X4 Pharmaceuticals(XFOR) - 2022 Q2 - Quarterly Report

FORM 10-Q Cover Page This report is a Quarterly Report on Form 10-Q for the period ended June 30, 2022, filed by a non-accelerated, smaller reporting, and emerging growth company - Filing is a Quarterly Report on Form 10-Q for the period ended June 30, 2022[2] Filer Status | Filer Status | Value | | :--- | :--- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | - As of August 1, 2022, the registrant had 68,646,068 shares of common stock outstanding[5] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that forward-looking statements are subject to substantial risks and uncertainties, including clinical trial outcomes, regulatory approvals, and financing needs - Forward-looking statements are based on expectations, assumptions, estimates, and projections, are not guarantees of future results, and involve substantial risks and uncertainty[9] - Key risks include timing and results of mavorixafor clinical trials (Phase 3 for WHIM, Phase 1b for Waldenström's and chronic neutropenic disorders), impact of COVID-19, regulatory approval processes, commercialization plans, intellectual property, and need for additional financing[10][12] SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS The company faces significant financial losses, dependence on mavorixafor, and substantial risks related to regulatory approval, clinical trials, and intense competition - The company has incurred significant losses since inception and has not generated revenue from product sales, expecting continued losses and a need for substantial additional funding[14] - Business success is almost entirely dependent on mavorixafor, currently in Phase 3 for WHIM syndrome and Phase 1b for chronic neutropenic disorders and Waldenström's macroglobulinemia (contingent on partnerships)[14] - Key risks include lengthy and unpredictable regulatory approval, dependence on license agreements, potential for clinical trial failures or delays, and intense competition[14][15] PART I: FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. FINANCIAL STATEMENTS This section provides the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of redeemable common stock and stockholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, fair value measurements, debt, leases, and equity Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2022, and December 31, 2021 Metric (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Cash and cash equivalents | $47,378 | $81,787 | $(34,409) | | Total current assets | $52,585 | $87,878 | $(35,293) | | Total assets | $81,019 | $117,176 | $(36,157) | | Total current liabilities | $22,002 | $14,023 | $7,979 | | Total liabilities | $50,946 | $52,764 | $(1,818) | | Total stockholders' equity | $30,073 | $64,412 | $(34,339) | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, including operating expenses, net loss, and net loss per share for the three and six months ended June 30, 2022 and 2021 Metric (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Research and development | $13,821 | $13,193 | $27,934 | $25,297 | | Selling, general and administrative | $6,749 | $5,804 | $14,413 | $11,636 | | Total operating expenses | $20,570 | $18,997 | $41,838 | $36,933 | | Net loss | $(21,212) | $(19,638) | $(43,177) | $(38,314) | | Net loss attributable to common stockholders | $(21,212) | $(19,638) | $(45,436) | $(46,553) | | Net loss per share (basic and diluted) | $(0.60) | $(0.74) | $(1.31) | $(1.97) | - Deemed dividend on Class B Warrant price reset significantly impacted net loss attributable to common stockholders for the six months ended June 30, 2022 ($2.259 million) and 2021 ($8.239 million)[21] Condensed Consolidated Statements of Redeemable Common Stock and Stockholders' Equity This section details changes in the company's redeemable common stock and stockholders' equity, including accumulated deficit and additional paid-in capital, from December 31, 2021, to June 30, 2022 Metric (in thousands) | Metric (in thousands) | December 31, 2021 | June 30, 2022 | Change | | :-------------------- | :---------------- | :------------ | :----- | | Total Stockholders' Equity | $64,412 | $30,073 | $(34,339) | | Accumulated Deficit | $(282,871) | $(326,048) | $(43,177) | | Additional Paid-In Capital | $347,374 | $356,209 | $8,835 | - Issuance of common stock and prefunded warrants, net of costs, contributed $5.82 million to equity in Q1 2022[25] - Stock-based compensation expense added $1.46 million in Q1 2022 and $1.52 million in Q2 2022[25] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 Metric (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change | | :-------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash used in operating activities | $(38,703) | $(37,641) | $(1,062) | | Net cash used in investing activities | $(60) | $(582) | $522 | | Net cash provided by financing activities | $4,609 | $54,117 | $(49,508) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(34,425) | $15,791 | $(50,216) | | Cash, cash equivalents and restricted cash at end of period | $48,683 | $96,493 | $(47,810) | - Net cash used in operating activities increased primarily due to higher net loss, partially offset by non-cash adjustments and changes in operating assets/liabilities[33][150] - Financing activities in 2022 included $5.785 million from private placement equity offerings and stock sales, significantly lower than $53.96 million in 2021[33][153] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, debt, leases, and