(EDGAR Online via COMTEX) -- ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes included in Part II, Item 8 "Consolidated Financial Statements and Supplementary Data" of this report.
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NeuroBo Pharmaceuticals Inc. (the "Company", "we", "us", or "our") is a clinical-stage biotechnology company focused on developing and commercializing novel pharmaceuticals to treat neurodegenerative disorders affecting millions of patients worldwide. For more information on our business and our four product candidates, ANA001, NB-01, NB-02 and Gemcabene, see "Business-Overview" in Part I, Item 1 of this report.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a lasting national or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, except for the adjustments to scientific activity described under "Current Scientific Activity" below, we have not experienced any significant external changes in our business that would have a significant negative impact on our consolidated statements of operations or cash flows.
Exclusive of the development of certain of our proposed therapies, the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our service providers, suppliers, contract research organizations and our clinical trials, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.
Current Scientific Activity
In light of the present business environment, including the impact of the COVID-19 pandemic, we are currently conducting the scientific activities described below with a view toward conserving financial resources.
ANA001, our lead drug candidate, is a proprietary oral niclosamide formulation and was developed as a treatment for patients with moderate COVID-19. Niclosamide is a potential oral antiviral and anti-inflammatory agent with a long history of use and well-understood safety in humans. ANA001 is currently being studied in a 60-subject Phase 2 clinical trial conducted in the United States with a Phase 3 component dependent on the outcome of the Phase 2 data.
NB-01. For NB-01, the Company has determined to cease development of NB-01 on the prior regulatory pathway and not to advance to Phase 3 clinical trials.
The Company is currently evaluating various alternatives regarding the NB-01 asset. These alternatives include two potential development pathways.
Orphan drug. Development of NB-01 as an orphan drug is among the alternatives the Company is considering. The Company believes that development for such ? indication would depend on its ability to renegotiate milestone payments under its exclusive license agreement with Dong-A ST to reflect the potential revenue from such indication.
Nutraceutical. The Company has considered marketing NB-01 as a nutraceutical ? (non-pharmaceutical) product, and the Company may re-explore this pathway if the identified rare disease indication for NB-01 does not proceed.
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NB-02. In order to preserve operating capital, we have postponed continued work on the Investigation New Drug application to the FDA for NB-02 and the first human clinical trials for NB-02 until global health and macroeconomic conditions improve. We are also considering engaging with a strategic partner with respect to further development of NB-02.
Gemcabene. We are currently exploring additional therapeutic indications for Gemcabene that may strengthen our pipeline of assets, this includes COVID-19, either as a stand-alone treatment or in combination with ANA001.
As of December 31, 2021, we had cash and cash equivalents of $16.4 million. Operating at such level of scientific activity, we expect that our cash will be adequate to fund operations into the fourth quarter of 2022.
We will need to raise additional capital to fund continued operations at the current level through the fourth quarter of 2022 and beyond. Although we are exploring financing opportunities and carefully monitoring the capital markets, we do not yet have any commitments for additional financing and may not be successful in our efforts to raise additional funds. Any amounts raised will be used for further development of our product candidates and for other working capital purposes.
If we are unable to raise additional capital (which is not assured at this time, particularly as a result of recent depressed capital market conditions), our long-term business plan may not be accomplished, and we may be forced to cease, reduce, or delay operations. We have some ability to reduce costs further in 2022, thereby potentially lengthening our operational window further into the first quarter of 2023.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which contemplate our continuation as a going concern. We have not established a source of revenues and, as such, have been dependent on funding operations through the sale of equity securities. Since inception, we have experienced significant losses and incurred negative cash flows from operations. We expect to incur further losses over the next several years as we develop our business. We have spent, and expect to continue to spend, a substantial amount of funds in connection with implementing our business strategy.
We will need substantial additional funding to support our continuing operations and to pursue our business strategy and, in the meantime, we have reduced scientific activity (as indicated above) and we are carefully controlling expenses. Until such time as we can generate significant revenue from product sales, if ever, we expect to continue to finance our operations primarily through proceeds derived from the sale of equity.
These factors individually and collectively raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments or classifications that may result from our possible inability to continue as a going concern. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2021 includes an explanatory paragraph regarding the existence of substantial doubt about our ability to continue as a going concern.
Key operating data
We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were $15.3 million and $29.7 million for the years ended December 31, 2021 and 2020, respectively. To date, we have not generated any revenue from product sales, collaborations with other companies, government grants or any other source, and do not expect to generate any revenue in the foreseeable future.
