Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
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
001-36577
 
 
ContraFect Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
39-2072586
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
28 Wells Avenue, 3rd Floor, Yonkers, NY
 
10701
(Address of principal executive offices)
 
(Zip Code)
(914)
207-2300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.0001 par value per share
 
CFRX
 
Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
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 Exchange Act).    Yes  ☐    No  
The number of shares of the registrant’s Common Stock outstanding as of November 
11
, 2022 was 39,332,721.
 
 
 


Table of Contents

CONTRAFECT CORPORATION

INDEX

 

          Page No.  

PART I – FINANCIAL INFORMATION

  

Item 1.

   Financial Statements      1  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      18  

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      26  

Item 4.

   Controls and Procedures      26  

PART II – OTHER INFORMATION

  

Item 1.

   Legal Proceedings      27  

Item 1A.

   Risk Factors      27  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      58  

Item 3.

   Defaults Upon Senior Securities      58  

Item 4.

   Mine Safety Disclosures      58  

Item 5.

   Other Information      58  

Item 6.

   Exhibits      59  

SIGNATURES

     60  


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FORWARD LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, our ability to continue as a going concern, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

 

   

the success, cost, timing and potential indications of our product development activities and clinical trials;

 

   

our ability to advance into and through clinical development and ultimately obtain U.S. Food and Drug Administration (“FDA”) approval for our product candidates;

 

   

our research and development plans and ability to bring forward additional product candidates into preclinical and clinical development;

 

   

our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;

 

   

our contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (the “BARDA Contract”) and any exercise of BARDA’s options to extend the BARDA Contract;

 

   

our grant award from the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”);

 

   

the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;

 

   

our future marketing and sales programs;

 

   

the effect of competition and proprietary rights of third parties;

 

   

our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern;

 

   

anticipated reductions in operating expenses;

 

   

the availability of and our ability to obtain additional financing;

 

   

the effects of existing and future federal, state and foreign regulations;

 

   

the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and

 

   

the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

As more fully described under the heading “Risk Factors” contained elsewhere in this Quarterly Report on Form 10-Q, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Quarterly Report on Form 10-Q with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


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RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include, but are not limited to, the following:

 

   

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

 

   

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

 

   

We currently have no source of product revenue and have not yet generated any revenues from product sales.

 

   

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

 

   

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

 

   

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

 

   

The timing of the milestone and royalty payments we are required to make to The Rockefeller University (“Rockefeller”) under certain agreements is uncertain and could adversely affect our cash flows and results of operations.

 

   

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

 

   

The COVID-19 pandemic or another pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

 

   

We are heavily dependent on the success of our leading product candidates. If we are ultimately unable to obtain regulatory approval for any of our product candidates, our business will be substantially harmed.

 

   

If clinical trials of any of our product candidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar international regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete the development and commercialization of our product candidates.

 

   

We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of any of our product candidates.

 

   

Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

 

   

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

 

   

We rely on Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

 

   

We rely on contract manufacturing organizations (“CMOs”) to manufacture clinical and commercial supplies of our product candidates. In addition to the risks associated with the manufacture of our product candidates, which could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

 

   

Even if the FDA approves any of our product candidates, adverse effects discovered after approval could adversely affect our markets.

 

   

Any Breakthrough Therapy designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

 

   

Developments by competitors may render our products or technologies obsolete or non-competitive.

 

i


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The level of commercial success of any of our product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.

 

   

Coverage and reimbursement may not be available for any of our product candidates that we develop, including as a result of healthcare reform measures.

 

   

We may not successfully execute or achieve the expected benefits of our restructuring program and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations.

 

   

If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

 

   

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

 

   

Risks related to regulatory approval of our product candidates and other legal and compliance matters.

 

   

Risks related to employee matters and our operations.

 

   

Risks related to our intellectual property.

 

   

Risks related to our securities and organizational documents.

 

   

We currently do not meet certain of Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules. If we are unable to regain compliance, we are likely to be delisted. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.

 

   

Security breaches, cybersecurity attacks, failure of our data and personal information protections and other disruptions could compromise our information and technology systems and expose us to liability, which would cause our business and reputation to suffer.

 

   

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the European Union (“EU”) and European Economic Area (“E.E.A.”).

 

ii


Table of Contents
CONTRAFECT CORPORATION
PART I – FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
CONTRAFECT CORPORATION
Consolidated Balance Sheets
(in thousands, except share data)
 
    
September 30,
2022
   
December 31,
2021
 
    
(unaudited)
   
(audited)
 
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 4,664     $ 16,654  
Marketable securities
     12,984       37,631  
Prepaid expenses
     1,815       4,439  
Other current assets
     586       4,140  
    
 
 
   
 
 
 
Total current assets
     20,049       62,864  
Property and equipment, net
     628       741  
Operating lease
right-of-use
assets
     2,249       2,544  
Other assets
     108       613  
    
 
 
   
 
 
 
Total assets
   $ 23,034     $ 66,762  
    
 
 
   
 
 
 
Liabilities and stockholders’
(deficit) 
equity
                
Current liabilities:
                
Accounts payable
   $ 15,348     $ 2,389  
Accrued and other current liabilities
     7,768       9,128  
Current portion of lease liabilities
     667       657  
    
 
 
   
 
 
 
Total current liabilities
     23,783       12,174  
Warrant liabilities
     3       2,530  
Long-term portion of lease liabilities
     2,313       2,609  
Other liabilities
     38       73  
    
 
 
   
 
 
 
Total liabilities
     26,137       17,386  
Commitments and contingencies
     —         —    
Stockholders’ (deficit) equity:
                
Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none outstanding at September 30, 2022 and December 31, 2021
     —         —    
Common stock, $0.0001 par value, 125,000,000 shares authorized, 39,332,721 shares issued and outstanding at September 30, 2022 and December 31, 2021
     4       4  
Additional
paid-in
capital
     312,898       310,008  
Accumulated other comprehensive loss
     (140     (84
Accumulated deficit
     (315,865     (260,552
    
 
 
   
 
 
 
Total stockholders’ (deficit) equity
     (3,103     49,376  
    
 
 
   
 
 
 
Total liabilities and stockholders’ (deficit) equity
   $ 23,034     $ 66,762  
    
 
 
   
 
 
 
See accompanying notes.
 
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Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
 
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    
2022
   
2021
   
2022
   
2021
 
Operating expenses
                                
Research and development
   $ 10,814     $ 8,664     $ 40,299     $ 24,462  
General and administrative
     3,366       3,022       9,886       8,722  
Restructuring
     7,719       —         7,719       —    
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     21,899       11,686       57,904       33,184  
    
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (21,899     (11,686     (57,904     (33,184
Other income:
                                
Interest income
, net
     9       36       64       91  
Change in fair value of warrant liabilities
     4,823       6,358       2,527       17,210  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other income, net
     4,832       6,394       2,591       17,301  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
   $ (17,067   $ (5,292   $ (55,313   $ (15,883
    
 
 
   
 
 
   
 
 
   
 
 
 
Per share information:
                                
Basic and diluted net loss per share
   $ (0.43   $ (0.13   $ (1.41   $ (0.44
    
 
 
   
 
 
   
 
 
   
 
 
 
Shares used in computing net loss per share
     39,332,721       39,332,721       39,332,721       35,914,327  
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes.
 
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Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Comprehensive Loss
(unaudited)
(in thousands)
 
    
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
    
2022
   
2021
   
2022
   
2021
 
Net loss
   $ (17,067   $ (5,292   $ (55,313   $ (15,883
Other comprehensive loss:
                                
Unrealized gain (loss) on
available-for-sale
securities
     73       (1     (56     (22
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive loss
   $ (16,994   $ (5,293   $ (55,369   $ (15,905
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes.
 
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Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Stockholders’ (Deficit) Equity
(unaudited)
(in thousands, except share data)
 
    
Common Stock
    
Additional
Paid-In

Capital
    
Accumulated
Other
Comprehensive
Loss
   
Accumulated
Deficit
   
Stockholders’
(Deficit) Equity
 
    
Shares
    
Amount
                           
Balance, December 31, 2021
     39,332,721      $ 4      $ 310,008      $ (84   $ (260,552   $ 49,376  
Stock-based compensation
     —          —          919        —         —         919  
Unrealized loss on marketable securities
     —          —          —          (140     —         (140
Net loss
     —          —          —          —         (20,157     (20,157
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance, March 31, 2022
     39,332,721      $ 4      $ 310,927      $ (224   $ (280,709   $ 29,998  
Stock-based compensation
     —          —          965        —         —         965  
Unrealized gain on marketable securities
     —          —          —          11       —         11  
Net loss
     —          —          —          —         (18,089     (18,089
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance, June 30, 2022
     39,332,721      $ 4      $ 311,892      $ (213   $ (298,798   $ 12,885  
Stock-based compensation
     —          —          1,006        —         —         1,006  
Unrealized gain on marketable securities
     —          —          —          73       —         73  
Net loss
     —          —          —          —         (17,067     (17,067
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
Balance, September 30, 2022
     39,332,721      $ 4      $ 312,898      $ (140   $ (315,865   $ (3,103 )
    
 
 
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
 
 
    
Common Stock
    
Additional
Paid-In

Capital
   
Accumulated
Other
Comprehensive
Loss
   
Accumulated
Deficit
   
Stockholders’
Equity
 
    
Shares
    
Amount
                          
Balance, December 31, 2020
     27,810,161      $ 3      $ 252,908     $ (21   $ (240,270   $ 12,620  
Issuance of securities in registered offering
     11,500,000        1        57,499       —         —         57,500  
Financing cost of sale of securities
     —          —          (3,703     —         —         (3,703
Issuance of common stock for exercise of warrants
     22,560        —          110       —         —         110  
Stock-based compensation
     —          —          581       —         —         581  
Unrealized loss on marketable securities
     —          —          —         (8     —         (8
Net loss
     —          —          —         —         (5,195     (5,195
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance, March 31, 2021
     39,332,721      $ 4      $ 307,395     $ (29   $ (245,465   $ 61,905  
Stock-based compensation
     —          —          938       —         —         938  
Unrealized loss on marketable securities
     —          —          —         (13     —         (13
Net loss
     —          —          —         —         (5,396     (5,396
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance, June 30, 2021
     39,332,721      $ 4      $ 308,333     $ (42   $ (250,861   $ 57,434  
Stock-based compensation
     —          —          864       —         —         864  
Unrealized loss on marketable securities
     —          —          —         (1     —         (1
Net loss
     —          —          —         —         (5,292     (5,292
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance,
September 
30, 2021
     39,332,721      $ 4      $ 309,197     $ (43   $ (256,153   $ 53,005  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes.
 