equity 1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION This note describes the company's primary business, lead product candidate mavorixafor, and discusses its going concern assessment and the impact of COVID-19 - Lead product candidate, mavorixafor, is in Phase 3 for WHIM syndrome (results expected Q4 2022) and Phase 1b for chronic neutropenic disorders and Waldenström's macroglobulinemia (results expected Q3 2022)[36] - As of June 30, 2022, cash and cash equivalents were $47.4 million; with recent private placement proceeds, cash is expected to fund operations into Q3 2023[37] - Substantial doubt exists about the company's ability to continue as a going concern beyond H1 2023 due to a minimum cash covenant under its loan agreement with Hercules Capital Inc[37][38] - The COVID-19 pandemic has caused disruptions and delays in clinical trials, including patient enrollment and resource allocation, with the full impact remaining uncertain[39] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting policies, including the impact of COVID-19 on clinical trials, restricted cash, and the deferral of ASU 2016-13 adoption - COVID-19 continues to cause disruptions in clinical trial site activation, patient enrollment, and diversion of healthcare resources, heightening other business risks[42][43] Restricted Cash (in thousands) | Restricted Cash (in thousands) | June 30, 2022 | December 31, 2021 | | :----------------------------- | :------------ | :---------------- | | Letter of credit security: Waltham lease | $250 | $250 | | Letter of credit security: Vienna Austria lease | $199 | $216 | | Letter of credit security: Boston lease | $856 | $855 | | Total restricted cash included in other assets | $1,305 | $1,321 | - The company has elected to defer the adoption of ASU 2016-13 (Credit Losses) until January 1, 2023, which may accelerate and increase credit loss expense[56] 3. LICENSE, COLLABORATION AND FUNDING AGREEMENTS This note details income from government incentive programs and gains from the sale of non-financial intellectual property rights - Received $0.3 million in income from the Austrian government's research and development incentive program for the six months ended June 30, 2022[57] - Recognized a $0.5 million gain on the sale of non-financial intellectual property rights to a third party during the six months ended June 30, 2022, as these rights were not aligned with the company's strategic focus[58] 4. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES This note provides fair value measurements for financial assets and liabilities, including cash equivalents and the embedded derivative liability Metric (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Cash equivalents—money market funds | $2,579 | $47,793 | | Embedded derivative liability | $310 | $821 | - The embedded derivative liability, associated with additional fees due to Hercules upon events of default, decreased by $511 thousand from December 31, 2021, to June 30, 2022[63] 5. PROPERTY AND EQUIPMENT, NET This note presents the net book value of property and equipment and associated depreciation and amortization expenses Metric (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Total Property and equipment, net | $1,309 | $1,514 | | Accumulated depreciation and amortization | $(980) | $(724) | - Depreciation and amortization expense for property and equipment was $265 thousand for the six months ended June 30, 2022, up from $235 thousand in the prior year[66] 6. ACCRUED EXPENSES This note details the composition of accrued expenses, including employee compensation, R&D, and professional fees, as of June 30, 2022, and December 31, 2021 Metric (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Accrued employee compensation and benefits | $4,281 | $5,417 | | Accrued external research and development expenses | $3,137 | $1,507 | | Accrued professional fees | $738 | $632 | | Accrued issuance costs for private placement equity offering | $101 | $0 | | Other | $325 | $314 | | Total Accrued expenses | $8,582 | $7,870 | 7. LONG-TERM DEBT This note describes the company's long-term debt, including the Hercules Loan Agreement, its minimum cash covenant, and interest expense details Metric (in thousands) | Metric (in thousands) | June 30, 2022 | December 31, 2021 | | :-------------------- | :------------ | :---------------- | | Principal amount of long-term debt | $32,500 | $32,500 | | Long-term debt, net of current portion | $24,490 | $33,139 | | Current portion of long-term debt | $8,607 | $795 | - Borrowings under the Hercules Loan Agreement total $32.5 million, with interest-only payments through January 1, 2023, extendable to August 1, 2023, or February 1, 2024, upon meeting specific financial and operational milestones[69][74] - A minimum cash covenant of $30.0 million (reducible to $20.0 million upon achieving Performance Milestone III) becomes effective September 1, 2022; the company projects a potential violation in H1 2023 if milestones are not met[75][37] Interest Expense (in thousands) | Interest Expense (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total interest expense | $918 | $905 | $1,827 | $1,796 | | Non-cash interest expense | $198 | $186 | $397 | $364 | 8. LEASES This note outlines the company's operating lease agreements for facilities, including lease costs, remaining lease term, and discount rate - Operates under lease agreements for facilities in Boston (headquarters), Vienna (R&D center), and Waltham (sublet to a third party)[79][81] Lease Cost (in thousands) | Lease Cost (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Fixed operating lease cost | $524 | $541 | $1,054 | $1,017 | | Total lease expense | $524 | $541 | $1,054 | $1,059 | - Weighted-average remaining lease term for operating leases is 4.5 years, with a weighted-average discount rate of 11.3% as of June 30, 2022[83] 9. COMMITMENTS AND CONTINGENCIES This note discusses the company's commitments related to CROs and CMOs, indemnification agreements, and the absence of material litigation - Engaged with Contract Research Organizations (CROs) for clinical trials and Contract Manufacturing Organizations (CMOs) for mavorixafor production, with potential early termination fees[85] - Has indemnification agreements with board members and executive officers, with potentially unlimited future payment amounts, but no material costs incurred to date[86] - Not currently a party to any litigation and has no contingency reserves for legal liabilities[88] 10. COMMON STOCK AND COMMON STOCK WARRANTS This note details the company's common stock authorization, recent private placement, and outstanding common stock warrants, including exercise price adjustments - Authorized 125,000,000 shares of common stock with a $0.001 par value[89] - On June 30, 2022, entered a private placement to issue 37,649,086 common shares, 13,276,279 pre-funded warrants, and 50,925,365 warrants for gross proceeds of $55.7 million (closed July 6, 2022)[90] - The exercise price of Class B warrants was adjusted to $1.80 per share on March 3, 2022, due to the Q1 2022 private placement[97] Warrants to Purchase Common Shares | Warrants to Purchase Common Shares | December 31, 2021 | June 30, 2022 | | :--------------------------------- | :---------------- | :------------ | | Number of outstanding and exercisable warrants | 13,257,160 | 14,023,726 | | Weighted Average Exercise Price | $7.96 | $6.91 | | Weighted Average Contractual Term (Years) | 2.72 | 2.22 | 11. STOCK-BASED COMPENSATION This note provides information on unrecognized stock-based compensation expense, total stock-based compensation by expense category, and stock option activity - Total unrecognized compensation expense related to unvested stock options and restricted stock units was $6.9 million as of June 30, 2022, with a weighted average recognition period of 1.8 years[112] Stock-Based Compensation (in thousands) | Stock-Based Compensation (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Research and development expense | $710 | $798 | $1,414 | $1,375 | | Selling, general and administrative expense | $812 | $999 | $1,567 | $1,680 | | Total stock-based compensation | $1,522 | $1,797 | $2,981 | $3,055 | Stock Options Activity | Stock Options Activity | December 31, 2021 | June 30, 2022 | | :--------------------- | :---------------- | :------------ | | Outstanding Shares | 1,916,051 | 1,953,953 | | Weighted Average Exercise Price | $10.01 | $8.20 | | Exercisable Shares | N/A | 1,060,219 | 12. INCOME TAXES This note explains the company's income tax position, including the full valuation allowance against deferred tax assets and immaterial tax provision for its Austrian subsidiary - No U.S. federal or state income tax benefit recorded due to a full valuation allowance against deferred tax assets[114] - Immaterial income tax provision recorded for the Austrian subsidiary for the three and six months ended June 30, 2022 and 2021[114] 13. NET LOSS PER SHARE This note presents the calculation of net loss per share, including net loss attributable to common stockholders and weighted average shares outstanding Metric (in thousands, except per share data) | Metric (in thousands, except per share data) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(21,212) | $(19,638) | $(45,436) | $(46,553) | | Net loss per share (basic and diluted) | $(0.60) | $(0.74) | $(1.31) | $(1.97) | | Weighted average shares outstanding | 35,437 | 26,527 | 34,592 | 23,655 | - Potentially dilutive securities (stock options, unvested restricted stock units, and warrants) were excluded from diluted net loss per share calculation because their effect would be anti-dilutive[116] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results, highlighting its focus on mavorixafor for rare immune system diseases, particularly WHIM syndrome. It discusses the impact of COVID-19, details operating expenses, and addresses liquidity concerns, including the going concern assessment and future funding requirements Overview This section provides an overview of the company's lead product candidate, mavorixafor, its clinical development status, strategic prioritization, and regulatory designations - Lead product candidate, mavorixafor, is a first-in-class, small molecule antagonist of chemokine receptor CXCR4, being developed as a once-daily oral therapy for rare immune system diseases[120] - Mavorixafor is in a global Phase 3 clinical trial for WHIM syndrome (results expected Q4 2022) and Phase 1b trials for chronic neutropenic disorders (results expected Q3 2022) and Waldenström's macroglobulinemia (concluding December 2022)[121][122][123] - Strategic re-prioritization in July 2022 focuses resources on mavorixafor in chronic neutropenic disorder indications (including WHIM syndrome), pausing oncology and other immunodeficiency programs pending strategic partnerships[124] - Mavorixafor has received Breakthrough Therapy, Fast Track, and Rare Pediatric Designations in the U.S. for WHIM