UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
| No.
| ||
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ☐ | Accelerated filer | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
As of November 3, 2020, there were shares of the registrant’s common stock, $0.0001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
MATINAS BIOPHARMA HOLDINGS, INC.
Form 10-Q
Quarter Ended September 30, 2020
Table of Contents
| Page | ||
| PART - I FINANCIAL INFORMATION | ||
| Item 1. | FINANCIAL STATEMENTS | 1 |
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 |
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 21 |
| Item 4. | CONTROLS AND PROCEDURES | 21 |
| PART - II OTHER INFORMATION | ||
| Item 1. | LEGAL PROCEEDINGS | 22 |
| Item 1A. | RISK FACTORS | 22 |
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 22 |
| Item 3. | DEFAULTS UNDER SENIOR SECURITIES | 22 |
| Item 4. | MINE SAFETY DISCLOSURES | 22 |
| Item 5. | OTHER INFORMATION | 22 |
| Item 6. | EXHIBITS | 22 |
| i |
Matinas BioPharma Holdings Inc.
Condensed Consolidated Balance Sheets
| September 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Restricted cash | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Leasehold improvements and equipment - net | ||||||||
| Operating lease right-of-use assets - net | ||||||||
| Finance lease right-of-use assets - net | ||||||||
| In-process research and development | ||||||||
| Goodwill | ||||||||
| Restricted cash - security deposits | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating lease liabilities - current | ||||||||
| Financing lease liabilities - current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities - net of current portion | ||||||||
| Financing lease liabilities - net of current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Series
B Convertible preferred stock, stated value $per share, shares authorized as of September
30, 2020 and December 31, 2019;
and shares issued and outstanding as of
September 30, 2020 and December 31, 2019, respectively; (liquidation preference - $ |
||||||||
| Common stock par value $ per share, shares authorized at September 30, 2020 and December 31, 2019; and issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Accumulated other comprehensive income/(loss) | ( |
) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 1 |
Matinas BioPharma Holdings, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
Unaudited
| Three
Months Ended September 30, |
Nine
Months Ended September 30, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue: | ||||||||||||||||
| Contract research revenue | $ | $ | $ | $ | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Sale of New Jersey net operating loss | - | - | ||||||||||||||
| Other income, net | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Preferred stock series A accumulated dividends | - | ( |
) | - | ( |
) | ||||||||||
| Preferred stock series B accumulated dividends | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to common shareholders | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss available for common shareholders per share - basic and diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Other comprehensive (loss)/income, net of tax | ||||||||||||||||
| Net unrealized (loss)/gain on securities available-for-sale | ( |
) | - | - | ||||||||||||
| Reclassifications to net loss | - | - | ( |
) | - | |||||||||||
| Other comprehensive (loss)/income, net of tax | ( |
) | - | - | ||||||||||||
| Comprehensive loss attributable to shareholders | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 2 |
Matinas BioPharma Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
Unaudited
| Redeemable
Convertible Preferred Stock A |
Redeemable
Convertible Preferred Stock B |
Common Stock | Additional Paid - in |
Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | - | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock as compensation for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred stock | - | ( |
) | ( |
) | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance
of common stock in public offering, net of stock issuance costs ($ |
- | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for Options | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock from the exercise of Warrants | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Stock dividend | - | - | ( |
) | - | - | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
Redeemable
Convertible |
Redeemable
Convertible Preferred Stock B |
Common Stock | Additional Paid - in |
Accumulated | Accumulated Other Comprehensive |
Total Stockholders’ |
||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | - | $ | - | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock as compensation for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock from the exercise of Options | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
Redeemable
Convertible |
Redeemable
Convertible Preferred Stock B |
Common Stock | Additional
Paid – in |
Accumulated | Accumulated Other Comprehensive |
Total Stockholders’ |
||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | $ | $ | $ | $ | $ | ( |
) | $ | - | $ | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock as compensation for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred shares A | ( |
) | ( |
- | - | - | - | |||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred shares B | - | ( |
) | ( |
) | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance
of common stock in public offering, net of stock issuance costs ($ |
- | - | - | - | ||||||||||||||||||||||||||||||||||||
| Stock dividend | - | - | ( |
) | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||
| Balance, September 30, 2019 | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
Redeemable
Convertible |
Redeemable
Convertible Preferred Stock B |
Common Stock | Additional
Paid – in |
Accumulated | Accumulated Other Comprehensive |
Total Stockholders’ |
||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | $ | $ | ( |
) | $ | - | $ | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock as compensation for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred shares A | ( |
) | ( |
) | - | - | - | - | ||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for preferred shares B | - | ( |
) | ( |
) | - | - | - | ||||||||||||||||||||||||||||||||
| Stock dividend | - | - | ( |
) | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||
| Balance, September 30, 2019 | $ | $ | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
Matinas BioPharma Holdings Inc.
