Dermata Therapeutics(DRMA) - 2025 Q1 - Quarterly Report

Part I: Financial Information This section presents the company's unaudited financial statements, management's discussion, market risk, and internal controls for the quarter Item 1: Financial Statements (unaudited) This section presents Dermata Therapeutics' unaudited Q1 2025 financial statements, detailing financial position, performance, and cash flows, highlighting equity financing and reduced net loss Balance Sheets This section provides a snapshot of the company's assets, liabilities, and stockholders' equity as of March 31, 2025, and December 31, 2024 | Metric | March 31, 2025 | December 31, 2024 | | :---------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $9,719,268 | $3,161,570 | | Prepaid expenses and other current assets | $285,739 | $372,318 | | Total assets | $10,005,007 | $3,533,888 | | Accounts payable | $1,395,313 | $808,011 | | Accrued and other current liabilities | $1,308,472 | $1,164,783 | | Total liabilities | $2,703,785 | $1,972,794 | | Common Stock | $603 | $252 | | Additional paid-in capital | $75,279,545 | $67,236,181 | | Accumulated deficit | $(67,978,926) | $(65,675,339) | | Total stockholders' equity | $7,301,222 | $1,561,094 | | Total liabilities and stockholders' equity | $10,005,007 | $3,533,888 | - Total assets increased significantly to $10.0 million as of March 31, 2025, from $3.5 million at December 31, 2024, primarily driven by an increase in cash and cash equivalents[12] - Total stockholders' equity rose to $7.3 million as of March 31, 2025, from $1.6 million at December 31, 2024, largely due to increased additional paid-in capital from equity issuances[12] Statements of Operations This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2025, and 2024 | Operating Expenses/Income | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------- | :---------------------------------- | :---------------------------------- | | Research and development | $1,281,141 | $1,600,741 | | General and administrative | $1,058,662 | $1,602,819 | | Total operating expenses | $2,339,803 | $3,203,560 | | Loss from operations | $(2,339,803) | $(3,203,560) | | Interest income | $36,216 | $69,298 | | Net loss | $(2,303,587) | $(3,134,262) | | Net loss per share, basic and diluted | $(0.45) | $(7.06) | | Weighted-average basic and diluted Common Stock | 5,154,698 | 443,998 | - Net loss decreased to $(2.3) million for the three months ended March 31, 2025, from $(3.1) million in the prior year period, primarily due to lower operating expenses[15] - Total operating expenses decreased by $863,757, from $3.2 million in Q1 2024 to $2.3 million in Q1 2025[15] Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including stock-based compensation and equity issuances, for Q1 2025 | Change in Equity | Three Months Ended March 31, 2025 | | :-------------------------------------------------- | :-------------------------------- | | Balance at December 31, 2024 | $1,561,094 | | Stock-based compensation | $37,189 | | Issuance of Common Stock and warrants from January 2025 PIPE, net | $2,254,721 | | Issuance of Common Stock upon exercise of pre-funded warrants | $977 | | Issuance of Common Stock and warrants from March 2025 Warrant Inducement, net | $5,750,828 | | Net loss | $(2,303,587) | | Balance at March 31, 2025 | $7,301,222 | - Total stockholders' equity increased from $1,561,094 at December 31, 2024, to $7,301,222 at March 31, 2025, largely driven by proceeds from equity and warrant issuances[17] - Additional paid-in capital saw significant increases from the January 2025 PIPE ($2,254,528) and March 2025 Warrant Inducement ($5,750,768)[17] Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for Q1 2025 and 2024 | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | | Net cash used in operating activities | $(1,934,066) | $(2,704,454) | | Net cash provided by financing activities | $8,491,764 | $- | | Net increase (decrease) in Cash and cash equivalents | $6,557,698 | $(2,704,454) | | Cash and cash equivalents at beginning of period | $3,161,570 | $7,438,135 | | Cash and cash equivalents at end of period | $9,719,268 | $4,733,681 | - Net cash provided by financing activities was $8.5 million in Q1 2025, a substantial increase from $0 in Q1 2024, primarily from equity and warrant issuances[23] - Cash used in operating activities decreased to $(1.9) million in Q1 2025 from $(2.7) million in Q1 2024[23] Notes to Financial Statements This section provides detailed explanations and additional information supporting the unaudited financial statements - The company is a clinical-stage biotechnology company focused on medical and aesthetic skin conditions and diseases[26] - Substantial doubt exists about the company's ability to continue as a going concern due to an accumulated deficit and expected future losses, with cash expected to fund operations only into