First Wave BioPharma(FWBI) - 2019 Q4 - Annual Report

FORM 10-K Filing Information Provides essential registration details, filing status, and market valuation of AzurRx BioPharma, Inc Registrant Information AzurRx BioPharma, Inc. was incorporated in Delaware on January 30, 2014, with headquarters in Brooklyn, New York, and is listed on NASDAQ under the ticker AZRX - Company Name: AZURRX BIOPHARMA, INC[2] - Place of Incorporation: Delaware[2] - Date of Incorporation: January 30, 2014[18] - Stock Symbol: NASDAQ: AZRX[2] Filing Status and Market Value The company is classified as a non-accelerated filer, a smaller reporting company, and an emerging growth company, with a total market value of common stock held by non-affiliates of approximately $31.4 million as of June 30, 2019, and 27,131,456 shares of common stock outstanding as of March 30, 2020 Filing Status | Indicator | Status | | :--- | :--- | | Known seasoned issuer | No | | Non-accelerated filer | Yes | | Smaller reporting company | Yes | | Emerging growth company | Yes | - As of June 30, 2019, the aggregate market value of common stock held by non-affiliates was approximately $31.4 million[6] - As of March 30, 2020, there were 27,131,456 shares of common stock outstanding[7] TABLE OF CONTENTS Presents a comprehensive index of all sections and their corresponding page numbers within this annual report CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This annual report contains numerous forward-looking statements involving significant risks and uncertainties that could cause actual results to differ materially from expectations; investors should not place undue reliance on these statements, and the company undertakes no obligation to update them unless legally required - Forward-looking statements involve company strategy, future operations, financial condition, revenue, costs, prospects, plans, management objectives, and market growth, which may differ materially from actual results due to known and unknown risks, uncertainties, and other important factors[13][14] - Key risk factors include capital availability, accuracy of expense and revenue estimates, development and commercialization plans for product candidates, initiation and completion of clinical trials, regulatory approvals, performance of third-party collaborators, intellectual property protection, market size and acceptance, competitive products, and loss of key personnel[15] PART I Covers the company's business operations, product development, recent corporate events, and associated risk factors ITEM 1. DESCRIPTION OF BUSINESS AzurRx BioPharma, Inc. focuses on developing non-systemic biologics for gastrointestinal diseases, with its lead product candidate MS1819 for exocrine pancreatic insufficiency (EPI) associated with cystic fibrosis (CF) and chronic pancreatitis (CP); the company has completed Phase 2a and Phase 2 clinical trials for MS1819 and plans higher-dose Phase 2 OPTION 2 and combination therapy trials, while also addressing recent developments including COVID-19 impacts, NASDAQ compliance, equity financing, convertible note issuance, and termination of the TransChem Sublicense agreement - The company primarily engages in the research and development of non-systemic biologics for gastrointestinal diseases[19] - The core product MS1819 is a yeast-derived recombinant lipase for treating CF and CP-related EPI[20] - The company has no approved products or revenue from product sales to date[28] Overview AzurRx BioPharma, Inc. was incorporated in Delaware on January 30, 2014, and expanded its European operations through the acquisition of AzurRx SAS, focusing on the development of non-systemic biologics for gastrointestinal diseases, with MS1819 as its lead product candidate - AzurRx BioPharma, Inc. was incorporated in Delaware on January 30, 2014, and acquired AzurRx SAS (formerly ProteaBio Europe SAS) in June 2014[18] - The company is dedicated to the research and development of non-systemic biologics for gastrointestinal diseases[19] - The lead product candidate is MS1819[20] MS1819 Product Development MS1819 is the company's leading drug for exocrine pancreatic insufficiency (EPI) associated with cystic fibrosis (CF) and chronic pancreatitis (CP); completed Phase 2a CP studies showed good safety and efficacy with a significant increase in coefficient of fat absorption (CFA) in the highest dose group, and Phase 2 CF monotherapy (OPTION Cross-Over Study) also yielded positive results, with CFA comparable to standard porcine pancreatic enzyme replacement therapy (PERT) and nitrogen absorption coefficient (CNA) suggesting no need for protease supplementation, leading to plans for a higher-dose OPTION 2 trial and MS1819 in combination with PERT - MS1819 is a yeast-derived recombinant lipase, used to treat EPI associated with CF and CP[20] - In the Phase 2a CP study, the highest dose (2.2 grams/day) MS1819 increased CFA by an average of 21.8% (p=0.002), with a maximum absolute CFA response of up to 62%[21] - The OPTION Cross-Over Study showed MS1819 (2.2 grams/day) CFA comparable to previous Phase 2 study results in CP patients, with approximately 50% of patients achieving non-inferiority to standard PERT[23] - In the OPTION Cross-Over Study, CNA for MS1819 and PERT groups were 93% and 97%, respectively, suggesting MS1819 treatment may not require protease supplementation[23] - The CFF DSMB supports the company's initiation of the higher-dose (4.4 grams) MS1819 enteric-coated capsule OPTION 2 trial, expected to start in Q2 2020[24][25] - The company initiated a Phase 2 clinical trial in Hungary for MS1819 in combination with PERT, aiming to improve fat absorption and abdominal symptoms in CF patients with severe EPI[26][27] Recent Developments The company recently faced potential delays in clinical trials due to the COVID-19 pandemic, received a NASDAQ non-compliance notice for its stock price falling below $1, and is seeking to regain compliance; to address funding needs, the company entered into a $15 million equity financing agreement with LPC and completed a $6.904 million senior convertible note offering, while also terminating the TransChem Sublicense agreement for a Helicobacter pylori inhibitor - The COVID-19 pandemic may impact company operations and delay ongoing and planned clinical trials in Europe and the US[29] - The company received a NASDAQ notice on March 23, 2020, regarding non-compliance with continued listing requirements due to its stock price falling below $1, requiring compliance within 180 days (by September 21, 2020)[30][32] - The company entered into an equity financing agreement with