Condensed Consolidated Statements of Cash Flow
Unaudited
| Nine
Months Ended September 30, |
||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of equipment | - | |||||||
| Stock based compensation expense | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Amortization of finance lease right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Operating lease liabilities | ( |
) | ( |
) | ||||
| Prepaid expenses and other current assets | ( |
) | ( |
) | ||||
| Accounts payable | ( |
) | ||||||
| Accrued expenses and other liabilities | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of marketable securities | ( |
) | - | |||||
| Proceeds from sales of marketable securities | - | |||||||
| Purchases of leasehold improvements and equipment | ( |
) | ( |
) | ||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from public offering of common stock | ||||||||
| Proceeds from exercise of warrants | - | |||||||
| Proceeds from exercise of options | - | |||||||
| Payments of capital lease liability - principal | ( |
) | ( |
) | ||||
| Payments of note payable | - | ( |
) | |||||
| Net cash provided by financing activities | ||||||||
| Net (decrease)/increase in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental non-cash financing and investing activities: | ||||||||
| Unrealized gains on marketable securities | $ | $ | ||||||
| Preferred stock conversion into common stock - Series B | $ | $ | ||||||
| Cashless exercise of warrants | $ | $ | ||||||
| Unearned restricted stock grants | $ | $ | ||||||
| Stock dividends issued | $ | $ | ||||||
| Stock dividends accrual | $ | $ | ||||||
| Right-of-use assets obtained in exchange for liabilities | $ | $ | ||||||
| Preferred stock conversion into common stock - Series A | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
MATINAS
BIOPHARMA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Tabular dollars and shares in thousands, except per share data)
Note 1 – Description of Business
Matinas BioPharma Holdings Inc. (“Holdings”) is a Delaware corporation formed in 2013. Holdings is the parent company of Matinas BioPharma, Inc. (“BioPharma”), and Matinas BioPharma Nanotechnologies, Inc. (“Nanotechnologies,” formerly known as Aquarius Biotechnologies, Inc. and together with “Holdings” and “BioPharma”, “the Company” or “we” or “our” or “us”). The Company is a clinical-stage biopharmaceutical company with a focus on identifying and developing novel pharmaceutical products.
Note 2 – Liquidity and Plan of Operations
The
Company has experienced net losses and negative cash flows from operations each period since its inception. Through September
30, 2020, the Company had an accumulated deficit of approximately $
The Company has been engaged in developing MAT-9001, its lead product candidate, as well as its lipid nano-crystal (“LNC”) platform delivery technology and a pipeline of associated product candidates since 2011. To date, the Company has not obtained regulatory approval for any of its product candidates nor generated any revenue from product sales and the Company expects to incur significant expenses to complete development of its product candidates. The Company may never be able to obtain regulatory approval for the marketing of any of its product candidates in any indication in the United States or internationally and there can be no assurance that the Company will generate revenues or ever achieve profitability.
If the Company obtains Food and Drug Administration (“FDA”) approval for one or more of its product candidates, the Company expects that its expenses will continue to increase once the Company reaches commercial launch. The Company also expects that its research and development expenses will continue to increase as it moves forward with additional clinical studies for its current product candidates and development of additional product candidates. As a result, the Company expects to continue to incur substantial losses for the foreseeable future, and that these losses will be increasing.
To
continue to fund operations, on January 14, 2020, the Company completed an underwritten public offering of common stock, generating
gross cash proceeds of approximately $
As
of September 30, 2020, the Company had cash and cash equivalents of approximately $
Note 3 – Summary of Significant Accounting Policies
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the consolidated accounts of Holdings and its wholly owned subsidiaries, BioPharma, and Nanotechnologies. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect the operations of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
The Company’s significant accounting policies are fully described in Note 3 within the Company’s Notes to Consolidated Financial Statements included in the Company’s 2019 Form 10-K.
| 5 |
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economics, and financial markets globally, potentially leading to an economic downturn.
The Company has been actively monitoring the COVID-19 pandemic and its impact globally. The financial results for the three and nine months ended September 30, 2020 were not significantly impacted by COVID-19. However, the Company cannot predict the impact of the progression of the COVID-19 pandemic on future results or the Company’s ability to raise capital due to a variety of factors, including the continued good health of Company employees, the ability of suppliers to continue to operate and deliver, the ability of the Company to maintain operations, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic.
Recently adopted accounting pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updated (“ASU”) 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim` periods within those fiscal years, beginning after December 15, 2019. The Company adopted the guidance on January 1, 2020. The adoption did not have a material impact on our condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, “Collaboration Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606”, to clarify when ASC 606 should be used for collaborative arrangements when the counterparty is a customer. The guidance precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from the contracts with the customers if the counterparty is not a customer for that transaction. The guidance is effective for public entities in fiscal years beginning after December 15, 2019, and interim period therein. The Company adopted the guidance on January 1, 2020. The adoption did not have a material impact on our condensed consolidated financial statements.
Note 4 – Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The Company considers all highly liquid financial instruments with original maturities of three months or less when purchased to be cash and cash equivalents and all investments with maturities of greater than three months from date of purchase are classified as marketable securities. Cash and cash equivalents consisted of cash in bank checking and savings accounts and money market funds.
Cash, Cash Equivalents and Restricted Cash
The Company presents restricted cash with cash and cash equivalents in the Condensed Consolidated Statements of Cash Flows. Restricted cash represents funds the Company is required to set aside to cover building operating leases and other purposes.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheets to the total of the amounts in the Condensed Consolidated Statements of Cash Flows as of September 30, 2020, December 31, 2019, September 30, 2019 and December 31, 2018:
| September
30, 2020 |
December
31, 2019 |
September
30, 2019 |
December
31, 2018 |
|||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Restricted cash included in current/long term assets | ||||||||||||||||
| Cash, cash equivalents and restricted cash in the statement of cash flows | $ | $ | $ | $ | ||||||||||||
Marketable Securities
The
Company has classified its investments in marketable securities as available-for-sale and as a current asset. The Company’s
investments in marketable securities are carried at fair value, with unrealized gains and losses included as a separate component
of stockholders’ equity. Unrealized gains and losses are classified as other comprehensive income (loss) and costs are determined
on a specific identification basis. Realized gains and losses from our marketable securities are recorded in other income, net.