Q1 2026[28][30] - Significant equity financing activities occurred in Q1 2025, including a January 2025 PIPE and a March 2025 Warrant Inducement, generating substantial net proceeds[54][56][65] - Positive topline results for the XYNGARI™ Phase 3 STAR-1 clinical trial were announced in Q1 2025, meeting all co-primary endpoints[80][112] Note 1: Organization and Basis of Presentation This note describes the company's business, reverse stock split, and going concern considerations - Dermata Therapeutics, Inc. is a clinical-stage biotechnology company focused on treating medical and aesthetic skin conditions and diseases[26] - The company effected a 1-for-15 reverse stock split on May 16, 2024, with all share and per share amounts retroactively adjusted[27] - As of March 31, 2025, the company had $9.7 million in cash and cash equivalents and an accumulated deficit of $68.0 million, raising substantial doubt about its ability to continue as a going concern beyond Q1 2026[28] - Management plans to raise additional capital through equity or debt offerings, or product development/licensing transactions, but cannot assure availability on favorable terms[30] Note 2: Summary of Significant Accounting Policies This note outlines the key accounting principles and policies applied in preparing the financial statements - The company operates as a single operating segment focused on developing and commercializing pharmaceuticals for skin conditions[33] - Research and development costs, including upfront and milestone payments for licensed technology, are expensed as incurred[39] - All issued and modified warrants are classified as equity instruments[45] | Potentially Dilutive Securities | As of March 31, 2025 | As of March 31, 2024 | | :------------------------------ | :------------------- | :------------------- | | Common Stock options | 204,841 | 27,341 | | Common Stock warrants | 12,389,769 | 557,246 | | Total potentially dilutive securities | 12,594,610 | 584,587 | - The company is evaluating the impact of recent accounting pronouncements ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Income Statement Expenses)[50][51] Note 3: Balance Sheet Details This note provides disaggregated information for prepaid expenses and accrued liabilities on the balance sheet | Account | March 31, 2025 | December 31, 2024 | | :---------------------------------- | :------------- | :---------------- | | Prepaid expenses and other current assets: | | | | Prepaid insurance | $208,228 | $349,824 | | Prepaid research and development costs | $2,000 | $12,600 | | Prepaid other and other current assets | $75,511 | $9,894 | | Total prepaid expenses and other current assets | $285,739 | $372,318 | | Accrued and other current liabilities: | | | | Accrued research and development costs | $158,353 | $295,392 | | Accrued compensation and benefits | $961,759 | $731,632 | | Accrued other | $188,360 | $137,759 | | Total accrued and other current liabilities | $1,308,472 | $1,164,783 | - Total prepaid expenses and other current assets decreased to $285,739 as of March 31, 2025, from $372,318 at December 31, 2024[52] - Total accrued and other current liabilities increased to $1,308,472 as of March 31, 2025, from $1,164,783 at December 31, 2024, mainly due to higher accrued compensation and benefits[52] Note 4: Equity Securities This note details the company's common stock, preferred stock, warrants, and equity incentive plan activities | Description | Authorized | Issued | Outstanding | | :---------------------------------- | :----------- | :------- | :---------- | | Common Stock, par value $0.0001 | 250,000,000 | 6,032,648 | 6,032,648 | | Preferred Stock | 10,000,000 | - | - | | Warrants | - | 12,389,769 | 12,389,769 | | 2021 Omnibus Equity Incentive Plan | - | 205,755 | 204,841 | | Total equity securities | 260,000,000 | 18,628,172 | 18,627,258 | - The company completed a March 2025 Inducement Letter agreement, where a holder exercised 4,834,470 existing warrants at a reduced price of $1.284 per share, generating approximately $5.8 million in net proceeds and resulting in the issuance of 4,980,806 new Series A Warrants and 4,688,134 new Series B Warrants[54][65] - In January 2025, the company closed a private placement (PIPE) selling 1,935,412 shares of Common Stock, pre-funded warrants, and 2,007,880 warrants, yielding approximately $2.3 million in net cash proceeds[56] | Warrant Description | Quantity Outstanding (March 31, 2025) (warrants) | Exercise Price ($) | | :------------------------------------------ | :------------------------------------ | :------------- | | Pre-IPO Series 1a Warrants | 279 | $4,920.00 | | IPO Warrants | 12,320 | $1,680.00 | | IPO Underwriter Warrants | 535 | $1,932.00 | | March 2023 Offering Placement Agent Warrants | 7,549 | $57.94 | | May 2023 PIPE Placement Agent Warrants | 3,736 | $42.84 | | November 2023 Placement Agent