BioRestorative Therapies(BRTX) - 2023 Q4 - Annual Report

Part I Business A clinical-stage biotechnology company developing adult stem cell therapies for chronic pain and metabolic disorders - The company's core business revolves around two primary adult stem cell therapy programs: the brtxDisc program for disc/spine disease and the ThermoStem program for metabolic disorders[69][118][91] - The lead product candidate, BRTX-100, has received FDA authorization and has commenced a Phase 2 clinical trial for treating chronic lower back pain from degenerative disc disease[62][98][135] - The ThermoStem Program is a pre-clinical initiative using brown adipose (fat) derived stem cells to develop treatments for type 2 diabetes, obesity, and other metabolic disorders[63][91][142] - In February 2024, the company raised approximately $8.1 million in gross proceeds from the exercise of warrants, which will be used to fund clinical trials and working capital needs[68][122][573] Disc/Spine Program (BRTX-100) The program centers on BRTX-100, an autologous stem cell product in a Phase 2 trial for chronic lower back pain - BRTX-100 is an autologous product formulated from a patient's own bone marrow-derived mesenchymal stem cells, cultured under hypoxic conditions to enhance survivability in the damaged disc environment[100][101][124] - A Phase 2 clinical trial for BRTX-100 has commenced, with 16 clinical trial site agreements executed in a prospective, double-blinded, placebo-controlled study involving 99 patients[98][135][136] - In 2023, the company completed enrollment for the safety run-in portion of the Phase 2 trial and received a unanimous recommendation from the independent Data Safety Monitoring Board to continue the study without modification[64][115][138] Metabolic Program (ThermoStem) This pre-clinical program develops cell-based therapies using brown adipose derived stem cells for metabolic diseases - The program aims to develop a cell-based therapy using brown adipose derived stem cells (BADSCs) to target obesity and metabolic disorders by generating brown adipose tissue (BAT)[91][142][175] - The company has secured numerous patents for its ThermoStem Program, including seven in the United States and thirteen in foreign jurisdictions such as Europe, Japan, and Australia[121][455][458] - Pre-clinical animal studies have shown proof of concept, and the company plans to begin additional studies in 2024 to optimize delivery before filing an IND with the FDA[454] Intellectual Property, Technology, and Facilities The company's strategy relies on licensed and proprietary IP, supported by a cGMP-capable laboratory in New York - The company has an exclusive license for the technology underlying its Disc/Spine Program and an investigational curved needle device[83][96][131] - It has established a research laboratory with cGMP capabilities in Melville, NY, for clinical-grade product production, which is licensed by the NY State Department of Health as a tissue bank[95][158][486] - The company holds seven U.S. patents and thirteen foreign patents related to its ThermoStem Program[121][455] Government Regulation The company's stem cell products are subject to extensive FDA oversight, requiring a Biologics License Application - Stem cell treatments are regulated by the FDA under the Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/P) framework or as drugs, biologics, or medical devices[201][228] - The company has determined that its BRTX-100 product candidate will be regulated as a biological product, necessitating a Biologics License Application (BLA) for marketing approval, which is a time-consuming and expensive process[239] - The FDA approval process for a biologic requires extensive non-clinical studies and adequate and well-controlled human clinical trials (Phase 1, 2, and 3) to establish safety and efficacy[207][209][236] Risk Factors The company faces significant financial, operational, regulatory, and competitive risks, including a material weakness in internal controls Risks Related to Business Generally General business risks include a limited operating history, significant accumulated losses, and dependence on key executives - The company has a limited operating history and has incurred substantial net losses, with an accumulated deficit of $167.1 million as of December 31, 2023[289][317] - Significant additional financing is required to complete clinical trials for BRTX-100 and fund other programs and general operations[261][318] - The company's performance is substantially dependent on its CEO, Lance Alstodt, and its VP of Research and Development, Francisco Silva[263][292] Risks Related to Cell Therapy Product Development Efforts Product development is subject to clinical trial uncertainty, manufacturing variability, and intense competition - The company's future is significantly dependent on the timely and successful development and commercialization of its lead product candidate, BRTX-100[295][323] - Clinical testing is expensive and can be delayed or fail for numerous reasons, including difficulty enrolling patients, inconclusive results, or regulatory holds[296][325][502] - The manufacturing of autologous cell therapies is inherently variable from patient to patient, which could adversely affect manufacturing costs and product consistency[302][331] - The company faces competition from well-established pharmaceutical and biotechnology companies with substantially greater financial and research resources[196][313] Risks Related to Our Intellectual Property Success depends on obtaining and defending intellectual property rights amid legal and regulatory uncertainties - Commercial success depends on the ability to protect proprietary technology, but there is no assurance that patents will be issued or that they will not be challenged by third parties[361][418] - Litigation may be necessary to enforce patents or defend against infringement claims, which would be costly and time-consuming[362][393] - Significant changes to U.S. patent law, such as the America Invents Act (AIA), have