For the three and nine months ended September 30, 2020, the Company recorded unrealized losses of approximately $
| 6 |
The following tables summarizes the Company’s marketable securities as of September 30, 2020:
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gain | (Loss) | Fair Value | |||||||||||||
| U.S. Treasury Bonds | $ | $ | $ | $ | ||||||||||||
| U.S. Government Notes | ( |
) | ||||||||||||||
| Corporate Debt Securities | ||||||||||||||||
| State and Municipal Bonds | ||||||||||||||||
| Total marketable securities | $ | $ | $ | ( |
) | $ | ||||||||||
Maturities of debt securities classified as available-for-sale were as follows at September 30, 2020:
| Net Carrying | ||||||||
| Fair Value | Amount | |||||||
| Due within one year | $ | $ | ||||||
| Due after one year through five years | ||||||||
| $ | $ | |||||||
The following tables summarizes the Company’s cash, cash equivalents and marketable securities for the year ended December 31, 2019:
| Amortized | Unrealized | Unrealized | ||||||||||||||
| Cost | Gain | (Loss) | Fair Value | |||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| U.S. Treasury Bonds | $ | $ | $ | ( |
) | $ | ||||||||||
| Corporate Debt Securities | ( |
) | ||||||||||||||
| Total marketable securities | $ | $ | $ | ( |
) | $ | ||||||||||
| Total cash, cash equivalents and marketable securities | $ | $ | $ | ( |
) | $ | ||||||||||
Maturities of debt securities classified as available-for-sale were as follows at December 31, 2019:
| Net Carrying | ||||||||
| Fair Value | Amount | |||||||
| Due within one year | $ | $ | ||||||
| Due after one year through five years | ||||||||
| $ | $ | |||||||
The Company determined that the unrealized gains and (losses) are deemed to be temporary as of September 30, 2020. Unrealized gains and (losses) generally are the result of increases in the risk premiums required by market participants rather than an adverse change in cash flows for a fundamental weakness in the credit quality of the issuer or underlying assets. The Company has the ability and intent to hold these investments until maturity. The Company does not consider the investment in marketable securities to be other-than-temporarily impaired at September 30, 2020.
| 7 |
Note 5 - Fair Value Measurements
The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:
| ● | Level 1 – Quoted prices for identical assets or liabilities in active markets. |
| ● | Level 2 – Quoted prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs are directly or indirectly observable or whose significant value drivers are observable. |
| ● | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions are used based on management estimates. |
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
The carrying amounts of certain cash and cash equivalents, current portion of restricted cash, prepaid expenses, accounts payable, current portion of lease liability and accrued expenses approximate fair value due to the short-term nature of these instruments.
A summary of the assets and liabilities carried at fair value in accordance with the hierarchy defined above is as follows:
| Fair Value Hierarchy | ||||||||||||||||
| September 30, 2020 | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets | ||||||||||||||||
| Marketable Securities: | ||||||||||||||||
| U.S. Treasury Bonds | $ | $ | $ | $ | ||||||||||||
| U.S. Government Notes | ||||||||||||||||
| Corporate Debt Securities | ||||||||||||||||
| State and Municipal Bonds | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Fair Value Hierarchy | ||||||||||||||||
| December 31, 2019 | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Marketable Securities: | ||||||||||||||||
| U.S. Treasury Bonds | ||||||||||||||||
| Corporate Debt Securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Cash and cash equivalents consisted of cash in bank checking and savings accounts, money market funds and U.S. treasury bonds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices for identical assets in active markets. Marketable securities consisting of U.S. government notes, corporate debt securities and state and municipal bonds are classified as Level 2 and are valued using quoted market prices in markets that are not active.
Note 6 – Leasehold Improvements and Equipment
Leasehold improvements and equipment, summarized by major category, consist of the following as of September 30, 2020 and December 31, 2019:
| September
30, 2020 |
December
31, 2019 |
|||||||
| Lab equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: accumulated depreciation and amortization | ||||||||
| Leasehold improvements and equipment, net | $ | $ | ||||||
| 8 |
Depreciation
and amortization expense for the three and nine months ended September 30, 2020 was approximately $
Note 7 – Accrued Expenses
Accrued Expenses, summarized by major category, as of September 30, 2020 and December 31, 2019 consist of the following:
| September
30, 2020 |
December
31, 2019 |
|||||||
| Payroll and incentives | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Deferred revenue | ||||||||
| Other | - | |||||||
| Total | $ | $ | ||||||
Note 8 – Leases
The
Company has various lease agreements with original terms of up to
The assets and liabilities from operating and finance leases are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate, which is determined using the average of borrowing rates explicitly stated in the Company’s finance leases.
