Tonix Pharmaceuticals (TNXP) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Condensed Consolidated Balance Sheets The company's total assets significantly decreased from $154.5 million at December 31, 2023, to $70.3 million at June 30, 2024, primarily due to reductions in cash, property, and intangible assets Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2023 (in thousands) | Jun 30, 2024 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $24,948 | $4,156 | | Total current assets | $47,768 | $25,287 | | Property and equipment, net| $94,028 | $43,247 | | Intangible assets, net | $9,743 | $120 | | Goodwill | $965 | $— | | Total assets | $154,457 | $70,307 | | Total current liabilities | $18,884 | $22,043 | | Total liabilities | $48,932 | $28,204 | | Total stockholders' equity | $105,525 | $42,103 | Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2024, the company reported net product revenue but significantly increased net losses due to substantial asset impairment charges, despite decreased R&D expenses Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Product revenue, net | $2,208 | $— | $4,690 | $— | | Cost of revenue | $3,367 | $— | $5,027 | $— | | Research and development | $9,698 | $21,976 | $22,561 | $48,487 | | Selling, general and administrative | $7,502 | $7,026 | $16,812 | $14,417 | | Asset impairment charges | $58,957 | $— | $58,957 | $— | | Operating loss | $(77,316) | $(29,002) | $(98,667) | $(62,904) | | Net loss available to common stockholders | $(78,776) | $(28,356) | $(93,715) | $(61,361) | | Net loss per common share, basic and diluted | $(19.28) | $(49.23) | $(27.33) | $(107.45) | Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss for the three and six months ended June 30, 2024, was $(78.8) million and $(93.7) million, respectively, primarily driven by the net loss with minor foreign currency translation impact Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(78,776) | $(28,356) | $(93,715) | $(61,361) | | Foreign currency translation loss | $(3) | $(1) | $(11) | $(45) | | Comprehensive loss | $(78,779) | $(28,357) | $(93,726) | $(61,406) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly decreased from $105.5 million at December 31, 2023, to $42.1 million at June 30, 2024, primarily due to a net loss, partially offset by equity issuances Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Dec 31, 2023 | Mar 31, 2024 | Jun 30, 2024 | | :-------------------------------- | :----------- | :----------- | :----------- | | Common stock | $2 | $3 | $10 | | Additional paid in capital | $706,413 | $723,977 | $736,709 | | Accumulated deficit | $(600,658) | $(615,597) | $(694,373) | | Total stockholders' equity | $105,525 | $108,143 | $42,103 | - Net loss for the six months ended June 30, 2024, was $(93,715) thousand, significantly impacting accumulated deficit[9] - Issuance of common stock, net of transactional expenses, contributed $10,726 thousand to additional paid-in capital during Q2 2024[8] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash used in operating activities decreased, while financing activities provided cash, driven by equity issuances, despite overall net cash decrease Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,494) | $(56,278) | | Net cash used in investing activities | $(108) | $(27,818) | | Net cash provided by (used in) financing activities | $6,813 | $(10,471) | | Net decrease in cash, cash equivalents and restricted cash | $(20,792) | $(94,610) | | Cash, cash equivalents and restricted cash end of period | $5,058 | $25,860 | - Operating cash flow improved due to decreased R&D activities and non-cash adjustments like asset impairment charges[13][192] - Financing cash flow turned positive in 2024, driven by $10.7 million in proceeds from common stock and warrants, compared to net cash used in 2023 due to common stock repurchases[13][192] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on the company's business, significant accounting policies, inventory, property, goodwill, intangible assets, fair value measurements, debt, equity, revenues, and various agreements NOTE 1 – BUSINESS Tonix Pharmaceuticals is a biopharmaceutical company focused on CNS disorders, immunology, rare diseases, and infectious diseases, with an NDA for TNX-102 SL expected in H2 2024, but faces substantial doubt about its going concern