Moleculin(MBRX) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Consolidated Financial Statements (unaudited) The company reported no revenue for the periods ended June 30, 2020 and 2019. Net loss increased significantly to $11.3 million for the six months ended June 30, 2020, from $5.3 million in the prior year period, primarily driven by higher R&D expenses and a loss from the change in fair value of warrant liability. Total assets grew to $31.4 million, and cash and cash equivalents stood at $16.7 million as of June 30, 2020, supported by financing activities Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $16,734 | $10,735 | | Total current assets | $19,749 | $13,484 | | Total assets | $31,380 | $25,235 | | Total current liabilities | $3,739 | $3,570 | | Warrant liability - long-term | $11,792 | $5,818 | | Total liabilities | $15,751 | $9,664 | | Total stockholders' equity | $15,629 | $15,571 | Condensed Consolidated Statements of Operations (in thousands) | Statement of Operations | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $0 | $0 | $0 | $0 | | Research and development | $3,329 | $2,099 | $6,535 | $5,031 | | General and administrative | $1,653 | $1,484 | $3,463 | $3,075 | | Loss from operations | ($5,034) | ($3,632) | ($10,096) | ($8,203) | | Gain (loss) from change in fair value of warrant liability | ($5,099) | $2,407 | ($1,254) | $2,936 | | Net loss | ($10,112) | ($1,221) | ($11,321) | ($5,262) | | Net loss per common share | ($0.17) | ($0.03) | ($0.21) | ($0.15) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($9,275) | ($9,194) | | Net cash used in investing activities | ($20) | ($34) | | Net cash provided by financing activities | $15,303 | $20,802 | | Net change in cash and cash equivalents | $5,999 | $11,561 | Nature of Business and Liquidity Moleculin is a clinical-stage pharmaceutical company focused on treating resistant cancers and viruses, with three core technologies licensed from MD Anderson: Annamycin, STAT3 Immune/Transcription Modulators (WP1066 portfolio), and Antimetabolites (WP1122 portfolio). The company is actively developing its drug candidates, including Annamycin for AML, WP1066 for brain tumors, and notably, is fast-tracking the development of WP1122 for its potential as a COVID-19 treatment. The company has incurred significant losses since inception and its ability to continue as a going concern depends on obtaining additional financing - The company's three core technologies are Annamycin, the WP1066 portfolio (Immune/Transcription Modulators), and the WP1122 portfolio (Antimetabolites), all licensed from MD Anderson[17] - Clinical stage drugs include Annamycin for relapsed acute myeloid leukemia (AML), WP1066 for brain tumors, and WP1220 for cutaneous T-cell lymphoma (CTCL)[17] - The company is developing its WP1122 portfolio for antiviral properties, including against Coronavirus, and expects to submit an IND or equivalent for testing in COVID-19 patients before the end of 2020[20][24] - The company has incurred an accumulated deficit of $50.9 million since inception and has not generated any revenue. Management has substantial doubt about the company's ability to continue as a going concern without additional financing[35] Warrants As of June 30, 2020, the company had approximately 17.0 million warrants outstanding, comprising 16.4 million liability-classified and 0.6 million equity-classified warrants. The fair value of the warrant liability increased to $11.8 million from $5.8 million at year-end 2019, primarily valued using the Black-Scholes model. This increase in liability was driven by a rise in the company's stock price Outstanding Warrants as of June 30, 2020 | Warrant Type | Number of Shares | Weighted Average Exercise Price | | :--- | :--- | :--- | | Liability Classified | 16,401,693 | $1.58 | | Equity Classified | 607,802 | $3.06 | | Total Outstanding | 17,009,495 | $1.63 | - The fair value of the warrant liability, measured on a recurring basis using Level 3 inputs, increased from $5.8 million at December 31, 2019 to $11.8 million at June 30, 2020[47] - In connection with a February 2020 stock offering, the company issued warrants to purchase 5,625,000 shares of common stock and an underwriter warrant for 525,000 shares, all with an exercise price of $1.05[64] Equity During the first six months of 2020, the company raised significant capital through equity issuances. In April 2020, it raised $10.3 million (net) by issuing 7.2 million shares via its At-The-Market (ATM) agreement. In February 2020, a stock offering of 7.5 million shares and related warrants generated $6.0 million (net). The company's 2015 Stock Plan was amended to authorize 10.5 million shares for grants - In April 2020, the company issued 7,170,964 shares of common stock through its ATM agreement at an average price of $1.44 per share, receiving net proceeds of $10.0 million after $0.3 million in expenses[69][142] - In February 2020, the company sold 7,500,000 shares and warrants in a public offering, receiving net proceeds of $6.0 million after $0.7 million in expenses[70] - Total stock-based compensation expense was $0.8 million for the six months ended June 30, 2020, an increase from $0.7 million in the same period of 2019[72] Subsequent Events After the quarter ended June 30, 2020, the company continued to raise capital. In July 2020, it issued 1.3 million shares under its 2019 ATM Agreement for net proceeds of $1.9 million. Also in July 2020, the company established a new 2020 ATM Agreement, allowing for the sale of up to $15.0 million in common stock, though no shares had been issued under this new agreement as of the report date - In July 2020, the company issued 1,301,126 shares of common stock under the 2019 ATM Agreement at an average price of $1.47 per share, generating net proceeds of $1.9 million[92] - A new At Market Issuance Sales Agreement (2020 ATM Agreement) was entered into in July 2020, allowing for the sale of up to $15.0 million of common stock[91] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights the company's focus on its three core technologies, with a significant recent emphasis on developing the WP1122 portfolio for COVID-19. R&D expenses increased by $1.5 million for the six-month period year-over-year due to expanded clinical trial activity and drug manufacturing. The company's net loss widened to $11.3 million, largely due to a $1.3 million non-cash loss on warrant liability revaluation. The company raised $15.3 million from financing activities in the first half of 2020 and believes its cash is sufficient to fund operations into the first quarter of 2021, but will require additional capital thereafter