syndrome, and Orphan Drug Status in the U.S. and EU for WHIM syndrome, and in the U.S. for Waldenström's macroglobulinemia[125] COVID-19 Business Update This section details the ongoing impact of the COVID-19 pandemic on the company's operations, clinical trials, supply chain, and regulatory interactions - Implemented business continuity measures and operates under a "hybrid" work model, with fully vaccinated employees having returned to the Boston office[129] - Clinical development continues to experience disruptions and delays in trial site initiation, patient enrollment, and patient assessments due to the pandemic[130] - Working with third-party manufacturers and distributors to manage supply chain and mitigate disruptions, including direct-to-patient drug shipments[131] - Anticipates potential delays in regulatory review and interactions with the FDA or European Commission due to COVID-19 related resource diversions[132] Results of Operations This section analyzes the company's operating expenses, including research and development and selling, general and administrative costs, and the resulting net loss for the periods presented Metric (in thousands) | Metric (in thousands) | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (3M) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (6M) | | :-------------------- | :----------------------------- | :----------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Research and development | $13,821 | $13,193 | $628 | $27,934 | $25,297 | $2,637 | | Selling, general and administrative | $6,749 | $5,804 | $945 | $14,413 | $11,636 | $2,777 | | Gain of sale of non-financial asset | $0 | $0 | $0 | $(509) | $0 | $(509) | | Total operating expenses | $20,570 | $18,997 | $1,573 | $41,838 | $36,933 | $4,905 | | Net loss | $(21,212) | $(19,638) | $(1,574) | $(43,177) | $(38,314) | $(4,863) | - Unallocated research and development expenses increased by $4.28 million for the six months ended June 30, 2022, primarily due to an increase in headcount in the R&D function[137] - Selling, general and administrative expenses increased due to higher compensation, including stock-based compensation, resulting from increased headcount[138] - A $0.51 million gain on the sale of a non-financial asset was recognized for the six months ended June 30, 2022, from the transfer of intellectual property rights[139] Liquidity and Capital Resources This section discusses the company's cash position, going concern risk, cash flow activities, and substantial future funding requirements - As of June 30, 2022, cash and cash equivalents were $47.4 million, with restricted cash of $1.3 million[147] - The company believes existing cash and cash equivalents will fund operations into H1 2023, but faces a going concern risk due to a minimum cash covenant under the Hercules Loan Agreement, potentially violated in H1 2023[147][148] - Net cash used in operating activities was $38.7 million for the six months ended June 30, 2022; net cash provided by financing activities was $4.6 million, including $5.8 million from private placement equity offerings[150][153] - Future funding requirements are substantial and depend on factors like clinical trial scope, regulatory reviews, commercialization costs, and intellectual property protection[155] Critical Accounting Policies and Significant Judgments and Estimates This section highlights the management's use of estimates and assumptions in financial reporting and confirms no material changes to critical accounting policies - Financial statements require management to make estimates and assumptions affecting reported amounts, which are based on historical experience, known trends, and other relevant factors[157][158] - No material changes to critical accounting policies were reported for the three and six months ended June 30, 2022, compared to the 2021 Annual Report[159] Emerging Growth Company and Smaller Reporting Company Status This section clarifies the company's status as an emerging growth company and smaller reporting company, benefiting from reduced disclosure requirements - The company is an "emerging growth company" (EGC) and a "smaller reporting company," benefiting from reduced disclosure requirements[160][161] - Irrevocably elected to "opt out" of the extended transition period for new accounting standards, thus complying with public company adoption timelines[160] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is exempt from providing quantitative and qualitative disclosures about market risk[162] Item 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, and concluded they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of June 30, 2022[164] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2022[165] PART II: OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. LEGAL PROCEEDINGS The company is not currently involved in any material legal proceedings and is unaware of any pending or threatened legal actions that could significantly impact its business, operating results, or financial condition - Not currently a party to any material legal proceedings[167] - Unaware of any pending or threatened legal proceedings that could have a material adverse effect on business, operating results, or financial condition[167] Item 1A. RISK FACTORS This section details a high degree of risks associated with an investment in the company, categorized into financial position, product development, marketing, government regulation, dependence on third parties, intellectual