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As of December 31, 2021, we had an accumulated deficit of $81.8 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
? pursue clinical development for any of our current product candidates;
initiate preclinical studies and clinical trials with respect to any additional ? indications for our current product candidates and any future product candidates that we may pursue;
? acquire or in-license other product candidates and/or technologies;
? develop, maintain, expand and protect our intellectual property portfolio;
? hire additional clinical, scientific and commercial personnel;
establish a commercial manufacturing source and secure supply chain capacity ? sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval;
? seek regulatory approvals for any product candidates that successfully complete clinical trials;
establish a sales, marketing and distribution infrastructure and/or enter into ? partnership arrangements to commercialize any products for which we may obtain regulatory approval; or
add administrative, operational, financial and management information systems ? and personnel, including personnel to support our product development and planned future commercialization efforts, and to support our being a public reporting company.
Components of Results of Operations
To date, we have not generated any revenue from product sales, collaborations with other companies, government grants or any other source, and do not expect to generate any revenue in the foreseeable future. If our product development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates or generating revenue through alternative marketing strategies such as nutraceuticals.
Cost of Revenue
To date, we have not generated any revenue and thus have no cost of revenue. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales and have corresponding cost of revenue. We cannot predict if, when, or to what extent we will incur costs from revenue from the commercialization and sale of our product candidates. If we are successful at commercialization, the cost of revenues would include all costs directly related to providing the commercial asset, which would consist primarily of labor, material, facilities, warehousing and other overhead expenses. Cost of revenues would also include depreciation expense related to certain equipment used as part of the commercial asset.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs to operations as incurred. These expenses include:
? employee-related expenses, including salaries, related benefits and stock-based compensation, for employees engaged in research and development functions;
expenses incurred in connection with the clinical development of our product ? candidates, including under agreements with third parties, such as consultants and Clinical Research Organizations ("CROs");
the cost of manufacturing and storing drug products for use in our preclinical ? studies and clinical trials, including under agreements with third parties, such as consultants and Clinical Manufacturing Organizations ("CMOs");
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? facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance;
? costs related to compliance with regulatory requirements; and
? payments made under third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress toward completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered, or the services rendered.
Our direct research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our clinical development, quality assurance and quality control processes, manufacturing, and clinical development activities. Our direct research and development expenses also include fees incurred under third-party license agreements. We use our employee and infrastructure resources across multiple research and development projects. We do not allocate employee costs and costs associated with our facilities, including depreciation or other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track our costs by product candidate.
Clinical development activities are central to our business model. We do not believe that our historical costs are indicative of the future costs associated with these programs, nor do they represent the costs of other future programs we may initiate. 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 clinical trials. We have some control over the timing of these expenses, but costs may be difficult to control once clinical trials have commenced.
The successful development and commercialization of our product candidates are highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. Additionally, because of the risks inherent in novel treatment discovery and development, we cannot reasonably estimate or know:
? the timing and progress of preclinical and clinical development activities;
? the number and scope of clinical programs that we decide to pursue;
? our ability to maintain our current development programs and to establish new ones;
? establishing an appropriate safety profile with IND-enabling studies;
? successful patient enrollment in, and the initiation and completion of, clinical trials;
the successful completion of clinical trials with safety, tolerability and ? efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
? the receipt of regulatory approvals from applicable regulatory authorities;
? the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
? our ability to establish new licensing or collaboration arrangements;
establishing agreements with third-party manufacturers for clinical supply for ? our clinical trials and commercial manufacturing, if any of our product candidates is approved;
? development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
? obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
? launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others;
? maintaining a continued acceptable safety profile of the product candidates following commercialization; or
? the effect of competing technological and market developments.
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A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
Acquired In-Process Research and Development
We include costs to acquire or in-license product candidates in acquired in-process research and development expenses ("IPR&D"). When we acquire the right to develop and commercialize a new product candidate, any up-front payments, or any future milestone payments that relate to the acquisition or licensing of such a right are immediately expensed as acquired in-process research and development in the period in which they are incurred. These costs are immediately expensed provided that the payments do not also represent processes or activities that would constitute a "business" as defined under GAAP, or provided that the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Royalties owed on future sales of any licensed product will be expensed in the period the related revenues are recognized.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services.
We anticipate that our general and administrative expenses will increase in the future as a result of accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as we pursue the development of our product pipeline, as well as investor and public relations expenses associated with being a public company.
Interest income consists of bank interest earned on our cash and cash equivalents.
Other Expense, net
Other expense, net reflects non-operating expenses associated mainly with realized foreign currency exchange gains and losses.
The 2020 Merger was intended to qualify as a tax-free reorganization under
The 2019 Merger was intended to qualify as a tax-free reorganization under
Since our inception, we have not recorded any income tax benefits for the NOLs we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOL carryforwards and tax credits will not be realized. As of December 31, 2021, we had federal, state and foreign NOLs carryforwards of $81.8 million, $42.6 million, and $1.3 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2037 for federal carryforwards incurred prior to 2018, in 2038 for state carryforwards and in 2028 for the foreign carryforwards. Federal operating loss carryforwards incurred beginning in 2018 do not expire. As of December 31, 2021, we also had federal and state research and development tax credit carryforwards of $1.0 million and $0.6 million, respectively, which may
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be available to offset future tax liabilities and each begin to expire in 2038. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred previously or that could occur in the future, as provided by Section 382 of the Code, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carry forwards that can be utilized to offset future taxable income and tax, respectively.