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Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
    
Nine Months Ended September 30,
 
    
2022
   
2021
 
Cash flows from operating activities
                
Net loss
   $ (55,313   $ (15,883
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
     115       110  
Stock-based compensation expense
     2,890       2,383  
Change in fair value of warrant liabilities
     (2,527 )     (17,210
Net amortization of premium on marketable securities
     556       503  
Changes in operating assets and liabilities:
                
Decrease (increase)
in prepaid expenses and other current and
non-current
assets
     6,709       (6,260
Increase in accounts payable, accrued and other current liabilities
     11,564       3,800  
    
 
 
   
 
 
 
Net cash used in operating activities
     (36,006     (32,557
Cash flows from investing activities
                
Purchases of marketable securities
              (47,644
Sales of marketable securities
 
 
2,504
 
 
 
—  
 
Proceeds from maturities of marketable securities
     21,531       31,034  
    
 
 
   
 
 
 
Purchases of property and equipment
 
 
(19
)
 
 
 
—  
 
Net cash provided by (used in) investing activities
     24,016       (16,610
Cash flows from financing activities
                
Proceeds from issuance of securities
     —         57,500  
Payment of financing costs of securities sold
     —         (3,703
Proceeds from the exercise of warrants
     —         110  
    
 
 
   
 
 
 
Net cash provided by financing activities
     —         53,907  
    
 
 
   
 
 
 
Net (decrease) increase in cash and cash equivalents
     (11,990     4,740  
Cash and cash equivalents at beginning of period
     16,654       15,485  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 4,664     $ 20,225  
    
 
 
   
 
 
 
See accompanying notes.
 
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CONTRAFECT CORPORATION
Notes to Unaudited Consolidated Financial Statements
September 30, 2022
1. Organization and Description of Business
Organization and Business
ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targets
S. aureus
, including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis.
S. aureus
is also a frequent source of biofilm-dependent infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy. Exebacase was being studied in a pivotal Phase 3 superiority study (the “DISRUPT study”) to evaluate the safety, tolerability, efficacy and pharmacokinetics of intravenous (“IV”) exebacase when used in addition to background standard of care antibiotic therapy for the treatment of
S. aureus
bacteremia, including right-sided endocarditis in adolescent and adult patients. On July 7, 2022, the Data Safety Monitoring Board (“DSMB”) conducted an interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the
pre-specified
threshold for futility. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped (“Trial Closure”). The Company continues to monitor <20 already enrolled patients as they complete their
follow-up
visits and to perform ongoing data review. The Company also expects to complete all clinical study reports as required by the U.S. Food and Drug Administration (“FDA”). On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and CF-370 and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of approximately $7.7 million, including $1.6 million related to employee termination costs and other related expenses from the workforce reduction and $6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase related activities.
The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $315.9 

million as of September 30, 2022. For the nine months ended September 30, 2022, the Company used $
36.0
 million of cash in operations. The Company has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding and government contracts. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues to advance its programs. As of September 30, 2022, the Company had approximately $
17.6
 million in cash, cash equivalents and marketable securities, which, without additional funding, the Company believes will not be sufficient to meet its obligations within the next twelve months from the date of issuance of these consolidated financial statements. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all, particularly in light of the Trial Closure. As such, under the requirements of Accounting Standard Codification (“ASC”)
205-40,
management may not consider the potential for future capital raises in its assessment of the Company’s ability to meet its obligations for the next twelve months, and substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date the financial statements were issued. If the Company is unable to obtain funding, the Company would be forced to delay, further reduce its workforce or reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations or continue as a going concern.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
On August 14, 2020, the Company filed a shelf registration statement on Form
S-3
(the “Form
S-3”)
with the SEC. The Form
S-3
was declared effective by the SEC on August 31, 2020. The Form
S-3
allows the Company to offer and sell from
time-to-time
up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities.
On March 22, 2021, the Company completed an underwritten public offering under the Form
S-3
of 11,500,000 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share, resulting in net proceeds to the Company of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.
On March 10, 2021, the Company entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The base period for the BARDA Contract included government funding of up 
to $9.8 million
 to reimburse expenses to support the conduct of the Phase 3 DISRUPT study and futility analysis. Following the interim futility analysis and the stopping of patient enrollment, on August 24, 2022, the BARDA Contract was modified to provide for and exercise an option by BARDA to provide up 
to $6.6 million
 in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. 
 
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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2021 was derived from the Company’s audited consolidated financial statements. The Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, including all related disclosures and the complete listing of significant accounting policies as described in Note 2 thereof, are included in the Company’s Annual Report on Form
10-K
that was filed with the SEC on March 25, 2022.
In the opinion of management, the unaudited financial information as of September 30, 2022 and for three and nine months ended September 30, 2022 and 2021 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Principles of Consolidation
The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for interactions with the European Economic Area. This subsidiary is dormant or is otherwise
non-operative.
Any inter-company accounts have been eliminated in consolidation.
Significant Risks and Uncertainties
The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, the Company’s ability to raise capital and the effects of the novel coronavirus, or
COVID-19,
on the Company’s business, operations and financial performance and position.
The Company currently relies on a single manufacturer of drug substance for each of its product candidates and two manufacturers of drug product, one located in the United States and one in Western Europe, and there are no long-term supply agreements in place. A sustained disruption in the operations of any of these manufacturers, or in the event the Company would need to change to a new supplier, could result in a significant delay in the ability of the Company to complete any associated activities.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to research and development prepaid expenses and accruals, restructuring costs, stock-based compensation, warrant valuation and realization of net deferred income taxes. The Company’s actual results may differ from these estimates under different assumptions or conditions, including the effects of significant risks and uncertainties.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no
off-balance
sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.
 
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Table of Contents
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.
Marketable Securities
Marketable securities consist of investments in corporate debt securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as available-for-sale pursuant to ASC 320,
Investments – Debt and Equity Securities
. The Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Marketable securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive loss in stockholders’ (deficit) equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. The fair value of these securities is based on quoted prices for identical or similar assets. Realized gains and losses are included in interest income in the consolidated statement of operations on a specific-identification basis. 
There were
 
$
18
of 
realized
losses
on sales of marketable securities for the three and nine months ended September 30, 2022
and no realized gains 
or
losses on sales of marketable securities for the three and nine months ended September 30, 
2021. There were no marketable securities that had been in an unrealized loss position for more than 12 months as of September 30, 2022 or December 31, 2021.
The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. The fair value of the Company’s warrant liabilities is based upon unobservable inputs, as described further below.
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820,
Fair Value Measurements and Disclosures
(“ASC 820”), establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.
 
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Table of Contents
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company had no liabilities classified as Level 1 or Level 2. The carrying amounts reported in the accompanying financial statements for accounts payable and accrued liabilities approximate their respective fair values due to their short-term maturities. The fair value of the warrant liabilities is discussed in Note 4, “Fair Value Measurements.”
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718,
Compensation—Stock Compensation,
which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, directors, and
non-employees,
including employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis.
The fair value of options is calculated using the Black-Scholes option pricing model on the date of grant based on key assumptions such as stock price, risk free interest rates, expected volatility, expected term, and expected dividend yield. The Company’s estimates of these assumptions are based on historical data and judgment regarding future trends and factors.
Government Contracts and Grant Agreements
The Company recognizes a receivable, which is included in other current assets on its consolidated balance sheet, and the related reduction in its research and development expenses when the actual reimbursable costs have been incurred and there is reasonable assurance that the Company has complied with the conditions of the applicable government contract or grant agreement and the amounts will be received. The Company recognized a reduction to its research and development expense in the amount of approximately $0.9 million and $3.7 million for the three months ended September 30, 2022 and 2021, and $5.2 million and $7.7 million for the nine months ended September 30, 2022 and 2021, respectively. The receivable for government contracts and grant agreements as of September 30, 2022 and December 31, 2021 was approximately $0.6 million and $4.1 million, respectively, and is included in other current assets on the consolidated balance sheet. The Company has approximately $8.5 million of committed government contract and grant agreement funding remaining as of September 30, 2022.
Leases
The Company accounts for leases in accordance with Accounting Standards Update No.
2016-02-
Leases
(Topic 842). The Company determines if an arrangement is a lease at inception and recognizes
right-of-use
(“ROU”) assets as the present value of the lease payments plus initial direct costs, if any, less any lease incentives. Assets are classified as either operating or finance ROU assets according to the classification criteria in Topic 842. The corresponding liability is computed as the present value of the lease payments at inception. The present value of the lease payments is computed using the rate implicit in the lease, if known, or the Company’s incremental borrowing rate. Operating lease costs are charged to operations on a straight-line basis over the term of the lease. The Company’s leases are further discussed in Note 7—“Commitments and Contingencies.”
Under the Company’s policy, it does not record an ROU asset or corresponding liability for arrangements where the initial lease term is one year or less. Those leases are expensed on a straight-line basis over the term of the lease.
Restructuring
The Company has made estimates and judgments regarding the amount and timing of its restructuring expense and liability, including current and future period termination
benefits and other costs to be incurred when related actions take place. Actual results may differ from these estimates. Restructuring charges are reflected in the Company’s consolidated statements of operations. The Company has accounted for these expenses in accordance with ASC 420,
Exit or Disposal Cost Obligations
.
Net Loss Per Share
Basic net loss per share applicable to common stockholders is calculated by dividing net loss applicable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share applicable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the dilutive net loss per share applicable to common stockholders’ calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.
 