The
Company incurred lease expense for its operating leases of approximately $
The
Company incurred interest expense on its finance leases of approximately $
The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of September 30, 2020:
| Maturity of Lease Liabilities | Operating Lease Liabilities | Finance Lease Liabilities | ||||||
| Remainder of 2020 | $ | $ | ||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | $ | $ | ||||||
| Total undiscounted operating lease payments | $ | |||||||
| Less: Imputed interest | $ | |||||||
| Present value of operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term in years | ||||||||
| Weighted average discount rate | ||||||||
| 9 |
The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of December 31, 2019:
| Maturity of Lease Liabilities | Operating Lease Liabilities | Finance Lease Liabilities | ||||||
| 2020 | $ | $ | ||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | $ | $ | ||||||
| Total undiscounted operating lease payments | $ | |||||||
| Less: Imputed interest | $ | |||||||
| Present value of operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term in years | ||||||||
| Weighted average discount rate | ||||||||
Amendment to the Administrative Office Lease in Bedminster New Jersey
On
September 23, 2020, the
Note 9 – Income Taxes
Sale of net operating losses (NOLs)
The
Company recognized $
Note 10 – Stockholders’ Equity
At-The-Market Equity Offering
On
July 2, 2020, the Company entered into an At-The-Market (“ATM”) Sales Agreement (the “Sales Agreement”)
with BTIG, LLC (“BTIG”), pursuant to which the Company may offer and sell, from time to time, through BTIG, as sales
agent and/or principal, shares of its common stock having an aggregate offering price of up to $
Common Stock
On
January 14, 2020, the Company closed on an underwritten public offering of million shares of its common stock at a purchase
price of $ per share. The Company generated gross proceeds of approximately $
Preferred Stock
Series B Preferred Stock
In connection with a public offering of Series B Preferred Stock, on June 19, 2018, the Company filed the Series B Certificate of Designation with the Secretary of the State of Delaware to designate the preferences, rights and limitations of the Series B Preferred Stock. Pursuant to the Series B Certificate of Designation, the Company designated shares of the Company’s previously undesignated preferred shares as Series B Preferred Stock. As of September 30, 2020 and December 31, 2019, there were shares shares, respectively, of Series B Preferred Stock outstanding.
Dividends.
| 10 |
Warrants
The Company has issued two types of warrants: (i) investor warrants and (ii) placement agent warrants. All warrants are exercisable immediately upon issuance and have a five-year term. The warrants may be exercised at any time in whole or in part upon payment of the applicable exercise price until expiration. No fractional shares will be issued upon the exercise of the warrants. The exercise price and the number of shares purchasable upon the exercise of the investor warrants are subject to adjustment upon the occurrence of certain events, which include stock dividends, stock splits, combinations and reclassifications of the Company’s capital stock or other similar changes to the equity structure of the Company.
As
of September 30, 2020, the Company had outstanding warrants to purchase an aggregate of
| Shares | ||||
| Outstanding at December 31, 2018 | ||||
| Issued | ||||
| Exercised | ( |
) | ||
| Tendered | ||||
| Expired | ||||
| Outstanding at December 31, 2019 | * | |||
| Issued | ||||
| Exercised | ( |
)** | ||
| Tendered | ||||
| Expired | ( |
) | ||
| Outstanding at September 30, 2020 | *** | |||
| * | |
| ** | |
| *** |
Basic and diluted net loss per common share
During the three and nine months ended September 30, 2020 and 2019, diluted earnings per common share is the same as basic earnings per common share because, as the Company incurred a net loss during each period presented, the potentially dilutive securities from the assumed exercise of all outstanding stock options, warrants and conversion of preferred stock, would have an anti-dilutive effect. The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common shareholders because including them would have been anti-dilutive for the three and nine months ended September 30, 2020 and 2019:
| As of September 30, | ||||||||
| 2020 | 2019 | |||||||
| Stock options | ||||||||
| Preferred Stock and accrued dividend upon conversion | ||||||||
| Warrants | ||||||||
| Total | ||||||||
Note 11 – Accumulated Other Comprehensive (Loss)/Income
The following table summarizes the changes in accumulated other comprehensive (loss)/income by components during the nine months ended September 30, 2020:
| Net Unrealized (Losses)/Gains on Available-for-Sale Securities | Accumulated
Other Comprehensive (Loss)/Gain |
|||||||
| Balance, December 31, 2019 | $ | ( |
) | $ | ( |
) | ||
| Unrealized gain on securities available-for-sale | ||||||||
| Reclassifications to net loss | ( |
) | ( |
) | ||||
| Net current period other comprehensive income | ||||||||
| Balance, September 30, 2020 | $ | $ | ||||||
| 11 |
The amounts reclassified to net income for realized gains and losses on available-for-sale securities are recorded as part of other income, net, in our Condensed Consolidated Statements of Operations and Comprehensive Loss. There were no accumulated other comprehensive (losses)/gains during the nine months ended September 30, 2019 and all components of accumulated other comprehensive (losses)/gains are net of tax. Realized gains and losses and declines in value judged to be other-than-temporary are included in the determination of net loss and are included in other income, net.
The Company’s Amended and Restated 2013 Equity Compensation Plan (the “Plan”) provides for the granting of incentive stock options, nonqualified stock options, restricted stock units, performance units, and stock purchase rights. There were no significant modifications to the Plan during the nine months ended September 30, 2020 and 2019.
With the approval of the Board of Directors and a majority of shareholders, effective May 8, 2014, the Plan was amended and restated. The amendment provides for an automatic increase in the number of shares of common stock available for issuance under the Plan each January, commencing , in an amount up to four percent (%) of the total number of shares of common stock outstanding on the preceding December 31st.
Awards Reserved for Issuance |
Awards Issued & Exercised |
Awards Available for Grant |
||||||||||
| 2013 Equity Compensation Plan (in thousands) | * | ** | ||||||||||
| * | |
| ** |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Research and Development | $ | $ | $ | $ | ||||||||||||
| General and Administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
During the nine months ended September 30, 2020, the Company modified the exercise terms of certain vested stock options resulting in additional stock-based compensation expense of approximately $ thousand. . The additional expense was recorded in the research and development department.