ability - Tonix is a fully-integrated biopharmaceutical company focused on developing and commercializing therapeutics for human disease, with a primary focus on CNS disorders[14][15] - Key product candidates include TNX-102 SL for fibromyalgia (Fast Track designation, NDA submission expected H2 2024), TNX-1300 for cocaine intoxication (Breakthrough Therapy designation), TNX-1500 for organ transplant rejection/autoimmune diseases, and TNX-4200 as a broad-spectrum antiviral[15] - Commercial products include Zembrace® SymTouch® and Tosymra® for acute migraine[15] - The company has suffered recurring losses and negative cash flows, with an accumulated deficit of approximately $694.4 million and cash and cash equivalents of approximately $4.2 million as of June 30, 2024, raising substantial doubt about its ability to continue as a going concern[17][18][19] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES This note details the company's accounting policies, including GAAP compliance, retrospective application of a reverse stock split, use of estimates, and specific policies for revenue, R&D, stock-based compensation, and derivative instruments - The financial statements are prepared in accordance with GAAP for interim information and reflect a 1-for-32 reverse stock split effective June 10, 2024, applied retrospectively[20][22] - Management makes significant estimates for impairments, product returns, inventory realization, fair value of equity instruments, and R&D contracts[24] - The company operates as one segment, with two products (Zembrace and Tosymra) accounting for 100% of revenues for the three and six months ended June 30, 2024[27] - Revenue recognition is net of estimated deductions (chargebacks, rebates, discounts, returns) and is recognized when products are received by the customer[49][51][52] - R&D costs are expensed as incurred, including manufacturing for testing, licensing fees, and clinical trial costs; government grants reduce R&D expense[58][61] - Stock-based compensation is measured at fair value on the grant date and recognized as expense over the service period[63] - Derivative financial instruments, such as certain warrants, are recorded at fair value as liabilities and re-valued each reporting period, with changes reported in the consolidated statements of operations[68] Recent Accounting Pronouncements Not Yet Adopted The company is assessing the impact of new accounting standards on segment reporting (ASU 2023-07) and income tax disclosures (ASU 2023-09), as well as new SEC climate-change-related disclosure rules - The company is assessing the impact of ASU 2023-07 (Segment Reporting) effective December 31, 2024, and ASU 2023-09 (Income Tax Disclosures) effective December 31, 2025[73][74] - New SEC rules on climate-change-related disclosures, effective December 31, 2027, are also being assessed for their impact[76] NOTE 3 – INVENTORY Inventory is valued at the lower of cost or net realizable value, with $1.7 million in write-downs recorded in Q2 2024 for Tosymra and Zembrace finished goods due to sales projections and expiration dates Inventory Component (in thousands) | Inventory Component (in thousands) | Jun 30, 2024 | Dec 31, 2023 | | :--------------------------------- | :----------- | :----------- | | Raw Materials | $3,351 | $3,611 | | Work-in-process | $1,953 | $2,539 | | Finished Goods | $4,153 | $7,489 | | Total Inventory | $9,457 | $13,639 | - $1.7 million in write-downs for Tosymra and Zembrace finished goods inventory were recorded in Q2 2024 due to assessment of projected sales and expiration dates[77] NOTE 4 – PROPERTY AND EQUIPMENT, NET Property and equipment, net, significantly decreased from $94.0 million to $43.2 million, primarily due to a $48.8 million non-cash impairment charge related to the decommissioning of the ADC facility Property and Equipment (in thousands) | Property and Equipment (in thousands) | Jun 30, 2024 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | | Land | $8,011 | $8,011 | | Buildings | $24,504 | $66,749 | | Laboratory equipment | $12,116 | $21,904 | | Total Property and equipment, net | $43,247 | $94,028 | - A non-cash impairment charge of $48.8 million was recognized in Q2 2024 due to the decommissioning of the ADC facility[80] NOTE 5 – GOODWILL AND INTANGIBLE ASSETS Goodwill was fully impaired by $965,000 in Q2 