property, and business operations. Key risks include significant losses, need for additional funding, dependence on mavorixafor, lengthy regulatory processes, intense competition, and vulnerability to supply chain disruptions and cyber-attacks Risks Related to Our Financial Position and Need for Additional Capital This section details risks associated with significant operating losses, the need for substantial additional funding, and potential dilution or operational restrictions from capital raising - Incurred significant operating losses since inception, with an accumulated deficit of $326.0 million as of June 30, 2022[169] - Expects to incur significant expenses and increasing operating losses for the foreseeable future, requiring substantial additional funding[170][174] - Failure to raise additional capital could lead to delays, reductions, or elimination of product development programs or commercialization efforts[176][177] - Raising additional capital may dilute investor ownership, restrict operations through debt covenants, or require relinquishing rights to technologies or product candidates[180][181] Risks Related to Development of Our Product Candidates This section outlines risks concerning the successful development and regulatory approval of mavorixafor, including clinical trial delays, failures, and market opportunity limitations - Business success is almost entirely dependent on the successful clinical development, regulatory approval, and commercialization of mavorixafor[186] - Regulatory review and approval processes are lengthy, time-consuming, and unpredictable, with potential for delays, denials, or limited indications[194][195] - Clinical trials may be delayed or terminated due to factors like COVID-19, patient enrollment difficulties, or unforeseen events such as the Russia-Ukraine conflict impacting trial sites[207][209][210][219] - The commercial opportunity for mavorixafor in chronic neutropenic disorders, including WHIM syndrome, may be smaller than anticipated, potentially adversely affecting future revenue[214][215][216] Risks Related to the Marketing and Commercialization of Our Product Candidates This section addresses risks related to commercializing product candidates, including regulatory designations, lack of sales infrastructure, market acceptance, and post-approval requirements - Breakthrough Therapy or Fast Track designations do not guarantee faster development, review, or approval, nor do they increase the likelihood of marketing approval[221][223] - The company lacks a sales and marketing infrastructure and must build or outsource these functions, facing significant competition from established companies[225][239][242] - Market acceptance of approved products is uncertain and depends on efficacy, safety, pricing, and competition; undesirable side effects could delay approval, limit commercial profile, or lead to marketing withdrawal[226][229][230] - Approved products will be subject to extensive post-approval regulatory requirements, and unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform initiatives could harm the business[232][252][253][254] Risks Related to Government Regulation This section covers risks from healthcare laws, legislative changes, and potential delays in regulatory reviews due to inadequate government agency funding - Relationships with customers and third-party payors are subject to anti-kickback, fraud and abuse, and other healthcare laws, with potential for significant civil, criminal, and administrative penalties for non-compliance[261][262] - Current and future legislative and regulatory changes, including healthcare reform initiatives (e.g., ACA), could increase the difficulty and cost of obtaining marketing approval and commercializing products, impacting pricing and reimbursement[263][265][269] - Inadequate funding for government agencies like the FDA and SEC could delay product reviews and approvals, negatively impacting business operations[274][276] Risks Related to Our Dependence on Third Parties This section highlights risks from reliance on third-party manufacturers and CROs, supply chain disruptions, misconduct, and the challenges of managing collaborations - Dependent on a single third-party manufacturer for mavorixafor API and another for finished drug product capsules, posing risks of manufacturing delays, supply disruptions, and non-compliance with cGMP[277][278][279][280] - Relies on third-party CROs to conduct preclinical studies and clinical trials; their failure to meet contractual duties or deadlines could substantially harm the business and delay regulatory approval[282][283][284] - Disruptions in the supply chain, including those from the COVID-19 pandemic or geopolitical conflicts (e.g., Russia-Ukraine), could delay commercial launch of product candidates[285][286] - Misconduct by employees, principal investigators, CROs, or consultants, including non-compliance with regulatory standards, could lead to significant penalties and reputational harm[287][288] - Dependence on collaborations for development and commercialization means limited control over resources and potential for delays or termination if collaborations are unsuccessful[291][292] Risks Related to Our Intellectual Property This section discusses risks concerning patent protection, intellectual property lawsuits, compliance with license agreements, and the protection of trade secrets - Changes in patent laws or their interpretation (e.g., AIA, Supreme Court rulings) make it