes of $0.3 million; and (ix) depreciation and amortization of $0.1 million. Changes in prepaid expenses and other current assets, accounts payable, accrued expenses, and operating lease liabilities result from timing differences between the receipt and payment of cash and when the transactions are recognized in our results of operations.

Investing Activities

Net cash provided by investing activities was $0.2 million for the six months ended June 30, 2022 and primarily includes proceeds from sale of property and equipment related to the decommissioning and sale of certain manufacturing and laboratory equipment assets previously used for the KL4 surfactant platform.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2022 was $0.8 million and includes (i) $1.2 million in net proceeds from the ATM Program; partially offset by (ii) $0.4 million of principal payments on loans payable.

Net cash provided by financing activities for the six months ended June 30, 2021 was $26.5 million and includes (i) $27.4 million in net proceeds from the March 2021 public offering; (ii) $1.7 million in net proceeds from the ATM Program; and (iii) $0.4 million in proceeds from our research and development funding arrangement with Lee’s (HK); partially offset by (iv) $3.0 million of principal payments on loans payable.

The following sections provide a more detailed discussion of our available financing facilities.

Historically, we have funded, and expect that we will continue to fund, our business operations through various sources, including financings in the form of common stock offerings.

At-The-Market Program

On September 17, 2020, we entered into an At-The-Market Offering Agreement with Ladenburg, pursuant to which we may offer and sell, from time to time at our sole discretion, up to a maximum of $10.0 million of shares of our common stock through Ladenburg as agent and/or principal under the ATM Program. When we issue sales notices to Ladenburg, we designate the maximum amount of shares to be sold by Ladenburg daily and the minimum price per share at which shares may be sold. Ladenburg may sell shares by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, or in privately negotiated transactions.

For the six months ended June 30, 2022, we sold 1,137,246 shares of our common stock under the ATM Program resulting in aggregate gross proceeds to us of approximately $1.3 million and net proceeds of approximately $1.2 million. For the six months ended June 30, 2021, we sold 552,474 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $1.7 million (see, Note 8 – Stockholders’ Equity).

During July and August 2022, we sold 1,221,706 shares of our common stock under the ATM Program resulting in aggregate gross and net proceeds to us of approximately $0.6 million.

The shares of common stock issued and sold under the ATM Program are registered under our Registration Statement on Form S-3 (File No. 333-248874), which was declared effective by the SEC on September 29, 2020. As of August 11, 2022, approximately $3.2 million remains available under the ATM Program. However, we are currently subject to the limitations contained in General Instruction I.B.6 of Form S-3. As a result, we are limited in selling no more than one-third of our public float during any 12-month period. If our public float increases to $75 million or more, we will no longer be subject to such limitations.

March 2021 Public Offering

The closing of the March 2021 Offering occurred on March 25, 2021. The offering price to the public was $3.25 per unit resulting in gross proceeds to us of $30.0 million. After deducting underwriting discounts and commissions and estimated offering expenses payable by us, and excluding the proceeds, if any, from the exercise of the March 2021 Warrants issued pursuant to the March 2021 Offering, the net proceeds to us were approximately $27.4 million.

Off-Balance Sheet Arrangements

We did not have any material off-balance sheet arrangements at June 30, 2022 and 2021 or during the periods then ended.

ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4.      Controls and Procedures

Evaluation of disclosure controls and procedures 

Our management, including our President and Chief Executive Officer (principal executive officer) and our Senior Vice President and Chief Financial Officer and Treasurer (principal financial and accounting officer), do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in internal control

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

We are not aware of any pending legal actions that would, if determined adversely to us, have a material adverse effect on our business and operations.

We have from time to time been involved in disputes and proceedings arising in the ordinary course of business, including in connection with the conduct of our clinical trials. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations and financial condition.

ITEM 1A.      RISK FACTORS

Investing in our securities involves certain risks. In addition to any risks and uncertainties described elsewhere in this Quarterly Report on Form 10-Q, investors should carefully consider the risks and uncertainties discussed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by risk factors included in our Quarterly Report on Form 10-Q filed thereafter. These risks are not the only risks that could materialize. Other than as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 or our Quarterly Report on Form 10-Q filed thereafter. Additional risks and uncertainties not presently known to us or that we currently consider to be immaterial may also impair our business operations and development activities. Should any of the risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by our subsequent filings with the SEC, actually materialize, our business, financial condition, and/or results of operations could be materially adversely affected, the trading price of our common stock could decline, and an investor could lose all or part of his or her investment. In particular, the reader’s attention is drawn to the discussion in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.

Our common stock is listed on the Nasdaq Capital Market. We can provide no assurance that we will be able to comply with the continued listing requirements over time and that our common stock will continue to be listed on the Nasdaq Capital Market.

On June 3, 2022, we received a deficiency letter from the Nasdaq Listing Qualifications Department, or the Staff, of Nasdaq notifying us that, for the last 30 consecutive business days, the closing bid price for our common stock has been below the minimum $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2), or Rule 5550(a)(2). The Nasdaq deficiency letter has no immediate effect on the listing of our common stock, and our common stock will continue to trade on the Nasdaq Capital Market under the symbol “WINT” at this time. We have been given 180 calendar days, or until November 30, 2022, to regain compliance with Rule 5550(a)(2). If at any time before November 30, 2022, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that we have achieved compliance. If we do not regain compliance with Rule 5550(a)(2) by November 30, 2022, we may be afforded a second 180 calendar day period to regain compliance, if we meet certain other conditions. If we fail to maintain compliance, Nasdaq may take steps to de-list our common stock. If such delisting should occur, it would likely have a negative effect on the price of our common stock and would impair an investor’s ability to sell or purchase our common stock when desired. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with Nasdaq’s listing requirements.

We have a significant amount of intangible assets, including goodwill, recorded on our condensed consolidated balance sheets which may lead to potentially significant impairment charges.

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

None.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

ITEM 4.      MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.      OTHER INFORMATION

None.

ITEM 6.      EXHIBITS

Exhibits are listed on the Index to Exhibits at the end of this Quarterly Report on Form 10-Q. The exhibits required by Item 601 of Regulation S-K, listed on such Index in response to this Item, are incorporated herein by reference.

INDEX TO EXHIBITS

The following exhibits are included with this Quarterly Report on Form 10-Q.

(1) These Interactive Data Files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Act of 1934, as amended, or otherwise subject to liability under those sections.

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.