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Table of Contents
Recently Adopted Accounting Pronouncements
Government Assistance
On January 1, 2022, the Company adopted Accounting Standards Update
No. 2021-10,
Disclosure by Business Entities about Government Assistance (ASU
2021-10)
. ASU
2021-10
improves the transparency of government assistance received by certain business entities by requiring the disclosure of (1) the types of government assistance received, (2) the accounting for such assistance, and (3) the effect of the assistance on the business entity’s financial statements. The adoption of the new guidance did not affect the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued a new Accounting Standards Update,
Financial Instruments-Credit Losses (ASU
2016-13).
ASU
2016-13
amends the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to
available-for-sale
debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact that this new standard will have on its consolidated financial statements and related disclosures.
3. Marketable Securities
Marketable securities at September 30, 2022 consisted of the following (in thousands):
 
Marketable Securities
  
Amortized Cost
    
Unrealized
Gains
    
Unrealized
Losses
   
Fair Value
 
Current:
                                  
Corporate debt
   $ 13,124      $         $ (140   $ 12,984  
Marketable securities at December 31, 2021 consisted of the following (in thousands):
 
Marketable Securities
  
Amortized Cost
    
Unrealized
Gains
    
Unrealized
Losses
   
Fair Value
 
Current:
                                  
Corporate debt
   $ 37,715      $         $ (84   $ 37,631  
Corporate debt includes obligations issued by investment-grade corporations and may include issues that have been guaranteed by governments and government agencies. Investments classified as short-term have maturities of less than one year, and investments classified as long-term are those that have maturities of greater than one year and management does not intend to liquidate within the next twelve months. All of the Company’s marketable securities have an effective maturity of less than two years.
At September 30, 2022, the Company held 8 debt securities that individually and in total were in an immaterial unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss position at September 30, 2022 was approximately $13.0 million. The Company evaluated its securities for other than temporary impairment and considered the decline in market value for the securities to be primarily attributable to current economic and market conditions.
The Company intends to hold the securities to maturity but may be
required to sell the securities prior to the recovery of the amortized cost basis. Based on this analysis,
the
marketable securities were considered to be other-than-temporarily impaired as of September 30, 2022.
 There were no impairments for credit losses, and as such, the unrealized losses will continue to be recognized in the consolidated statements of comprehensive loss. Realized losses, if any, will be recognized in the Company’s statements of operations on a specific identification basis.
 
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4. Fair Value Measurements
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
 
    
Fair Value Measurement as of September 30, 2022
 
    
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
 
Cash equivalents
   $ 3,017      $ —        $ —    
Marketable securities
     12,984        —          —    
Warrant liabilities
     —          —          3  
    
 
 
    
 
 
    
 
 
 
Total
   $ 16,001      $ —        $ 3  
    
 
 
    
 
 
    
 
 
 
 
    
Fair Value Measurement as of December 31, 2021
 
    
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Significant
Unobservable
Inputs
(Level 3)
 
Cash equivalents
   $ 7,734      $ —        $ —    
Marketable securities
     37,631        —          —    
Warrant liabilities
     —          —          2,530  
    
 
 
    
 
 
    
 
 
 
Total
   $ 45,365      $ —        $ 2,530  
    
 
 
    
 
 
    
 
 
 
The Company issued warrants to the purchasers of its May 27, 2020 offering (the “2020 Warrants”). The Company determined that these warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 9, “Capital Structure”). The 2020 Warrants are
re-measured
at each subsequent reporting period and changes in fair value are recognized in the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the warrant liability:
 
    
As of
September 30,
2022
   
As of
December 31,
2021
 
Expected volatility
     136.5     61.9
Remaining contractual term (in years)
     0.67       1.42  
Risk-free interest rate
     3.99     0.56
Expected dividend yield
     —       —  
Warrant liabilities
The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and 2021 (in thousands):
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
    
2022
    
2021
    
2022
   
2021
 
Balance at beginning of period
   $ 4,826      $ 18,552      $ 2,530     $ 29,404  
(Decrease) increase in fair value (1)
     (4,823      (6,358      (2,527     (17,210
    
 
 
    
 
 
    
 
 
   
 
 
 
Balance at end of period
   $ 3      $ 12,194      $ 3     $ 12,194  
    
 
 
    
 
 
    
 
 
   
 
 
 
 
(1)
The change in fair values of the warrant liabilities is recorded in other income in the consolidated statement of operations.
 
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The key inputs into the Black-Scholes option pricing model are the current
per-share
value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities.
5. Accrued
 and Other Current
Liabilities
Accrued
 and other current
liabilities consist of the following as of September 30, 2022 and December 31, 2021 (in thousands):
 
    
September 30,
2022
    
December 31,
2021
 
Accrued research and development service fees
   $ 3,638      $ 5,641  
Accrued compensation costs
     2,778        2,215  
Accrued professional fees
     1,046        819  
Accrued facilities operation expenses
     129        307  
Other accrued expenses
     177        146  
    
 
 
    
 
 
 
Total accrued liabilities
   $ 7,768      $ 9,128  
    
 
 
    
 
 
 
6. Net Loss Per Share of Common Stock
Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive. Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding.
The following table sets forth the computation of basic and diluted net loss per share for common stockholders (in thousands, except share and per share data):
 
    
Three Months Ended September 30,
    
Nine Months Ended September 30,
 
    
2022
    
2021
    
2022
   
2021
 
Net loss
   $ (17,067    $ (5,292    $ (55,313   $ (15,883
Weighted average shares of common stock outstanding
     39,332,721        39,332,721        39,332,721       35,914,327  
    
 
 
    
 
 
    
 
 
   
 
 
 
Net loss per share of common stock – basic and diluted
   $ (0.43    $ (0.13    $ (1.41   $ (0.44
    
 
 
    
 
 
    
 
 
   
 
 
 
The following potentially dilutive securities outstanding at September 30, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would have been anti-dilutive:
 
    
September 30,
 
    
2022
    
2021
 
Options to purchase common stock
     4,515,422        2,950,551  
Warrants to purchase common stock
     9,325,521        10,926,733  
    
 
 
    
 
 
 
Total
     13,840,943        13,877,284  
    
 
 
    
 
 
 
7. Commitments and Contingencies
Operating Leases
In December 2010, the Company entered into a
non-cancellable
operating lease for office space and laboratory facilities in Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the term of the lease through December 2027 (the “Third Floor Lease”). The lease provides for the option to renew for two additional five-year terms. The premises were occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.
In January 2012, the Company entered into a
non-cancellable
operating lease for additional office space and laboratory facilities in the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space under the Fourth Floor Lease and was relieved of its obligations related to such space.
 
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The Company performed an evaluation of its other contracts in accordance with Topic 842 and has determined that, except for the leases described above, none of its contracts contain a lease.
The balance sheet classification of the Company’s lease liabilities was as follows (in thousands):
 
Description
  
September 30,
2022
    
December 31,
2021
 
Operating lease liabilities:
                 
Current portion of lease liabilities
   $ 667      $ 657  
Long-term portion of lease liabilities
   $ 2,313      $ 2,609  
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. The leases are renewable at the end of the lease term at our option. For the purposes of determining the remaining lease term in contemplation of available extensions, the Company did not consider either renewal to be probable at this time. In determining the present value of lease payments, the Company estimated its incremental borrowing rate, or discount rate, based on the information available at the adoption date of Topic 842. The discount rate used to determine the operating lease liability was 9.93%.
As of September 30, 2022, the maturities of our operating lease liabilities were as follows (in thousands):
 
    
Amount
 
October 1, 2022 - December 31, 2022
   $ 173  
Year ending December 31:
        
2023
     707  
2024
     721  
2025
     736  
2026
     750  
Thereafter
     702  
    
 
 
 
Total lease payments
     3,789  
Less: Present value adjustment
     (809
    
 
 
 
Operating lease liabilities
   $ 2,980  
    
 
 
 
Lease costs under the terms of the Company’s leases for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
 
    
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
 
    
2022
    
2021
    
2022
    
2021
 
Operating lease cost (1)
   $ 154      $ 154      $ 460      $ 461  
Variable lease costs (2)
     66        46        147        111  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total lease cost
   $ 220      $ 200      $ 607      $ 572  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(1)
Operating lease payments included in the measurement of the Company’s lease liabilities are comprised of fixed payments according to the terms of the Company’s leases.
(2)
Variable lease payments consist of the Company’s utility costs billed by and paid to its landlord. Variable lease payments are presented as operating expenses in the Company’s Consolidated Statement of Operations in the same line item as expense arising from fixed lease payments and in net cash used in operating activities in the Company’s Statement of Cash Flows.
 
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Rockefeller University
License Agreements
The Company has entered into the following license agreements with The Rockefeller University:
 
   
On July 12, 2011, the Company entered into a license agreement for the worldwide, exclusive right to a patent covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the
“CF-301
License”). The Company rebranded PlySS2 as
CF-301
and subsequently, exebacase. The license gives the Company the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would otherwise infringe a claim of this patent application or patent.
 
   
On June 1, 2011, the Company entered into a license agreement for the exclusive rights to The Rockefeller University’s interest in a joint patent application covering the method of delivering antibodies through the cell wall of gram-positive bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between the Company and The Rockefeller University and was jointly discovered and filed by the two parties.
 