2024, and developed technology intangible assets for Zembrace and Tosymra were also fully impaired by $9.2 million, reducing net intangible assets to $120,000 - Goodwill of $965,000 was fully impaired as of June 30, 2024[82] - Developed technology intangible assets for Zembrace ($6.2 million) and Tosymra ($3.0 million) were fully impaired in Q2 2024, totaling $9.2 million[84] - The impairment was driven by delayed investment in sales personnel for commercialized products, as cash resources are focused on TNX-102 SL approval[175] Intangible Asset (in thousands) | Intangible Asset (in thousands) | Jun 30, 2024 | Dec 31, 2023 | | :------------------------------ | :----------- | :----------- | | Developed technology | $0 | $9,623 | | Internet domain rights | $120 | $120 | | Total intangible assets, net | $120 | $9,743 | NOTE 6 – FAIR VALUE MEASUREMENTS The company uses Level 1 inputs for cash equivalents, and Series C and D warrants, previously Level 3 liabilities, were reclassified to equity after stockholder approvals in January and May 2024 - Series C and D warrants, previously classified as Level 3 liabilities, were reclassified to equity after stockholder approval to increase authorized shares (January 25, 2024) and approve exercise price adjustments (May 22, 2024)[87][88] - The fair value of liability-classified warrants was adjusted by $(7,005) thousand in Q1 2024 and $855 thousand in Q2 2024[91] NOTE 7 – DEBT FINANCING The company has an $11.0 million Term Loan, initiated in December 2023, maturing December 2026, with a fluctuating interest rate (greater of prime + 3.5% or 12%) and monthly principal payments, secured by R&D centers - Term Loan of $11.0 million, with a 9% original issue discount ($1.0 million), was initiated on December 8, 2023, maturing December 8, 2026[92] - Interest rate is the greater of prime + 3.5% or 12%, with monthly principal payments of $0.2 million starting March 2024[93][94] - The loan is secured by the company's R&D Center in Frederick, MD, and the Advanced Development Center in North Dartmouth, MA[97] Term Loan Payments (in thousands) | Term Loan Payments (in thousands) | Amount | | :-------------------------------- | :----- | | Remainder of 2024 | $1,410 | | 2025 | $2,820 | | 2026 | $5,830 | | Total | $10,060| NOTE 8 – STOCKHOLDERS' EQUITY On June 10, 2024, the company effected a 1-for-32 reverse stock split, retroactively restating all per share amounts, and on January 25, 2024, stockholders approved an increase in authorized common stock to 1 billion shares - A 1-for-32 reverse stock split was effected on June 10, 2024, leading to compliance with NASDAQ's minimum bid price requirement[100] - Authorized common stock increased from 160 million to 1 billion shares on January 25, 2024, following stockholder approval[101] NOTE 9 – REVENUES Net product revenues for the three and six months ended June 30, 2024, were $2.2 million and $4.7 million, respectively, primarily from Zembrace SymTouch and Tosymra, with gross-to-net sales accruals totaling $4.3 million Product Revenue (in thousands) | Product Revenue (in thousands) | 3 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2024 | | :----------------------------- | :-------------------------- | :-------------------------- | | Zembrace Symtouch | $1,727 | $3,574 | | Tosymra | $481 | $1,116 | | Total product revenues | $2,208 | $4,690 | - Gross-to-net sales accruals were $4.3 million at June 30, 2024, with $0.6 million reducing accounts receivable and $3.7 million in accrued expenses[103] NOTE 10 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH On June 30, 2023, Tonix acquired Zembrace SymTouch and Tosymra products from Upsher Smith for approximately $26.5 million, including inventory, intangible assets, and goodwill, and assumed royalty payment obligations on net sales - Acquired Zembrace SymTouch and Tosymra from Upsher Smith on June 30, 2023, for approximately $26.5 million[104][109] - Purchase price allocation included $13.7 million for inventory, $1.8 million for prepaid expenses, $10.1 million for intangible assets (developed technology), and $965,000 for goodwill[111] - Assumed royalty obligations on net sales: Tosymra (4-15% based on sales tiers, until patent expiration) and Zembrace (3-16% based on sales tiers, until July 19, 2025)[106][107] - An additional 3% royalty on Tosymra net sales, plus