Larimar Therapeutics(LRMR) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2020, reflect the company's financial position, operations, equity, and cash flows, significantly impacted by a reverse merger and private placement Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2020, shows significant strengthening, with total assets increasing to $125.5 million and equity turning positive due to a merger and private placement Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $112,673 | $1,009 | | Total current assets | $119,111 | $4,750 | | Total assets | $125,457 | $5,201 | | Liabilities & Equity | | | | Total liabilities | $12,913 | $5,895 | | Total stockholders' equity (deficit) | $112,544 | $(694) | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss significantly increased to $11.3 million for the quarter and $18.0 million for six months ended June 30, 2020, primarily due to higher R&D expenses Statement of Operations Summary (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $8,907 | $3,128 | $13,914 | $7,350 | | General and administrative | $2,492 | $576 | $4,159 | $1,078 | | Loss from operations | $(11,399) | $(3,704) | $(18,073) | $(8,428) | | Net loss | $(11,330) | $(3,704) | $(18,004) | $(8,428) | | Net loss per share | $(1.21) | $(0.61) | $(2.33) | $(1.38) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $21.1 million, while investing and financing activities provided $40.6 million and $93.5 million respectively, leading to a $113.0 million net cash increase Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,120) | $(8,965) | | Net cash provided by (used in) investing activities | $40,643 | $(33) | | Net cash provided by financing activities | $93,480 | $5,990 | | Net increase (decrease) in cash | $113,003 | $(3,008) | Notes to Condensed Consolidated Financial Statements Notes detail the company's biopharmaceutical business, reverse merger accounting, COVID-19 impact on trials, private placement, and intellectual property license commitments - The company is a clinical-stage biopharmaceutical company focused on developing treatments for mitochondrial disorders, with its lead product candidate, CTI-1601, in Phase 1 for Friedreich's Ataxia[31] - The merger with Zafgen on May 28, 2020 was accounted for as a reverse acquisition, with Chondrial deemed the accounting acquirer, consequently, Chondrial's historical financial statements became those of the combined company[36][37] - The COVID-19 pandemic caused a temporary halt to the Phase 1 clinical trial for CTI-1601, which resumed in July 2020, with top-line results anticipated to be delayed from late 2020 to the first half of 2021[34] - On June 1, 2020, the company closed a private placement, selling common stock and pre-funded warrants for aggregate gross proceeds of $80.0 million, with net proceeds of $75.4 million[87] - The company has license agreements with Wake Forest University Health Sciences and Indiana University for the technology used in CTI-1601, which include obligations for milestone payments, royalties, and sublicensing fees[103][104] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial impact of the reverse merger and private placement, detailing increased operating expenses driven by R&D for CTI-1601, and confirming sufficient liquidity for the next twelve months Overview Larimar is a clinical-stage biotech developing CTI-1601 for Friedreich's Ataxia, incurring significant net losses, including $18.0 million for the first six months of 2020 - The company's lead product candidate, CTI-1601, is a recombinant fusion protein for treating Friedreich's Ataxia and is currently in Phase 1 clinical trials[121] - As of June 30, 2020, the company had an accumulated deficit of $41.1 million and cash, cash equivalents, and marketable debt securities of $113.7 million[124] Results of Operations Operating expenses significantly increased for the three and six months ended June 30, 2020, driven by higher R&D costs for CTI-1601 and increased G&A expenses post-merger Comparison of Operating Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $8,907 | $3,128 | $13,914 | $7,350 | | General and administrative | $2,492 | $576 | $4,159 | $1,078 | | Total operating expenses | $11,399 | $3,704 | $18,073 | $8,428 | - The increase in R&D expenses was primarily due to a $5.0 million (quarterly) and $5.4 million (semi-annually) rise in external development costs for CTI-1601, related to the Phase 1 SAD clinical trial, manufacturing, and toxicology studies[155][159] - The increase in G&A expenses was mainly due to a $1.0 million (quarterly) and $2.1 million (semi-annually) increase in professional fees for accounting, audit, and legal services following the merger and becoming a public company[156][160] Liquidity and Capital Resources The company's liquidity improved from the Zafgen merger and a private placement, with $93.5 million from financing activities, ensuring sufficient funds for the next twelve months - Net cash used in operating activities increased to $21.1 million for the first six months of 2020, up from $9.0 million in the same period of 2019, reflecting increased R&D and G&A activities[162][163][164] - Major cash inflows in the first half of 2020 included $41.9 million in cash acquired from the merger, $75.5 million in net proceeds from the private placement, and $18.0 million in capital contributions from Holdings[165][166] - Management believes that based on the current operating plan, its cash position as of the filing date will be sufficient to fund operations for at least the next twelve months[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period[173] Item 4. Management's Evaluation of our Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of June 30, 2020, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - As of June 30, 2020, the company's disclosure controls and procedures were concluded to be not effective at a reasonable assurance level due to material weaknesses in internal control over financial reporting[176] - Identified material weaknesses include: - An ineffective control environment due to a lack of sufficient personnel with appropriate accounting knowledge and inadequate segregation of duties - Inadequate design and maintenance of controls over the preparation and review of account reconciliations and journal entries[179][183] - The company is implementing a remediation plan, which includes hiring a new CFO and Vice President, Controller, and retaining consultants to supplement the accounting and finance department[180] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any threatened or pending legal actions expected to have a material adverse effect on its business or financial condition - There are no threatened or pending legal actions that are expected to have a material adverse effect on the company[184] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Current Report on Form 8-K - No material changes have occurred to the risk factors disclosed in the company's prior Form 8-K filing[185] Item 5. Other Information On August 14, 2020, the company established an "at-the-market" (ATM) offering program to sell up to $50.0 million of common stock - The company entered into an Equity Distribution Agreement to establish an "at-the-market" (ATM) offering program[190] - Under the ATM program, the company may sell up to $50.0 million of its common stock through Piper Sandler & Co. as the sales agent[190] Item 6. Exhibits This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including corporate and contractual documents - A list of all exhibits filed with the Form 10-Q is provided, referencing documents such as corporate amendments, securities agreements, and material contracts[195][196]