Larimar Therapeutics(LRMR) - 2019 Q3 - Quarterly Report

PART I PART I – FINANCIAL INFORMATION This section details the company's condensed financial statements, management's analysis of financial condition, market risk, and internal control effectiveness Item 1. Financial Statements The company reported no revenue and a net loss, with decreased assets and cash, following a strategic shift to halt drug development and restructure operations Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of September 30, 2019, and December 31, 2018 Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $43,337 | $49,331 | | Marketable securities | $38,669 | $68,735 | | Total current assets | $83,443 | $121,330 | | Total assets | $92,887 | $121,762 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $16,339 | $13,306 | | Total liabilities | $33,007 | $28,491 | | Accumulated deficit | $(389,100) | $(350,945) | | Total stockholders' equity | $59,880 | $93,271 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance, including revenue, expenses, and net loss, for the reported periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $0 | | Research and development | $5,260 | $11,830 | $23,463 | $36,472 | | General and administrative | $3,627 | $3,339 | $10,891 | $9,959 | | Restructuring charges | $4,019 | $0 | $4,019 | $0 | | Loss from operations | $(12,906) | $(15,169) | $(38,373) | $(46,431) | | Net loss | $(12,914) | $(15,067) | $(38,155) | $(46,798) | | Net loss per share | $(0.35) | $(0.41) | $(1.02) | $(1.53) | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in the company's stockholders' equity, reflecting net loss and other equity adjustments - Total stockholders' equity decreased from $93.3 million at the end of 2018 to $59.9 million as of September 30, 2019, primarily due to the net loss of $38.2 million for the nine-month period, partially offset by stock-based compensation expense[17] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(30,977) | $(39,653) | | Net cash provided by (used in) investing activities | $29,823 | $(21,134) | | Net cash (used in) provided by financing activities | $(3,501) | $65,151 | | Net (decrease) increase in cash | $(4,655) | $4,364 | Notes to Condensed Consolidated Financial Statements This section provides additional information and explanations for the figures presented in the condensed financial statements - Following a full clinical hold on its lead candidate ZGN-1061 by the FDA and preliminary results from an in vivo study, the company halted all development of MetAP2 inhibitors in September 2019 and is now evaluating strategic alternatives, including a potential merger or acquisition[26] - In September 2019, the Board approved a restructuring plan which, combined with earlier actions, resulted in a 70% workforce reduction and the closure of its San Diego facility, with aggregate restructuring charges of approximately $4.0 million recorded in Q3 2019[26][81][82] - The company has a term loan with an outstanding principal balance of $16.4 million as of September 30, 2019, requiring a minimum liquidity of approximately $17.2 million at that date[30][55] - On September 17, 2019, the company received a deficiency letter from Nasdaq for its common stock bid price closing below the $1.00 minimum for 30 consecutive business days, with a compliance deadline of March 16, 2020[32] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift, significant restructuring, and financial impact, including reduced R&D expenses and sufficient liquidity for the next year Overview This section provides a high-level summary of the company's strategic shift, including the halt of drug development and subsequent restructuring efforts - The company's prior lead product candidate, ZGN-1061, was placed on a full clinical hold by the FDA in November 2018 due to potential cardiovascular safety risks[90] - On September 5, 2019, after preliminary study results, the company announced a low probability of resolving the clinical hold, halted all MetAP2 inhibitor development, and began evaluating strategic alternatives such as a merger, acquisition, or business combination[90] - A restructuring plan was approved in September 2019, which, combined with prior actions, resulted in a 70% reduction in workforce and is expected to generate annual personnel cost savings of approximately $5.6 million[90] Results of Operations This section analyzes the company's financial performance, focusing on changes in key expense categories and net loss Comparison of Operating Results (in thousands) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $5,260 | $11,830 | $23,463 | $36,472 | | General and administrative | $3,627 | $3,339 | $10,891 | $9,959 | | Restructuring charges | $4,019 | $0 | $4,019 | $0 | | Loss from operations | $(12,906) | $(15,169) | $(38,373) | $(46,431) | | Net loss | $(12,914) | $(15,067) | $(38,155) | $(46,798) | - R&D expenses decreased by $6.6 million in Q3 2019 compared to Q3 2018, primarily due to lower costs for the MetAP2 inhibitor program after development was halted and a decrease in personnel and stock-based compensation costs from restructuring[107][108] - The company incurred $4.0 million in restructuring charges in Q3 2019, consisting of $2.5 million for employee severance and benefits and $1.4 million for contract termination costs[110][111][112] Liquidity and Capital Resources This section discusses the company's cash position, debt obligations, and ability to fund future operations - As of September 30, 2019, the company had $82.0 million in cash, cash equivalents, and marketable securities[124] - The company has an outstanding term loan with a principal balance of $16.4 million, which