INmune Bio(INMB) - 2020 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and related disclosures for the specified periods Item 1. Financial Statements This section presents the unaudited consolidated financial statements of INmune Bio, Inc. for the three and nine months ended September 30, 2020, and 2019, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's business, liquidity, accounting policies, and significant transactions Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific reporting dates Consolidated Balance Sheet Highlights | Metric | September 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | $24,311,153 | $6,995,525 | | Total Current Assets | $26,137,058 | $7,764,778 | | Total Assets | $42,816,446 | $24,470,321 | | Total Current Liabilities | $1,474,110 | $700,379 | | Total Liabilities | $1,610,153 | $860,543 | | Total Stockholders' Equity | $41,206,293 | $23,609,778 | Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific reporting periods Consolidated Statements of Operations Highlights | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | General and administrative | $2,456,266 | $1,916,200 | $4,960,106 | $4,550,306 | | Research and development | $2,362,880 | $1,167,986 | $4,058,710 | $2,415,390 | | Total operating expenses | $4,819,146 | $3,084,186 | $9,018,816 | $5,423,696 | | Net Loss | $(4,716,662) | $(3,066,966) | $(8,894,873) | $(5,360,094) | | Net loss per common share – basic and diluted | $(0.36) | $(0.28) | $(0.77) | $(0.53) | Consolidated Statement of Changes in Stockholders' Equity This section outlines the changes in the company's equity accounts, including stock issuances, repurchases, and net loss, over specific periods Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2020) | Metric | Amount | | :----------------------------------- | :------- | | Balance, January 1, 2020 | $23,609,778 | | Issuance of common stock for cash | $24,847,781 | | Acquisition and retirement of common stock | $(1,012,000) | | Stock-based compensation | $2,409,066 | | Net loss | $(8,894,873) | | Balance, September 30, 2020 | $41,206,293 | Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2019) | Metric | Amount | | :----------------------------------- | :------- | | Balance, January 1, 2019 | $16,539,576 | | Issuance of common stock and warrants for cash, net | $7,251,142 | | Stock-based compensation | $2,924,091 | | Waiver of common stock issuable | $(1,542,000) | | Net loss | $(5,360,094) | | Balance, September 30, 2019 | $24,709,316 | Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for specific periods Consolidated Statements of Cash Flows Highlights (Nine Months Ended Sep 30) | Metric | 2020 | 2019 | | :----------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(6,550,933) | $(4,951,286) | | Net cash provided by financing activities | $23,895,781 | $12,209,021 | | Net increase in cash | $17,315,628 | $7,196,457 | | Cash and cash equivalents at end of period | $24,311,153 | $7,382,661 | Notes to the Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS This note describes INmune Bio, Inc.'s business as a clinical-stage biotechnology company focused on innate immune system therapies - INmune Bio, Inc. is a clinical-stage biotechnology company focused on developing product candidates to treat diseases where the innate immune system is dysfunctional[21] - The company has two product platforms: DN-TNF (targeting soluble TNF for COVID-19, cancer, Alzheimer's, depression, and NASH) and Natural Killer Cell Priming (INKmune for cancer)[21] NOTE 2 – LIQUIDITY This note discusses the company's financial position, accumulated deficit, and ability to meet its operating requirements for the foreseeable future - As of September 30, 2020, the Company had an accumulated deficit of $30,171,054 and has experienced losses since its inception, primarily due to R&D and general and administrative expenses[22] - The Company believes it has sufficient cash to meet its projected operating requirements for at least the next 12 months, following a $23.1 million net proceeds public offering in July 2020 and $0.8 million net proceeds from an At-The-Market (ATM) offering program[23] - The Company also has access to an additional $18.7 million from a purchase agreement with Lincoln Park Capital Fund LLC[23] NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and estimates used in preparing the financial statements, including the impact of COVID-19 - Financial statements are prepared in accordance with US GAAP and SEC regulations, consolidating INmune Bio, Inc. and its subsidiaries[24] - The COVID-19 pandemic introduces significant risks and uncertainties, potentially delaying clinical trials and impacting the company's financial condition, liquidity, or results of operations, with the full extent being uncertain[26][27][28] - Research and development tax incentives from Australia and the United Kingdom are recognized as a reduction of R&D expense when receipt is reasonably assured[32][33] - There is no difference in basic and diluted loss per share due to the company's net loss position, as all potential common shares are anti-dilutive[35] NOTE 4 – RESEARCH AND DEVELOPMENT ACTIVITY This note details the company's research and development expenses, tax incentives, and significant licensing agreements for its product candidates R&D Tax Incentive Receivables | Country | September 30, 2020 | December 31, 2019 | | :------ | :----------------- | :---------------- | | UK | $865,228 | $395,850 | | Australia | $600,149 | $172,289 | - The Company holds