Chromocell Therapeutics(CHRO) - 2024 Q4 - Annual Report

Part I Business Channel Therapeutics is a clinical-stage biotech focused on developing non-opioid pain therapeutics targeting the NaV1.7 sodium ion-channel Overview and Pipeline The company is a clinical-stage biotech focused on developing non-addictive pain therapeutics, advancing its proprietary and licensed pipeline - The company's core focus is on developing therapeutics targeting the NaV1.7 sodium ion-channel to alleviate pain without using opioids[17] - CT2000 (Eye Pain): An eye drop formulation that has completed animal efficacy studies. The company plans to start human proof-of-concept (POC) studies in Australia in Q2 2025 to leverage a 43.5% tax credit[18][19][20] - CT3000 (Post-operative Pain): Pre-clinical models showed formulations provided a depot effect exceeding four days, a significant improvement over the standard of care, bupivacaine. Human POC trials are expected to start in early 2026[21][24][30] - CC8464 (Neuropathic Pain): Four Phase 1 trials with 207 patients showed good overall tolerability but caused skin rashes. A slow dose escalation study is planned to mitigate this side effect before proceeding to a Phase 2a POC study for orphan indications EM and iSFN[31][32][33] - On December 23, 2023, the company licensed three spray formulations from Benuvia (Diclofenac, Rizatriptan, Ondansetron) to diversify its pipeline, but currently has no development plans for them[42][45] Strategy, Manufacturing, and Intellectual Property The company's strategy focuses on advancing its drug candidates, expanding its pipeline, outsourcing manufacturing, and protecting intellectual property - The company's core strategy is to advance its three main drug candidates (CT2000, CT3000, CC8464) and expand its pipeline of non-opioid pain blockers[46][48] - The company plans to apply for FDA Orphan Drug Designation for CC8464 for the treatment of Erythromelalgia (EM) and idiopathic small fiber neuropathy (iSFN)[47] - All drug substances are manufactured externally by Clinical Manufacturing Organizations (CMOs); the company does not have in-house production capabilities[49][51] - The company holds a U.S. patent for the composition of matter and use of CC8464, which expires in 2035. It also has patents in France, Japan, India, Mexico, Israel, and South Korea[53] Legal Proceedings The company won a default judgment against its former CEO regarding termination claims and denies liability for a significant promissory note demand from Parexel - The company won a default judgment against former CEO Christian Kopfli and Chromocell Holdings, who had alleged improper termination and sought $479,169. The company reversed a related compensation accrual of $363,091, recording it as a gain[64][65] - Parexel has demanded payment of approximately $682,551 in principal plus over $177,000 in interest related to a promissory note with Chromocell Holdings. The company denies liability as it is not a party to the note[66] Government Regulation The company's operations are subject to extensive government regulation, including FDA oversight of drug development, manufacturing, and marketing - The company's products are regulated as new drugs by the FDA, requiring a multi-year process of preclinical studies and three phases of clinical trials before an NDA can be submitted for marketing approval[68][69][76] - The company may seek Orphan Drug Designation, which, if granted for a first-approved product, provides a seven-year marketing exclusivity period in the U.S. for treating a rare disease (affecting fewer than 200,000 people)[93][94] - The company may also apply for expedited programs such as Fast Track, Breakthrough Therapy, and Priority Review to potentially accelerate the development and review process for drugs addressing serious conditions[95][96][97] - Operations are subject to healthcare fraud and abuse laws, including the federal Anti-Kickback Statute and the False Claims Act, which carry significant civil and criminal penalties[113] - Commercial success depends on securing coverage and adequate reimbursement from third-party payors like Medicare, Medicaid, and private insurers, who are increasingly focused on cost-containment[115][118] Risk Factors The company faces significant financial, operational, and regulatory risks, including going concern issues and early-stage pipeline uncertainties - The independent auditor's report includes a 'going concern' qualification, citing recurring losses and an accumulated deficit, which raises substantial doubt about the company's ability to continue operations[161] - The company has a history of net losses, with a net loss of approximately $8.0 million for the year ended December 31, 2024, and an accumulated deficit of $21.5 million[167] - Material weaknesses in internal control over financial reporting have been identified, including inadequate segregation of duties and ineffective IT controls[173] - The company is in the early stages of development for its entire pipeline (CC8464, CT2000, CT3000), and failure or significant delays in any program would materially harm the business[179][181][185] - The company is dependent on a committed equity financing facility (CEF Purchase Agreement) for up to $30.0 million, but may not be able to access the full amount, which could adversely affect liquidity[321][328] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments[337] Cybersecurity As an R&D stage company, Channel Therapeutics views its cybersecurity risk as not significant and has no formal program, with board oversight - The company does not have a formal cybersecurity risk management program, viewing its risk as not significant at its current R&D stage[338] - The board of