Results of Operations Comparison of the Years Ended December 31, 2021 and December 31, 2020 The following table summarizes our results of operations for the years ended December 31, 2021 and December 31, 2020 (in thousands): For the Year Ended December 31, 2021 2020 Change Operating expenses: Research and development $ 6,546 $ 4,531 $ 2,015 Acquired in�process research and development - 17,339 (17,339) General and administrative 8,752 7,846 906 Total operating expenses 15,298 29,716 (14,418) Loss from operations (15,298) (29,716) 14,418 Interest income 14 39 (25) Other expense, net - (1) 1 Loss before income taxes (15,284) (29,678) 14,394 Provision for income taxes - - - Net loss $ (15,284) $ (29,678) $ 14,394
Research and Development Expenses
Research and development expenses were $6.5 million for the year ended December 31, 2021 as compared to $4.5 million for the year ended December 31, 2020. The $2.0 million increase during the year ended December 31, 2021 was primarily attributed to increased clinical trial and drug manufacturing of $1.9 million and $0.4 million, respectively for the development of ANA001, offset by a reduction of preclinical costs of $0.3 million.
Acquired In-process Research and Development
Acquired in-process research and development for the year ended December 31, 2020 amounted to $17.3 million and was attributable to research and development projects of Niclosamide which were in-process at the 2020 Merger date. There was no acquired in-process research and development for the year ended December 31, 2021.
General and Administrative Expenses
General and administrative expenses were $8.8 million for the year ended December 31, 2021, compared to $7.8 million for the year ended December 31, 2020. The increase of $1.0 million was primarily due to increased personnel costs of $0.6 million, increased costs associated with operating as a public company of $0.3 million, and increased insurance costs of $0.4 million, offset by reductions of facilities and professional fees costs of $0.3 million and $0.1 million, respectively, when compared to the comparable prior year.
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Interest income for the year ended December 31, 2021 was $14,000 compared to $39,000 for the year ended December 31, 2020. Interest income for the years ended December 31, 2021 and 2020 were related to cash deposits.
Other expense, net was $1,000 during the year ended December 31, 2020, due to a nominal increase in net realized foreign currency exchange losses.
Liquidity and Capital Resources
On October 1, 2021, we entered into a securities purchase agreement (the "October 2021 Securities Purchase Agreement") with several institutional investors for the purchase and sale in a registered direct offering ("Registered Offering") of 4,307,693 shares of our common stock, at a purchase price of $3.25 per share for gross proceeds of approximately $14.0 million. The October 2021 Securities Purchase Agreement also provides for a concurrent private placement of warrants to purchase our common stock (the "October 2021 Warrants") with the purchasers in the October 2021 Registered Offering.. Net proceeds, after deducting placement agent fees and expense, related offering expenses, was $12.8 million.
On January 18, 2021, we entered into a Securities Purchase Agreement (the "2021 Purchase Agreement") with certain institutional and accredited investors, pursuant to which we, in a private placement (the "2021 Private Placement"), agreed to issue and sell an aggregate of 2,500,000 shares (the "2021 Shares") of our common stock, par value $0.001 per share at a purchase price of $4.00 per share, and warrants to purchase an aggregate of 2,500,000 shares of common stock (the "2021 Warrants"), resulting in total gross proceeds to us in the amount of $10.0 million. Net proceeds, after deducting placement agent fees and relating offering expenses, was $9.1 million.
On April 13, 2020, we entered into a Securities Purchase Agreement with an institutional investor, pursuant to which we sold in a registered direct offering 750,000 shares of our common stock, at an offering price of $10.00 per share, resulting in gross proceeds of $7.5 million. Net proceeds, after deducting the placement agent's fees and related offering expenses, were $6.9 million.
Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: For the Year Ended December 31, 2021 2020 (in thousands) Net cash used in operating activities $ (15,134) $ (10,764) Net cash (used in) provided by investing activities (586) 69 Net cash provided by financing activities 22,026 6,858 Net increase (decrease) in cash $ 6,306 $ (3,837)
During the year ended December 31, 2021 operating activities used $15.1 million of cash, primarily consisting of our net loss of $15.3 million and a net decrease of accounts payable and accrued expenses of $1.0 million, offset by stock-based compensation and other non-cash charges of $0.7 million and $0.4 from a decrease in prepaid expenses and other current assets.
During the year ended December 31, 2020, operating activities used $10.8 million of cash, primarily resulting from our net loss of $29.7 million offset by non-cash expenses related to IPR&D, stock-based compensation and
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depreciation in the aggregate of $18.1 million. Net cash provided by changes in . . .
Mar 31, 2022
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