created uncertainty regarding the ability to obtain and maintain patents[365][396] Risks Related to Government Regulation The business is subject to rigorous government regulation, and failure to obtain or maintain approvals would be detrimental - The failure to receive regulatory approvals for cell therapy product candidates would likely have a material and adverse effect on the business and prospects[408][434] - The company is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act, with non-compliance leading to potential substantial penalties[401][428] - Even after approval, products remain subject to ongoing regulatory oversight, and failure to comply can result in penalties, recalls, or withdrawal of approval[367][424] Risks Related to Our Common Stock and Nasdaq Listing Investment risks include stock volatility, potential dilution, material weaknesses in internal controls, and Nasdaq listing requirements - Material weaknesses in internal control over financial reporting have been identified, which could result in a material misstatement of financial statements[3][24][25] - Future issuances of common stock, including from warrants and stock plans, may materially dilute stockholders' ownership and adversely affect the stock price[30][31][36] - The company cannot guarantee continued compliance with Nasdaq's minimum bid price requirement of $1.00 per share, which could jeopardize its listing[6][7] - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining any earnings to finance business development[46][476] Unresolved Staff Comments The company has no unresolved comments from the staff of the Securities and Exchange Commission - This item is not applicable as there are no unresolved staff comments[10] Cybersecurity The company is establishing a formal cybersecurity framework, with oversight from the CFO and Audit Committee - The company is establishing a comprehensive cybersecurity policy to identify, assess, mitigate, and respond to cybersecurity risks[12] - To date, cybersecurity threats have not significantly impacted the company's operations, financial condition, or business strategy[14] - The Chief Financial Officer is responsible for overseeing the information security program, with oversight provided by the Board's Audit Committee[15] Properties The company leases a 6,800 square foot office and laboratory space in Melville, New York - The company leases 6,800 square feet of office and laboratory space at 40 Marcus Drive, Suite One, Melville, New York[16] - The current lease expires in December 2024 and has an annual base rental of $173,060[16] Legal Proceedings The company reports that it is not a party to any legal proceedings - There are no legal proceedings to report[17] Mine Safety Disclosures This item is not applicable to the company's business - This item is not applicable[17] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "BRTX," with 352 holders of record as of March 2024 - The company's common stock is listed on the Nasdaq Capital Market under the symbol "BRTX"[19] - As of March 28, 2024, there were 352 record holders of the company's common stock[20] - The company has not paid dividends and reports no recent sales of unregistered securities or issuer purchases of its equity securities[21][22][23] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a reduced net loss in 2023 and its funding strategy Overview The company is focused on advancing its stem cell therapy programs, funded by equity offerings, with a historical accumulated deficit - The company's primary focus is on its Disc/Spine Program (BRTX-100), which is in a Phase 2 clinical trial, and its pre-clinical ThermoStem Program[45][457][458] - As of December 31, 2023, the company had an accumulated deficit of $167.1 million and expects to continue incurring substantial costs[460] - Operations have been funded through significant capital raises, including a $23 million public offering in November 2021 and subsequent offerings in 2023[462][491][492] Results of Operations The company's net loss decreased to $14.4 million in 2023 from $18.5 million in 2022, driven by lower G&A expenses Consolidated Results of Operations (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues, net | $145,800 | $119,800 | | Research and development expenses | $4,034,591 | $3,513,352 | | General and administrative expenses | $11,331,983 | $15,580,473 | | Loss From Operations | ($15,220,774) | ($18,974,025) | | Net Loss | ($14,415,484) | ($18,494,769) | - The decrease in general and administrative expenses in 2023 was primarily due to a $4.75 million decrease in stock-based compensation[465] - Research and development expenses increased by 15% in 2023, driven by higher compensation, lab supplies, and consulting fees, partially offset by lower non-recurring clinical trial start-up expenses[487][494] Liquidity and Capital Resources The company believes current cash, supplemented by recent financing, is sufficient for the next twelve months of operations Liquidity Summary | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash, Cash Equivalents and Investments | $11,065,995 | $14,749,408 | | Working Capital | $10,327,134 | $14,688,188 | - Management believes that cash on hand as of the report's issuance, including proceeds from the February 2024 warrant exercises, is sufficient to fund operations for the next twelve months[552][668] Cash Flow Summary (2023 vs. 2022) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,430,211) | ($5,913,100) | | Net cash provided by (used in) investing activities | $3,252,043 | ($13,399,855) | | Net cash provided by financing activities | $2,351,343 | $0 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[565] Controls and Procedures Management concluded disclosure controls were not effective due to material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2023[582] - The ineffectiveness was due to material weaknesses, including: lack of adherence to formal policies, lack of risk assessment procedures, and insufficient formal management testing over controls[3][570][585] - A