another 3% if a related patent issues, and up to $15 million in sales milestones for Tosymra[109] NOTE 11 – ASSET PURCHASE AGREEMENT WITH HEALION On February 2, 2023, Tonix acquired Healion Bio Inc.'s pre-clinical infectious disease assets, including TNX-3900, for $1.2 million, which was expensed as R&D costs due to its pre-clinical stage - Acquired Healion Bio Inc.'s pre-clinical infectious disease assets, including TNX-3900, for $1.2 million on February 2, 2023[115] - The $1.2 million cash consideration was expensed as R&D costs due to the pre-clinical stage and lack of alternative future use[115] NOTE 12 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY On February 13, 2023, Tonix licensed a portfolio of mAbs for SARS-CoV-2 infection (TNX-3600 and TNX-4100) from Columbia University, with no payments beyond the upfront fee accrued or paid as of June 30, 2024 - Obtained an exclusive license from Columbia University for mAbs for SARS-CoV-2 infection (TNX-3600 and TNX-4100) on February 13, 2023[116] - No payments beyond the upfront fee have been accrued or paid as of June 30, 2024[116] NOTE 13 – SALE AND PURCHASE OF COMMON STOCK The company conducted several equity financings in 2023 and 2024, generating net proceeds from common stock and warrants, with warrant reclassifications occurring due to stockholder approvals - June 2024 financings: Two offerings generated approximately $3.5 million net proceeds each, involving common stock and pre-funded warrants[118][119] - March 2024 financing: Generated approximately $3.9 million net proceeds, including common stock, pre-funded warrants, and Series E warrants[120] - Warrant Amendments on April 1, 2024, adjusted exercise prices of existing warrants to $10.56 upon stockholder approval, leading to reclassification from equity to liabilities, then back to equity after approval on May 22, 2024[121][122][123] - December 2023 financing: Generated $30.0 million gross proceeds, involving common stock, pre-funded warrants, Series C and D warrants; certain warrants were initially classified as liabilities due to insufficient authorized shares, then reclassified to equity after stockholder approval on January 25, 2024[124][126][129] - September 2023 financing: Generated approximately $4.0 million net proceeds[130] - July 2023 financing: Generated approximately $6.3 million net proceeds[131] - No shares were sold under the 2022 Lincoln Park Purchase Agreement or the 2020 ATM in 2024[135][136] - The company repurchased common stock under its 2022 and 2023 share repurchase programs in Q1 2023, totaling $13.6 million[137] NOTE 14 – STOCK-BASED COMPENSATION Stock-based compensation expense for the six months ended June 30, 2024, was $2.8 million, a decrease from the prior year, with $5.5 million in unrecognized compensation cost remaining as of June 30, 2024 Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $1,100 | $2,400 | $2,800 | $5,200 | - Unrecognized compensation cost of $5.5 million as of June 30, 2024, to be recognized over a weighted average period of 1.87 years[147] - Weighted average fair value of options granted decreased from $87.36 (3 months 2023) to $5.06 (3 months 2024) and from $128.32 (6 months 2023) to $10.16 (6 months 2024)[142] - The 2023 ESPP allows eligible employees to purchase common stock at 85% of fair market value, with $27,000 expensed for the six months ended June 30, 2024[149][150] NOTE 15 – WARRANTS TO PURCHASE COMMON STOCK As of June 30, 2024, the company had 10,535,363 outstanding warrants, with 3,383,792 prefunded common warrants exercised during the six months ended June 30, 2024, and an additional 4,228,158 exercised subsequently Warrants to Purchase Common Stock | Exercise Price | Number Outstanding (Jun 30, 2024) | Expiration Date | | :------------- | :-------------------------------- | :-------------- | | $0.001 | 4,228,158 | N/A | | $10.56 | 458,334 | April 2029 | | $10.56 | 278,125 | April 2029 | | $10.56 | 278,125 | April 2025 | | $10.56 | 217,188 | April 2029 | | $10.56 | 1,088,263 | April 2026 | | $10.56 | 1,088,263 | April 2029 | | $16.00 | 3,131 | October 2024 | | $16.00 | 3,131 | October 2028 | | $17.76 | 1,445,526 | December 2025 | | $27.20 | 1,445,526 | December 2028 | | $32.00 | 1,569 | August 2028 | | $3,200.00 | 4 | November 2024 | | $3,648.00 | 20 | February 2025 | | Total | 10,535,363 | | - 3,383,792 