Warrants | 16,202 | $12.21 | | May 2024 Series A Common Warrants | 23,340 | $4.91 | | May 2024 Series B Common Warrants | - | $4.91 | | May 2024 Placement Agent Warrants | 36,144 | $6.45 | | September 2024 PIPE Series A Common Warrants | - | $1.58 | | September 2024 PIPE Series B Common Warrants | - | $1.58 | | September 2024 PIPE Placement Agent Warrants | 133,880 | $2.29 | | January 2025 PIPE Warrants | 2,007,880 | $1.27 | | January 2025 PIPE Placement Agent Warrants | 140,552 | $1.59 | | March 2025 Warrant Inducement Series A Warrants | 4,980,806 | $1.284 | | March 2025 Warrant Inducement Series B Warrants | 4,688,134 | $1.284 | | March 2025 Warrant Inducement Placement Agent Warrants | 338,412 | $1.605 | | Total warrants outstanding | 12,389,769 | | Note 5: Equity Incentive Plan This note describes the company's stock option activity and stock-based compensation expense - The 2021 Omnibus Equity Incentive Plan was amended to increase authorized shares and implement a 5% evergreen provision, resulting in an additional 125,888 shares issuable as of January 1, 2025[67] | Stock-based Compensation Expense | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------- | :---------------------------------- | :---------------------------------- | | Research and development | $7,620 | $237,337 | | General and administrative | $29,569 | $349,897 | | Total | $37,189 | $587,234 | | Stock Option Activity | Number of Options Outstanding (March 31, 2025) (options) | Weighted Average Exercise Price ($) | | :-------------------- | :--------------------------------------------- | :------------------------------ | | Balance at December 31, 2024 | 52,341 | $6.03 | | Options granted | 152,500 | $1.38 | | Balance at March 31, 2025 | 204,841 | $2.57 | | Options exercisable at March 31, 2025 | 29,629 | $5.24 | - Total unrecognized compensation cost related to stock options was approximately $0.3 million as of March 31, 2025, expected to be recognized over 2.6 years[79] Note 6: Commitments and Contingencies This note outlines the company's contractual obligations, clinical trial agreements, and potential milestone payments - The XYNGARI™ Phase 3 STAR-1 clinical trial has a total contract amount of approximately $7.2 million, with $0.7 million recognized as R&D expense in Q1 2025[80] - The company has an exclusive supply agreement for Spongilla raw material with a Russian entity, which could be negatively impacted by sanctions[81] - License agreement with Villani, Inc. includes future milestone payments up to $40.5 million and single-digit royalties, but no accrual is required as of March 31, 2025, as the likelihood of achievement is not yet probable[82] - A Clinical Trial Collaboration Agreement was entered into with Revance Therapeutics, Inc. on January 17, 2025, to conduct a Phase 2a clinical trial evaluating XYNGARI™ with Daxxify for primary axillary hyperhidrosis[83] Note 7: Segment Information This note confirms the company operates as a single segment focused on developing pharmaceutical products for skin conditions - The company operates as a single operating segment, focused on identifying, developing, and commercializing pharmaceutical products for skin conditions[87] - The CEO, as the chief operating decision maker, manages and allocates resources on an entity-wide basis, using net loss as the measure of segment profit or loss[88] | Segment Expense | Quarters Ended March 31, 2025 | Quarters Ended March 31, 2024 | | :---------------------- | :---------------------------- | :---------------------------- | | Research and development | $1,281,141 | $1,600,741 | | General and administrative | $1,058,662 | $1,602,819 | | Interest income | $36,216 | $69,298 | | Net loss | $(2,303,587) | $(3,134,262) | Note 8: Related Party Transaction This note discloses the participation of company insiders in the January 2025 PIPE financing - Company insiders, including the CEO, CFO, and board members, participated in the January 2025 PIPE financing, purchasing 1,220,476 shares of Common Stock and warrants for an aggregate of $1.55 million[90] - The purchase price and accompanying warrant terms for insiders were identical to those paid by other investors in the January 2025 PIPE[90] Note 9: Subsequent Events This note reports events occurring after March 31, 2025, including share delivery and a Nasdaq non-compliance notification - Subsequent to March 31, 2025, 345,470 abeyance shares related to the March 2025 Warrant Inducement were delivered to the holder, leaving 3,887,000 shares still in abeyance[91] - On March 25, 2025, the company received a Nasdaq notification for non-compliance with the minimum stockholders' equity requirement (Rule 5550(b)(1)), with a deadline of May 9, 2025, to regain compliance or submit a plan[92] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operations, and liquidity for Q1 2025, covering business overview, recent