Bulletin
Investor Alert

Nov. 12, 2019, 5:15 p.m. EST

10-Q: HOTH THERAPEUTICS, INC.

(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis of our financial condition and results of operations together with and our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a biopharmaceutical company formed in May 2017 focused on targeted therapeutics for patients suffering from conditions such as atopic dermatitis, also known as eczema.

Our primary asset is a sublicense agreement with Chelexa Biosciences, Inc. ("Chelexa") pursuant to which Chelexa has granted us an exclusive sublicense to use its BioLexa Platform (as defined herein), a proprietary, patented, drug compound platform developed at the University of Cincinnati. The license enables us to develop the platform for any indications in humans. Our initial focus will be on the treatment of eczema through the application of a topical cream. Although our initial focus will be on the treatment of eczema, we intend to develop a second topical cream which, upon application, is intended to reduce post-procedure infections, accelerate healing and improve clinical outcomes for patients undergoing aesthetic dermatology procedures. The BioLexa Platform combines a U.S. Food and Drug Administration ("FDA") approved zinc chelator with one or more approved antibiotics in a topical dosage form to address unchecked eczema flare-ups by preventing the formation of infectious biofilms and the resulting clogging of sweat ducts which trigger symptoms. It is the first product candidate intended to prevent the symptom triggering flare-ups rather than simply treating symptoms when they occur.

On May 26, 2017, we entered into a sublicense agreement with Chelexa, as amended on August 22, 2018 and August 29, 2018, pursuant to which Chelexa granted us an exclusive sublicense to make, use, have made, import, offer for sale, and sell products based upon or involving the use of (i) topical compositions comprising a zinc chelator and gentamicin and (ii) zinc chelators to inhibit biofilm formation (the "BioLexa Platform" or "BioLexa"), which rights were originally granted to Chelexa pursuant to an exclusive license agreement with the University of Cincinnati. In addition, Chelexa granted us the right to issue exclusive and nonexclusive sublicenses (with the right to further sublicense to third parties) to make, use, have made, import, offer for sale, and sell products based upon the BioLexa Platform.

We intend to initially use the BioLexa Platform to develop two different topical cream products: (i) a product to treat eczema and (ii) a product that reduces post-procedure infections, accelerates healing and improves clinical outcomes for patients undergoing aesthetic dermatology procedures. Eczema is a disease that results in inflammation of the skin and is characterized by rash, red skin, and itchiness. Eczema is also referred to as atopic dermatitis. We are concentrating our effort and resources to develop the BioLexa Platform, utilizing our novel formulation and approach for these two markets.

The BioLexa Platform has achieved positive results in its initial clinical studies conducted at the University of Miami. BioLexa's formulation is a new topical dosage form "repurposing" the antibiotic, enabling it to be developed for use in patients following a special regulatory pathway codified in Section 505(b)(2) of the FDA rules. Section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act was enacted to enable sponsors to seek New Drug Application ("NDA") approval for novel repurposed drugs without the need for such sponsors to undertake time consuming and expensive pre-clinical safety studies and Phase 1 safety studies. Proceeding under this regulatory pathway, we will be able to rely upon all of the publicly available safety and toxicology data with respect to gentamicin and zinc chelator in our FDA submissions. We will be required to conduct a Phase 2 study to show the safety of the combination in humans and after such Phase 2 study will be required to proceed to Phase 3 pivotal clinical trials. We believe that this path will dramatically reduce the required clinical development effort, costs and risks as compared to what would be required of us if we were required to conduct pre-clinical safety, toxicology and animal studies together with Phase 1 human safety trials required for new chemical entities which are not eligible to be reviewed pursuant to the Section 505(b)(2) regulatory pathway. We estimate that by using the Section 505(b)(2) regulatory pathway, that the clinical development process may be five to six years shorter than is required for a new chemical entity, and the FDA approval process may be six to nine months shorter than the typical eighteen month period, which we believe may result in lower development costs and shorter development time. As of the date hereof, we have not submitted an NDA to the FDA. In September 2018, we attended the first of a planned series of meetings with the FDA to review the requirements for submission and activation of an investigational new drug application ("IND") with respect to the BioLexa Platform for use in eczema. In preparation for such pre-IND meeting, we prepared and presented to the FDA our proposed Phase 2 clinical trial plan for the treatment of eczema in patients over the age of one year old. As part of our pre-IND meeting, the FDA provided us with general guidance with respect to specific animal studies, dosing schedules and suggested human safety studies before we commence clinical trials in pediatric or adult patients. We are currently investigating multiple potential venues for conducting such trial both in and outside of the U.S. We have engaged Camargo Pharmaceutical Services, LLC ("Camargo") to assist us with the FDA process required for Section 505(b)(2) applications and with the evaluation of potential clinical trial venues for the proof of concept study should we determine to undertake such study. Specifically, Camargo has provided and will continue to provide advice and guidance relative to the IND preparation phase for the BioLexa Platform. Camargo will assist us with the refinement of our non-clinical, clinical, clinical pharmacology and biopharmaceutics strategy incorporating the preliminary feedback we received from the FDA during our pre-IND meeting.