   
On September 23, 2010, the Company entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease, sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B
Streptococci
,
Staphylococcus aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium
.
In consideration for the licenses, the Company paid Rockefeller license initiation fees in cash and stock. The Company
has 
paid annual maintenance fees of $200,000 in each of 2021, 2020 and 2019, and
is
required to pay $200,000 each year until the licenses terminate. Depending on the success of its programs, the Company may also incur regulatory milestone payments up to a total of $5.0 million and royalties of up to 5% on net sales from products to Rockefeller.
The Company is
allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees. There were no milestone, royalty or sublicense payments made during the nine months ended September 30, 2022 or 2021. The Company has made total milestone payments under the
CF-301
License of $810,000 as of September 30, 2022.
Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. The Rockefeller University may terminate any license agreement in the event of a breach of such agreement by the Company or if the Company challenges the validity or enforceability of the underlying patent rights. The Company may terminate any license agreement at any time on 60 days’ notice.
Legal Contingencies
From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. The Company currently has no legal proceedings ongoing that management estimates could have a material effect on the Company’s financial statements.
8. Restructuring
On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and CF370 and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of approximately $7.7 million, including $1.6 million related to employee termination costs, including severance, health benefits and other related expenses from the workforce reduction, and $6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase manufacturing activities.
The following table summarizes the restructuring related charges within the Company’s consolidated statements of operations where they were recorded during the three and nine months ended September 30, 2022 (in thousands):
 
 
  
Amount
 
Employee termination costs and other related expenses
  
$
1,583
 
Write-off of prepaid manufacturing costs
  
$
6,136
 
 
  
 
 
 
Total
  
$
7,719
 
 
  
 
 
 
The restructuring costs were included in accounts payable and accrued and other current liabilities in the Company’s consolidated balance sheets. Activity for the nine months ended September 30, 2022 is summarized as follows (in thousands):
 
 
  
As of September 30,

2022
 
Balance at beginning of period
  
$
  
 
Charge to expense
  
 
7,719
 
Payments made
  
 
(361
 
  
 
 
 
Balance at end of period
  
$
7,358
 
 
  
 
 
 
As of September 30, 2022, the Company had $7.4 million remaining in accounts payable and accrued and other current liabilities on its consolidated balance sheet, which will be paid by the end of the first quarter of 2024.
 
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9. Capital Structure
Common Stock
As of September 30, 2022, the Company was authorized to issue 125,000,000 shares of common stock.
Follow-on
Offerings
On March 22, 2021, the Company completed an underwritten public offering of 11,500,000 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share, resulting in net proceeds to the Company of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.
On May 27, 2020, the Company completed an underwritten public offering of 11,797,752 shares of its common stock and warrants to purchase an additional 8,848,314 shares of its common stock at an exercise price of $4.90 per share. The public offering price was $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $48.9 million after underwriting discounts and commissions and offering expenses payable by the Company. The Company completed a concurrent private placement to Pfizer Inc. (“Pfizer”) of 674,156 shares of common stock and an accompanying warrant to purchase an additional 505,617 shares of its common stock at an exercise price of $4.90 per share (the “Pfizer Warrant”) at a price of $4.45 for one share of common stock and an accompanying warrant to purchase 0.75 shares of common stock, resulting in net proceeds to the Company of approximately $3.0 million. No warrants were exercised during the nine months ended September 30, 2022. Warrants to purchase 22,560 shares of common stock were exercised during the nine months ended September 30, 2021.
The Company issued warrants in its 2020 and 2017 offerings
 (the “2020 Warrants”, and the “2017 Warrants”, respectively).
These warrants contain a fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Due to this conditional obligation, the Company determined that the 2020 Warrants and the 2017 Warrants classified as liabilities in the Company’s consolidated balance sheet. At issuance, the Company determined the fair value of the 2020 Warrants and the 2017 Warrants to be $31.4 million and $12.4 million, respectively, and reclassified these balances from stockholders’ equity to warrant liability. The fair value of these warrants is
re-measured
at each reporting period and changes in fair value are recognized in the consolidated statement of operations (see Note 4, “Fair Value Measurements”). Additionally, the Company allocated approximately $2.2 million and $0.9 million of issuance costs to the 2020 Warrants and the 2017 Warrants, respectively, based on the proportion of the proceeds allocated to the fair value of the warrants. The allocated issuance costs were expensed as other expense in the Company’s consolidated statement of operations. On July 25, 2022, the 2017 Warrants expired in accordance with their terms and are no longer exercisable.
The Pfizer Warrant does not contain the same fundamental transaction provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s control. Therefore, the Company determined that the Pfizer Warrant should be classified as equity in the Company’s consolidated balance sheet.
Voting
The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings.
Dividends
The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. As of September 30, 2022, no dividends have been declared or paid on the Company’s common stock since inception.
Reserved for Future Issuance
The Company has reserved for future issuance the following number of shares of common stock as of September 30, 2022 and December 31, 2021:
 
    
September 30,
2022
    
December 31,
2021
 
Outstanding options to purchase common stock
     4,515,422        2,899,694  
Outstanding warrants to purchase common stock
     9,325,521        10,926,594  
For future issuance under the 2014 Omnibus Incentive Plan
     45,212        77,631  
For future issuance under the 2021 Employment Inducement Plan
     990,000        1,000,000  
    
 
 
    
 
 
 
       14,876,155        14,903,919  
    
 
 
    
 
 
 
 
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10. Stock Warrants
As of September 30, 2022 and December 31, 2021, the Company had warrants to purchase the underlying common stock outstanding as shown in the table below.
 
    
September 30,
2022
    
December 31,
2021
 
2020 Warrants
     8,819,904        8,819,904  
2017 Warrants
               1,599,645  
Pfizer Warrant
     505,617        505,617  
Other warrants (1)
               1,428  
    
 
 
    
 
 
 
Warrants to purchase common stock
     9,325,521        10,926,594  
    
 
 
    
 
 
 
Weighted-average exercise price per share
   $ 4.90      $ 6.47  
    
 
 
    
 
 
 
 
(1)
Other warrants are comprised of warrants issued prior to the Company’s initial public offering (“IPO”), generally in exchange for services rendered to the Company.
The following table summarizes information regarding the Company’s warrants outstanding at September 30, 2022:
 
Exercise Prices
  
Shares
Underlying
Outstanding
Warrants
    
Expiration Date
$4.90
     9,325,521      May 27, 2023
11. Stock Option and Incentive Plans
Amended and Restated 2008 Equity Incentive Plan
In July 2008, the Company adopted the 2008 Equity Incentive Plan (the “Plan”). On February 26, 2013, the board of directors approved an amended and restated plan (the “Amended Plan”) under which the number of shares of common stock available for issuance was 157,143. For new awards, the period that vested awards would remain exercisable upon termination of service was reduced from ten years to two years. The board of directors also increased the number of shares of common stock available under the Company’s Amended Plan on February 24, 2014 and April 29, 2014 to 185,714 and 235,714, respectively. As of the closing of the Company’s IPO, there were no further grants made under the Amended Plan.
2014 Omnibus Incentive Plan
In April 2014, the Company’s board of directors adopted the 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders on July 3, 2014. The 2014 Plan allows for the granting of incentive and
non-qualified
stock options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards to the Company’s employees, members of the board of directors and consultants of the Company. On July 28, 2014, the effective date of the 2014 Plan, the number of shares of common stock reserved pursuant to the 2014 Plan was 57,143. The 2014 Plan provides for an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ended December 31, 2015 and ending on January 1, 2024, equal to the lesser of (i) 4% of the outstanding shares of common stock on December 31 immediately preceding such date or (ii) a lesser amount determined by the Company’s board of directors. Consistent with the provision for an annual increase, an additional 4,268,682 shares of common stock have been reserved under the 2014 Plan as of January 1, 2022.
2021 Omnibus Incentive Plan
In September 2021, the Company’s board of directors adopted the 2021 Employment Incentive Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the granting of
non-qualified
stock options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards to new employees of the Company. On September 13, 2021, the effective date of the 2021 Plan, 1,000,000 shares of common stock were reserved under the 2021 Plan.
 
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The Company recognized compensation expense for stock-based compensation based on the fair value of the underlying instrument. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. A summary of stock option activity for the nine months ended September 30, 2022, is summarized as follows:​​​​​​​
 
    
Number of
Options
    
Weighted
Average
Exercise
Price
    
Weighted
Average
Remaining
Contractual
Life
(in years)
    
Aggregate
Intrinsic
Value
 
Options outstanding at December 31, 2021
     2,899,694      $ 9.12                    
Granted
     1,834,000        3.06                    
Exercised
                                     
Expired
     (49,335      11.86                    
Forfeited
     (168,937      4.13                    
    
 
 
                            
Options outstanding at September 30, 2022
     4,515,422        6.82        8.24      $     
    
 
 
                      
 
 
 
Vested and exercisable at September 30, 2022
     2,245,477        9.78        6.93      $     
    
 
 
                      
 
 
 
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted average grant date fair value of options granted during the three months ended September 30, 2022 and 2021 was $0.30 and $3.93, respectively, and during the nine months ended September 30, 2022 and 2021 was $3.06 and $4.31, respectively. Total compensation expense recognized amounted to $1.0 million and $0.9 million for the three months ended September 30, 2022 and 2021, respectively, and $2.9 million and $2.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the total remaining unrecognized compensation cost related to unvested stock options was approximately $5.7 million which will be recognized over a weighted average period of approximately 2.16 years.
The following assumptions were used to compute the fair value of stock options granted during the period:
 
    
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
    
2022
   
2021
   
2022
   
2021
 
Risk free interest rate
     3.00     0.81     2.23     0.83
Expected dividend yield
                                    
Expected term (in years)
     5.44       6.12       5.91       5.99  
Expected volatility
     99.5     95.1     91.9     94.5
Risk-free interest rate
—The Company estimated the risk-free interest rate in reference to yield on U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award.
Expected dividend yield—
The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to common stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in its continued growth.
Expected term—
The Company based expected term on the midpoint of the vesting period and the contractual term of each respective option grant
Expected volatility—
The Company estimated the expected volatility based on the Company’s historical volatility data.
 
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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 in conjunction with the information set forth in our financial statements and the notes to those statements included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed by us with the Securities and Exchange Commission (“SEC”) on March 25, 2022.

Overview

We are a late clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. We believe DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. According to one of the most recent and comprehensive reports on the global burden of bacterial antimicrobial resistance (“AMR”), there were an estimated 4.95 million deaths associated with bacterial AMR in 2019, including 1.27 million deaths directly attributable to bacterial AMR. The six leading pathogens for deaths associated with resistance (Escherichia coli (“E. coli”), Staphylococcus aureus (“S. aureus”), Klebsiella pneumoniae (“K. pneumoniae”), Streptococcus pneumoniae, Acinetobacter baumannii (“A. baumannii”), and Pseudomonas aeruginosa (“P. aeruginosa”)) were responsible for 929,000 deaths. Only one pathogen–drug combination, methicillin-resistant S. aureus (“MRSA”), caused more than 100,000 deaths in 2019.