developments, and future funding needs - The company is a late-stage medical dermatology company developing XYNGARI™ and DMT410, both utilizing proprietary Spongilla technology[99][101] - XYNGARI™ Phase 3 STAR-1 trial met all co-primary endpoints, showing statistically significant improvements in acne treatment[104][112] - The company has not generated revenue and incurred significant operating losses, with an accumulated deficit of $68.0 million as of March 31, 2025[108][109] - Additional financing is required to support operations and complete clinical development, with existing cash expected to fund operations only into Q1 2026[110][131][135] CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This note advises that the report contains forward-looking statements subject to risks and uncertainties, with no obligation to update - The report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors beyond the company's control[95] - Key risk factors include lack of operating history, expectation of significant operating losses, need for additional capital, dependence on product candidates in clinical development, and ability to obtain regulatory approvals[96][102] - The company expressly disclaims any obligation to update, revise, or correct any forward-looking statements[98] Overview This section provides a general business description, product pipeline, and financial outlook, including accumulated deficit and funding needs - Dermata Therapeutics is a late-stage medical dermatology company developing XYNGARI™ and DMT410, both based on proprietary Spongilla technology for topical treatment of skin conditions[99][101] - XYNGARI™ Phase 3 STAR-1 trial for acne met all co-primary endpoints, demonstrating rapid and sustained therapeutic effects in reducing inflammatory and noninflammatory lesions and improving investigator's global assessment (IGA)[104] - DMT410 aims for topical delivery of botulinum toxin, with a Phase 1 POC trial showing 80% of hyperhidrosis patients achieving >50% sweat reduction[106] - The company has an accumulated deficit of $68.0 million as of March 31, 2025, and expects to incur significant operating losses for the foreseeable future, requiring additional financing[109][110] Recent Developments This section highlights key events, including recent financing activities and positive clinical trial results for XYNGARI™ - On January 21, 2025, the company closed a private placement (PIPE) generating approximately $2.3 million in net cash proceeds from the sale of common stock and warrants[111] - On March 27, 2025, positive topline results were announced for the XYNGARI™ Phase 3 STAR-1 trial, meeting all co-primary endpoints with high statistical significance[112] - Also on March 27, 2025, a warrant inducement agreement generated approximately $5.8 million in net proceeds from the exercise of existing warrants at a reduced price, leading to the issuance of new Series A and B warrants[113] - No shares were sold under the At The Market (ATM) Agreement during Q1 2025, and no remaining capacity exists[116] Critical Accounting Policies and Use of Estimates This section discusses management's judgments and estimates in financial reporting, particularly for R&D expenses and warrant classification - The preparation of financial statements requires management to make estimates and judgments, particularly concerning accrued research and development expenses[117] - Research and development expense estimates are based on the estimated progress towards completion of projects, patient enrollment, and milestones achieved by third-party service providers[119] - Warrants are assessed for proper classification (equity vs. liability) upon issuance; all company warrants are equity-classified[120][121] Results of Operations This section analyzes the company's operating expenses, interest income, and net loss for Q1 2025 compared to Q1 2024 | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Difference | | :-------------------------- | :---------------------------------- | :---------------------------------- | :--------- | | Research and development | $1,281,141 | $1,600,741 | $(319,600) | | General and administrative | $1,058,662 | $1,602,819 | $(544,157) | | Total operating expenses | $2,339,803 | $3,203,560 | $(863,757) | | Loss from operations | $(2,339,803) | $(3,203,560) | $863,757 | | Interest income | $36,216 | $69,298 | $(33,082) | | Net loss | $(2,303,587) | $(3,134,262) | $830,675 | - Research and development expenses decreased by $0.3 million, primarily due to decreased clinical expenses from the STAR-1 study and reduced stock-based compensation[124] - General and administrative expenses decreased by $0.5 million, mainly due to decreased stock-based compensation and audit fees[125] Cash Flows This section details cash flows from operating and financing activities for Q1 2025 and Q1 2024 | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | | Net cash used in operating activities | $(1,934,066) | $(2,704,454) | | Net cash provided by financing activities | $8,491,764 | $- | | Net increase (decrease) in Cash and cash equivalents | $6,557,698 | $(2,704,454) | - Cash provided by financing activities was $8.5 million in Q1 2025, resulting from the January 2025 PIPE ($2.3 million) and March 2025 Inducement financing ($6.2 million)[130] - Net cash used in operating activities decreased to $1.9 million in Q1 2025 from $2.7 million in Q1 2024[128][129] Liquidity and Capital Resources This section discusses the company's cash position, accumulated deficit, and future capital requirements, noting going concern doubts - As of March 31, 2025, cash and cash equivalents totaled $9.7 million, with an accumulated deficit of $68.0 million[131] - Existing cash resources are expected to fund operations only into the first quarter of 2026, raising substantial doubt about the company's ability to continue as a going concern[131][135] - The company requires additional capital to complete Phase 3 studies for XYNGARI™ for acne, continue DMT410 development, and pursue in-licenses or acquisitions[135] - Future funding requirements depend on factors such as the number and characteristics of drug candidates, scope and costs of R&D and clinical trials, regulatory approvals, manufacturing costs, and strategic collaborations[140] Contractual Obligations and Commitments This section addresses the company's material non-cancelable obligations under its various agreements - The company does not have material non-cancelable obligations under its contracts with contract research organizations and other service providers, as these agreements generally provide for termination upon notice[138] JOBS Act Accounting Election This section states the company's election not to use the extended transition period for new accounting standards - As an emerging growth company, Dermata Therapeutics has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards[139] - The company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies[139] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recently issued accounting standards - Refer to Note 2 – Summary of Significant Accounting Policies for a discussion of recent accounting pronouncements, including ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Income Statement Expenses)[141][50][51] Item 3: Quantitative and Qualitative Disclosures about Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reported period - This item is not applicable to the company[142] Item 4: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of March 31, 2025[144] - No material changes in internal control over financial reporting occurred during the period[145] Part II: Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1: Legal Proceedings The company is not involved in any material legal proceedings and is unaware of any threatened actions that would adversely affect its financials - The company is not a party to any material legal proceedings[147] Item 1A: Risk Factors This section refers to the Annual Report on Form 10-K for risk factors and confirms no material changes occurred during Q1 2025 - No material changes to the risk factors described in the Annual Report on Form 10-K occurred during the quarter ended March 31, 2025[148] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds to disclose for the period - None to report for the period[149] Item 3: Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities to report for the period - None to report for the period[150] Item 4: Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - This item is not applicable to the company[151] Item 5: Other Information This section details the 2025 Annual Meeting of Stockholders and confirms no Rule 10b5-1 trading plans were adopted or terminated by insiders - The 2025 Annual Meeting of Stockholders is set for July 15, 2025[152] - The new deadline for stockholder proposals under Rule 14a-8 for the 2025 Annual Meeting is May 22, 2025[153] - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2025[156] Item 6: Exhibits This section lists all exhibits filed with the Form 10-Q, including various warrant forms, agreements, and certifications - Exhibits include forms of January 2025 PIPE Pre-Funded Warrants, January 2025 PIPE Warrants, March 2025 New Warrants, Clinical Trial Collaboration Agreement, and Registration Rights Agreement[157] - Certifications of the Principal Executive Officer and Chief Financial Officer are filed herewith[157] Signatures This section contains the official signatures of the authorized officers of Dermata Therapeutics, Inc., confirming the due authorization and filing of the report - The report is signed by Gerald T. Proehl, President and Chief Executive Officer, and Kyri K. Van Hoose, Senior Vice President, Chief Financial Officer[163]