We intend to conduct our first Phase 1 study in healthy adults with an immediate transition to a randomized, vehicle controlled Phase 1b trial in adolescent eczema patients comparing BioLexa to the base vehicle. This Phase 1b trial is intended to examine both safety and efficacy. We will assess the formulation of Ca-DTPA and Gentamicin 0.1% in our proprietary topical lotion delivered by a metered pump system. We will also assess the ability of BioLexa to clear harmful staph aureus bacterial from the skin of atopic dermatitis patients.

Following our Phase 1b trial, we intend to conduct up to two Phase 2 trials in atopic dermatitis patients comparing BioLexa to the base vehicle. Subject numbers and allocation will be informed by the results of the Phase 1b trial. We expect the clinical program to be completed, subject to receipt of funding by us, by the end of 2020 or early 2021 with an NDA submission targeted for mid to late 2021.

In addition, we conducted an initial pilot study on the efficacy of BioLexa to accelerate diabetic wound healing and intend to conduct additional studies with respect to the regenerative effects of the BioLexa Platform in the context of chronic diabetic ulcers, with and without substantial bacterial burden.

We believe that the key elements for our market success include:

? the proprietary formulation of two FDA-approved drugs to treat bacterial proliferation reduces development time and costs by giving us the ability to rely on safety and efficacy data from the two approved drugs;

? our proprietary formulation is not a topical corticosteroid, and may not be subject to the same FDA black box warning issues as most commonly prescribed treatments currently in use; and

? a recent peer-reviewed publication titled "Staphylococcal Bacteria May Cause Eczema, Study Reveals", published by Dr. Herbert B. Allen, highlights that staph-induced biofilms are the root cause of flare-ups in eczema. Our BioLexa product candidate has been demonstrated to prevent the formation of these biofilms with the promise of delaying or completely arresting flare-ups, rather than merely treating symptoms of a flare-up already underway.

In addition to our sublicense agreement with Chelexa, we entered into an exclusive license agreement with the University of Cincinnati for a patented, novel genetic marker for food allergies. The genetic marker licensed by us from the University of Cincinnati (i) may be used to identify at risk infants in predicting food allergies, including peanut and milk allergies, (ii) may be used to identify a person's predisposition to an allergic reaction, thereby avoiding such reaction and (iii) may also determine an individual's propensity to develop atopic dermatitis, such as eczema. We intend to utilize the genetic marker for purposes of determining an individual's propensity to develop eczema as well as to identify and treat allergies in at-risk infants.

We also entered into an exclusive sublicense agreement (the "Zyl� Sublicense Agreement") with Zyl� Therapeutics, Inc. ("Zyl�") pursuant to which Zyl� granted us an exclusive sublicense to certain patent rights and technology to, among other things, develop, make and sell the certain licensed products and to practice certain licensed technology in the United States and Canada for all therapeutic uses related to lupus in human beings.

In order to generate revenue from our product candidates, we will need to sell our product candidates either through distribution partnerships or through our own sales efforts. Prior to selling our product candidates, we will need to receive FDA approval of our NDA for each indication that we intend to treat. The first indication we are seeking approval for is the BioLexa Platform for treating eczema. We intend to submit our NDA for such indication by the end of 2021 with approval of such NDA anticipated to be in 2022; however, no assurances can be given that we will receive approval of the NDA in a timely manner, if at all.

Results of Operations

Comparison of the Three Months Ended September 30, 2019 and 2018

Operating Costs and Expenses

Research and Development Expenses

For the three months ended September 30, 2019, research and development expenses were approximately $0.5 million, of which $40,000 was related to the Zyl� Sublicense Agreement and approximately $0.5 million was related to other research and development expenses.

During the three months ended September 30, 2018, research and development expenses were approximately $0.4 million, which primarily consisted of approximately $8,000 related to the acquisition of a license from University of Cincinnati and approximately $0.3 million related to other research and development expenses.

We expect our research and development activities to increase as we develop our existing product candidate and potentially acquire new product candidates, reflecting increasing costs associated with the following:

? employee-related expenses, which include salaries and benefits, and rent expenses;

? license fees and milestone payments related to in-licensed products and technology;

? expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical activities;

? the cost of acquiring and manufacturing clinical trial materials; and

? costs associated with non-clinical activities, and regulatory approvals.

Compensation, Professional Fees, Rent and Other ("General and Administrative Expenses")

For the three months ended September 30, 2019, General and Administrative Expenses were approximately $1.2 million, which primarily consisted of approximately $0.3 million related to payroll expenses and stock-based compensation, $0.6 million for professional fees and $0.2 million for other expenses.

During the three months ended September 30, 2018, General and Administrative Expenses were approximately $0.3 million, which primarily consisted of approximately $96,000 related to payroll expenses, approximately $0.1 million for professional fees and approximately $50,000 for other expenses.