LPC for up to $15 million and has issued 487,168 shares of common stock as a commitment fee[33] - Company shareholders approved an increase in authorized common stock to 150 million shares and authorized the board to effect a reverse stock split between 1:2 and 1:5[35][36] - The company issued senior convertible notes and warrants totaling $6.904 million, with notes bearing 9% annual interest and convertible into common stock at $0.97 per share[37][38] - The company notified TransChem on March 11, 2020, of the termination of the Sublicense agreement for a Helicobacter pylori inhibitor[40] Corporate History The company acquired 100% equity of AzurRx SAS and the rights to MS1819 in 2014 through a stock purchase agreement with Protea Biosciences Group, Inc., and further purchased all rights to milestone payments, royalties, and transaction value consideration from Protea Group in 2018 - On May 21, 2014, the company entered into a stock purchase agreement with Protea Biosciences Group, Inc. to acquire 100% equity of AzurRx SAS (formerly ProteaBio Europe SAS)[41] - On December 14, 2018, the company purchased all rights to future milestone payments, royalties, and transaction value consideration from Protea Group for a total of $1.55 million[41][66] Product Programs The company's current product pipeline includes the clinical-stage MS1819 and the preclinical-stage beta-lactamase project; MS1819, a yeast-derived recombinant lipase, treats exocrine pancreatic insufficiency caused by chronic pancreatitis and cystic fibrosis, showing good safety and efficacy in preclinical and Phase 2 clinical trials, while the beta-lactamase project focuses on preventing hospital-acquired infections and antibiotic-associated diarrhea - The company's product pipeline includes one clinical-stage project (MS1819) and one preclinical-stage project (beta-lactamase)[42] - MS1819 is an acid-stable secreted lipase derived from Yarrowia lipolytica, developed using recombinant DNA technology, for treating CP and CF-related EPI[43] - EPI is primarily caused by pancreatic lipase deficiency, leading to weight loss, steatorrhea, and fat-soluble vitamin deficiencies[45] - CP is the most common cause of EPI, with approximately 80,000 patients in the US requiring replacement therapy; CF is another major cause of EPI, with approximately 25,000-27,000 patients in the US requiring replacement therapy[46][47] - Existing EPI treatments primarily rely on porcine pancreatic enzyme replacement therapies (PERTs), with the US market sales reaching $1.2 billion in 2018, but they suffer from poor stability, animal-derived infection risks, and limited efficacy at high doses[48] - MS1819 preclinical studies in minipig models showed doses of 10.5 mg and above increased CFA by 25% to 29%, similar to PERTs, with no toxicity at doses up to 1000 mg/kg[51][52] - MS1819 Phase 2a CP clinical trials (France, Australia, New Zealand) showed the highest dose (2240 mg/day) significantly improved CFA by 21.8% (p=0.002)[55] - MS1819 Phase 2 OPTION Cross-Over Study (CF patients) showed CFA at 2.2 grams/day comparable to CP patient study results, with approximately 50% of patients achieving non-inferiority to PERT, and CNA close to the PERT group (93% vs 97%)[57] - The company initiated a Phase 2 clinical trial in Hungary for MS1819 in combination with PERT, aiming to treat CF patients with severe EPI, expected to complete by end of 2020 (potentially delayed due to COVID-19)[58][59] - The beta-lactamase project is in preclinical development, aiming to prevent hospital-acquired infections and antibiotic-associated diarrhea, with its further development plan currently under evaluation[61] Agreements and Collaborations The company secured exclusive global rights to MS1819 through a series of agreements and collaborations, including asset acquisition and license agreements with Protea and Mayoly, which involve equity payments, milestone payments, royalties, and patent maintenance responsibilities; additionally, the company previously had a Sublicense agreement with TransChem, which was terminated in March 2020 - In 2014, the company acquired ProteaBio Europe through Protea SPA, committing to milestone and royalty payments[62][63] - In 2018, the company purchased all rights to future milestones and royalties from Protea for $1.55 million ($250,000 cash, $1.3 million common stock)[64][66] - On March 27, 2019, the company entered into the Mayoly APA, acquiring all remaining rights to MS1819, assuming certain Mayoly liabilities and patent maintenance costs, and paying €800,000 (via common stock issuance) and future €1.5 million (cash + common stock) in milestone payments[69][71] - The company granted Mayoly exclusive, royalty-bearing rights to commercialize MS1819 in France and Russia, and holds exclusive rights to MS1819 in all other global regions[69] - The INRA agreement (2006) granted Mayoly exclusive global rights to develop Yarrowia lipolytica-based lipase for human therapy, which was later transferred to the company in 2019[73][75] - In 2017, the company entered into a Sublicense agreement with TransChem for exclusive license to Helicobacter pylori inhibitor-related patents, but issued a termination notice on March 11, 2020[76][77] Intellectual Property The company protects its product candidates and proprietary technology through patents and trade secrets; the MS1819 project is covered by multiple granted patents, including yeast transformation methods, LIP2 enzyme sequences, and production processes, some of which expired in 2019 and 2020, while others are valid until 2026-2028; the beta-lactamase project has an international patent application filed in 2015, expected to be valid until 2035 - The company protects its product candidates, formulations, processes, methods, and other proprietary technologies through patent protection and trade secrets[79][80] - The MS1819 project is protected by patent families including PCT/FR99/02079 (expired September 1, 2019), PCT/FR2000/001148 (expiring April 28, 2020), and PCT/FR2006/001352 (European patent until 2026, US patent until 2026-2028)[81] - The beta-lactamase project has an international patent application (PCT/FR2015/052756) filed on October 13, 2015, with expected patent protection until October 13, 2035[82] Manufacturing The active pharmaceutical ingredient (API) for MS1819 is produced through fermentation of a proprietary Yarrowia lipolytica strain, stored at Charles River facilities; the API is manufactured by Olon S.p.A. in Italy, and the drug product by Delpharm in France, with the company actively establishing alternative manufacturers and production