prefunded common warrants were exercised during the six months ended June 30, 2024[152] - Subsequent to June 30, 2024, an additional 4,228,158 prefunded warrants were exercised[152] NOTE 16 – LEASES The company has operating lease agreements, primarily for office space, with ROU assets and total lease liabilities of $0.7 million at June 30, 2024, and operating lease expense of $0.2 million for the six months ended June 30, 2024 - Operating lease ROU assets and total lease liabilities were $0.7 million at June 30, 2024[155] - Operating lease expense for the six months ended June 30, 2024, was $0.2 million, down from $0.3 million in 2023[156] Future Minimum Lease Payments (in thousands) | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | Remainder of 2024 | $153 | | 2025 | $299 | | 2026 | $142 | | 2027 | $139 | | 2028 and beyond | $108 | | Total | $841 | | Included interest | $(71) | | Present Value of Lease Liabilities | $770 | NOTE 17 – COMMITMENTS As of June 30, 2024, the company had outstanding commitments of approximately $16.9 million for future R&D work and contributed $0.5 million to its 401(k) plan for the six months ended June 30, 2024 - Outstanding commitments for R&D contracts totaled approximately $16.9 million at June 30, 2024[158] - 401(k) plan contributions were $0.5 million for the six months ended June 30, 2024, consistent with the prior year[158] NOTE 18 – SUBSEQUENT EVENTS Subsequent to June 30, 2024, the company completed a July 2024 equity financing, initiated a new ATM offering, and received a Nasdaq notice regarding non-compliance with the minimum bid price requirement - July 2024 equity financing closed on July 10, 2024, generating approximately $3.5 million in net proceeds from common stock and pre-funded warrants[159][200] - A new ATM offering for up to $50.0 million was entered into on July 30, 2024; $0.4 million net proceeds from 0.8 million shares sold subsequent to June 30, 2024[160][199] - Received a Nasdaq notice on August 9, 2024, for non-compliance with the $1 minimum bid price requirement, with a 180-day period to regain compliance[161][263] 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 performance, liquidity, and capital resources, including a business overview, results of operations, and critical accounting policies Business Overview Tonix Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing therapeutics for CNS disorders, immunology, rare diseases, and infectious diseases, with a key NDA submission for TNX-102 SL expected in H2 2024 - Tonix is a fully-integrated biopharmaceutical company focused on CNS disorders, immunology, rare disease, and infectious disease[165] - Priority is NDA submission for TNX-102 SL for fibromyalgia in H2 2024, with an FDA decision expected in 2025[165] - Other key programs include TNX-1300 (cocaine intoxication, FDA Breakthrough Therapy), TNX-1500 (organ transplant rejection), TNX-4200 (broad-spectrum antiviral, DoD funded), and TNX-801 (mpox prevention)[165] - Commercial products are Zembrace® SymTouch® and Tosymra® for acute migraine[165] Results of Operations The company's operating results are expected to fluctuate due to product sales, R&D progress, and regulatory outcomes, with significant asset impairment charges impacting recent periods Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 Net product revenue was $2.2 million in Q2 2024, but a $59.0 million asset impairment charge led to a 177% increase in net loss to $78.8 million, despite a 56% decrease in R&D expenses Operating Results (in thousands) | Metric (in thousands) | 3 Months Ended Jun 30, 2024 | 3 Months Ended Jun 30, 2023 | Change (in thousands) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Product revenue, net | $2,208 | $— | $2,208 | N/A | | Cost of sales | $3,367 | $— | $3,367 | N/A | | Research and development | $9,698 | $21,976 | $(12,278) | (56)% | | General and administrative | $7,502 | $7,026 | $476 | 7% | | Asset impairment charges | $58,957 | $— | $58,957 | N/A | | Operating loss | $(77,316) | $(29,002) | $(48,314) | 167% | | Net loss | $(78,776) | $(28,356) | $(50,420) | 177% | - R&D decrease driven by reduced clinical, non-clinical, and manufacturing expenses, employee-related costs, and lab supplies due to pipeline prioritization[171] - Asset impairment charges include $48.8 million for property and equipment (ADC), $1.0 