As of September 30, 2020, total compensation costs related to unvested awards not yet recognized was approximately $ million and the weighted-average periods over which the awards are expected to be recognized was years.
| 12 |
Stock Options
| Stock Options | ||||
| Outstanding at January 1, 2020 | ||||
| Granted | ||||
| Exercised | ( | )* | ||
| Forfeited | ( | ) | ||
| Cancelled | ||||
| Expired | ( | ) | ||
| Outstanding at September 30, 2020 | ||||
| * |
Restricted Stock Awards
During
the nine months ended September 30, 2020 and 2019, the Company granted restricted stock awards for approximately thousand
and approximately thousand shares of common stock, respectively. These awards are granted to members of the Board of Directors
as payment in lieu of cash fees or as payment to a vendor pursuant to a consulting agreement. The Company values restricted stock
awards at the fair market value on the date of grant. The Company recorded the value of these restricted awards as general and
administrative expense of approximately $ thousand and $
Note 13 – Subsequent Event
None
| 13 |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2019 and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, together with any statements related in any way to the COVID-19 pandemic including its impact on the Company, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. In addition, the extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the crisis, future government actions in response to the crisis and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
| ● | our ability to raise additional capital to fund our operations and to develop our product candidates; |
| ● | our expectations regarding clinical studies, the timing of clinical results, development timelines and regulatory filings and submissions for our product candidates; |
| ● | risks related to failure to obtain FDA clearances or approvals and noncompliance with FDA regulations; |
| ● | the time, resources, and expense required to develop and conduct clinical trials and seek regulatory approvals for of our product candidates; |
| ● | the success of competing therapies and products that are or may become available; |
| ● | uncertainties of government and third party payor reimbursement;
|
| ● | the performance of third parties, including contract research organizations and third-party manufacturers; |
| ● | the cost of preparing, filing, prosecuting, defending, and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation; |
| ● | our liquidity and our expectations regarding our needs for and ability to raise additional capital; and |
| ● | the factors listed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, elsewhere in this report and other reports that we file with the Securities and Exchange Commission. |
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward- looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We are a clinical-stage biopharmaceutical company focused on creating value through (i) development of our lead product candidate, MAT9001(omega-3 pentaenoic acids), a highly purified, prescription-only omega-3 free fatty acid formulation specifically designed for the treatment of cardiovascular and metabolic conditions and (ii) the application of our LNC platform delivery technology to solve complex challenges relating to the delivery of a variety of molecules, exhibited by our lead LNC platform drug candidate, MAT2203, an oral formulation of the well-known fungicidal drug amphotericin B. Based upon MAT9001’s unique mixture of highly purified omega-3 pentaenoic free fatty acids and our observations of MAT9001’s enhanced bioavailability and potency as compared to Amarin Corporation’s Vascepa® (icosapent ethyl) in our initial head-to-head pharmacokinetic (PK) and pharmacodynamic (PD), or PK/PD, clinical study, we believe that the results of our forthcoming targeted clinical development activities and related clinical investigations may yield an improved therapeutic profile compared to currently-existing therapies.
| 14 |
We are focused on creating value through 1) the streamlined development of MAT9001 for treating cardiovascular and metabolic conditions; and 2) the application of our transformative LNC platform delivery technology to overcome current challenges in safely and effectively delivering small molecules, gene therapies, proteins/peptides, and vaccines.
Key elements of our strategy include:
| ● | Rapidly advancing the clinical development of MAT9001 for the treatment of severe hypertriglyceridemia (SHTG) and generating additional clinical data to further differentiate MAT9001 from Vascepa and other prescription omega-3 drugs in an emerging and rapidly expanding market. |
| ● | Delivering efficacy data for MAT2203 in the EnACT study for the treatment of cryptococcal meningitis (CM) with the non-dilutive financial support from the National Institutes of Health (NIH). |
| ● | Expanding the application of our LNC platform delivery technology through collaborations with sophisticated and well-resourced biotech and pharmaceutical companies in innovative areas of medicine. |
We have incurred losses for each period from our inception. For the nine months ended September 30, 2020 and 2019, our net loss was approximately $16.1 million and $11.8 million, respectively. We expect to incur significant expenses and operating losses over the next several years. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public or private equity offerings, debt financings, government or other third-party funding, collaborations and licensing arrangements. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern. We will need to generate significant revenues to achieve profitability, and we may never do so.
Impact of COVID-19
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn.
We have been actively monitoring the COVID-19 pandemic and its impact globally. In March, we temporarily halted enrollment in our clinical trials. In June, we commenced enrollment and started dosing patients in the ENHANCE-IT study and in July we resumed dosing patients in the EnACT study. The continued impact of COVID-19 globally could adversely affect our ability to complete the trials on the expected timelines. In addition, we rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us. Additionally, COVID-19 may also result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with IRB’s or Institutional Review Boards, local and foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.
There is a risk that delivery of our drug supply may be significantly delayed or may become unavailable as a result of COVID-19 and the resulting impact on our suppliers’ labor forces and operations, including as a result of governmental restrictions on business operations and the movement of people and goods in an effort to curtail the spread of the virus. There can be no assurance that we would be able to timely implement any mitigation plans. Disruptions in our supply chain, whether as a result of restricted travel, quarantine requirements or otherwise, could negatively impact clinical supplies of our products, which could materially adversely impact our clinical trial and development timelines.
| 15 |
The financial results for the three and nine months ended September 30, 2020 were not significantly impacted by COVID-19. However, we cannot predict the impact of the progression of the COVID-19 pandemic on future results or our ability to raise capital due to a variety of factors, including the continued good health of our employees, the ability of suppliers to continue to operate and deliver, the ability of the Company to maintain operations, any further government and/or public actions taken in response to the pandemic and ultimately the length of the pandemic.