sites, though this process may face challenges - MS1819 API is produced through fermentation of a proprietary Yarrowia lipolytica strain, stored at Charles River facilities[83] - MS1819 Drug Substance is manufactured by Olon S.p.A. in Italy, and Drug Product by Delpharm in France[83] - The company is establishing alternative manufacturers and production sites, but process replication and transfer involve uncertainties[83] Competition The biopharmaceutical industry is highly competitive, with the company facing competition from large pharmaceutical companies and specialized biotechnology firms; MS1819 will compete with existing porcine pancreatic enzyme replacement therapy (PERT) products like AbbVie's CREON® and Nestlé's ZENPEP®, with the company's success depending on its non-animal derived product advantages and ability to address PERT deficiencies - The company faces intense competition in the biotechnology and biopharmaceutical markets from large pharmaceutical companies, biotechnology companies, academic institutions, etc., which typically possess greater resources and experience[84] - MS1819 will compete with established PERT market products, primarily including CREON® (AbbVie), ZENPEP® (Nestlé), PANCREAZE® (VIVUS), and PERTZYE® (Chiesi Farmaceutici)[85] - The company's competitive ability depends on its non-animal derived product advantages, its ability to address PERT deficiencies (e.g., high pill burden), and its capacity to persuade patients, physicians, and payers to accept its products[85] Government Regulation and Product Approval The company's product development is subject to stringent regulation by the US FDA and other international authorities (e.g., EU), covering all stages from R&D, testing, manufacturing, approval, labeling, to marketing; the approval process is lengthy, costly, and uncertain, involving preclinical studies, IND applications, multi-phase clinical trials, NDA/BLA submission and review, and manufacturing facility inspections; the FDA offers accelerated approval programs like Fast Track and Breakthrough Therapy, as well as orphan drug and biosimilar exclusivities, with similar centralized approval procedures and orphan drug incentives in the EU; the company must also comply with healthcare laws, anti-corruption laws, and data privacy regulations - The company's product development is subject to extensive regulation by the US FDA and other countries (e.g., EU), covering R&D, testing, manufacturing, approval, labeling, and marketing stages[86][87] - The US drug approval process includes preclinical studies (GLP), IND application, IRB/Ethics Committee approval, multi-phase clinical trials (Phases I, II, III, IV), NDA/BLA submission, FDA advisory committee review, cGMP manufacturing facility inspection, and FDA approval[88][89][90][91][94][95][98][99] - The FDA offers Fast Track, Breakthrough Therapy, Accelerated Approval, Regenerative Medicine Advanced Therapy, and Priority Review programs to expedite the development and approval of new drugs for serious or life-threatening diseases[102][103][104][105][106] - Orphan drug designation can provide 7 years of market exclusivity for products treating rare diseases and waive NDA/BLA application fees[115][116] - The Biologics Price Competition and Innovation Act (BPCIA) provides an abbreviated approval pathway for biosimilars and 12 years of market exclusivity for reference biologics[118][120] - The Hatch-Waxman Amendments provide non-patent exclusivity for new drugs (5 years for NCEs, 3 years for product improvements under specific conditions)[123][127][128] - The company must also comply with federal and state healthcare anti-kickback, fraud and abuse, false claims, privacy, and Sunshine Act regulations[129][238][240][241][244] - EU drug approval is via centralized procedure (Community MA) or national procedure (National MA), with the centralized procedure mandatory for orphan drugs and new active substances, offering 10 years of market exclusivity[140][141][142][149] - EU Pediatric Use Marketing Authorization (PUMA) and Pediatric Investigation Plan (PIP) can provide an additional 2 years of market exclusivity for orphan drugs[145][146][151] - France's regulatory framework includes Clinical Trial Application (CTA) templates, General Data Protection Regulation (GDPR), and the "Bertrand Law" aimed at strengthening medical product safety and transparency[157][158][159][160] Employees As of December 31, 2019, the company had 10 full-time employees, with 4 working at AzurRx SAS in France and 6 at the US office - As of December 31, 2019, the company had 10 full-time employees[161] - Of these, 4 employees were at AzurRx SAS in France, and 6 employees were at the US office[161] Available Information As a public company, the company is required to file annual, quarterly, and current reports with the SEC, which are freely available on the SEC's website and the company's official website - The company is required to file 10-K, 10-Q, 8-K, and other reports with the SEC[162] - SEC filings are freely available at www.sec.gov and the company's website www.azurrx.com[162](index=162&type=chunk)[163] ITEM 1A. RISK FACTORS The company faces multiple risks, including limited operating history as a clinical-stage biopharmaceutical company, continuous losses and funding needs, uncertainties in early-stage product development, lengthy and costly regulatory approval processes, difficulties in clinical trial recruitment and uncertain outcomes, product adverse event risks, reliance on third-party manufacturers and CROs, intense market competition, intellectual property protection challenges, insufficient market acceptance, and product liability claims; additionally, the company faces operational disruption risks related to the COVID-19 pandemic, NASDAQ delisting risk, debt agreement restrictions, and loss of key personnel - As a clinical-stage biopharmaceutical company, the company has a limited operating history, has incurred continuous losses since inception, with accumulated deficit of approximately $62.7 million as of December 31, 2019, negative working capital of $877,000, and relies on external financing to sustain operations[165][167][266][267] - Product candidates are in early development stages, with uncertainties in successful development and commercialization, and the regulatory approval process is lengthy, costly, and unpredictable, potentially leading to delays or failure to obtain approval[169][170][187] - Clinical trials may be delayed, suspended, or terminated due to difficulties in patient enrollment, unreliability of early results, occurrence of unacceptable adverse