First Wave BioPharma(FWBI) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis for the period ended September 30, 2019 Consolidated Financial Statements This section provides the unaudited consolidated financial statements for AzurRx BioPharma, Inc. for the quarterly period ended September 30, 2019, along with detailed notes Consolidated Balance Sheets As of September 30, 2019, the company's total assets increased to $9.44 million from $7.47 million at year-end 2018, primarily due to an increase in patents, while total liabilities rose significantly to $6.23 million from $3.00 million, driven by new convertible debt and other liabilities related to the Mayoly asset purchase, consequently decreasing total stockholders' equity to $3.20 million from $4.47 million Consolidated Balance Sheet Highlights (unaudited, in US$) | | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $9,435,723 | $7,469,395 | | Total Current Assets | $3,729,814 | $4,800,001 | | Patents, net | $3,538,971 | - | | Total Liabilities | $6,233,949 | $2,995,523 | | Total Current Liabilities | $5,819,486 | $2,995,523 | | Convertible debt | $1,947,073 | - | | Total Stockholders' Equity | $3,201,774 | $4,473,872 | | Accumulated deficit | $(61,413,109) | $(47,517,046) | Consolidated Statements of Operations and Comprehensive Loss For the three and nine months ended September 30, 2019, the company reported significantly higher net losses compared to the same periods in 2018, driven by increased research and development and general and administrative expenses Consolidated Statements of Operations Highlights (unaudited, in thousands) | | Three Months Ended Sep 30 | Nine Months Ended Sep 30 | | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Research and development expenses | $2,210 | $1,169 | $7,067 | $3,773 | | General and administrative expenses | $1,872 | $1,317 | $6,551 | $5,401 | | Loss from operations | $(4,082) | $(2,566) | $(13,618) | $(9,413) | | Net loss | $(4,192) | $(2,572) | $(13,896) | $(9,514) | | Loss per share - basic and diluted | $(0.17) | $(0.15) | $(0.66) | $(0.64) | Consolidated Statements of Changes in Stockholders' Equity For the nine months ended September 30, 2019, stockholders' equity decreased from $4.47 million to $3.20 million, primarily due to a net loss of $13.90 million, partially offset by capital raised from public offerings and stock issued for patents and to consultants - Key changes in stockholders' equity for the nine months ended September 30, 2019 include - Common stock issued from public offerings: $9,492,017 - Common stock issued to Mayoly for patents: $1,740,959 - Net loss: $(13,896,063)[18] Consolidated Statements of Cash Flows For the nine months ended September 30, 2019, net cash used in operating activities was $10.81 million, while net cash provided by financing activities was $11.30 million, primarily from public offerings and convertible debt, resulting in a net increase in cash of $0.47 million and an ending cash balance of $1.55 million Consolidated Cash Flow Highlights (unaudited, for the nine months ended Sep 30, in US$) | | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,807,517) | $(7,528,636) | | Net cash used in investing activities | $(17,243) | $(48,359) | | Net cash provided by financing activities | $11,298,574 | $11,457,096 | | Increase in cash | $473,814 | $3,880,101 | | Cash, ending balance | $1,549,825 | $4,427,640 | Notes to Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, significant transactions, and financial results, including subsequent events - The company is engaged in the research and development of non-systemic biologics for gastrointestinal disorders, with a product pipeline including MS1819-SD for exocrine pancreatic insufficiency (EPI) and a b-Lactamase program[22] - On March 27, 2019, the company acquired all rights to MS1819-SD from Mayoly through an Asset Purchase Agreement, involving payments in cash and stock[30] - The company raised approximately $9.55 million in net proceeds from three separate public offerings in April, May, and July 2019[33][35][37] - The company experienced a cyber-related fraud in August 2019, resulting in a loss of $367,908, which was recorded in G&A expenses[41] - The financial statements were prepared under the assumption of the company continuing as a going concern, but significant operating losses, negative working capital, and reliance on additional funding raise substantial doubt about this ability[44] - Subsequent to the reporting period, the company received a notice from Nasdaq for non-compliance with the minimum bid price requirement and entered into a $15 million equity purchase agreement with Lincoln Park Capital[144][148] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and liquidity, highlighting clinical program updates, significant losses, and capital resource needs Overview and Clinical Development The company focuses on developing non-systemic biologics for gastrointestinal disorders, with its lead candidate MS1819-SD showing positive Phase 2 results for EPI in cystic fibrosis patients, leading to plans for further trials and the initiation of a Phase 2 Combination Trial - Positive results from the Phase 2 OPTION Study for MS1819-SD were announced on September 25, 2019, with the primary efficacy endpoint (CFA) comparable to a prior study, and the company plans to discuss a higher-dose Phase 2b or Phase 3 trial with the FDA[156] - A Phase 2 Combination Trial was launched in July 2019 to investigate MS1819-SD in combination with PERT for CF patients with severe EPI, with the first patients dosed on October 15, 2019, and study completion anticipated in 2020[158][159] - The Cystic Fibrosis Foundation Data Safety Monitoring Board found no safety concerns for MS1819-SD and supported proceeding to a higher 4-gram dose in the next clinical trial[157] Liquidity and Capital Resources The company's history of net losses and negative cash flows, with an accumulated deficit of $61.4 million and cash of $1.55 million as of September 30, 2019, raises substantial doubt about its ability to continue as a going concern, necessitating additional financing beyond current cash reserves - As of September 30, 2019, the company had cash of approximately $1,550,000 and an accumulated deficit of $61,413,000[162] - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern due to significant operating losses and dependence on obtaining additional funding[162] - The company completed three public offerings in April, May, and July 2019, raising total net proceeds of approximately $4.5 million (July), $2.55 million (May), and $2.5 million (April)[166][168][170] Results of Operations Comparing the three and nine months ended September 30, 2019, to the same periods in 2018, both R&D and G&A expenses increased significantly, leading to a widened net loss for both periods Comparison of Operating Expenses (in thousands) | Expense | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | R&D Expense | $2,210 | $1,169 | $7,067 | $3,773 | | G&A Expense | $1,872 | $1,317 | $6,551 | $5,401 | - The increase in R&D expenses is primarily due to the startup of a U.S. R&D function and costs associated with the OPTION study[180] - The increase in G&A expenses for Q3 2019 was driven by a $367,908 fraud loss and a $251,919 increase in investor relations costs[181] Net Loss Comparison (in thousands) | | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(4,192) | $(2,572) | $(13,896) | $(9,514) | Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable - Not applicable[186] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with a revision made to internal controls over financial reporting following a cyber-fraud incident - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[187] - A revision was made to internal controls over financial reporting after a cyber-related fraud in August 2019, specifically to add procedures for verifying changes to vendor payment instructions[188] PART II. OTHER INFORMATION This section presents additional required information, including legal proceedings, risk factors, and exhibits Legal Proceedings The company reports that there are no legal proceedings - None[190] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[191] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds during the period - None[192] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[193] Mine Safety Disclosures This section is not applicable to the company - Not applicable[194] Other Information The company reports no other information - None[195] Exhibits This section lists the exhibits filed with the quarterly report, including required certifications and XBRL data files - Exhibits filed include CEO and CFO certifications (302 and 906) and XBRL Interactive Data Files[196]