directors is responsible for overseeing strategic risk, including cybersecurity, while executive officers manage day-to-day risks[340] Properties The company's principal executive offices are located at 4400 Route 9 South, Suite 1000, Freehold, NJ 07728, leased on a month-to-month basis - The company leases its principal executive office in Freehold, NJ on a month-to-month basis[341] Legal Proceedings The company won a default judgment against its former CEO regarding termination claims and denies liability for a significant promissory note demand from Parexel - The company won a default judgment against former CEO Christian Kopfli, who had alleged improper termination. As a result, the company removed an accrual of $363,091 in compensation expenses and recorded a gain of the same amount[343][344] - The company denies liability for a claim from Parexel seeking payment of a promissory note for $682,551 plus interest, stating it is not a party to the note[345] Mine Safety Disclosures This item is not applicable to the company - Not applicable[346] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American, has never paid dividends, and has an authorized stock repurchase plan - The company's common stock is listed on the NYSE American under the symbol "CHRO"[348] - The company has never paid dividends and does not plan to in the foreseeable future[349] - A stock repurchase plan was authorized and later amended, increasing the total repurchase amount to $750,000 and extending it to June 30, 2025. The company repurchased 86,196 shares during 2024[356][357] Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported increased net losses, faces going concern doubts, and requires additional capital to fund its operations Results of Operations The company's net loss increased in 2024 due to higher G&A and professional fees, partially offset by reduced R&D expenses Results of Operations Comparison (2024 vs. 2023) | | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | OPERATING EXPENSES | | | | | | General and administrative expenses | $4,110,045 | $2,738,948 | $1,371,097 | 50% | | Research and development | $1,179,436 | $2,579,418 | ($1,399,982) | (54)% | | Professional fees | $2,281,968 | $1,543,918 | $738,050 | 48% | | Total operating expenses | $7,571,449 | $6,862,284 | $709,165 | 10% | | Loss from operations | ($7,571,449) | ($6,862,284) | ($709,165) | 10% | | Other expense | ($383,889) | ($518,509) | $134,620 | (26)% | | Net loss | ($7,955,338) | ($7,380,793) | ($574,545) | 8% | - General and Administrative expenses increased by $1.4 million (50%) in 2024, mainly due to higher compensation, marketing, D&O insurance, and IPO-related fees[401] - Research and Development expenses decreased by $1.4 million (54%) in 2024, primarily due to a $2.3 million reduction in IP services costs, which offset increases in CMC and consultant expenses[402] Liquidity and Capital Resources The company faces significant liquidity challenges, has substantial doubt about its going concern ability, and requires additional capital for operations - Management has concluded there is substantial doubt about the company's ability to continue as a going concern for at least the next twelve months[398][604] Key Liquidity Metrics (as of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Cash | $0.5 million | $0.1 million | | Working Capital Deficit | ($2.7 million) | ($6.4 million) | | Accumulated Deficit | ($21.5 million) | ($13.5 million) | - The company completed its IPO on February 21, 2024, raising net proceeds of approximately $5.7 million[388][410] Cash Flow Summary | | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($5,792,483) | ($981,031) | | Net cash provided by financing activities | $6,209,535 | $1,022,348 | | Net Increase In Cash | $417,052 | $41,317 | Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to identified material weaknesses in financial reporting and IT controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2024[443] - Three material weaknesses were identified: (1) lack of segregation of duties, (2) lack of multiple levels of review in financial reporting, and (3) lack of internal IT general controls[445] - As an emerging growth company, an auditor attestation report on internal control over financial reporting is not yet required[444] Part III Directors, Executive Officers and Corporate Governance The company is led by its executive officers and a board of directors with independent members and established committees Executive Officers and Directors | Name | Position | | :--- | :--- | | Francis Knuettel II | Chief Executive Officer, President, CFO, Treasurer, Secretary, Director | | Eric Lang | Chief Medical Officer | | Todd Davis | Director (Chairman of the Board) | | Ezra Friedberg | Director | | Richard Malamut | Director | | Chia-Lin Simmons | Director | - The board has determined that all non-employee directors, except for Mr. Todd Davis, are independent under NYSE American rules[464] - The board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance[475] Executive Compensation Executive compensation for 2024 included base salaries, bonuses, and option awards for named officers, governed by employment agreements 2024 Summary Compensation Table | Name and Principal Position | Year | Salary | Bonus | Option Awards | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Francis Knuettel II, CEO & CFO | 2024 | $424,923 | $56,666 | $361,833 | $843,422 | | Eric Lang, CMO | 2024 | $446,154 | $— | $230,318 | $676,472 | - The company's 2023 Equity Incentive Plan was amended to increase the share reserve to 1,944,444 shares of common stock[507][508] - Dr. Eric Lang's employment agreement includes an annualized salary of $400,000, a target bonus of 