Lysins are recombinantly-produced enzymes, that when applied to bacteria cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. In addition to the speed of action and potent cidality, we believe lysins are differentiated by their other hallmark features, which include the demonstrated ability to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. Amurin peptides are a new class of DLAs, discovered in our laboratories, which disrupt the outer membrane of gram-negative bacteria, resulting in rapid bacterial cell death, offering a distinct mechanism of action from lysins. Amurins have shown a potent, broad spectrum of in vitro activity against a wide range of gram-negative pathogens, including deadly, drug-resistant P. aeruginosa, K. pneumoniae, E. coli, A. baumannii and Enterobacter cloacae bacteria species as well as difficult to treat pathogens such as Stenotrophomonas, Achromobacter and some Burkholderia species. The highly differentiated properties of DLAs underscore their potential use in addition to antibiotics with the goal of improving clinical outcomes compared to antibiotics alone. The development of DLAs involves a novel clinical and regulatory strategy, using superiority design clinical trials with the goal of delivering significantly improved clinical outcomes for patients with serious, antibiotic-resistant bacterial infections, including biofilm-associated infections. We believe this approach affords potential clinical benefits to patients as well as the potential ability to mitigate against further development of antibiotic resistance.

We have not generated any revenues and, to date, have funded our operations primarily through our initial public offering (“IPO”), our follow-on public offerings, private placements of securities, and grant funding received. On March 22, 2021, we completed an underwritten public offering of 11,500,000 shares of our common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share of common stock, resulting in estimated net proceeds of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by us.

On March 10, 2021, we executed a cost-share contract (together with any exercise of BARDA’s options to extend such contract, the “BARDA Contract”) with the Biomedical Advanced Research and Development Authority (“BARDA”), part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. Under the terms of the BARDA Contract, the Company will receive $9.8 million in initial funding. The initial funding was used to support the pivotal Phase 3 DISRUPT superiority trial of exebacase. Following the interim futility analysis and the stopping of patient enrollment, on August 24, 2022, the BARDA Contract was modified to provide for and exercise an option by BARDA to provide up to $6.6 million in funding to support a futility outcome root-cause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience. As a government contractor, we are subject to complex and wide-ranging federal and agency-specific regulations and contractual requirements. The costs of compliance with these requirements may be significant. Failure to comply with government contracting requirements could result in termination of our contract or the imposition of penalties.

On July 29, 2022, we implemented a restructuring plan resulting in a reduction to our workforce of 16 employees, or approximately 37% of our headcount prior to the reduction. This reduction included the resignation of Cara Cassino, M.D. as Chief Medical Officer and Executive Vice President of Research and Development of the Company. We recognized a restructuring charge in the third quarter of 2022 of approximately $7.7 million, including $1.6 million related to employee termination costs, and $6.1 million from the write-off of prepaid manufacturing costs which, as of September 30, 2022, will result in future cash expenditures of up to $7.4 million.

 

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We have never been profitable and our operating losses were $55.3 million, $47.3 million and $34.2 million for the nine months ended September 30, 2022 and the years ended December 31, 2021 and 2020, respectively. As of September 30, 2022, we had an accumulated deficit of $315.9 million and we had approximately $17.6 million in cash, cash equivalents and marketable securities. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect the expenses for each program to increase as candidates advance through preclinical activities and clinical trials to seek regulatory approval and, if approved, commercialization. Accordingly, we will need additional financing to support our continuing operations and to continue as a going concern. We expect to seek to fund our operations through public or private equity, debt financings, equity-linked financings, collaborations, strategic alliances, licensing arrangements, research grants or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all, particularly in light of the Trial Closure (as defined below) and the substantial decline in the price of our common stock. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. Without additional funding, the Company believes it will not have sufficient funds to meet its obligations within the next twelve months from the date of issuance of the consolidated financial statements included in this Quarterly Report on Form 10-Q. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The recent substantial decline in the price per share of our common stock will likely make it more difficult for us to obtain financing. Moreover, if we are delisted from the Nasdaq Stock Market LLC, it may become more difficult for us to obtain equity financing. For additional information regarding risks associated with potential delisting, see Part II, Item 1A, “We are required to meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk delisting. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.” If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited. We will need to generate significant revenues to achieve profitability, and we may never do so.

Financial Operations Overview

Revenue

We have not generated any revenues to date. In the future, we may generate revenues from product sales. In addition, to the extent we enter into licensing or collaboration arrangements, we may have additional sources of revenue. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing of payments that we may recognize upon the sale of our products, to the extent that any products are successfully commercialized, and the amount and timing of fees, reimbursements, milestone and other payments received under any future licensing or collaboration arrangements. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:

 

   

employee-related expenses, including salaries, performance bonuses, benefits, travel and non-cash stock-based compensation expense;

 

   

external research and development expenses incurred under arrangements with third parties such as contract research organizations, or CROs, contract manufacturers, consultants and academic institutions; and

 

   

facilities and laboratory and other supplies.

We expense research and development costs to operations as incurred. We account for non-refundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received, rather than when the payment is made.

The following summarizes our most advanced current research and development programs.

Exebacase

Our lead DLA product candidate, exebacase, was granted Breakthrough Therapy designation for development as a treatment for MRSA bloodstream infections (-bacteremia), including right-sided endocarditis, when used in addition to standard-of-care (“SOC”) anti-staphylococcal antibiotics in adult patients, by the U.S. Food and Drug Administration (“FDA”) in February 2020. In addition to bacteremia, S. aureus is also a common cause of pneumonia and osteomyelitis as well as biofilm-associated infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite currently available antibiotic therapies.

In December 2019, we initiated the Phase 3 DISRUPT (Direct Lysis of S. aureus Resistant Pathogen Trial) superiority design study of exebacase. The DISRUPT study is a randomized, double-blind, placebo-controlled Phase 3 clinical trial conducted in the U.S. alone to assess the efficacy and safety of exebacase in adult and adolescent patients with complicated S. aureus bacteremia, including right-sided endocarditis. Patients entering the study were randomized 2:1 to either exebacase or placebo, with all patients receiving SOC antistaphylococcal antibiotics. The primary efficacy endpoint of the study is clinical response at Day 14 in patients with MRSA bacteremia, including right-sided endocarditis. Secondary endpoints include clinical response at Day 14 in the All S. aureus patient group (MRSA and methicillin-sensitive S. aureus (“MSSA”)), 30-day all-cause mortality in MRSA patients, and clinical response at later timepoints. We will also evaluate the impact of treatment with exebacase on health resource utilization, including hospital length of stay, ICU length of stay and 30-day readmission rates.

 

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On July 7, 2022, the Data Safety Monitoring Board (“DSMB”) of the Company’s Phase 3 DISRUPT (Direct Lysis of Staph aureus Resistant Pathogen Trial) study completed a pre-specified, interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the pre-specified threshold for futility in the DSMB charter. The recommendation was based on an analysis of the clinical response rate at day 14 (the primary efficacy endpoint of the study) in 84 patients, or approximately 60% of the total planned MRSA population with bacteremia, including right-sided endocarditis. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped (“Trial Closure”). We continue to monitor <20 already enrolled patients as they complete their follow-up visits and to perform ongoing data review. We also expect to complete all clinical study reports as required by the FDA. We expect that conclusions drawn from the ongoing data review will inform next steps for any potential further development of exebacase.

On September 30, 2022, we submitted a Clinical Trial Authorization (“CTA”) with the French National Agency for the Safety of Medicines and Health Products (“ANSM”) for the study of intra-articular exebacase in patients with chronic prosthetic joint infections of the knee due to S. aureus or coagulase-negative Staphylococci, which was subsequently accepted for review. If the CTA is approved by ANSM, we expect to initiate dosing patients in the study in the first quarter of 2023 and to report early clinical data from the first cohort of patients in the second half of 2023.

Other Programs

Our next product candidate, CF-370, is designed to target a range of gram-negative bacteria including P. aeruginosa and has demonstrated potent in vivo activity against extensively drug-resistant (“XDR”) strains. P. aeruginosa is a major cause of morbidity and mortality in patients with hospital-acquired or ventilator-associated pneumonia and a major medical challenge for cystic fibrosis patients with chronic lung infections. CF-370 has also shown promising activity against E. coli, K. pneumoniae and A. baumannii in in vitro studies. We expect CF-370 to be our next DLA to enter clinical studies. We plan to submit an Investigational New Drug (“IND”) application with the FDA for CF-370 in the first quarter of 2023 and, if approved, to initiate phase 1 clinical studies of CF-370 in healthy volunteers in the second quarter of 2023.

We have entered into two funding agreements with the Cystic Fibrosis Foundation to investigate the potential utility of DLAs against resistant gram-negative pathogens which afflict Cystic Fibrosis (“CF”) patients. The first agreement provided funding for the assessment of the in vitro activity of CF-370 and amurin peptides against bacterial specimens obtained from CF patients at different stages of disease. The second agreement will provide funding for assessing the in vitro and in vivo activity of exebacase against S. aureus isolates obtained from CF patients. If we obtain supportive data, we plan to evaluate potential future clinical development of DLA product candidates for the treatment of exacerbations in CF lung disease.

We have developed a novel, engineered variant of exebacase, known as CF-296, which we believe provides an additional opportunity to advance a potential targeted therapy for deep-seated, invasive biofilm-associated S. aureus infections. We are conducting further in vitro and in vivo characterization of CF-296 to evaluate the full profile of this compound. In June 2019, we were awarded up to $7.2 million of funding from the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”) over the course of three years to advance CF-296 through IND-enabling studies.

Beyond our lysin programs, we continue our research to advance potential product candidates from our amurin peptide platform. We are evaluating our most promising amurins in preclinical animal studies with the goals of determining our next product candidate and moving this program towards clinical studies as soon as possible.