Financial Operations Overview
Revenue
During the nine months ended September 30, 2020, we generated contract research revenue of approximately $95.8 thousand resulting from a grant with the Cystic Fibrosis Foundation and the feasibility study agreement with Genentech Inc. and approximately $89.8 thousand resulting from a grant with the Cystic Fibroses Foundation during the nine months ended September 30, 2019. Our ability to generate product revenue, which we do not expect to occur until 2023 at the earliest, if ever, will depend heavily on the successful development and eventual commercialization of our early-stage product candidates.
Research and Development Expenses
Research and development expenses consist of costs incurred for the development of product candidates MAT9001 and MAT2203 and advancement of our LNC delivery technology platform, which include:
| ● | the cost of conducting pre-clinical work; |
| ● | the cost of acquiring, developing and manufacturing pre-clinical and human clinical trial materials; |
| ● | costs for consultants and contractors associated with Chemistry and Manufacturing Controls (CMC), pre-clinical and clinical activities and regulatory operations; |
| ● | expenses incurred under agreements with contract research organizations, or CROs, including the NIH, that conduct our pre-clinical or clinical trials; and |
| ● | employee-related expenses, including salaries and stock-based compensation expense for those employees involved in the research and development process. |
The table below summarizes our direct research and development expenses for our product candidates and development platform for the three and nine months ended September 30, 2020 and 2019. Our direct research and development expenses consist principally of external costs, such as fees paid to contractors, consultants, analytical laboratories and CROs and/or the NIH, in connection with our development work. We typically use our employee and infrastructure resources for manufacturing clinical trial materials, conducting product analysis, study protocol development and overseeing outside vendors. Included in “Internal Staffing, Overhead and Other” below is the cost of laboratory space, supplies, research and development (R&D) employee costs (including stock-based compensation), travel and medical education.
| Three
months ended September 30, | Nine
months ended September 30, | |||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Direct research and development expenses: | ||||||||||||||||
| Manufacturing process development | $ | 318 | $ | 353 | $ | 928 | $ | 462 | ||||||||
| Preclinical trials | 119 | 487 | 598 | 1,063 | ||||||||||||
| Clinical development | 1,295 | 413 | 3,994 | 1,746 | ||||||||||||
| Regulatory | 39 | 37 | 73 | 170 | ||||||||||||
| Internal staffing, overhead and other | 1,565 | 1,381 | 5,240 | 4,374 | ||||||||||||
| Total research and development | $ | 3,336 | $ | 2,671 | $ | 10,833 | $ | 7,815 | ||||||||
| 16 |
Research and development activities are central to our business model. We expect our research and development expenses to increase because product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage human trials. In addition, we will look to strategically expand the use of our drug platform technology through additional development work. During 2020, we are focusing on advancing our lead product candidate, MAT9001 through clinical development toward an initial indication for the treatment of SHTG, expanding application of our LNC platform delivery technology through collaborations with third parties, and driving MAT2203 to efficacy data in the treatment of CM.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions. Other general and administrative expenses include facility costs, insurance, investor relations expenses, professional fees for legal, patent review, consulting and accounting/audit services.
We anticipate that our general and administrative expenses will increase during 2020 due to the increased expenses related to our status as a publicly traded company, employee compensation, investor relations, protection of our intellectual property and insurance costs.
Sale of Net Operating Losses (NOLs)
Income obtained from selling unused net operating losses (NOLs) and unused research tax credits under the New Jersey Technology Business Tax Certificate Program was approximately $1.1 million and $1.0 for the nine months ended September 30, 2020 and 2019, respectively.
Other Income, net
Other income, net is largely comprised of interest income and dividends earned on our cash and investment balances, interest expense and franchise taxes.
Application of Critical Accounting Policies and Accounting Estimates
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
For a description of our significant accounting policies, refer to “Note 3 – Summary of Significant Accounting Policies” in our 2019 Form 10-K. Of these policies, the following are considered critical to an understanding of our Unaudited Condensed Consolidated Financial Statements as they require the application of the most difficult, subjective and complex judgments; (i) Stock-based compensation, (ii) Fair value measurements, (iii) Research and development costs, (iv) Goodwill and other intangible assets, and (v) Basic and diluted net loss per common share.
Recent Accounting Pronouncements
Refer to “Note 3 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and their expected impact on our financial positions and results of operations.
Current Operating Trends
Our current R&D efforts are focused on advancing our lead product candidate, MAT9001 through clinical development toward an initial indication for the treatment of SHTG, expanding application of our LNC platform delivery technology through collaborations with third parties, and driving MAT2203 to efficacy data in the treatment of CM. Our R&D expenses consist of manufacturing work and the cost of drug ingredients used in such work, fees paid to consultants for work related to clinical trial design and regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies, and for other medical research addressing the potential efficacy and safety of our drugs. We believe that significant investment in product development is a competitive necessity, and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies.
We expect that all of our R&D expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants, contracts or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products. Completion of clinical trials may take several years, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.
| 17 |
The commencement and completion of clinical trials for our products may be delayed by many factors, including the impact of the COVID-19 pandemic, lack of efficacy during clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays. In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur.
Results of Operations
Comparison of the three months ended September 30, 2020 to the three months ended September 30, 2019
The following tables summarizes our revenues and operating expenses for the comparative periods presented (dollars in thousands):
| Three Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 96 | $ | - | ||||
| Expenses: | ||||||||
| Research and development | $ | 3,336 | $ | 2,671 | ||||
| General and administrative | 2,364 | 1,890 | ||||||
| Operating Expenses | $ | 5,700 | $ | 4,561 | ||||
Revenues. During the three months ended September 30, 2020 we generated revenue of approximately $95.8 thousand and $0 during the same period in 2019. Amount earned consists of contract research revenue resulting from a grant with the Cystic Fibroses Foundation and a feasibility study agreement with Genentech Inc.