events, or failure to comply with regulatory requirements[172][175][177][178][180][185] - The company relies on third-party manufacturers and CROs for product manufacturing and clinical trials, and any disruption or non-compliance could adversely affect the business[183][206][208] - The biotechnology and biopharmaceutical markets are highly competitive, and the company may not successfully compete, with intellectual property protection facing challenges, as patents may be challenged, invalidated, or circumvented[211][212][213] - Even if approved, products may not generate sufficient revenue due to insufficient market acceptance, and limitations on third-party payer coverage and reimbursement[197][198][217][236][237] - The company faces product liability claims risk, and existing insurance may be insufficient to cover potential losses[221][222] - The COVID-19 pandemic may cause clinical trial disruptions, delays, and increased funding needs[182][183] - The company received a NASDAQ non-compliance notice due to its stock price falling below $1, posing a delisting risk that could affect stock liquidity and financing capabilities[276][277] - The company's debt agreements contain restrictive covenants that may limit operational flexibility and pose a risk of default[268][272][273][274] - The company relies on key management and clinical development personnel, and loss of talent could hinder business plan implementation[230] - Disruptions to information technology systems or data security breaches could adversely affect business, operating results, and financial condition[251][252][254][256] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments in this report ITEM 2. PROPERTIES The company maintains administrative and clinical operations offices in Brooklyn, US, and Hayward, US, respectively, and a scientific R&D office in Languidic, France, all secured through lease agreements - The company's administrative office is located in Brooklyn, New York, with the lease renewed on a month-to-month basis[291] - The US clinical operations office is located in Hayward, California, with the lease expiring on May 31, 2020[291] - AzurRx SAS's scientific R&D office is located in Languidic, France, with the lease expiring in December 2020[291] ITEM 3. LEGAL PROCEEDINGS As of the report date, the company is not aware of any material existing or pending legal proceedings against it, nor is it involved as a plaintiff in any material litigation; no directors, officers, or affiliates have significant interests conflicting with the company's interests - As of the report date, the company has no material existing or pending legal proceedings[292] - No directors, officers, or affiliates have significant interests conflicting with the company's interests[292] ITEM 4. MINE SAFETY DISCLOSURES There is no mine safety disclosure information in this report PART II Details the company's common stock market, selected financial data, management's discussion and analysis, and internal controls ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's common stock is listed on the NASDAQ Capital Market under the symbol "AZRX"; as of March 27, 2020, there were 27,131,456 shares of common stock outstanding held by approximately 98 record holders; the company has authorized securities for issuance under equity incentive plans and made several unregistered equity security sales, including options and restricted stock units to executives, an equity purchase agreement with LPC, and convertible notes and warrants to investors - The company's common stock is listed on the NASDAQ Capital Market under the ticker symbol "AZRX"[295] - As of March 27, 2020, the company had 27,131,456 shares of common stock outstanding, held by approximately 98 record holders[296] Equity Incentive Plan Authorized Securities Information as of December 31, 2019 | Category of Plan | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders (1) | 1,677,500 | $2.30 | 1,274,819 | | Equity compensation plans not approved by security holders | - | - | - | | Total | 1,677,500 | $2.30 | 1,274,819 | - The company issued 300,000 stock options and 200,000 restricted stock units (RSUs) to the CEO[299] - The company entered into a common stock purchase agreement with LPC for up to $15 million and issued 487,168 commitment shares to LPC[300] - The company completed a private placement of senior convertible notes totaling $6.904 million (convertible into common stock at $0.97 per share) and warrants to purchase 3,558,795 shares of common stock (exercise price $1.07/share) to qualified investors, with net proceeds of approximately $6.2346 million[301] - The company issued common stock to external board members and consultants as payment for fees[302][304] ITEM 6. SELECTED FINANCIAL DATA As an "emerging growth company," the company is not required to provide this information - As an "emerging growth company," the company is not required to provide selected financial data[305] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section discusses the company's financial condition and results of operations for the years ended December 31, 2019, and 2018, highlighting key accounting policies, financial operations overview, cash flows, and consolidated results of operations; the company has incurred continuous losses, has negative working capital, and relies on external financing; R&D expenses significantly increased, while G&A expenses decreased; the company faces uncertainties regarding its ability to continue as a going concern and plans to support future R&D and commercialization activities through equity and/or debt financing - The company has incurred continuous losses since inception, with negative operating cash flow, cash and cash equivalents of approximately $175,800 as of December 31, 2019, negative working capital of $877,000, and accumulated deficit of approximately $62.7 million[327][341] - The company expects to continue incurring net losses and will require substantial additional funding to support R&D activities, clinical trials, regulatory approvals, and potential commercialization[269][327][339] - R&D expenses in 2019 were $8.6807 million, an increase of approximately 50% from $5.7714 million in 2018, primarily due to increased clinical trial costs[350][351] - G&A expenses in 2019 were $6.0631 million, a decrease of approximately 19% from $7.4504 million in 2018, primarily due to reduced non-cash expenses, but cash G&A expenses increased due to higher legal fees, cyber fraud loss, and public company-related costs[352][353] - Net loss in 2019 was $15.1777 million, an increase of $1.6441 million from $13.5336 