50% of salary, and an initial option grant for 218,000 shares[501] - Francis Knuettel II became a direct employee and CEO in March 2024, transitioning from a consulting arrangement via Camden Capital LLC[500] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Executive officers and directors collectively own a significant portion of common stock, with several entities holding 5% or more - All executive officers and directors as a group beneficially own 1,145,212 shares, representing 17.9% of the company's common stock as of March 21, 2025[534] 5% or Greater Stockholders | Name of Beneficial Owner | Percentage Owned | | :--- | :--- | | Alexandra Wood (Canada) Inc. | 9.5% | | Ezra Friedberg (and related entities) | 9.4% | | Balmoral Financial Group LLC | 8.6% | | Motif Pharmaceuticals Ltd. | 8.0% | | Aperture Healthcare Ventures Ltd. | 7.4% | | Boswell Prayer Ltd | 7.8% | | Benuvia Operations, LLC | 6.4% | | AME Equities LLC | 6.1% | - Under the company's equity compensation plans, 925,449 securities are subject to outstanding options/rights, and 1,018,995 securities remain available for future issuance as of December 31, 2024[536] Certain Relationships and Related Transactions, and Director Independence The company has engaged in significant related-party transactions, including its formation, various financings, and a key license agreement with an affiliated entity - The company was formed through a Contribution Agreement with its former parent, Chromocell Holdings, involving an exchange of assets and liabilities for stock[539][540] - The company entered into an exclusive license agreement with Benuvia Operations LLC. Director Todd Davis is the Chairman and CEO of Benuvia's ultimate parent company, Benuvia Holdings, LLC[549][552] - Multiple financing arrangements, including bridge notes and a rights offering, involved participation from significant stockholders and entities affiliated with directors, such as Balmoral Financial Group (affiliated with director Ezra Friedberg) and AME Equities LLC[545][546][548] - The company has a policy for the review and approval of related-person transactions exceeding $120,000 by the audit committee[556] Principal Accountant Fees and Services The company's independent auditor, Marcum LLP, billed significant fees primarily for audit services, all pre-approved by the Audit Committee Accountant Fees | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees | $211,817 | $164,229 | | Audit-related fees | $82,546 | $156,346 | | Tax fees | $— | $— | | All other fees | $77,092 | $43,490 | | Total | $371,455 | $364,065 | - The Audit Committee has a policy to pre-approve all audit and non-audit services provided by the independent auditors[560] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and a comprehensive set of exhibits filed as part of the Form 10-K - This section lists the financial statements and exhibits filed with the report[562] - Key exhibits filed or incorporated by reference include the Contribution Agreement with Chromocell, the Benuvia License Agreement, employment agreements with executive officers, and details of various financing arrangements[565][566][567] Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor's report expresses a fair opinion on the financial statements but highlights substantial doubt about the company's going concern - The auditor's report contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern[579] - The audit was conducted in accordance with PCAOB standards, and the financial statements are the responsibility of the Company's management[580][581] Consolidated Financial Statements The consolidated financial statements detail the company's financial position, performance, and cash flows, reflecting a net loss and deficit Consolidated Balance Sheet Highlights (As of December 31) | | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $1,369,143 | $96,391 | | Total Current Liabilities | $4,083,197 | $6,540,943 | | Total Liabilities | $4,083,197 | $6,540,943 | | Total Stockholders' Deficit | ($2,714,054) | ($6,444,552) | Consolidated Statement of Operations Highlights (For the Year Ended December 31) | | 2024 | 2023 | | :--- | :--- | :--- | | Total operating expenses | $7,571,449 | $6,862,284 | | Net Loss | ($7,955,338) | ($7,380,793) | | Net loss per common share | ($1.43) | ($5.78) | Consolidated Statement of Cash Flows Highlights (For the Year Ended December 31) | | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($5,792,483) | ($981,031) | | Net Cash Provided By Financing Activities | $6,209,535 | $1,022,348 | | Net Increase In Cash | $417,052 | $41,317 | Notes to the Consolidated Financial Statements The notes provide critical context to the financial statements, detailing accounting policies, related-party transactions, financing, equity, and tax matters - Note 2 (Liquidity and Going Concern): Management states there is substantial doubt about the company's ability to fund operations for the next twelve months, with a net loss of ~$8.0 million in 2024 and cash of ~$0.5 million at year-end[603][604] - Note 4 (Related Party Transactions): Details the Contribution Agreement with Chromocell Holdings, a Director Note with Todd Davis, and the Benuvia License Agreement, where Director Todd Davis is also an executive at Benuvia's parent company[628][637][552] - Note 8 (Income Tax): The company has a federal net operating loss (NOL) carryforward of approximately $16.4 million as of Dec 31, 2024, but has a full valuation allowance against its deferred tax assets, meaning it does not expect to realize them[705][706] - Note 10 (Subsequent Events): On February 25, 2025, the company issued an unsecured promissory note for a principal amount of $325,000, receiving $250,000 in cash[712]