Research and Development expenses. Research and Development (R&D) expense for the three months ended September 30, 2020 and 2019 was approximately $3.3 million and $2.7 million, respectively. The increase in R&D expenses was primarily due to higher employee compensation and costs related to clinical trials for the advancement of our lead product candidates MAT9001 and MAT2203.
General and Administrative expenses. General and administrative expense for the three months ended September 30, 2020 and 2019 was approximately $2.4 million and $1.9 million, respectively, compared to the prior year. The increase in general and administrative expense was primarily due to higher compensation expense related to increased employee headcount compared to the prior year.
Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019
The following tables summarizes our revenues and operating expenses for the comparative periods presented (dollars in thousands):
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Revenues | $ | 96 | $ | 90 | ||||
| Expenses: | ||||||||
| Research and development | $ | 10,834 | $ | 7,815 | ||||
| General and administrative | 6,980 | 5,460 | ||||||
| Operating Expenses | $ | 17,814 | $ | 13,275 | ||||
| Sale of net operating losses (NOLs) | $ | 1,073 | $ | 1,007 | ||||
Revenues. We generated approximately $95.8 thousand of revenue during the nine months ended September 30, 2020 and approximately $89.8 thousand during the same period in 2019. Amount earned during the nine months ended September 30, 2020 consists of contract research revenue resulting from a grant with the Cystic Fibroses Foundation and the feasibility study agreement with Genentech Inc. and the amount earned in 2019 consists of contract research revenue resulting from a grant with the Cystic Fibroses Foundation.
Research and Development expenses. Research and Development (R&D) expense for the nine months ended September 30, 2020 and 2019 was approximately $10.8 million and $7.8 million, respectively. The increase in R&D expenses was primarily due to higher employee compensation and costs related to clinical trials for the advancement of our lead product candidates MAT9001 and MAT2203.
General and Administrative expenses. General and administrative expense for the nine months ended September 30, 2020 and 2019 was approximately $7.0 million and $5.5 million, respectively, compared to the prior year. The increase in general and administrative expense was primarily due to higher compensation expense related to increased employee headcount compared to the prior year.
Sale of net operating losses (NOLs). The Company recognized approximately $1.1 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively, in connection with the sale of state net operating losses and state research and development credits to a third party under the New Jersey Technology Business Tax Certificate Program.
Liquidity and capital resources
Sources of Liquidity
We have funded our operations since inception through private placements and public offerings of our equity securities. As of September 30, 2020, we have raised a total of approximately $150.9 million in gross proceeds and $138.4 million, net, from sales of our equity securities.
As of September 30, 2020, we had cash, cash equivalents and marketable securities totaling $62.8 million.
| 18 |
2020 At-The-Market Equity Offering
On July 2, 2020, we entered into an At-The-Market (“ATM”) Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”), pursuant to which we may offer and sell, from time to time, through BTIG, as sales agent and/or principal, shares of our common stock having an aggregate offering price of up to $50,000,000, subject to certain limitations on the amount of common stock that may be offered and sold by us set forth in the Sales Agreement. BTIG will be paid a 3% commission on the gross proceeds from each sale. The Company may terminate the Sales Agreement at any time; BTIG may terminate the Sales Agreement in certain limited circumstances. As of September 30, 2020, we did not sell any shares of our common stock under the ATM Sales Agreement.
2020 Common Stock Offering
On January 14, 2020, we closed an underwritten public offering of our common stock. The offering resulted in the sale of approximately 32.3 million shares to the public at a price of $1.55 per share. We generated net proceeds of approximately $46.7 million. We granted the underwriters a 30-day option (the “option”) to purchase approximately 4.8 million additional shares of common stock subject to the same terms and conditions. No additional shares of our common stock were sold pursuant to this option.
2019 Common Stock Offering
On March 19, 2019, we closed an underwritten public offering of our common stock. The offering resulted in the sale of approximately 27.3 million shares to the public at a price of $1.10 per share. We generated net proceeds of approximately $27.8 million. We granted the underwriters a 30-day option (the “option”) to purchase approximately 4.1 million additional shares of common stock subject to the same terms and conditions. On March 28, 2019, an approximately 2.2 million additional shares were sold pursuant to the option at a price of $1.10 per share, resulting in additional net proceeds to us of approximately $2.3 million.
Cash Flows
The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the period set forth below (dollars in thousands):
| Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash used in operating activities | $ | (13,060 | ) | $ | (9,193 | ) | ||
| Cash used in investing activities | (49,756 | ) | (406 | ) | ||||
| Cash provided by financing activities` | 47,497 | 29,842 | ||||||
| Net (decrease)/increase in cash and cash equivalents and restricted cash | $ | (15,319 | ) | $ | 20,243 | |||
Operating Activities
Net cash used in operating activities was approximately $13.1 million and $9.2 million for the nine-month periods ended September 30, 2020 and 2019, respectively. The increase of approximately $3.9 million for the period was primarily due to an increase in the net loss and changes in operating assets and liabilities. We expect that there will be an increase in cash used in operations during the remainder of 2020 due to higher research and development expenses as we continue to move our product candidates and delivery platform forward in their development cycles.