an exclusive worldwide license for Xencor's XPro1595, acquired for $100,000 cash, 1,585,000 common shares (fair value $12.2M), and warrants (fair value $4.2M), with royalty obligations on net sales and sublicensing revenue[47][48][49][50] - The INKmune License Agreement grants exclusive worldwide rights with milestone payments (e.g., $25,000 for Phase I, $9,000,000 for NDA/EMA awarded) and a 1% royalty on net sales. Milestones for Phase 1, 2, 3, and NDA filing were amended to October 2021, 2023, 2025, and 2026, respectively[51][52] - The University of Pittsburgh License Agreement involves annual maintenance fees (e.g., $5,000 for 2020-2022), a 2.5% royalty on net sales, and milestone payments (e.g., $50,000 for Phase I, $1,250,000 for first commercial sale). A $50,000 Phase I milestone was paid in March 2019[53][54][55][56] - A license agreement with UCL Business PLC provides exclusive rights to MSC isolation and expansion technology for an initial fee of $10,000, annual fees of $13,000, and royalties of 3-3.5% of net sales or 12% of sublicensing revenue[58][59] NOTE 5 – LEASE This note provides information on the company's operating lease for office space, including related assets, liabilities, and expenses - The Company has a 61-month sublease agreement for office space in La Jolla, California, with a related party, CTI Clinical Trial & Consulting Services[60] Lease Information | Metric | September 30, 2020 | December 31, 2019 | | :----------------------------------- | :------------------- | :------------------ | | Right-of-use asset – related party | $165,388 | $191,543 | | Operating lease, current liability – related party | $20,183 | $8,288 | | Long-term operating lease liability – related party | $136,043 | $160,164 | | Total lease liability | $156,226 | $168,452 | | Weighted-average remaining lease term | 3.8 years | 4.5 years | | Weighted-average discount rate | 10.00% | 10.00% | - Operating lease expense for the nine months ended September 30, 2020, was $39,321, included in general and administrative expenses[60] NOTE 6 – RELATED PARTY TRANSACTIONS This note discloses transactions and balances with related parties, including payments for medical research and sublease arrangements - The Company owed UCL Consultants Limited $9,132 as of September 30, 2020, and paid $334,738 for medical research during the nine months ended September 30, 2020[61] - The Company owed CTI Clinical Trial & Consulting Services $0 as of September 30, 2020 (down from $280,723), and paid $126,850 for medical research and $25,392 for sublease during the nine months ended September 30, 2020[62] - A capital contribution of $215,761 was recorded for the forgiveness of certain accounts payable due to CTI during the nine months ended September 30, 2020[62] NOTE 7 – STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, including stock offerings, repurchases, stock options, and stock-based compensation - The Company completed its initial public offering in February 2019, selling 1,020,820 shares for $7.3 million net proceeds[63] - During the nine months ended September 30, 2020, the Company issued 196,000 shares to Lincoln Park for $1.0 million cash, with $18.7 million remaining under the purchase agreement[66] - In January 2020, the Company purchased and cancelled 220,000 shares of common stock for $1,012,000 cash[69] - From April to September 2020, the Company sold 178,600 shares through an At-The-Market (ATM) offering program for $0.8 million net proceeds[70] - In July 2020, the Company completed an underwritten public offering, selling 2,500,000 shares at $10.00 per share for $23.1 million net proceeds[71] Stock Option Activity (Nine Months Ended Sep 30, 2020) | Metric | Number of Shares | Weighted average Exercise Price | | :----------------------------------- | :--------------- | :------------------------------ | | Outstanding at January 1, 2020 | 3,417,000 | $5.77 | | Options granted | 40,000 | $10.38 | | Outstanding at September 30, 2020 | 3,457,000 | $5.82 | | Exercisable at September 30, 2020 | 1,989,931 | $6.96 | Stock-based Compensation Expense | Period | 2020 | 2019 | | :----------------------------------- | :----------- | :----------- | | Three Months Ended September 30 | $1,045,656 | $974,696 | | Nine Months Ended September 30 | $2,409,066 | $2,924,091 | NOTE 8 – COLLABORATIVE AGREEMENTS This note describes the company's grant agreements and collaborations for funding its research and development activities - The Company received $150,000 during the nine months ended September 30, 2020, from a $1.0 million Alzheimer's Association grant for XPro1595, with the full amount now received[81] - A $500,000 grant from the ALS Association for XPro1595 resulted in $300,000 cash proceeds received and recorded as deferred liabilities in 2020, with $110,878 recognized as a reduction of R&D expense[82] - A grant of up to $2.9 million from the National Institutes of Health (NIH) was awarded in September 2020 for a Phase 2 study of XPro1595 in treatment-resistant depression, with no proceeds received as of September 30, 2020[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including forward-looking statements, a detailed business overview, analysis of operating expenses, and a discussion of liquidity and capital resources, highlighting the impact of the COVID-19 pandemic and the company's status as an emerging growth company Forward-Looking Statements This section cautions readers about forward-looking statements and the inherent risks and uncertainties that could cause