million for goodwill, and $9.2 million for intangible assets (Zembrace and Tosymra)[175] Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 Net product revenue was $4.7 million in H1 2024, but a $59.0 million asset impairment charge led to a 53% increase in net loss to $93.7 million, despite a 53% decrease in R&D expenses Operating Results (in thousands) | Metric (in thousands) | 6 Months Ended Jun 30, 2024 | 6 Months Ended Jun 30, 2023 | Change (in thousands) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Product revenue, net | $4,690 | $— | $4,690 | N/A | | Cost of sales | $5,027 | $— | $5,027 | N/A | | Research and development | $22,561 | $48,487 | $(25,926) | (53)% | | General and administrative | $16,812 | $14,417 | $2,395 | 17% | | Asset impairment charges | $58,957 | $— | $58,957 | N/A | | Operating loss | $(98,667) | $(62,904) | $(35,763) | 57% | | Net loss | $(93,715) | $(61,361) | $(32,354) | 53% | - R&D decrease driven by reduced clinical, non-clinical, and manufacturing expenses, employee-related costs, and lab supplies due to pipeline prioritization[180] - G&A increase due to higher financial reporting expenses ($1.0 million), sales and marketing ($0.8 million), and transition services agreement fees ($0.7 million)[182] License Agreements On February 13, 2023, Tonix obtained an exclusive license from Columbia University for mAbs for SARS-CoV-2 infection (TNX-3600 and TNX-4100), with no payments beyond the upfront fee accrued or paid as of June 30, 2024 - Exclusive license from Columbia University for SARS-CoV-2 mAbs (TNX-3600, TNX-4100) obtained on February 13, 2023[184] - No payments beyond the upfront fee have been accrued or paid as of June 30, 2024[184] Asset Purchase Agreements On June 30, 2023, Tonix acquired Zembrace and Tosymra from Upsher Smith for approximately $26.5 million, assuming royalty obligations, and on February 2, 2023, acquired Healion Bio Inc.'s pre-clinical infectious disease assets for $1.2 million, expensed as R&D costs - Acquired Zembrace and Tosymra from Upsher Smith for approximately $26.5 million on June 30, 2023, including inventory, intangible assets, and goodwill[185][187] - Assumed royalty payments on net sales for Tosymra (4-15%) and Zembrace (3-16%), with reductions upon generic entry[188] - Acquired Healion Bio Inc.'s pre-clinical infectious disease assets for $1.2 million on February 2, 2023, expensed as R&D costs[189] Liquidity and Capital Resources As of June 30, 2024, the company had limited working capital and cash, with current resources insufficient for the next year, raising substantial doubt about its ability to continue as a going concern without additional funding - Working capital of $3.2 million and cash and cash equivalents of $4.2 million as of June 30, 2024[191] - Net cash used in operating activities decreased from $56.3 million (H1 2023) to $27.5 million (H1 2024)[192] - Net cash provided by financing activities was $6.8 million (H1 2024), compared to $10.5 million used (H1 2023)[192] - Current cash resources and recent equity offering proceeds are expected to meet operating and capital expenditure requirements only into Q3 2024, raising substantial doubt about going concern[193][194] Future Liquidity Requirements The company expects to incur losses and will need additional capital to fund future R&D and capital expenditures, potentially through equity, debt, or collaborative arrangements, which may lead to dilution or relinquishing product rights - Expects to incur losses and decrease operating costs, but will not have enough resources for the one-year period from the report filing date[195] - Additional capital is needed for R&D and capital expenditures, potentially through equity, debt, or collaborative arrangements, which may lead to dilution or relinquishing product rights[197][198] 2024 At-the-Market Offering A new At-the-Market (ATM) offering for up to $50.0 million was initiated on July 30, 2024, from which $0.4 million net proceeds have been generated from 0.8 million shares sold subsequent to June 30, 2024 - New ATM offering for up to $50.0 million initiated on July 30, 2024; $0.4 million net proceeds from 0.8 million shares sold subsequent to June 30, 2024[199] July 2024 Financing A July 2024 equity financing closed on July 10, 2024, generating approximately $3.5 million in net proceeds from common