To date, a large portion of our research and development work has related to the establishment of our platform technologies, the advancement of our research projects to discovery of clinical candidates, manufacturing and preclinical testing of our clinical candidates and clinical testing of exebacase. As our pipeline progresses, we are able to further leverage our employee and infrastructure resources across multiple development programs as well as research projects. We recorded approximately $10.8 million and $8.7 million of research and development expenses for the three months ended September 30, 2022 and 2021 and $40.3 million and $24.5 million, respectively, for the nine months ended. A breakdown of our research and development expenses by category is shown below. We do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related expenses, laboratory costs or depreciation to any particular project. Accordingly, we do not allocate these expenses to individual projects or product candidates. However, we do allocate some portions of our research and development expenses in the product development, external research and licensing and professional fees categories to exebacase and CF-370 as shown below.

 

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The following table summarizes our research and development expenses by category for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2022      2021      2022     2021  

Product development

   $ 8,634      $ 7,842      $ 33,650     $ 19,970  

Personnel related

     1,472        2,357        6,282       6,270  

Professional fees

     760        879        2,895       2,701  

Laboratory costs

     470        433        1,559       1,132  

Stock-based compensation

     258        264        788       710  

External research and licensing costs

     78        599        325       1,357  

Expenses reimbursed by grants

     (858      (3,710      (5,200     (7,678
  

 

 

    

 

 

    

 

 

   

 

 

 

Total research and development expense

   $ 10,814      $ 8,664      $ 40,299     $ 24,462  
  

 

 

    

 

 

    

 

 

   

 

 

 

The following table summarizes our research and development expenses by program for the three and nine months ended September 30, 2022 and 2021 (in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2022      2021      2022     2021  

Exebacase

   $ 7,601      $ 6,321      $ 30,085     $ 15,862  

CF-370

     1,670        1,164        5,935       3,307  

Other research and development

     671        2,268        2,408       5,991  

Personnel related and stock-based compensation

     1,730        2,621        7,071       6,980  

Expenses reimbursed by grants

     (858      (3,710      (5,200     (7,678
  

 

 

    

 

 

    

 

 

   

 

 

 

Total research and development expense

   $ 10,814      $ 8,664      $ 40,299     $ 24,462  
  

 

 

    

 

 

    

 

 

   

 

 

 

We anticipate that our research and development expenses will decrease substantially after the final patients in the DISRUPT study complete their follow-up visits and all study sites are closed, resulting in rapidly decreasing expenditures on the DISRUPT study and the exebacase program more generally. The workforce reduction and suspension of IV exebacase manufacturing activities discussed above will also contribute to this decrease. Research and development expenses could increase in the future in connection with the commencement of any new clinical trials for our product candidates. However, the successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

   

the scope, rate of progress and expense of our research and development activities;

 

   

third-party manufacturing of our product candidates and the active pharmaceutical ingredients for our product candidates;

 

   

clinical trial results;

 

   

the terms and timing of regulatory approvals;

 

   

our ability to market, commercialize and achieve market acceptance for our product candidates in the future; and

 

   

the expense, filing, prosecuting, defending and enforcing of patent claims and other intellectual property rights.

A change in the outcome of any of these variables with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of such product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including non-cash stock-based compensation expense, in our executive, finance, legal, human resource and business development functions. Other general and administrative expenses include facility costs, insurance expenses and professional fees for legal, consulting and accounting services.

We anticipate that our general and administrative expenses will decrease modestly in future periods as a result of decreased headcount, however, legal, accounting, compliance, investor and public relations, and other expenses associated with being a public company continue to increase, particularly insurance premiums.

Restructuring

In connection with our decision to stop the Phase 3 DISRUPT trial, suspend CMC activities related to the potential commercialization of IV exebacase and our restructuring plan, we expect that our future operating expenses will be substantially reduced. We currently expect our research and development and general and administrative expenses to be lower for the remainder of 2022 as we operate pursuant to our restructuring plan. In connection with our restructuring, approximately $7.7 million, including $1.6 million related to employee termination costs, including severance, health benefits and other related expenses from the workforce reduction, and $6.1 million from the write-off of prepaid manufacturing costs following the suspension of IV exebacase activities.

 

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Other Income and Expenses

Other income and expenses consist primarily of interest income and changes in the fair value measurement of our warrant liabilities. Interest income includes interest earned on our cash and cash equivalents and available-for-sale securities. The changes in the fair value of our warrant liabilities are derived using the Black-Scholes option pricing model. The key inputs into the model are the current per-share value and the expected volatility of the Company’s common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant liabilities, resulting in a non-cash gain or charge in each reporting period.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

During the nine-months ended September 30, 2022, there have been no material changes to our critical accounting policies and significant judgments and estimates from the information provided in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed by us with the SEC on March 25, 2022.

Results of Operations

The following table summarizes key components of our results of operations for the periods indicated (in thousands).

 

     Three Months Ended
September 30,
     Dollar Change     Nine Months Ended
September 30,
     Dollar Change  
     2022      2021     2022      2021  

Operating expenses:

                

Research and development

   $ 10,814      $ 8,664      $ 2,150     $ 40,299      $ 24,462      $ 15,837  

General and administrative

   $ 3,366      $ 3,022      $ 344     $ 9,886      $ 8,722      $ 1,164  

Restructuring

   $ 7,719      $      $ 7,719     $ 7,719      $      $ 7,719  

Other income, net

   $ 4,832      $ 6,394      $ (1,562   $ 2,591      $ 17,301      $ (14,710

Comparison of Three Months Ended September 30, 2022 and 2021

Research and Development Expenses

Research and development expenses were $10.8 million for the three months ended September 30, 2022 compared with $8.7 million for the three months ended September 30, 2021, an increase of $2.1 million. This increase was primarily attributable to a $1.8 million increase in spending on clinical activities as we stopped enrollment of patients in the Phase 3 DISRUPT study of exebacase and continued patient follow-up procedures and monitoring and a $0.5 million increase in spending on non-clinical studies of CF-370 to support a potential IND application and the completion of ongoing non-clinical studies of exebacase. A $2.8 million decrease in the reimbursable expenditures under our grants and BARDA contract contributed to the increase. These increases were partially offset by a $1.5 million decrease in manufacturing expenses due to the suspension of CMC activities related to the potential commercialization of exebacase, a $0.9 million decrease in spending on our development personnel as a result of our restructuring plan and a $0.5 million decrease in external research expenditures on our other discovery programs.

General and Administrative Expenses

General and administrative expenses were $3.4 million for the three months ended September 30, 2022, compared with $3.0 million for the three months ended September 30, 2021, an increase of $0.4 million. This was due primarily to a $0.3 million increase in legal fees and $0.1 million increase in stock-based compensation expense.

Restructuring Charges

During the three months ended September 30, 2022, we incurred restructuring expenses of $7.7 million related to our restructuring plan. Restructuring expenses for the period were primarily comprised of $1.6 million of severance and other employee costs and a $6.1 million write-off of prepaid manufacturing costs. For further information, refer to Note 8, “Restructuring” to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

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Other Income, Net

Other income, net was $4.8 million for the three months ended September 30, 2022, compared with $6.4 million for the three months ended September 30, 2021, a decrease in of $1.6 million. The decrease in other income was due to the non-cash gain resulting from the change in fair value of our warrant liabilities in each reporting period.

Comparison of Nine Months Ended September 30, 2022 and 2021

Research and Development Expenses

Research and development expenses were $40.3 million for the nine months ended September 30, 2022 compared with $24.5 million for the nine months ended September 30, 2021, an increase of $15.8 million. This increase was primarily attributable to a $8.3 million increase in spending on manufacturing costs for both exebacase and CF-370 and a $4.9 million increase in spending on clinical activities related to the Phase 3 DISRUPT study of exebacase. A $2.5 million decrease in the reimbursable expenditures under our grants and BARDA contract contributed to the increase.

General and Administrative Expenses

General and administrative expense was $9.9 million for the nine months ended September 30, 2022, compared with $8.7 million for the nine months ended September 30, 2021, an increase of $1.2 million. This increase was primarily attributable to increases of $0.6 million in administrative personnel costs, including $0.5 million of stock-based compensation expense, a $0.5 million in legal fees, and $0.1 million in insurance costs.

Restructuring Charges

During the nine months ended September 30, 2022, we incurred restructuring expenses of $7.7 million related to our restructuring plan in the third quarter of 2022. Restructuring expenses for the period were primarily comprised of $1.6 million of severance and other employee costs and a $6.1 million write-off of prepaid manufacturing costs. For further information, refer to Note 8, “Restructuring” to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Other Income, Net

Other income, net was $2.6 million for the nine months ended September 30, 2022, compared with $17.3 million for the nine months ended September 30, 2021, a decrease of $14.7 million. The decrease in other income relates primarily to the non-cash gain resulting from the change in fair value of our warrant liabilities in each reporting period.

Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations to date primarily through proceeds from sales of common stock, common stock and warrants, convertible preferred stock and convertible debt and, to a lesser extent, funding received from government contracts and granting organizations. To date, we have not generated any revenue from the sale of products. We have incurred losses and generated negative cash flows from operations since inception.

Since the date of our IPO, we have funded our operations through the sale of registered securities for gross proceeds of $257.8 million, $9.6 million from the exercise of the Class B Warrants issued in our IPO, $26.0 million from the sale of securities in private placements and the receipt of $25.6 million of funding from grant agreements and government contracts.

On August 14, 2020, we filed a shelf registration statement on Form S-3 (the “Form S-3”) with the SEC. The Form S-3 was declared effective by the SEC on August 31, 2020. The Form S-3 allows us to offer and sell from time-to-time up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. On March 22, 2021, we completed an underwritten public offering of 11,500,000 shares of our common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $5.00 per share of common stock, resulting in estimated net proceeds of approximately $53.8 million after underwriting discounts and commissions and offering expenses payable by us. The terms of any future offerings under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.

As of September 30, 2022, we had approximately $17.6 million in cash, cash equivalents and marketable securities which we do not believe will be sufficient to meet our obligations within the next twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. Combined with our accumulated deficit and our forecasted cash expenditures, these factors raise substantial doubt about our ability to continue as a going concern.