million in 2018[355] - The company faces uncertainties regarding its ability to continue as a going concern, and management plans to obtain additional funding through equity and/or debt financing (including the LPC equity credit line)[327][328][339] Critical Accounting Policies and Estimates This section outlines the critical accounting policies and estimates used in preparing the company's financial statements, including equity compensation, debt and equity instruments, intangible assets, goodwill, and income taxes; these estimates impact the reported amounts of assets and liabilities and the recognition of revenues and expenses, and may lead to significant differences if actual results vary from assumptions - The company's financial statements are prepared in accordance with GAAP, involving estimates and assumptions for financial instruments, intangible assets, fair value of long-lived assets, contingent consideration, deferred taxes and valuation allowances, and useful lives of long-lived assets[307][308] - Equity compensation: Equity incentives for employees and board members are recognized at fair value on the grant date over the service period using the straight-line method, while non-employee incentives are remeasured upon performance completion or grant vesting[309] - Debt and equity instruments: Detachable warrants are measured at relative fair value or fair value as debt discount; conversion features in-the-money at commitment date constitute beneficial conversion features, measured at intrinsic value as debt discount or treated as a dividend[310][311] - Intangible assets: Include patents, in-process research and development (IPR&D), and license agreements, presented at historical cost less accumulated amortization, with amortization periods of 5 to 12 years; impairment tests are conducted when there are indications that the carrying value may not be recoverable[312][313][314] - Goodwill: Arises from the 2014 acquisition of ProteaBio Europe, reviewed annually for impairment; as of December 31, 2019, and 2018, the carrying value of goodwill was $1.887 million and $1.925 million, respectively[315][316][317] - Income taxes: The balance sheet method is used, with deferred tax assets and liabilities determined based on differences between financial reporting and tax bases, and a valuation allowance provided; the company has not identified any significant uncertain income tax positions[318][319] - As an "emerging growth company," the company may elect to delay the adoption of new or revised accounting standards but has irrevocably chosen not to utilize this exemption[321][322] Financial Operations Overview The company has not generated revenue from product sales and primarily incurs expenses through R&D activities, which are expected to increase significantly with MS1819 clinical development and commercialization preparations; G&A expenses are projected to remain stable or slightly decrease in fiscal year 2020 but will increase in the future due to R&D expansion, intellectual property, compliance, and business development; the company faces substantial doubt about its ability to continue as a going concern and plans to meet future funding needs through equity and/or debt financing - The company迄今未从产品销售中产生任何收入, with future revenue primarily expected from product sales, R&D grants, milestone payments, and royalties[322] - R&D expenses are central to the company's business, primarily including employee costs, license fees, CRO and consultant fees, drug supply and clinical trial material costs, and intangible asset amortization[323] - Future R&D expenses are expected to increase significantly, especially in later stages of MS1819 clinical development and potential commercialization preparation[324] - G&A expenses primarily include personnel costs, legal fees, accounting and audit fees, insurance, investor relations, IT costs, and consulting fees[326] - G&A expenses are expected to remain stable or slightly decrease in fiscal year 2020 but will increase in the future due to R&D and commercialization expansion, intellectual property, compliance, business development, and personnel recruitment[327][330] - The company faces substantial doubt about its ability to continue as a going concern and needs to support operations through equity and/or debt financing, including utilizing the LPC equity credit line[327][328][339] - The company has funded operations through initial public offerings, issuance of debt and convertible debt securities, and private and public offerings of common stock[329][331][332][333][334][335][336][337][338] Cash Flows for the Years Ended December 31, 2019 and 2018 As of December 31, 2019, the company's cash and cash equivalents were $175,800, a decrease from $1.1143 million in 2018; operating activities used $14.0335 million in 2019, primarily due to net loss and increased clinical trial expenses; investing activities used $24,100, mainly for property and equipment purchases; financing activities provided $13.1450 million, primarily from common stock issuance and convertible debt Cash and Cash Equivalents | Year | Amount (USD) | | :--- | :--- | | December 31, 2019 | 175,796 | | December 31, 2018 | 1,114,343 | Cash Flow from Operating Activities | Year | Amount (USD) | | :--- | :--- | | Year Ended December 31, 2019 | (14,033,496) | | Year Ended December 31, 2018 | (10,869,320) | - Cash outflow from operating activities increased by $3.1642 million in 2019, primarily due to increased clinical trial expenses, decreased accounts payable and accrued expenses, and increased equity compensation and stock-based fees, partially offset by decreases in other receivables, amortization, accrued interest on convertible debt, and debt discount[342][343] Cash Flow from Investing Activities | Year | Amount (USD) | | :--- | :--- | | Year Ended December 31, 2019 | (24,098) | | Year Ended December 31, 2018 | (305,473) | - Cash outflow from investing activities in 2019 was primarily for the purchase of property and equipment[345] Cash Flow from Financing Activities | Year | Amount (USD) | | :--- | :--- | | Year Ended December 31, 2019 | 13,144,979 | | Year Ended December 31, 2018 | 11,712,128 | - Cash inflow from financing activities in 2019 primarily resulted from common stock sales ($9.4767 million), convertible debt issuance ($4.9673 million), and note financing ($498,800), partially offset by convertible debt repayment ($1.55 million) and note repayment ($309,500)[347] Consolidated Results of Operations for the Years Ended December 31, 2019 and 2018 The company generated no revenue in both 2019 and 2018; operating expenses in 2019 were $14.7437 million, leading to a net loss of $15.1777 million, which expanded from $13.5336 million in 2018; R&D expenses and interest expense both increased in 2019 - The company generated no revenue in both 2019 and 2018[349] Research and Development Expenses | Year | Amount (USD) | YoY Change | | :--- | :--- | :--- | | Year Ended December 31, 2019 | 8,680,669 | +50% | | Year Ended December 31, 2018 | 5,771,405 | - | - The increase in R&D expenses in 2019 was primarily due to a $4.0759 million increase in direct clinical trial costs for the OPTION Cross-Over Study and Combination Study, a $317,600 increase in consulting fees, and a $316,700 increase in personnel costs[351] General and Administrative Expenses | Year | Amount (USD) | YoY Change | | :--- | :--- | :--- | | Year Ended December 31, 2019 | 6,063,078 | -19% | | Year Ended December 31, 2018 | 7,450,366 | - | - Cash G&A expenses increased by $998,000 in 2019, primarily due to a $523,400 increase in legal fees, a $367,900 loss from cyber fraud, and a $167,600 increase in public company and investor relations expenses[353] Interest Expense | Year | Amount (USD) | | :--- | :--- | | Year Ended December 31, 2019 | 433,939 | | Year Ended December 31, 2018 | 101,846 | Net Loss | Year | Amount (USD) | YoY Change | | :--- | :--- | :--- | | Year Ended December 31, 2019 | (15,177,686) | +1,644,069 | | Year Ended December 31, 2018 | (13,533,617) | - | Off-Balance Sheet Items As of December 31, 2019, the company's primary off-balance sheet obligations included operating leases and annual maintenance fees for license agreements; operating lease obligations mainly pertained to rent for Hayward and French properties, while license agreement obligations primarily involved annual maintenance fees for the TransChem Sublicense agreement Contractual Obligations as of December 31, 2019 | Contractual Obligation | Total (USD) | 2020 (USD) | 2021 (USD) | 2022 (USD) | 2023 (USD) | 2024 (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Leases (1) | 87,008 | 87,008 | - | - | - | - | | License Agreements (2) | 475,000 | 50,000 | 50,000 | 100,000 | 125,000 | 150,000 | - Operating leases include only basic rent payments for the Hayward property until May 31, 2020, and the French property until December 31, 2020[357] - License agreements include only annual maintenance fees for the TransChem Sublicense agreement[358] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As an emerging growth company, the company is not required to provide this information - As an emerging growth company, the company is not required to provide quantitative and qualitative disclosures about market risk[359] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The company's audited consolidated financial statements and notes thereto, along with the report of independent registered public accounting firm Mazars USA LLP, are included as a separate section of this annual report, commencing on page F-1 - The audited consolidated financial statements and notes thereto, along with the report of independent registered public accounting firm Mazars USA LLP, are included on page F-1 of this annual report[360] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes in accountants or disagreements with accountants on accounting and financial disclosure in this report ITEM 9A. CONTROLS AND PROCEDURES The company's management assessed the effectiveness of its disclosure controls and procedures as of the end of the period covered by this annual report and concluded they were effective; management also affirmed the effectiveness of internal control over financial reporting, designed to provide reasonable assurance regarding financial reporting reliability; in response to a cyber fraud discovered in August 2019, the company revised its controls and procedures to require additional review for any changes to vendor payment instructions - The company's CEO and CFO assessed and concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[363] - Management assessed and concluded that the company's internal control over financial reporting was effective, based on the COSO framework[366] - In response to a cyber fraud discovered in August 2019, the company revised its controls and procedures to require additional review for any changes to vendor payment instructions[368] ITEM 9B. OTHER INFORMATION There is no other information in this report PART III Addresses corporate governance, executive compensation, security ownership, related party transactions, and principal accountant fees ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required for this item will be incorporated by reference from the company's definitive proxy statement to be filed on or before April 30, 2020 - This information will be incorporated by reference from the company's definitive proxy statement[372] ITEM 11. EXECUTIVE COMPENSATION The information required for this item will be incorporated by reference from the company's definitive proxy statement to be filed on or before April 30, 2020 - This information will be incorporated by reference from the company's definitive proxy statement[373] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required for this item will be incorporated by reference from the company's definitive proxy statement to be filed on or before April 30, 2020 - This information will be incorporated by reference from the company's definitive proxy statement[374] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required for this item will be incorporated by reference from the company's definitive proxy statement to be filed on or before April 30, 2020 - This information will be incorporated by reference from the company's definitive proxy statement[375] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required for this item will be incorporated by reference from the company's definitive proxy statement to be filed on or before April 30, 2020 - This information will be incorporated by reference from the company's definitive proxy statement[376] PART IV Contains a list of exhibits, financial statement schedules, and required signatures for the annual report ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists various exhibits filed by the company, including underwriting agreements, articles of incorporation, common stock certificates, warrants, stock purchase agreements, equity incentive plans, employment agreements, note purchase agreements, asset purchase agreements, patent license agreements, sales agency agreements, registration rights agreements, and XBRL taxonomy documents - Exhibits include underwriting agreements, articles of incorporation, common