stock and pre-funded warrants - Closed on July 10, 2024, generating approximately $3.5 million net proceeds from common stock and pre-funded warrants[200] June 2024 Financings Two equity offerings closed in June 2024, each generating approximately $3.5 million in net proceeds from common stock and pre-funded warrants - Two offerings closed in June 2024, each generating approximately $3.5 million net proceeds from common stock and pre-funded warrants[201][202] March 2024 Financing A March 2024 financing closed on April 1, 2024, generating approximately $3.9 million net proceeds, with warrant amendments in April 2024 leading to reclassification from equity to liabilities, then back to equity after stockholder approval - Closed on April 1, 2024, generating approximately $3.9 million net proceeds from common stock, pre-funded warrants, and Series E warrants[203][205] - Warrant amendments in April 2024, contingent on stockholder approval, led to reclassification of existing warrants from equity to liabilities, then back to equity after approval on May 22, 2024[206] December 2023 Financing A December 2023 financing closed on December 22, 2023, generating $30.0 million gross proceeds, with certain Series C and D warrants initially classified as liabilities then reclassified to equity after stockholder approval - Closed on December 22, 2023, generating $30.0 million gross proceeds from common stock, pre-funded warrants, Series C and D warrants[207] - Certain Series C and D warrants were initially classified as liabilities due to insufficient authorized shares, then reclassified to equity after stockholder approval on January 25, 2024[209][212] September 2023 Financing A September 2023 financing closed on October 3, 2023, generating approximately $4.0 million net proceeds - Closed on October 3, 2023, generating approximately $4.0 million net proceeds[213] July 2023 Financing A July 2023 financing closed on August 1, 2023, generating approximately $6.3 million net proceeds - Closed on August 1, 2023, generating approximately $6.3 million net proceeds[214] 2022 Lincoln Park Transaction No shares were sold under the 2022 Lincoln Park Purchase Agreement in 2024; $0.4 million net proceeds were generated from 3,000 shares sold in H1 2023 - No shares sold under this agreement in 2024; $0.4 million net proceeds from 3,000 shares sold in H1 2023[217] At-the-Market Offerings No sales were made under the 2020 At-the-Market (ATM) offering in 2024; $3.0 million net proceeds were generated from 29,855 shares sold in H1 2023 - No sales under the 2020 ATM in 2024; $3.0 million net proceeds from 29,855 shares sold in H1 2023[218] Share Repurchase Program In Q1 2023, the company repurchased 78,502 shares for $12.5 million under its 2022 share repurchase program and 5,000 shares for $1.1 million under its new 2023 program - Repurchased 78,502 shares for $12.5 million under 2022 program and 5,000 shares for $1.1 million under 2023 program in Q1 2023[219] Debt Financing An $11.0 million Term Loan was initiated in December 2023, maturing December 2026, with a 12% interest rate and monthly principal payments, secured by the company's R&D centers - $11.0 million Term Loan initiated December 2023, maturing December 2026, with 12% interest rate and monthly principal payments; secured by R&D centers[220][222][223] Stock Compensation Stock-based compensation expense for H1 2024 was $2.8 million, down from $5.2 million in H1 2023, with $5.5 million in unrecognized compensation cost remaining as of June 30, 2024 - Stock-based compensation expense for H1 2024 was $2.8 million, down from $5.2 million in H1 2023[230] - Unrecognized compensation cost of $5.5 million as of June 30, 2024, to be recognized over 1.87 years[230] Employee Stock Purchase Plans $27,000 was expensed for the Employee Stock Purchase Plan (ESPP) in H1 2024 - $27,000 expensed for ESPP in H1 2024[233] Commitments As of June 30, 2024, the company had $16.9 million in outstanding R&D contract commitments and future minimum operating lease payments totaling $770,000 (present value) through 2028 and beyond - $16.9 million in outstanding R&D contract commitments at June 30, 2024[234] - Future minimum operating lease payments total $770,000 (present value) through 2028 and beyond[236] Critical Accounting Policies and Estimates Key accounting policies involve significant