Scorpius Holdings(SCPX) - 2021 Q4 - Annual Report

PART I Business A biopharmaceutical company developing immune therapies for cancer and infectious diseases via its proprietary gp96 and DR3/TNFRSF25 platforms - The company is a fully integrated biopharmaceutical firm specializing in therapies that arm the immune system against diseases like cancer and infectious disease[28] - The company's strategy includes becoming fully integrated, maximizing commercial opportunities, developing its CDMO subsidiary Scorpion, obtaining regulatory approvals, and expanding its patent portfolio[90][93] Key Product Platforms and Clinical Assets | Platform | Key Asset | Indication | Development Stage | | :--- | :--- | :--- | :--- | | gp96 Platform | HS-110 (viagenpumatucel-L) | Non-Small Cell Lung Cancer (NSCLC) | Phase 2 (Enrollment Complete) | | | HS-130 (ComPACT®) | Advanced Solid Tumors | Phase 1 (Enrollment Complete) | | RapidVax® Platform | RapidVax® Base Cell | Infectious/Emerging Diseases | Preclinical | | DR3/TNFRSF25 Platform | PTX-35 | Advanced Solid Tumors | Phase 1 | - On December 20, 2021, the company entered into an agreement to acquire Elusys Therapeutics, Inc, which commercializes ANTHIM® (obiltoxaximab), an FDA-approved monoclonal antibody for the biodefense threat anthrax[35] - The company is establishing in-house manufacturing capabilities through its subsidiary Scorpion Biological Services, Inc, with a new 20,144 sq. ft. facility in San Antonio, TX, expected to be operational in Q2 2022[77][80] - The development of PTX-35 is supported by a $15.2 million grant from the Cancer Prevention and Research Institute of Texas (CPRIT), which requires $7.6 million in matching funds from the company's subsidiary, Pelican[100][103] Risk Factors The company faces substantial financial, clinical development, and operational risks, including a history of net losses and reliance on key product candidates Financial Performance and Position Risks | Risk Factor | 2021 Figure | 2020 Figure | | :--- | :--- | :--- | | Net Loss | $35.4 million | $26.4 million | | Accumulated Deficit (at YE) | $165.7 million | $130.6 million | | Net Cash Used in Operations | $38.1 million | $22.0 million | - The company has a limited operating history, has not generated any product revenue, and anticipates incurring substantial losses for the foreseeable future with uncertain profitability[210][215] - The business is substantially dependent on the success of its product candidates, with only three currently in clinical trials, and no guarantee any will be commercialized[235] - Risks related to the pending Elusys merger include potential failure to complete the transaction, difficulties in integrating the business, and substantial dependence on U.S. Government contracts for Anthim revenue[334][336][339] - The company relies on third parties for manufacturing, conducting clinical trials (CROs), and supplying materials, which exposes it to risks of delays, quality issues, and lack of control[266][273][280] - The company's stock price has been volatile, with a closing price of $3.04 per share on December 31, 2021, compared to a high of $17.00 per share on February 9, 2021[236] - During 2021, the company recorded a non-cash goodwill impairment charge and an indefinite-lived intangible assets impairment charge totaling $3.8 million related to the Pelican acquisition[240] Properties The company leases office and laboratory facilities in North Carolina, Texas, and New Jersey, including a new biomanufacturing site in San Antonio - The company's executive offices are located in Morrisville, NC, and it also leases office and lab space in San Antonio, TX, and North Brunswick, NJ[387][388][389] - In October 2021, its subsidiary Scorpion entered into a lease for a 20,144 sq. ft. office and lab space in San Antonio, TX, for biomanufacturing purposes, with monthly base rent starting at $50,360[391] Legal Proceedings The company is not currently a party to any legal proceedings that would be expected to have a material adverse effect on its business or financial condition - The company is not presently a party to any material legal proceedings[393] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE American under 'HTBX', a reverse stock split was effected in 2020, and no dividends are anticipated - The company's common stock trades on the NYSE American under the symbol 'HTBX'[396] - A one-for-seven reverse stock split of the common stock was effected on December 11, 2020[398] - The company has never paid cash dividends and does not plan to in the foreseeable future[399] Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,909,972 | $7.55 | 358,897 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net loss widened to $35.4 million in 2021 due to increased R&D expenses and impairment charges, while maintaining sufficient cash to fund operations into 2024 Financial Highlights (Years Ended December 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Grant Revenue | $2.1 million | $2.8 million | | Research & Development Expense | $18.8 million | $12.9 million | | General & Administrative Expense | $16.8 million | $14.9 million | | Goodwill Impairment Loss | $1.5 million | $0 | | In-process R&D Impairment Loss | $2.4 million | $0 | | Net Loss | $35.4 million | $26.4 million | | Net Loss Per Share | ($1.41) | ($1.63) | | Cash & Short-term Investments (at YE) | $96.4 million | $111.8 million | - The increase in R&D expense was primarily due to a $2.4 million impairment loss on in-process R&D, a $1.3 million increase in COVID-19 program costs, and a $0.9 million increase in PTX-35 expenses[451][453] - The company recorded a full goodwill impairment loss of $1.5 million in 2021 due to a sustained decline in its stock price[454] - As of December 31, 2021, the company had $96.4 million in cash, cash equivalents, and short-term investments, which management believes is sufficient to fund operations into 2024[424][483] - Net cash used in operating activities increased to $38.1 million in 2021 from $22.0 million in 2020, primarily due to a higher net loss and an increase in other assets related to equipment purchases for the new facility[484] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, with the auditor's report highlighting critical audit matters related to valuation and impairment - The report includes the consolidated balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows for the years ended December 31, 2021 and 2020[615][640] - The independent auditor's report identified two Critical Audit Matters: the valuation of contingent consideration from the Pelican acquisition and the impairment of goodwill and in-process R&D, both of which involved complex and subjective management judgments[645][646][651] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[494] - Management's assessment concluded that the company's internal controls over financial reporting were effective as of December 31, 2021, based on the COSO framework[495] PART III Directors, Executive Officers and Corporate Governance This section details the company's leadership team, board composition, director independence, and committee structure - The executive officers are Jeffrey Wolf (Chairman, CEO, President) and William L. Ostrander (CFO, Secretary)[505] - The Board of Directors has determined that three of its four members are independent[520] - The Board maintains an Audit Committee, Compensation Committee, and Nominating and Governance Committee, each composed entirely of independent directors[516][517] - The company has a combined Chairman and CEO role (held by Jeffrey Wolf) but has appointed an independent Lead Director (Dr. Prendergast) to preside over executive sessions and liaise between management and independent directors[534][537] Executive Compensation CEO Jeffrey Wolf's total 2021 compensation was approximately $5.9 million, driven by significant equity awards, as part of a program designed to align pay with performance 2021 Summary Compensation Table | Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Other | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Jeffrey Wolf (CEO) | 2021 | $539,623 | $270,000 | $2,633,525 | $1,964,424 | $500,000 | $5,907,572 | | William L. Ostrander (CFO) | 2021 | $274,817 | $96,250 | $0 | $451,602 | $0 | $822,669 | - The company's executive compensation philosophy is based on aligning with stockholders' interests, being competitive to attract and retain talent, and rewarding the achievement of goals[552] - In 2021, CEO Jeffrey Wolf's base salary was increased to $540,000 and CFO William L. Ostrander's was increased to $275,000[569] - The Compensation Committee retained Meridian Compensation Partners, LLC as its independent compensation consultant in 2020 and 2021[556] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 2022, CEO Jeffrey Wolf held 6.6% beneficial ownership, with all executive officers and directors as a group holding 8.7% Security Ownership of Management (as of March 9, 2022) | Name of Beneficial Owner | Shares Beneficially Owned | Percentage Ownership | | :--- | :--- | :--- | | Jeffrey Wolf (CEO & Chairman) | 1,739,660 | 6.6% | | William L. Ostrander (CFO) | 59,440 | * | | John K. A. Prendergast, Ph.D. (Director) | 287,409 | 1.1% | | John Monahan, Ph.D. (Director) | 119,980 | * | | Edward B. Smith, III (Director) | 120,050 | * | | All Executive Officers and Directors as a group (5 persons) | 2,326,539 | 8.7% | Certain Relationships and Related Transactions, and Director Independence The pending merger with Elusys Therapeutics, founded by CEO Jeffrey Wolf, is the primary related party transaction, and all directors except the CEO are independent - The pending acquisition of Elusys Therapeutics is a related party transaction, as Elusys was founded by CEO Jeff Wolf, who owns approximately 1.2% of Elusys's outstanding stock[607] - The Board of Directors has determined that all current directors are independent under NYSE American rules, with the exception of Mr. Wolf due to his role as President and CEO[611] Principal Accountant Fees and Services BDO USA, LLP served as the independent auditor, with total audit fees of $376,123 for fiscal year 2021 Accountant Fees (BDO USA, LLP) | Fee Category | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees and Expenses | $376,123 | $329,213 | - All audit and non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee[613] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements and indexes all exhibits filed with the Form 10-K, including material contracts and governance documents - This item lists the financial statements, financial statement schedules, and exhibits filed with the Form 10-K[615]