remediation plan is underway, which includes overseeing the financial reporting process, engaging external financial consultants, and documenting key procedures and controls[527][529] Part III Directors, Executive Officers and Corporate Governance This section details the company's leadership, classified board structure, and committee compositions - Key executive officers include Lance Alstodt (CEO, President, Chairman), Francisco Silva (VP of R&D, Secretary, Director), and Robert E. Kristal (CFO)[535][536][537] - The Board of Directors is classified into three classes, with three of the five directors (Nickolay Kukekov, Patrick F. Williams, David Rosa) determined to be independent[507][599] - The Board has determined that director Patrick F. Williams qualifies as an "audit committee financial expert"[509][616] - The company has a Scientific Advisory Board, chaired by Dr. Wayne Marasco, to provide scientific guidance[163][520][540] Executive Compensation This section details compensation for Named Executive Officers, including salaries, bonuses, and option awards 2023 Summary Compensation Table | Name and Principal Position | Year | Salary | Bonus | Option Awards | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Lance Alstodt, Chief Executive Officer | 2023 | $479,167 | $475,000 | $300,000 | $1,254,167 | | Francisco Silva, VP, Research and Development | 2023 | $454,167 | $437,500 | $300,000 | $1,191,667 | | Robert Kristal, Chief Financial Officer | 2023 | $240,624 | $127,500 | $250,000 | $618,124 | - CEO Lance Alstodt's employment agreement, effective through March 2026, provides for a current annual salary of $550,000[586] - Non-employee directors receive annual compensation of $30,000 in cash and $90,000 in option grants for their services[589] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Directors and executive officers as a group beneficially owned 25.4% of common stock as of March 20, 2024 Beneficial Ownership of Common Stock (as of March 20, 2024) | Owner | Shares Beneficially Owned | Approximate Percent of Class | | :--- | :--- | :--- | | All directors and executive officers as a group (7 persons) | 2,186,862 | 25.4% | | Lance Alstodt (CEO) | 790,805 | 10.7% | | Francisco Silva (VP, R&D) | 756,666 | 10.3% | | Dale Broadrick | 926,126 | 13.7% | - Auctus Fund, LLC holds 100% of the 1,398,158 outstanding shares of Series B preferred stock[591] - Conversion of Series B preferred stock and exercise of certain warrants held by Auctus are limited to prevent beneficial ownership from exceeding 9.99% of outstanding common stock[596][613] Certain Relationships and Related Transactions, and Director Independence Three of the five board members are independent, and all board committees are composed entirely of these independent directors - The Board of Directors is comprised of five members, with Lance Alstodt as Chairman; three directors—Nickolay Kukekov, Patrick F. Williams, and David Rosa—are deemed "independent directors" under Nasdaq rules[599] - The Audit, Compensation, and Nominating Committees are each composed entirely of the three independent directors[600][616][636] Principal Accountant Fees and Services Marcum LLP served as the independent accountant for 2023 and 2022, with all services pre-approved by the Audit Committee - Marcum LLP was the independent registered public accountant for the years ended December 31, 2023 and 2022[601] Accountant Fees (2023 vs. 2022) | Fee Type | 2023 (Marcum LLP) | 2022 (Marcum & Friedman LLP) | | :--- | :--- | :--- | | Audit Fees | $101,500 | $95,000 | | Audit-Related Fees | $37,000 | $6,500 | | Total | $138,500 | $101,500 | - All audit and non-audit services were pre-approved by the Audit Committee, which is responsible for the appointment, compensation, and oversight of the independent accountants[603] Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed, including corporate documents, material contracts, and required certifications - The exhibits include foundational corporate documents such as the Amended and Restated Articles of Incorporation and Bylaws[621] - Material contracts filed as exhibits include the License Agreement with Regenerative Sciences, LLC, and executive employment agreements for Lance Alstodt and Francisco Silva[621] - The filing includes required certifications from the Principal Executive Officer and Principal Financial Officer, as well as the company's Code of Ethics and Clawback Policy[643] Financial Statements Consolidated Balance Sheets Total assets decreased to $12.6 million in 2023, while total liabilities increased to $1.1 million Consolidated Balance Sheet Summary (as of Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $884,377 | $1,713,772 | | Investments held in marketable securities | $10,181,618 | $13,035,636 | | Total Assets | $12,611,720 | $16,434,691 | | Total Current Liabilities | $1,063,392 | $440,302 | | Total Liabilities | $1,063,392 | $602,619 | | Total Stockholders' Equity | $11,548,328 | $15,832,072 | Consolidated Statements of Operations The company reported a net loss of $14.4 million in 2023, an improvement from the $18.5 million loss in 2022 Consolidated Statement of Operations Summary (For the Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenues, net | $145,800 | $119,800 | | Total Operating Expenses | $15,366,574 | $19,093,825 | | Loss From Operations | ($15,220,774) | ($18,974,025) | | Net Loss | ($14,415,484) | ($18,494,769) | | Net Loss Per Share - Basic and Diluted | ($3.42) | ($5.11) | Consolidated Statements of Cash Flows Net cash used in operations was $6.4 million in 2023, with a year-end cash balance of $0.9 million Consolidated Statement of Cash Flows Summary (For the Year Ended Dec 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($6,430,211) | ($5,913,100) | | Net Cash Provided By (Used In) Investing Activities | $3,252,043 | ($13,399,855) | | Net Cash Provided By Financing Activities | $2,351,343 | $0 | | Net Decrease In Cash and Cash Equivalents | ($826,825) | ($19,312,955) | | Cash and Cash Equivalents - End of the Year | $886,947 | $1,713,772 |