judgments and estimates for business combinations, asset impairment, revenue recognition, R&D costs, stock-based compensation, deferred financing costs, original issue discount, and derivative instruments, with ongoing assessment of new accounting standards - Business combinations are accounted for using the acquisition method, allocating purchase price to fair values of acquired assets and liabilities, with any excess recorded as goodwill[238] - Long-lived assets, intangibles, and goodwill are tested for impairment when circumstances indicate carrying value may not be recoverable, based on undiscounted future cash flows or fair value[239] - Full impairment of $965,000 goodwill and $9.2 million intangible assets (Zembrace and Tosymra developed technology) recorded in H1 2024[240] - $48.8 million non-cash impairment charge for ADC property and equipment recorded in H1 2024[242] - Revenue recognition involves estimates for gross-to-net deductions (chargebacks, rebates, discounts, returns), which are subject to material adjustment[243] - R&D costs are expensed as incurred, including acquired intellectual property without alternative future use; accruals for clinical trials are based on progress and services completed[244][245] - Derivative instruments and warrant liabilities are initially and subsequently recorded at fair value, with changes reported in operations; classification depends on sufficient authorized shares[249][250] - The company is assessing the impact of new FASB ASUs on segment reporting (2023-07) and income tax disclosures (2023-09), and new SEC climate-related disclosure rules[251][253][254] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The company states that this item is not applicable - Not applicable[255] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness involving inadequate supervision and review controls over complex and non-routine transactions - Disclosure controls and procedures were not effective as of June 30, 2024, due to a material weakness[257] - Material weakness identified in internal control over financial reporting related to inadequate supervision and review controls for complex and non-routine transactions (non-cash impairment of intangibles, non-cash equity transactions, inventory recoverability)[259] - This led to errors in asset impairment calculations and warrant revaluation adjustments[259] - No changes in internal control over financial reporting occurred during Q2 2024 that materially affected or are reasonably likely to materially affect internal control over financial reporting[260] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings or claims - No material legal proceedings or claims[261] Item 1A. Risk Factors The company faces significant risks, including potential Nasdaq delisting due to minimum bid price non-compliance and substantial doubt about its ability to continue as a going concern without additional funding, which could lead to liquidation - Received Nasdaq notice on August 9, 2024, for non-compliance with the $1 minimum bid price requirement, facing potential delisting[263] - Delisting could harm stock liquidity, marketability, and ability to raise capital on favorable terms[263] - Limited capital resources and significant commitments raise substantial doubt about the company's ability to continue as a going concern, potentially leading to liquidation if additional funding is not secured[264][265] - Inability to pay indebtedness could lead to default and acceleration of obligations[265] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None reported - None[266] Item 3. Defaults Upon Senior Securities None reported - None[266] Item 4. Mine Safety Disclosures None reported - None[266] Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements adopted, modified, or terminated by directors and officers in Q2 2024[266] Item 6. Exhibits This section lists various exhibits filed with the report, including articles of incorporation, bylaws, common stock certificates, warrant forms, placement agency agreements, sales agreements, and certifications - Includes organizational documents (Articles of Incorporation, Bylaws), specimen common stock certificates, forms of pre-funded warrants, placement agency agreements, warrant agent agreements, sales agreements, and certifications (CEO/CFO)[268][269][270][271][272][273][274][275]