 

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As such, under the requirements of Accounting Standard Codification (“ASC”) 205-40, we may not consider the potential for future capital raises in our assessment of our ability to meet our obligations for the next twelve months. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to us on acceptable terms, or at all, particularly in light of the Trial Closure and the recent substantial decline in the price of our common stock, and the terms of any public or private offerings of stock could be significantly dilutive to existing stockholders. We recently implemented a restructuring plan to reduce costs and align resources with our anticipated product development milestones for exebacase and CF-370 and to help preserve the value of our drug discovery operations, resulting in a reduction to our workforce of 16 employees, or approximately 37% of the Company’s headcount prior to the reduction and the suspension of CMC activities related to the potential commercialization of exebacase. If we are unable to obtain funding, we would be forced to delay, further reduce our workforce or reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations or continue as a going concern. In accordance with the requirements of ASC 205-40, we have concluded that substantial doubt exists about our ability to continue as a going concern for twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q.

In the past, we have obtained grants to supplement our financings with non-dilutive funding, including grants from CARB-X, USAMRDC and our cost-sharing contract with BARDA. Our grant programs under CARB-X have ended. We may continue to pursue further non-dilutive funding opportunities and have initiated proposal processes with government agencies for potential non-dilutive funding for the advancement of lysins as biodefense agents. However, there can be no assurances that we will be successful in obtaining new non-dilutive funding or receive the maximum potential funding to the Company under any of our ongoing agreements.

Cash Flows

The following table provides information regarding our cash flows for the nine months ended September 30, 2022 and 2021 (in thousands):

 

     Nine Months Ended September 30,  
     2022      2021  

Net cash (used in) provided by:

     

Operating activities

   $ (36,006    $ (32,557

Investing activities

   $ 24,016      $ (16,610

Financing activities

   $ —        $ 53,907  

Net Cash Used in Operating Activities

Net cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. Net cash used in operating activities for the nine months ended September 30, 2022 increased by $3.4 million compared to the same period in 2021, due primarily to increased payments to our contract research organizations in support of our Phase 3 DISRUPT trial of exebacase and to our contract manufacturing organizations for completion of the exebacase process transfer and ongoing analytical and process validation activities in the first nine months of 2022. In connection with our decision to stop the Phase 3 DISRUPT trial, suspend CMC activities related to the potential commercialization of exebacase and our restructuring plan, we expect that our operating expenses for the remainder of 2022 will be substantially reduced.

Net Cash Provided by Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2022 were from the proceeds received from the sales and maturities of marketable securities. Net cash used in investing activities for the nine months ended September 30, 2021 was from the purchases of marketable securities less the proceeds received from the maturities of marketable securities.

Net Cash Provided by Financing Activities

There was no net cash provided by or used in financing activities for the nine months ended September 30, 2022. Net cash provided by financing activities for the nine months ended September 30, 2021 resulted from the $53.8 million of net proceeds from our March 22, 2021 offering of securities and $0.1 million of proceeds from the exercise of warrants.

Funding Requirements

All of our product candidates are in clinical or preclinical development. 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:

 

   

initiate the planned clinical trials of our product candidates;

 

   

continue our ongoing preclinical studies, and initiate additional preclinical studies, of our product candidates;

 

   

continue the research and development of our other product candidates and our platform technology;

 

   

add operational, financial and management information systems and personnel, including personnel to support our product development and future commercialization efforts;

 

   

seek marketing approvals for our product candidates that successfully complete clinical trials;

 

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establish, either on our own or with strategic partners, a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;

 

   

seek to identify additional product candidates;

 

   

acquire or in-license other products and technologies; and

 

   

maintain, leverage and expand our intellectual property portfolio.

For a description of our contractual obligations, see Note 7, “Commitments and Contingencies” to the notes to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Without additional funding, we believe we will not have sufficient funds to meet our obligations within the next twelve months from the date of issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. We plan to continue to fund our operations through public or private debt and equity financings, but there can be no assurances that such financing will be available to us on satisfactory terms, or at all, particularly in light of the Trial Closure. We recently implemented a restructuring plan to reduce costs and align resources with our anticipated product development milestones for exebacase and CF-370 and to help preserve the value of our drug discovery operations, resulting in a reduction to our workforce of 16 employees, or approximately 37% of the Company’s headcount prior to the reduction and the suspension of CMC activities related to the potential commercialization of exebacase. If we are unable to obtain funding, we would be forced to delay, further reduce our workforce or reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations or continue as a going concern. In accordance with the requirements of ASC 205-40, we have concluded that substantial doubt exists about our ability to continue as a going concern. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current product candidates. We plan to continue to supplement our financings with non-dilutive funding, including grants and our cost-sharing contract with BARDA, but there can be no assurances that we will receive the maximum potential funding to the Company under such arrangements.

Our future capital requirements will depend on many factors, including:

 

   

the results of the clinical trials of our lead product candidates;

 

   

the scope, progress, results and costs of compound discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

 

   

the extent to which we acquire or in-license other products and technologies;

 

   

costs associated with manufacturing of our product candidates and the active pharmaceutical ingredients for our product candidates;

 

   

the timing and amount of actual reimbursements under the BARDA Contract;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

 

   

revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and

 

   

our ability to establish any future collaboration arrangements on favorable terms, if at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt offerings, collaborations, grants, government contracts, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or other securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, 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. If we raise additional funds through collaborations, strategic alliances 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.

 

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We incur significant costs as a public company, including, but not limited to, increased personnel costs, increased directors fees, increased directors and officers insurance premiums, audit and legal fees, investor relations and external communications fees, expenses for compliance with the Sarbanes-Oxley Act and rules implemented by the SEC and Nasdaq and various other costs and expenses.

Effects of Inflation

We do not believe that inflation or changing prices had a significant impact on our results of operations for any periods presented herein. We continue to monitor the impact of inflationary pressures on purchases and new contractual commitments.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $17.6 million. Because of the short-term maturities of our cash equivalents and marketable securities, we do not believe that an increase in market rates would have a material impact on the fair value of our cash equivalents or marketable securities. If a 50% change in interest rates were to have immediately occurred on September 30, 2022, this change would not have had a material effect on the fair value of our investment portfolio as of that date.

While we believe our cash, cash equivalents and marketable securities do not contain excessive credit or liquidity risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

We do not own any derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative, foreign currency or other financial instruments that would require disclosure under this item.

 

ITEM 4.

CONTROLS AND PROCEDURES

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2022.

Changes in Internal Control

As required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded that there were no such changes during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

ITEM 1A.

RISK FACTORS

You should carefully consider the following risk factors, as well as the other information in this report, and in our other public filings. Our business, financial condition and operating results can be affected by a number of important factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and common stock price. Other factors may exist that we do not consider significant based on information that is currently available. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect us. Past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

We are a clinical-stage biopharmaceutical company with no approved products, and we have not generated any revenue from product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations primarily through the sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors, and to a lesser extent, grant funding. We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.

Since inception, we have incurred significant operating losses. Our losses from operations for the nine months ended September 30, 2022 and the years ended December 31, 2021 and 2020 were $55.3 million, $47.3 million, and $34.2 million, respectively. We have devoted substantially all of our efforts to research and development. We expect to continue to incur significant expenses and operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or progress. Our expenses will increase if and as we:

 

   

seek to discover or develop additional product candidates;

 

   

seek marketing approvals for any of our product candidates that successfully complete clinical trials;

 

   

in-license or acquire other products and technologies;

 

   

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 any future commercialization efforts.

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

We currently operate with limited resources. We have incurred significant losses since our inception and have never generated revenue or profit, and it is possible we will never generate revenue or profit. Based on our current operating plans, and without additional funding, we believe we will not have sufficient funds to meet our obligations within the next twelve months from the issuance of our consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. These factors raise substantial doubt about our ability to continue as a going concern. We have relied on our ability to fund our operations primarily through public and private debt and equity financings, and, to a lesser extent, funding received from government contracts and granting organizations, but there can be no assurances that such financing or funding will continue to be available to us on satisfactory terms, or at all.

 

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Securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop any of our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all, particularly in light of our stopping patient enrollment in our Phase 3 trial of exebacase based on the recommendation of the Data Safety Monitoring Board (“DSMB”) that the trial be stopped because the conditional power of the study was below the pre-specified threshold for futility (the “Trial Closure”). We recently implemented a restructuring plan to reduce costs and align resources with our anticipated product development milestones for exebacase and CF-370 and to help preserve the value of our drug discovery operations, resulting in a reduction to our workforce of 16 employees, or approximately 37% of the Company’s headcount prior to the reduction and the suspension of CMC activities related to the potential commercialization of exebacase. If we are unable to obtain funding, we would be forced to further reduce our workforce or delay, reduce or eliminate our research and development programs, which could adversely affect our business prospects, or we may be unable to continue operations or continue as a going concern.

The recent substantial decline in the price per share of our common stock will likely make it more difficult for us to obtain financing. If potential collaborators decline to do business with us or potential investors decline to participate in any future financings due to such concerns, our ability to increase our cash position may be limited. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

We have prepared our consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our consolidated financial statements included in this Quarterly Report on Form 10-Q do not include any adjustments to reflect the possible inability of the Company to continue as a going concern within one year after the issuance of such financial statements. If we are unable to continue as a going concern, you could lose all or part of your investment in our Company.

We currently have no source of product revenue and have not yet generated any revenues from product sales.

To date, we have not completed the development of any products and have not generated any revenues from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize products, including any of our current product candidates, or other product candidates that we may in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we may never generate revenues that are significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product candidates also depends on a number of additional factors, including our ability to:

 

   

successfully complete development activities, including the necessary clinical trials;

 

   

complete and submit BLAs to the FDA, and obtain regulatory approval for indications for which there is a commercial market;

 

   

complete and submit applications to, and obtain approval from, foreign regulatory authorities;

 

   

set a commercially viable price for our products;

 

   

develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets which we choose to commercialize on our own;

 

   

find suitable distribution partners to help us market, sell and distribute our products in other markets; and

 

   

obtain coverage and adequate reimbursement from third parties, including government and private payors.