Investing Activities
Approximately $49.8 million and approximately $0.4 million of cash was used in investing activities for the nine-month periods ended September 30, 2020 and 2019, respectively. The increase of $49.4 million was primarily due to the purchase and maturities of our marketable securities during the nine months ended September 30, 2020. No marketable securities were purchased or matured during the nine months ended September 30, 2019.
Financing Activities
Net cash provided by financing activities was approximately $47.5 million and approximately $29.8 million for the nine-month periods ended September 30, 2020 and 2019, respectively. The increase of $17.7 million in cash provided by financing activities was primarily due to the approximately $46.6 million of net proceeds from the January 2020 public offering of common stock compared to the approximately $30.1 million of net proceeds from the March 2019 public offering of common stock, as well as an increase of approximately $0.8 million from the exercising of warrants and approximately $0.1 million from the exercising of stock option during the nine months ended September 30, 2020.
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Funding Requirements and Other Liquidity Matters
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
| ● | conduct further preclinical and clinical studies of MAT9001, our lead product candidate; |
| ● | support the conduct of further clinical studies of MAT2203, even if such studies are primarily financed with non-dilutive funding from the NIH; |
| ● | seek to discover and develop additional product candidates; |
| ● | seek regulatory approvals for any product candidates that successfully complete clinical trials; |
| ● | require the manufacture of larger quantities of product candidates for clinical development and potentially commercialization; |
| ● | maintain, expand and protect our intellectual property portfolio; |
| ● | hire additional clinical, quality control and scientific personnel; and |
| ● | add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts and personnel and infrastructure necessary to help us comply with our obligations as a public company. |
We expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditures requirements into the first half of 2023.
Until such time, if ever, that we can generate product revenues sufficient to achieve profitability, we expect to finance our cash needs through a combination of private and public equity offerings, debt financings, government or other third party funding, collaborations and licensing arrangements. We do not have any committed external source of funds other than limited grant funding from the NIH. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights of our common stockholders. Debt financing and preferred equity financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. Securing additional financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
Amendment to the Administrative Office Lease in Bedminster New Jersey
On September 23, 2020, we entered into an amendment to the lease on our administrative office location in Bedminster New Jersey. Pursuant to the amendment, we will lease an additional 3,034 rentable square feet (“Expansion Premises”). The amendment becomes effective upon the date on which the landlord delivers the Expansion Premises to us, which is expected to occur on or about January 15, 2021, and extends the term of the lease for seven years from such date. There is no renewal option, no security deposit, no residual value or significant restrictions or covenants other than those customary in such arrangements. Except as expressly provided, all other terms, covenants, conditions and agreements as set forth in the lease will remain unchanged and in full force and effect. The total lease commitment over the seven-year extension period is approximately $1.8 million.
Except for the lease amendment provided, there have been no material changes from the disclosures relating to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2019.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to our cash and cash equivalents, all of which have maturities of one year or less, and our marketable securities. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our investment policy limits investments to certain types of instruments issued by institutions with investment-grade credit ratings and U.S. government fixed income securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, and changes in the fair values of our investments in debt securities including governmental securities and corporate bonds. However, because of the short-term nature and high credit quality of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. We do not have any foreign currency or derivative financial instruments.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Disclosure Controls and Procedures:
As of September 30, 2020, under the supervision and with the participation of our principal executive officer and principal financial officer we have evaluated, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020.
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we filed or submitted under the Exchange Act is recorded, processed, summarized and reported within time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 9, 2020, management previously identified a material weakness in our internal controls over financial reporting. Based on management’s evaluation, this material weakness was remediated as of June 30, 2020.
The previously identified material weakness which has been remediated included not having designed and implemented a sufficient level of formal financial reporting and operating policies and procedures that define how transactions should have been initiated, processed, recorded and reported, including presentation and disclosure in the consolidated financial statements.
Management implemented its remediation plan by enhancing operational procedures related to purchasing, receiving and recording expenditures, including consulting with our third-party internal auditors throughout the period while formalizing and testing our review procedures.
Changes in Internal Control Over Financial Reporting
There was no change, except as part of our remediation of the deficiency in internal controls described above, in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that occurred during the period covered by this report that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
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PART - II OTHER INFORMATION
Item 1. LEGAL PROCEEDSINGS
None.
Item 1A. RISK FACTORS
Except as previously disclosed, there were no material changes from the risk factors set forth under Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as well as other reports and statements that we file and have filed with the SEC, in addition to the other information set forth in this report which could materially affect our business, financial condition or future results. The risks and uncertainties described in this report and in our Annual Report on Form 10-K for the year ended December 31, 2019, as well as other reports and statements that we file with the SEC, are not the only risks and uncertainties facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our financial position, results of operations or cash flows.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UNDER SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
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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.
| MATINAS BIOPHARMA HOLDINGS, INC. | |
| BY: | |
| /s/ Jerome D. Jabbour | |
| Dated: November 6, 2020 | Jerome D. Jabbour |
| Chief Executive Officer (Principal Executive Officer) | |
| /s/ Keith A. Kucinski | |
| Dated: November 6, 2020 | Keith A. Kucinski |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
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EXHIBIT INDEX
| *31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| *31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| **32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of |
| *101.1 | XBRL Instance Document. |
| *101.2 | XBRL Taxonomy Extension Schema Document. |
| *101.3 | XBRL Taxonomy Extension Calculation Linkbase Document. |
| *101.4 | XBRL Taxonomy Extension Definition Linkbase Document. |
| *101.5 | XBRL Taxonomy Extension Label Linkbase Document. |
| *101.6 | XBRL Taxonomy Extension Presentation Linkbase Document. |
| * | Filed herewith. |
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