requires maintaining a minimum cash balance of $17.4 million as of September 30, 2019[124][128] - Net cash used in operating activities for the first nine months of 2019 was $31.0 million, a decrease from $39.7 million in the same period of 2018, primarily due to lower R&D spending[133][134][135] - Management believes existing cash will be sufficient to fund operations for at least one year from the report's issuance date[140] Quantitative and Qualitative Disclosures About Market Risk The company's market risks primarily involve interest rate fluctuations on cash and marketable securities and foreign currency exchange risk, without the use of hedging instruments - The company's main market risk exposure is to interest rate sensitivity on its cash and marketable securities, where a hypothetical 50 basis point increase in interest rates would result in a $0.1 million decline in the fair value of these instruments[153] - The company has foreign currency exchange risk, primarily from transactions denominated in Australian dollars, where a 10% unfavorable movement in exchange rates would have increased the net loss by an estimated $0.2 million for the nine months ended September 30, 2019[154][155] Management's Evaluation of our Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - The company's management, including the principal executive officer and principal financial officer, concluded that disclosure controls and procedures were effective as of September 30, 2019[157] - There were no changes in internal control over financial reporting during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[158] PART II PART II – OTHER INFORMATION This section covers legal proceedings, comprehensive risk factors, and a list of exhibits filed with the report Legal Proceedings The company is not currently a party to any material litigation or other material legal proceedings - As of the filing date, the company is not a party to any material legal proceedings[160] Risk Factors The company faces significant risks including strategic uncertainty, operational challenges, potential Nasdaq delisting, financial instability, and issues related to product development and intellectual property General Company-Related Risks This section outlines risks related to the company's strategic direction, operational stability, and ability to retain key personnel - The company is reviewing strategic alternatives, but there is no assurance that any transaction will be completed or that it will provide additional value to stockholders, and the process itself could disrupt business operations[162] - A 2019 workforce reduction of approximately 70% creates a significant risk to retaining the employees required to explore and consummate a strategic transaction[163] Risks Related to Our Common Stock This section details risks associated with the company's common stock, including Nasdaq listing compliance and ownership concentration - The company is not in compliance with the Nasdaq Global Market's minimum bid price requirement of $1.00 per share and could be delisted if compliance is not regained by March 16, 2020[186][187] - As of October 31, 2019, executive officers, directors, and principal stockholders beneficially owned approximately 50.3% of the common stock, giving them significant influence over company matters[191] Risks Related to Product Development, Regulatory Approval and Commercialization This section addresses risks inherent in the company's drug development process, regulatory hurdles, and commercialization challenges - The company has a history of significant setbacks in later-stage clinical trials for its former lead product candidates, beloranib and ZGN-1061, after positive early results, and may face similar setbacks with any future candidates[206] - The company has no manufacturing facility and is dependent on third-party contract manufacturing organizations (CMOs), which entails risks related to regulatory compliance, quality assurance, and supply chain disruptions[219][220][221] Risks Related to Our Financial Position and Need for Capital This section highlights financial risks, including a history of losses, lack of revenue, and the ongoing need for additional capital - The company has a history of significant operating losses, with an accumulated deficit of $389.1 million as of September 30, 2019, and has never generated revenue from product sales[246][248] - The company will need to raise additional funding to support future operations, which may not be available on acceptable terms, or at all, and failure to obtain capital may force a delay or termination of development efforts[251] - The company's term loan contains restrictive covenants and events of default, including a material adverse event clause, which could lead to acceleration of the debt if triggered[253][254] Risks Related to Our Intellectual Property Rights This section discusses risks concerning the company's ability to protect its intellectual property and potential infringement claims - The company's success depends on its ability to obtain and maintain patent protection, but patents may be challenged, invalidated, or circumvented by competitors[259][261] - The company may face infringement claims from third parties, which could result in costly litigation, substantial damages, and could force a halt to the development or commercialization of future product candidates[267][268] Exhibits This section provides an index of exhibits filed with the Quarterly Report, including corporate documents and Sarbanes-Oxley Act certifications - The Exhibit Index lists documents filed with the report, including certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[290][291]