In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product candidates may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with commercializing these products.

Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

 

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We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We will need to obtain substantial additional funding in connection with our continuing operations, particularly if we continue the clinical development of exebacase or develop new product candidates or acquire new product candidates or technologies. We recently implemented a restructuring plan resulting in a reduction to our workforce of 16 employees, or approximately 37% of the Company’s headcount prior to the reduction. If we are unable to raise capital when needed or on attractive terms, we could be forced to further reduce our workforce or delay, reduce or eliminate our research and development programs or any future commercialization efforts. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the COVID-19 pandemic, the current conflict between Russia and Ukraine and interest rate increases. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms.

Our future capital requirements will depend on many factors, including:

 

   

the complexity, timing and results of our clinical trials of our product candidates;

 

   

the costs, timing and outcome of regulatory review of our product candidates;

 

   

the costs of developing our product candidates for additional indications;

 

   

the timing and amount of actual reimbursements under the BARDA Contract;

 

   

the continuation of funding under the BARDA Contract and our grant agreements;

 

   

our ability to establish scientific or business collaborations on favorable terms, if at all;

 

   

the costs of preparing, filing and prosecuting patent or other intellectual property applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

   

the extent to which we in-license or acquire other product candidates or technologies;

 

   

the scope, progress, results and costs of product development for our product candidates; and

 

   

the effects of the COVID-19 pandemic, global supply chain disruptions, international political instability, and rising inflation and interest rates on, among other things, our financial performance, business and operations.

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results to obtain marketing approval and achieve product sales. For example, we recently stopped patient enrollment in our Phase 3 trial of exebacase based on the recommendation of the DSMB that the trial be stopped because the conditional power of the study was below the pre-specified threshold for futility.

In addition, if approved, any of our product candidates that we develop may not achieve commercial success. Accordingly, we may need to continue to rely on additional financing to achieve our business objectives and to continue as a going concern. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. Adequate additional financing may not be available to us on acceptable terms, or at all.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, 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.

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 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.

 

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The timing of the milestone and royalty payments we are required to make under certain agreements to Rockefeller is uncertain and could adversely affect our cash flows and results of operations.

We are party to certain agreements with Rockefeller pursuant to which we have acquired licenses to certain patents and patent applications and other intellectual property related to a series of compounds, including exebacase to develop and commercialize therapeutics. Under our agreements with Rockefeller, we have obligations to achieve diligence minimums and to make payments upon achievement of specified development and regulatory milestones. We will also make additional payments upon the achievement of future sales milestones and for royalties on future net sales.

The timing of milestone payments under our licenses and sponsored research agreements is subject to factors relating to the clinical and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us.

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

On March 10, 2021, we executed a cost-share contract from BARDA, part of the Office of the Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services. Under the terms of the BARDA Contract, the Company will receive $9.8 million in initial funding during the base period. Following the interim futility analysis and the stopping of patient enrollment, on August 24, 2022, the BARDA Contract was modified to provide for and exercise an option by BARDA to provide up to $6.6 million in funding to support a futility outcome rootcause analysis and the close-out of the Phase 3 DISRUPT study of exebacase. The BARDA Contract contains terms and conditions that are customary for contracts with BARDA of this nature, including provisions giving the government the right to terminate the contract at any time for its convenience. If BARDA were to eliminate, reduce, or delay funding under the BARDA Contract or prohibit reimbursement of some of our incurred costs, we would have to seek additional funding to complete our Phase 3 DISRUPT trial.

The BARDA Contract includes special requirements, which subject us to the risk of a reduction or loss of funding.

Our BARDA Contract subjects us to various U.S. government contract requirements, including general clauses for a cost-reimbursement research and development contract, which may limit our reimbursement. In addition, if we are found to be in violation of the BARDA Contract, it could result in termination. If BARDA terminates the BARDA Contract with us for its convenience, or if we default by failing to perform in accordance with the contract schedule and terms, a significant negative impact on our cash flows and operations could result.

U.S. government contracts, such as our BARDA Contract, generally contain unfavorable termination provisions, which may subject us to additional risks as compared to our competitors that have not entered into such contracts. These risks include the ability of the U.S. government to unilaterally:

 

   

terminate or reduce the scope of our contract with or without cause;

 

   

interpret relevant regulations (federal acquisition regulation clauses);

 

   

require performance under circumstances that may not be favorable to us;

 

   

require an in-process review where the U.S. government will review the project and its options under the contract;

 

   

control the timing and amount of funding; and

 

   

audit and object to our contract-related costs and fees, including allocated indirect costs.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. As a result of our past transactions, we may have experienced an “ownership change.” At this time, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. Further, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2021, we had federal and state net operating loss carryforwards of approximately $275.5 million and $293.9 million, respectively, and federal research and development credits of approximately $5.0 million, the use of which could be limited or eliminated by virtue of one or more “ownership changes.”

 

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Risks Related to the Discovery, Development and Commercialization of Our Product Candidates

The COVID-19 pandemic or other pandemics, epidemics or outbreaks of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

The measures taken in response to the evolving COVID-19 pandemic have had a significant impact on the economy and, to a lesser extent, both directly and indirectly, on our business. We adjusted our business operations, with a majority of our employees working remotely. Our Phase 3 DISRUPT clinical trial was also affected, as clinical sites experienced periodic delays in new patient enrollment.

As a result of the COVID-19 pandemic, the spread of variants of the virus or another pandemic, epidemic or outbreak of an infectious disease, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:

 

   

delays or difficulties in enrolling patients in our clinical trials;

 

   

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and staff;

 

   

increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or being forced to quarantine;

 

   

interruption of key clinical trial activities, such as clinical trial site data monitoring and efficacy and safety data collection, processing and analyses, due to limitations on travel imposed or recommended by federal, state or local governments, employers and others or interruption of clinical trial subject visits, which may impact the collection and integrity of subject data and clinical study endpoints;

 

   

interruption of, or delays in receiving, supplies of our products and product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in supply or delivery systems;

 

   

delays in receiving authorization from local regulatory authorities to initiate our planned clinical trials;

 

   

changes in regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

 

   

delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel;

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

   

delays in preclinical studies due to restricted or limited operations resulting from restrictions on our on-site activities;

 

   

interruption or delays of our sourced discovery and clinical activities; and

 

   

the ability of our contract research organizations (“CROs”), contract manufacturing organizations and suppliers to meet their contractual obligations in connection with the conduct of our clinical trial for our current product candidate and for any future product candidate.

The extent to which the pandemic further impacts our business, results of operations and financial condition, including expenses, research and development costs, procurement of raw materials for our supply chain, and clinical trial progress, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic and future waves of infection, including the spread of variants of the virus, the availability, adoption and effectiveness of vaccines and treatments, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. Additionally, concerns over the economic impact of COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets.

 

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We are heavily dependent on the success of our leading product candidates. The approval process of the FDA and comparable foreign regulatory authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for any of our product candidates, our business will be substantially harmed.

Our near-term business prospects are substantially dependent on our ability to develop our product candidates. We recently stopped patient enrollment in our Phase 3 trial of exebacase based on the recommendation of the DSMB that the trial be stopped because the conditional power of the study was below the pre-specified threshold for futility. The Company continues to monitor <20 already enrolled patients as they complete their follow-up visits and to perform ongoing data review. We expect that conclusions drawn from the ongoing data review will inform next steps for any potential further development of exebacase. We cannot market or sell any of our product candidates in the United States without FDA approval. To commercialize any product candidate outside of the United States, we will need applicable foreign regulatory approvals. The clinical development of any product candidate is susceptible to the inherent risks of any drug development program, including a failure to achieve efficacy across a broad population of patients, the potential occurrence of severe adverse events and the risks that the FDA or any applicable foreign regulatory authority will determine that a drug product is not approvable.

The process required to obtain approval for commercialization from the FDA and similar foreign authorities is unpredictable, and typically takes many years even after the commencement of clinical trials, depending on numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to obtain regulatory approval may change during the course of a product’s clinical development may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that any product candidates we may seek to develop in the future will never obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of a BLA from the FDA or outside the United States, until we receive similar approval from foreign regulatory authorities.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective, or in the case of biologics, safe, pure, and potent, for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA or other regulatory authorities also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program.

We may fail to obtain regulatory approval for any product candidate for many reasons, including the following:

 

   

we may not be able to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that any of our product candidate is safe and effective for any indication;

 

   

the results of clinical trials may not meet the level of clinical or statistical significance required for approval by the FDA or comparable foreign regulatory authorities;

 

   

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

   

we may not be able to demonstrate that any of our product candidate’s clinical and other benefits outweigh its safety risks;

 

   

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval;

 

   

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

   

the FDA or comparable foreign regulatory authorities may identify deficiencies in data generated at our clinical trial sites;

 

   

the FDA or comparable foreign regulatory authorities may identify deficiencies in the clinical practices of the third-party CROs we use for clinical trials; and

 

   

the FDA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators enter into agreements for clinical and commercial supplies.

 

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This lengthy approval process as well as the unpredictability of future clinical trial results may prevent us from obtaining regulatory approval to market any of our product candidates, which would significantly harm our business. In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in obtaining regulatory review and approval. Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.

If clinical trials of any of our product candidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of or any of our product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of any of our product candidate, we must complete preclinical development, perform extensive process validation and complete the manufacturing of our initial commercial supply of product to demonstrate robustness, stability, purity and potency of our drug product, and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. For example, on July 7, 2022, the DSMB for the Phase 3 DISRUPT study recommended that the trial be stopped because the conditional power of the study was below the pre-specified threshold for futility.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

 

   

clinical trials of our product candidates may produce negative or inconclusive results, or significant adverse side effects, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

   

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

   

our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

   

regulators or IRBs (or independent Ethics Committees (“IECs”)) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

   

we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

   

we may voluntarily suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

 

   

regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

   

the cost of clinical trials of our product candidates may be greater than we anticipate;

 

   

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;

 

   

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs (or IECs) to suspend or terminate the trials; or

 

   

the effects of the COVID-19 pandemic.

 

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