stock certificates, warrants, stock purchase agreements, equity incentive plans, employment agreements, note purchase agreements, asset purchase agreements, patent license agreements, sales agency agreements, and registration rights agreements[380][381][382][383] - Also included are XBRL instance documents, taxonomy extension schemas, calculation linkbases, definition linkbases, label linkbases, and presentation linkbases[383] SIGNATURES This report was signed by James Sapirstein, President and CEO, and Daniel Schneiderman, CFO, of AzurRx BioPharma, Inc. on March 30, 2020, and co-signed by members of the Board of Directors - The report was signed by President and CEO James Sapirstein and CFO Daniel Schneiderman on March 30, 2020[388] - Chairman of the Board Edward J. Borkowski and other directors also signed[389] FINANCIAL STATEMENTS Presents the company's audited consolidated financial statements, including balance sheets, statements of operations, changes in equity, cash flows, and detailed notes Index to Consolidated Financial Statements This section provides an index to AzurRx BioPharma, Inc.'s consolidated financial statements, including the report of independent registered public accounting firm, consolidated balance sheets, consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders' equity, consolidated statements of cash flows, and notes to consolidated financial statements - The index includes the report of independent registered public accounting firm, consolidated balance sheets, consolidated statements of operations and comprehensive loss, consolidated statements of changes in stockholders' equity, consolidated statements of cash flows, and notes to consolidated financial statements[392] Report of Independent Registered Public Accounting Firm Mazars USA LLP, as the independent registered public accounting firm, issued an unqualified opinion on AzurRx BioPharma, Inc.'s consolidated financial statements as of December 31, 2019, and 2018; the report highlights the company's continuous losses and negative cash flows since inception, with an accumulated deficit of approximately $62.7 million as of December 31, 2019, which raise substantial doubt about the company's ability to continue as a going concern - Mazars USA LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2019, and 2018[397] - The report highlights the company's continuous losses and negative cash flows since inception, with an accumulated deficit of approximately $62.7 million as of December 31, 2019, which raise substantial doubt about the company's ability to continue as a going concern[398] Consolidated Balance Sheets As of December 31, 2019, the company's total assets were $8.9029 million, total liabilities were $4.2856 million, and stockholders' deficit was $4.6172 million; compared to 2018, cash and cash equivalents decreased, other receivables decreased, net patents significantly increased, while in-process research and development and net license agreements became zero; on the liabilities side, accounts payable and accrued expenses decreased, while convertible debt and lease liabilities increased Summary of Consolidated Balance Sheets | Item | December 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 175,796 | 1,114,343 | | Other receivables | 2,637,303 | 3,172,676 | | Prepaid expenses | 595,187 | 512,982 | | Property, equipment and leasehold improvements, net | 77,391 | 128,854 | | In-process research and development, net | - | 258,929 | | License agreements, net | - | 311,548 | | Patents, net | 3,407,084 | - | | Goodwill | 1,886,686 | 1,924,830 | | Operating lease right-of-use assets | 82,386 | - | | Deposits | 41,047 | 45,233 | | Total Assets | 8,902,880 | 7,469,395 | | Liabilities | | | | Accounts payable and accrued expenses | 1,754,682 | 2,070,396 | | Accounts payable and accrued expenses - related party | 533,428 | 670,095 | | Notes payable | 444,364 | 255,032 | | Convertible debt | 1,076,938 | - | | Other current liabilities | 476,224 | - | | Total Current Liabilities | 4,285,636 | 2,995,523 | | Stockholders' Deficit | | | | Common stock | 2,680 | 1,771 | | Additional paid-in capital | 68,575,851 | 53,139,259 | | Accumulated deficit | (62,694,732) | (47,517,046) | | Accumulated other comprehensive loss | (1,266,555) | (1,150,112) | | Total Stockholders' Deficit | 4,617,244 | 4,473,872 | | Total Liabilities and Stockholders' Deficit | 8,902,880 | 7,469,395 | Consolidated Statements of Operations and Comprehensive Loss The company generated no revenue in both 2019 and 2018; operating expenses in 2019 were $14.7437 million, resulting in a net loss of $15.1777 million, which expanded from $13.5336 million in 2018; R&D expenses and interest expense both increased in 2019 Summary of Consolidated Statements of Operations and Comprehensive Loss | Item | Year Ended December 31, 2019 (USD) | Year Ended December 31, 2018 (USD) | | :--- | :--- | :--- | | Revenue | - | - | | Research and development expenses | 8,680,669 | 5,771,405 | | General and administrative expenses | 6,063,078 | 7,450,366 | | Fair value adjustment of contingent consideration | - | 210,000 | | Total Operating Expenses | 14,743,747 | 13,431,771 | | Interest expense | 433,939 | 101,846 | | Net Loss | (15,177,686) | (13,533,617) | | Foreign currency translation adjustment | (116,443) | (194,397) | | Total Comprehensive Loss | (15,294,129) | (13,728,014) | | Net loss per common share, basic and diluted | (0.68) | (0.88) | | Diluted weighted-average common shares outstanding | 22,425,564 | 15,439,310 | Consolidated Statements of Changes in Stockholders' Equity As of December 31, 2019, the company's stockholders' deficit was $4.6172 million; in 2019, additional paid-in capital increased due to public offerings of common stock, issuance of common stock to consultants and Mayoly, warrant issuances, and beneficial conversion features, while accumulated deficit expanded due to net loss; foreign currency translation adjustments led to an increase in accumulated other comprehensive loss Summary of Consolidated Statements of Changes in Stockholders' Equity | Item | December 31, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Common stock | 2,680 | 1,771 | | Additional paid-in capital | 68,575,851 | 53,139,259 | | Accumulated deficit | (62,694,732) | (47,517,046) | | Accumulated other comprehensive loss | (1,266,555) | (1,150,112) | | Total Stockholders' Deficit | 4,617,244 | 4,473,872 | - In 2019, additional paid-in capital increased due to public offerings of common stock ($9.4767 million), issuance of common stock to consultants ($210,000), issuance of patent-related common stock to