Recent Business Developments The company reported significant progress across its pipeline. For Annamycin, it updated its clinical plan for AML in consultation with US and European regulators and received approval to expand clinical sites in Poland. For WP1122, development for COVID-19 was accelerated, with independent testing confirming antiviral activity, an agreement secured for US production, and a Pre-IND meeting request granted by the FDA. For WP1066, a Phase 1 trial for pediatric brain tumors began enrollment at Emory University. The company also disclosed an SEC trading suspension in May 2020 related to its public statements about WP1122's potential for COVID-19, which has since been lifted - Annamycin: The clinical development plan for AML was updated to generate additional safety and efficacy data in the European trial to support a future Phase 2 trial[108] - WP1122 (COVID-19): Independent in vitro testing confirmed the antiviral activity of WP1122 against coronavirus. The company entered an agreement for US production and received feedback from the FDA on its Pre-IND meeting request, with plans to file for an IND by the end of 2020[114][115][116] - WP1066: The Phase 1 clinical trial of WP1066 for pediatric brain tumors began enrollment at Emory University in June 2020[127] - SEC Matters: The SEC temporarily suspended trading of the company's stock in May 2020 due to questions about public statements regarding WP1122's potential application to COVID-19. The trading halt was lifted on May 28, 2020[128] Results of Operations For the three and six months ended June 30, 2020, R&D expenses increased by $1.2 million and $1.5 million, respectively, compared to the same periods in 2019. This was driven by higher clinical trial activity, manufacturing costs, and R&D headcount. General and administrative expenses saw a modest increase. A significant factor in the reported net loss was the non-cash loss from the change in fair value of warrant liability, which was a $5.1 million loss in Q2 2020 versus a $2.4 million gain in Q2 2019, reflecting the increase in the company's stock price Change in Operating Expenses (in thousands) | Expense Category | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change | | :--- | :--- | :--- | :--- | | Research and development | $6,535 | $5,031 | +$1,504 | | General and administrative | $3,463 | $3,075 | +$388 | - The increase in R&D expense was mainly due to increased clinical trial activity, license fees, sponsored research agreements, and drug manufacturing costs[132][135] - The company recorded a net loss of $5.1 million from the change in fair value of warrant liability in Q2 2020, compared to a net gain of $2.4 million in Q2 2019. This change is primarily driven by the increase in the company's share price[134] Liquidity and Capital Resources As of June 30, 2020, the company had $16.7 million in cash and cash equivalents. Net cash used in operating activities was $9.3 million for the first six months of 2020. The company secured $15.3 million in net cash from financing activities during this period, primarily through its ATM agreement and a stock offering. Management believes existing cash, plus funds raised subsequently, is sufficient to fund operations into the first quarter of 2021, but acknowledges the need to raise additional capital to fund future operations beyond that point Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | | :--- | :--- | | Net cash used in operating activities | ($9,275) | | Net cash provided by financing activities | $15,303 | | Net increase in cash and cash equivalents | $5,999 | - Financing activities in the first half of 2020 included raising $10.0 million (net) from the 2019 ATM Agreement and $6.0 million (gross) from a stock offering in February 2020[142][145] - The company believes its existing cash as of June 30, 2020, plus cash raised subsequently, will be sufficient to fund planned operations into the first quarter of 2021[149] - The company anticipates needing to raise additional capital to fund future operations and successfully complete development and commercialization of its product candidates[150] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020. This was due to a previously identified material weakness in internal control over financial reporting related to insufficient segregation of duties within its accounting functions. The company has taken steps to remediate this weakness, including hiring additional personnel and implementing new systems and policies, and plans further enhancements as economically feasible - The CEO and CFO determined that disclosure controls and procedures were not effective as of the end of the period covered by the report[154] - A material weakness exists due to insufficient segregation of duties within accounting functions, a deficiency identified in fiscal 2016[157] - Remediation efforts include adding accounting personnel, implementing a new accounting software system, and updating policies. In 2020, an ERP system for electronic payments was implemented to further enhance controls[157] PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - None[161] Risk Factors The company highlighted new and updated risk factors. A key risk is the potential for future adverse actions following the SEC's temporary trading suspension and Nasdaq's trading halt in May 2020. Other significant risks include potential delays in clinical trials and regulatory approvals due to the COVID-19 pandemic's impact on health authorities and research facilities, and the risk of losing licensed technology from MD Anderson if development milestones or other obligations are not met - A risk factor was added concerning the May 2020 SEC trading suspension and Nasdaq trading halt, noting that similar future actions could adversely affect stockholders[163] - The COVID-19 outbreak poses a risk of delaying clinical trials and regulatory approvals, and could adversely impact global economic conditions, impairing the company's ability to raise capital[164] - The company risks losing its licensed patent rights from MD Anderson if it fails to meet payment obligations, development milestones, or other terms of its license agreements[165] Unregistered Sales of Equity Securities and Use of Proceeds In April 2020, the company issued a five-year warrant to purchase 100,000 shares of its common stock at an exercise price of $1.14 per share to a consultant. The issuance was deemed exempt from registration under Section 4(a)(2) of the Securities Act - In April 2020, a warrant to purchase 100,000 shares of common stock at $1.14 per share was issued to a consultant in a transaction exempt from registration[167]