actual results to differ materially - The Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties, and actual results may differ materially due to factors such as economic conditions, competition, and technological advances[85] Description of Business This section provides an overview of INmune Bio's business, its product platforms, and the impact of the COVID-19 pandemic on its operations Overview This subsection provides a high-level summary of INmune Bio's clinical-stage immunotherapy focus and product platforms - INmune Bio is a clinical-stage immunotherapy company focused on developing drugs that reprogram the innate immune system to treat diseases like cancer, neurodegenerative, metabolic, and infectious diseases[86] - The DN-TNF platform neutralizes soluble TNF (sTNF) for indications such as cancer (INB03), Alzheimer's/depression (XPro1595), NASH (LIVNate), and COVID-19 (Quellor)[86][87][88][89][90] - The NK platform (INKmune) aims to prime natural killer cells to eliminate minimal residual disease in cancer patients[86][91] - The Company has incurred net losses since inception, with an accumulated deficit of $30.2 million as of September 30, 2020, and net losses of $8.9 million and $5.4 million for the nine months ended September 30, 2020 and 2019, respectively[92] - Clinical trials have been and may continue to be affected by the COVID-19 pandemic, potentially causing delays in site initiation, patient enrollment, and compliance with protocols[93][94][95] Research and Development This subsection details the company's R&D expense policies, tax incentives, and expected increases in R&D costs as product candidates advance - Research and development (R&D) costs are expensed as incurred, covering preclinical studies, clinical trials, manufacturing, and regulatory activities[99] - R&D tax incentives from Australia and the United Kingdom are recognized as a reduction of R&D expense[101][102] - R&D expenses are expected to increase significantly as more product candidates advance through clinical development, with costs varying based on trial specifics[103][104][105] General and Administrative Expenses This subsection outlines the primary components of the company's general and administrative expenses, including payroll and professional fees - General and administrative expenses primarily include payroll, stock-based compensation, professional fees (legal, consulting, accounting, tax), and overhead costs[106] Other income This subsection describes the sources of the company's other income, such as interest income and foreign exchange gains/losses - Other income primarily consists of interest income, foreign exchange gains/losses, and other non-operating income/expense[107] Results of Operations This section analyzes the company's financial performance by comparing key operating expenses and net loss for the current and prior periods Comparison of the Three Months Ended September 30, 2020 and 2019 This subsection compares the company's financial results, including operating expenses and net loss, for the three months ended September 30, 2020 and 2019 Results of Operations (Three Months Ended Sep 30) | Metric | 2020 | 2019 | Change | | :----------------------------------- | :----------- | :----------- | :----------- | | General and administrative | $2,456,266 | $1,916,200 | $540,066 | | Research and development | $2,362,880 | $1,167,986 | $1,194,894 | | Total operating expenses | $4,819,146 | $3,084,186 | $1,734,960 | | Net loss | $(4,716,662) | $(3,066,966) | $(1,649,696) | | Other income | $102,484 | $17,220 | $85,264 | - General and administrative expenses increased by $0.6 million, primarily due to higher professional fees ($0.6M) and stock-based compensation ($0.4M), partially offset by lower investor relations expense ($0.5M)[110] - Research and development expenses increased by $1.2 million, driven by advancement of the drug platform and manufacturing costs for the DN-TNF product[111] - Other income increased by $0.1 million due to a refund from a third-party vendor[112] Comparison of the Nine Months Ended September 30, 2020 and 2019 This subsection compares the company's financial results, including operating expenses and net loss, for the nine months ended September 30, 2020 and 2019 Results of Operations (Nine Months Ended Sep 30) | Metric | 2020 | 2019 | Change | | :----------------------------------- | :----------- | :----------- | :----------- | | General and administrative | $4,960,106 | $4,550,306 | $409,800 | | Research and development | $4,058,710 | $2,415,390 | $1,643,320 | | Waiver of common stock issuable | $0 | $(1,542,000) | $1,542,000 | | Total operating expenses | $9,018,816 | $5,423,696 | $3,595,120 | | Net loss | $(8,894,873) | $(5,360,094) | $(3,534,779) | | Other income | $123,943 | $63,602 | $60,341 | - General and administrative expenses increased by $0.4 million, mainly due to higher professional fees ($0.6M), stock-based compensation ($0.3M), and salary/benefits ($0.2M), offset by lower investor relations expense ($1.0M)[115] - Research and development expenses increased by $1.6 million, primarily due to advancement of the drug platform and manufacturing costs for the DN-TNF product[116] - A $1.5 million expense reversal from a waiver of common stock issuable occurred in 2019, with no similar transaction in 2020, contributing to the comparative increase in total operating expenses[117] - Other income increased by $0.1 million due to a refund from a third-party vendor[118] Liquidity and Capital Resources This section discusses