Mayoly ($1.7410 million), warrants related to convertible debt issuance ($1.0817 million), and beneficial conversion features ($1.3593 million)[409] - In 2019, accumulated deficit expanded due to a net loss of $15.1777 million[411] - Foreign currency translation adjustments led to an increase of $116,443 in accumulated other comprehensive loss in 2019[411] Consolidated Statements of Cash Flows In 2019, the company's net cash outflow from operating activities was $14.0335 million, net cash outflow from investing activities was $24,100, and net cash inflow from financing activities was $13.1450 million; these activities resulted in a net decrease in cash and cash equivalents of $921,600, with an ending cash balance of $175,800 Summary of Consolidated Statements of Cash Flows | Item | Year Ended December 31, 2019 (USD) | Year Ended December 31, 2018 (USD) | | :--- | :--- | :--- | | Net cash outflow from operating activities | (14,033,502) | (10,869,320) | | Net cash outflow from investing activities | (24,098) | (305,473) | | Net cash inflow from financing activities | 13,144,979 | 11,712,128 | | Net (decrease) increase in cash and cash equivalents | (921,621) | 537,335 | | Cash and cash equivalents at end of year | 175,796 | 1,114,343 | - Net cash outflow from operating activities in 2019 was primarily impacted by net loss ($15.1777 million), partially offset by depreciation, amortization, equity compensation, and other non-cash adjustments[413] - Net cash outflow from investing activities in 2019 was primarily for the purchase of property and equipment[413] - Net cash inflow from financing activities in 2019 primarily resulted from common stock issuance ($9.4767 million) and convertible debt issuance ($4.9673 million)[413] Notes to the Consolidated Financial Statements Provides comprehensive disclosures on the company's accounting policies, financial instruments, assets, liabilities, equity, and significant events impacting its financial position - The notes detail company overview, significant accounting policies, fair value disclosures, receivables, property and equipment, intangible assets and goodwill, accounts payable, notes payable, convertible debt, other liabilities, equity and incentive plans, warrants, stock options, interest expense, agreements, leases, income taxes, net loss per common share, related party transactions, employee benefit plans, and subsequent events[392] Note 1 - The Company and Basis of Presentation AzurRx BioPharma, Inc. focuses on developing non-systemic biologics for gastrointestinal diseases, with its lead product candidate MS1819 for EPI associated with CF and CP; the company has completed Phase 2a CP studies and Phase 2 CF monotherapy studies for MS1819, and plans higher-dose OPTION 2 and combination therapy trials; the company has incurred continuous losses and has negative working capital, facing substantial doubt about its ability to continue as a going concern, and plans to address this through external financing - The company focuses on developing non-systemic biologics for gastrointestinal diseases, with its lead product candidate MS1819 for EPI associated with CF and CP[417] - MS1819 Phase 2a CP study showed good safety and efficacy, with the highest dose group's CFA increasing by an average of 21.8% (p=0.002)[418] - MS1819 Phase 2 OPTION Cross-Over Study (CF patients) yielded positive results, with CFA comparable to CP patient study results, approximately 50% of patients achieving non-inferiority to PERT, and CNA close to the PERT group[420] - The CFF DSMB supports the company's initiation of the higher-dose (4.4 grams) MS1819 enteric-coated capsule OPTION 2 trial, expected to start in Q2 2020, but potentially delayed due to COVID-19[421][422] - The company initiated a Phase 2 clinical trial in Hungary for MS1819 in combination with PERT, aiming to improve fat absorption and abdominal symptoms in CF patients with severe EPI, expected to complete by end of 2020 (potentially delayed due to COVID-19)[423][424][425] - The company has incurred continuous losses, has negative working capital of $877,000, and an accumulated deficit of approximately $62.7 million, facing substantial doubt about its ability to continue as a going concern, and plans to address this through equity and/or debt financing[427] Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements This note details the significant accounting policies adopted by the company in preparing its consolidated financial statements, including the use of estimates, cash and cash equivalents, concentration of credit risk, cyber fraud treatment, debt instruments, debt issuance costs, non-employee equity payments, fair value measurement, foreign currency translation, goodwill and intangible assets, impairment of long-lived assets, income taxes, leases, R&D expenses, equity compensation, and subsequent events; it also mentions a recent accounting standard update simplifying goodwill impairment testing - The company's financial statement preparation involves estimates and assumptions for balance sheet and income statement amounts[428] - Cash and cash equivalents include highly liquid investments with maturities of three months or less from the date of purchase[429] - The company's cash balances are primarily held in US federally insured accounts, with no cash exceeding FDIC insurance limits as of December 31, 2019, compared to $754,300 in 2018[431] - In August 2019, the company incurred a cyber fraud loss of $418,800, of which $50,900 was recovered, with the remaining $367,900 recorded as G&A expense[433] - Detachable warrants and beneficial conversion features are measured as debt discount and amortized to interest expense over the debt term[434] - Debt issuance costs are recorded as a direct reduction to the carrying amount of the related debt and amortized over the debt term[435] - Non-employee equity payments are measured at fair value on the grant date[436] - Fair value measurement uses a three-level hierarchy (Level 1, Level 2, Level 3), with the level of the company's financial instruments based on the lowest level input that is significant to the overall fair value measurement[437][439][440] - Foreign currency translation: Assets and liabilities of the French subsidiary are translated at year-end exchange rates, income statement items at average exchange rates, and translation adjustments are recorded as a separate component of stockholders' equity[442] - Goodwill and intangible assets: Goodwill is reviewed annually for impairment; amortizable intangible assets (IPR&D, license agreements, patents) are amortized on a straight-line basis over **5