difficult to predict patent issuance or enforcement, potentially weakening the ability to protect technology[296][297][298][299] - Inability to obtain and maintain sufficient patent protection or if the scope is inadequate, competitors could commercialize similar products, harming the business[303][304] - Patent prosecution is expensive and time-consuming, and patent terms may be inadequate to protect competitive position for a sufficient duration[305][308] - Involvement in intellectual property lawsuits (infringement, validity challenges) is expensive, time-consuming, and could divert management attention, potentially leading to substantial liabilities or loss of IP rights[309][310][317][322] - Failure to comply with obligations under license agreements (e.g., with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University, Dana-Farber Cancer Institute) could result in the loss of critical intellectual property rights[197][198][314] - Trade secrets are difficult to protect, and unauthorized disclosure or independent development by competitors would harm the company's competitive position[324][325] Risks Related to Our Business Operations, Employee Matters, and Managing Growth This section addresses operational risks including the impact of COVID-19, dependence on key personnel, growth management, technological obsolescence, cyber-attacks, and debt covenants - The global COVID-19 pandemic continues to adversely affect business operations, clinical trials, and preclinical studies, with ongoing disruptions and potential for future impacts[329][331][332][334] - Future success is highly dependent on retaining key executives (e.g., CEO Paula Ragan) and attracting/retaining qualified scientific, technical, and managerial personnel in a competitive biotechnology environment[335][336] - The company needs to grow its organization, which will impose significant responsibilities on employees and require effective management of development efforts, hiring, training, and integration of personnel[337][338] - The pharmaceutical industry's rapid technological change poses a risk that current technologies and products could become obsolete or uncompetitive[339] - Significant reliance on information technology makes the company vulnerable to cyber-attacks, data breaches, and system failures, which could compromise sensitive information and disrupt operations[341][343] - The ability to use net operating loss (NOL) carryforwards to offset future taxable income may be subject to limitations due to their duration or ownership changes under Section 382 of the Internal Revenue Code[345][346] - The Hercules Loan Agreement contains covenants that limit operational flexibility (e.g., selling assets, incurring debt, paying dividends) and includes a minimum cash requirement, which the company projects it may violate in H1 2023[348] Risks Related to Ownership of Our Common Stock This section covers risks associated with common stock ownership, including market price volatility, reduced disclosure benefits, lack of dividends, potential for dilution, and anti-takeover provisions - The market price of common stock is expected to remain volatile due to factors such as clinical trial results, regulatory approvals, competition, financial performance, and general economic/market conditions[349][351] - As an "emerging growth company" and "smaller reporting company," the company benefits from reduced disclosure requirements, which may make its common stock less attractive to some investors[352][354] - The company does not anticipate paying cash dividends in the foreseeable future, with capital appreciation being the sole source of gain for investors[356] - Sales of a substantial number of common stock shares in the public market could depress the market price[357] - Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial reports, fraud, and loss of investor confidence[359][360][362] - Provisions in corporate charter documents and Delaware law could make an acquisition of the company more difficult and may prevent attempts by stockholders to replace management[364][365] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[369] Item 3. DEFAULTS UPON SENIOR SECURITIES This section indicates that there were no defaults upon senior securities to report - No defaults upon senior securities to report[369] Item 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[370] Item 5. OTHER INFORMATION This section indicates that there is no other information to report - No other information to report[371] Item 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including the Restated Certificate of Incorporation, Amended and Restated By-laws, forms of common stock and warrants, securities purchase agreement, registration rights agreement, and amendments to the loan and security agreement, along with certifications - Includes Restated Certificate of Incorporation, Amended and Restated By-laws, forms of common stock and warrants, Securities Purchase Agreement, Registration Rights Agreement, and Amendment No. 4 to Loan and Security Agreement[372] - Certifications from Principal Executive Officer and Principal Financial Officer are filed herewith[372][374] SIGNATURES This section confirms the official signing of the report by the President, Chief Executive Officer, Chief Financial Officer, and Treasurer on August 4, 2022 - Report signed by Paula Ragan, Ph.D., President and Chief Executive Officer, and Adam S. Mostafa, Chief Financial Officer and Treasurer, on August 4, 2022[378]