the company's cash position, funding sources, and ability to meet its short-term and long-term financial obligations - The Company incurred a net loss of $8.9 million and used $6.6 million in cash from operating activities for the nine months ended September 30, 2020[120] - As of September 30, 2020, cash and cash equivalents totaled $24.3 million, and the Company believes this is sufficient to fund operations for at least the next 12 months[120][124] - Primary uses of capital include third-party clinical/preclinical R&D services, compensation, legal, patent, regulatory expenses, and general overhead[121] - Significant capital raises in 2020 include $23.1 million net proceeds from an underwritten public offering and $0.8 million net proceeds from an ATM program[129][130] - The Company also received $1.0 million in gross proceeds from Lincoln Park Capital and purchased $1.0 million of common stock during the nine months ended September 30, 2020[128][139] - Grants received in 2020 include $150,000 from the Alzheimer's Association and $300,000 from the ALS Association, with a $2.9 million NIH grant awarded but not yet funded[131][132][133] Cash Flows This subsection details the company's cash flows from operating, investing, and financing activities, highlighting significant changes and funding sources Cash Flow Summary (Nine Months Ended Sep 30) | Metric | 2020 | 2019 | | :----------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(6,550,933) | $(4,951,286) | | Net cash provided by financing activities | $23,895,781 | $12,209,021 | | Net increase in cash | $17,315,628 | $7,196,457 | | Cash and cash equivalents, end of period | $24,311,153 | $7,382,661 | - Operating activities used $6.6 million cash in 2020, primarily due to a net loss of $8.9 million and a net cash outflow of $0.1 million from changes in operating assets and liabilities, partially offset by $2.4 million in non-cash stock-based compensation[136] - Financing activities provided $23.9 million cash in 2020, mainly from $23.1 million net proceeds from a public offering, $1.0 million from Lincoln Park sales, and $0.9 million net from the ATM program, partially offset by a $1.0 million common stock repurchase[138][139] Critical Accounting Policies This section confirms the consistency of the company's critical accounting policies and estimates with its prior annual report - The Company's critical accounting policies and estimates are consistent with those in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, with no material changes during the nine months ended September 30, 2020[144] Item 3. Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, INmune Bio is exempt from providing quantitative and qualitative disclosures about market risk in this report - The Company is not required to provide market risk disclosures as it qualifies as a 'smaller reporting company' under Rule 229.10(f)(1)[145] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2020, primarily due to limited segregation of duties. The company has engaged a consulting firm to address this, and no material changes in internal control over financial reporting occurred during the quarter - Management concluded that disclosure controls and procedures were not effective as of September 30, 2020, due to the small size of the Company and limited segregation of duties[146] - The Company has engaged a consulting firm with accounting expertise to assist in correcting the limited segregation of duties[146] - There were no material changes in internal control over financial reporting during the three months ended September 30, 2020[147] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, recent securities sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business or financial condition - The Company is not currently a party to any pending legal proceedings that are believed to have a material adverse effect on its business or financial conditions[150] Item 1A. Risk Factors As a smaller reporting company, INmune Bio is not required to provide a discussion of risk factors in this report - Risk factors disclosure is not required for smaller reporting companies[151] Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities There were no recent sales of unregistered securities or use of proceeds from registered securities to report during this period - No recent sales of unregistered securities or use of proceeds from registered securities to report[152] Item 3. Defaults Upon Senior Securities This item is not applicable to the company - This item is not applicable[153] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[154] Item 5. Other Information There is no other information to report under this item - This item is not applicable[155] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including an amendment to an exclusive license agreement, CEO and CFO certifications, and XBRL taxonomy documents - Exhibits include an Amendment to Exclusive License Agreement, Rule 13a-14(a)/15d-14(a) Certifications of CEO and CFO, Section 1350 Certifications of CEO and CFO, and various XBRL documents[156] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the report's submission Signatures The report was officially signed on November 5, 2020, by Raymond J. Tesi, Chief Executive Officer, and David J. Moss, Chief Financial Officer, Treasurer, and Secretary, confirming its submission - The report was signed on November 5, 2020, by Raymond J. Tesi (Chief Executive Officer) and David J. Moss (Chief Financial Officer, Treasurer, Secretary)[160]