We anticipate that our General and Administrative Expenses will increase in future periods, reflecting continued and increasing costs associated with:

? support of our research and development activities;

? stock compensation granted to key employees and non-employees;

? support of business development activities; and

? increased professional fees and other costs associated with the regulatory requirements and increased compliance associated with being a public reporting company.

Other Income

For the three months ended September 30, 2019, other income was approximately $4,000, which primarily related to unrealized gain on marketable securities.

For the three months ended September 30, 2018, other income was $0.

Comparison of the Nine Months Ended September 30, 2019 and 2018

Operating Costs and Expenses

Research and Development Expenses

For the nine months ended September 30, 2019, research and development expenses were approximately $1.1 million which primarily consisted of $50,000 related to the Zyl� Sublicense Agreement, an aggregate of $10,000 related to a license acquired from the University of Maryland and Isoprene Pharmaceuticals Inc., and approximately $1.0 million related to other research and development expenses.

During the nine months ended September 30, 2018, research and development expenses were approximately $0.8 million, of which approximately $0.2 million related to license acquired, including the issuance of 213,166 shares of our common stock valued at approximately $132,000 or $0.42 per share related to our sublicense agreement with Chelexa. Additionally, we incurred approximately $0.6 million of expense related to other research and development expenses.

Compensation, Professional Fees, Rent and Other

For the nine months ended September 30, 2019, General and Administrative Expenses were approximately $2.7 million, which primarily consisted of approximately $0.8 million related to payroll expenses and stock-based compensation, approximately $1.5 million for professional fees and $0.4 million for other expenses.

During the nine months ended September 30, 2018, General and Administrative Expenses were $1.1 million, which primarily consisted of $0.3 million related to payroll expenses, approximately $133,000 related to the issuance of 142,500 shares of our common stock to two employees and two directors and approximately $0.5 million for professional fees.

Other Income

For the nine months ended September 30, 2019, other income was approximately $4,000, which primarily related to unrealized gain on marketable securities.

For the nine months ended September 30, 2018, other income was $0.

Liquidity and Capital Resources

We have incurred substantial operating losses since inception, and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019, we had cash of approximately $3.2 million, marketable securities of approximately $0.8 million, working capital of approximately $4.1 million and an accumulated deficit of approximately $8.3 million.

We have funded our operations from proceeds from the sale of equity and debt securities. We will require significant additional capital to make the investments we need to execute our longer-term business plan. Our ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if we are successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.

Our current cash is sufficient to fund operations for at least the next 12 months; however, we will need to raise additional funding through strategic relationships, public or private equity or debt financings, grants or other arrangements to develop and seek regulatory approvals for our existing and new product candidates. If such funding is not available, or not available on terms acceptable to us, our current development plan and plans for expansion of our general and administrative infrastructure may be curtailed.

Cash Flows from Operating Activities

For the nine months ended September 30, 2019, net cash used in operations was approximately $3.4 million, which primarily resulted from a net loss of approximately $3.8 million and changes in operating assets and liabilities of approximately $0.2 million, partially offset by approximately $0.5 million stock-based compensation.

For the nine months ended September 30, 2018, net cash used in operations was approximately $1.6 million, which primarily resulted from a net loss of approximately $1.9 million, partially offset by approximately $0.1 million of non-cash research and development expense related to a license acquisition.

Cash Flows from Investing Activities

For the nine months ended September 30, 2019, net cash used in investing activities was approximately $0.9 million, which was related to the purchase of marketable securities of $0.8 million and the purchase of research and development licenses of $70,000.

For the nine months ended September 30, 2018, there were no investing activities.

Cash Flows from Financing Activities

For the nine months ended September 30, 2019, net cash provided by financing activities was approximately $7.5 million, including approximately $0.2 million restricted cash. The cash provided by financing activities primarily resulted from approximately $5.8 million in net proceeds from the Company's initial public offering (the "IPO") and approximately $1.6 million in net proceeds from a private offering of an aggregate of 407,474 units with each unit consisting of one share of the Company's common stock and a warrant to purchase one-half share of the Company's common stock. On February 20, 2019, we closed the IPO pursuant to which we issued 1,250,000 shares of our common stock for net proceeds of approximately $5.8 million, after deducting underwriting discounts and commissions and offering expenses. The $0.2 million restricted cash has been deposited into a third-party escrow account in order to provide a source of funding for certain indemnification obligations the Company has pursuant to its Qualified Independent Underwriter Engagement Agreement.

For the nine months ended September 30, 2018, net cash provided by financing activities was approximately $1.2 million, which relates to the net proceeds from an offering pursuant to which the Company issued 13.77 units of its securities.

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

As of September 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in

We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an "emerging growth company" until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the IPO; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Nov 12, 2019

(c) 1995-2019 Cybernet Data Systems, Inc. All Rights Reserved

Link to MarketWatch's Slice.