Acurx Pharmaceuticals(ACXP) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Interim Financial Statements (unaudited) This section presents the unaudited condensed interim financial statements, including the Balance Sheets, Statements of Operations, Statements of Changes in Members' and Shareholders' Equity, and Statements of Cash Flows, along with their accompanying notes, for the periods ended September 30, 2021, and December 31, 2020 (balance sheet) or September 30, 2020 (income statement, cash flow, equity) - The company's financial statements are unaudited and prepared in accordance with GAAP for interim reporting, including only normal, recurring adjustments[30] - The year-end condensed balance sheet data is derived from audited financial statements but lacks full GAAP disclosures[30] - Interim results are not necessarily indicative of full fiscal year results[30] Condensed Interim Balance Sheets | Metric | Sep 30, 2021 (unaudited) | Dec 31, 2020 | | :-------------------------- | :----------------------- | :----------- | | ASSETS | | | | Cash | $14,459,046 | $3,175,411 | | Prepaid Expenses | $530,582 | $48,609 | | TOTAL ASSETS | $14,989,628 | $3,224,020 | | LIABILITIES & EQUITY | | | | Accounts Payable & Accrued | $712,437 | $455,931 | | PPP Loan | — | $66,503 | | TOTAL LIABILITIES | $712,437 | $522,434 | | TOTAL MEMBERS' & SHAREHOLDERS' EQUITY | $14,277,191 | $2,701,586 | | TOTAL LIABILITIES & EQUITY | $14,989,628 | $3,224,020 | Condensed Interim Statements of Operations | Metric (Unaudited) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and Development | $1,126,972 | $659,977 | $1,313,954 | $1,745,446 | | General and Administrative | $3,515,250 | $654,569 | $8,873,160 | $1,761,561 | | TOTAL OPERATING EXPENSES | $4,642,222 | $1,314,546 | $10,187,114 | $3,507,007 | | Gain on PPP Loan Forgiveness | — | — | $66,503 | — | | NET LOSS | $(4,642,222) | $(1,314,546) | $(10,120,611) | $(3,507,007) | | LOSS PER SHARE | | | | | | Basic & Diluted Net Loss Per Share | $(0.46) | $(0.21) | $(1.27) | $(0.58) | | Weighted Average Pro Forma Shares Outstanding | 10,116,403 | 6,266,584 | 7,988,563 | 6,037,254 | Condensed Interim Statements of Changes in Members' and Shareholders' Equity - The company underwent a corporate conversion from a limited liability company to a Delaware corporation on June 23, 2021, leading to the conversion of Class A and Class B Membership Interests into common stock[56][57] - Total Members' and Shareholders' Equity significantly increased from $2,701,586 at January 1, 2021, to $14,277,191 at September 30, 2021, primarily due to the Initial Public Offering[19] Condensed Interim Statements of Cash Flows | Metric (Unaudited) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Used in Operating Activities | $(3,513,497) | $(2,391,804) | | Net Cash Provided by Financing Activities | $14,797,132 | $3,315,110 | | Net Increase in Cash | $11,283,635 | $923,306 | | Cash at Beginning of Period | $3,175,411 | $2,483,322 | | Cash at End of Period | $14,459,046 | $3,406,628 | Notes to the Condensed Interim Financial Statements (unaudited) This section provides detailed explanations and disclosures for the condensed interim financial statements, covering the company's nature of operations, significant accounting policies, specific account breakdowns, and events such as the PPP loan, executive compensation, equity issuances, and share-based payments NOTE 1 – NATURE OF OPERATIONS - Acurx Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company, formed in July 2017, focused on developing novel antibiotics targeting difficult-to-treat bacterial infections by blocking the DNA polymerase IIIC (Pol IIIC) enzyme[24] - The company's lead antibiotic candidate, ibezapolstat (formerly ACX-362E), targets Clostridium difficile Infections (CDI), acquired in February 2018[26] - The company has not generated any revenues since inception, has experienced net losses and negative cash flows, and completed an IPO in June 2021, raising approximately $17.3 million gross proceeds[27][28] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared in accordance with GAAP for interim reporting, with management's estimates affecting reported amounts[30][31] - The company estimates a 0% annual effective tax rate due to incurred and forecasted losses, and a full valuation allowance has been recorded against deferred tax assets[32] - Research and development costs are expensed when incurred, and share-based compensation for officers, directors, and vendors is recognized based on grant-date fair value over the vesting period[37][38][39] NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Accrued compensation expenses | $252,117 | $317,068 | | Accrued research and development | $314,984 | $89,156 | | Accrued professional fees | $133,194 | $49,707 | | Other accounts payable and accrued expenses | $12,142 | — | | Total | $712,437 | $455,931 | NOTE 4 – PAYCHECK PROTECTION PROGRAM LOAN - The company received a $66,503 PPP loan in May 2020 under the CARES Act, which was fully forgiven in May 2021, resulting in a gain on forgiveness of debt[45] NOTE 5 – EXECUTIVE COMPENSATION - Executive compensation, including base salary and year-end bonuses, was historically settled with Class A Membership Interests, with some compensation deferred[46][47][48] - In March 2021, previously granted Class B Membership Interests to executives and non-employee management were cancelled and replaced with options to purchase 770,000 shares of common stock in June 2021[49][63] - New employment agreements for the three executives became effective June 29, 2021, and additional stock options were granted in July 2021[50][64] NOTE 6 – ISSUANCE OF EQUITY INTERESTS - The company conducted several private placement equity offerings between 2018 and 2020, issuing Class A Membership Interests, often with warrant coverage, at prices ranging from $1.00 to $3.25 per unit[52][53][54][55][56] - On June 23, 2021, Acurx Pharmaceuticals, LLC converted to Acurx Pharmaceuticals, Inc., and on June 29, 2021, completed an IPO, issuing 2,875,000 common shares at $6.00 per share, generating approximately $14.8 million net proceeds[56][57] - All outstanding Class A and Class B Membership Interests were converted into 7,041,208 shares of common stock at a one-for-two ratio during the corporate conversion[57] NOTE 7 – SHARE-BASED COMPENSATION - Share-based compensation expense for board members and corporate advisory council members, previously granted as restricted Class A Membership Interests, became fully vested upon corporate conversion[60] | Period | Share-Based Compensation Expense | | :----------------------------------- | :------------------------------- | | Three Months Ended Sep 30, 2021 | $0 | | Three Months Ended Sep 30, 2020 | $175,000 | | Nine Months Ended Sep 30, 2021 | $755,556 | | Nine Months Ended Sep 30, 2020 | $508,333 | - The 2021 Equity Incentive Plan was approved, reserving 2,000,000 common shares, with 239,305 shares still available for issuance as of September 30, 2021[62] - Stock options to purchase 2,357,500 shares were granted during the nine months ended September 30, 2021, with a weighted average exercise price of $6.21 and a weighted average grant date fair value of $4.72[68] NOTE 8 – SHARE-BASED PAYMENTS TO VENDORS - The company granted Class A Membership Interests to vendors for consulting services, expensing these costs in the same period as if cash had been paid[69] | Period | G&A Expense | R&D Expense | | :----------------------------------- | :---------- | :---------- | | Three Months Ended Sep 30, 2021 | $37,500 | $0 | | Three Months Ended Sep 30, 2020 | $78,125 | $53,520 | | Nine Months Ended Sep 30, 2021 | $188,875 | $21,596 | | Nine Months Ended Sep 30, 2020 | $278,000 | $195,716 | - In the third quarter of 2021, the company granted vendors 35,695 shares of common stock, resulting in $208,270 in selling, general, and administrative expense for the nine months ended September 30, 2021[72] NOTE 9 – NET LOSS PER SHARE - Basic and diluted net loss per common share for the three and nine months ended September 30, 2021, was $(0.46) and $(1.27) respectively[15][73] - Potentially dilutive shares (unvested common stock, warrants, stock options) were excluded from diluted EPS calculation as their inclusion would be antidilutive[73] NOTE 10 – RELATED PARTY TRANSACTIONS - The company paid and expensed $7,500 during Q3 2021 for administrative services provided by a former board member, completing a $15,000 agreement initiated in 2020[74] NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS - The company evaluated ASU No. 2016-02, Leases (Topic 842), effective for fiscal years after December 15, 2021, and determined it will not impact financial statements as the company has no lease obligations[75][76] NOTE 12 – COMMITMENTS AND CONTINGENCIES - The company has milestone payment commitments totaling $700,000 (with $50,000 already paid) related to the development of ACX-362E (ibezapolstat) and royalty payments of 4% of net sales[77] NOTE 13 – SUBSEQUENT EVENTS - No subsequent events were reported[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity, highlighting key developments, the impact of COVID-19, and a comparison of financial performance for the three and nine months ended September 30, 2021, versus 2020 Overview - Acurx Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on developing a new class of antibiotics to address antimicrobial resistance (AMR) by blocking the DNA polymerase IIIC (Pol IIIC) enzyme[80][81] - The company's pipeline includes clinical and early-stage antibiotic candidates targeting Gram-positive bacteria for infections like Clostridium difficile (C. difficile), Enterococcus (VRE), Staphylococcus (MRSA), and Streptococcus[81] Recent Developments - The company completed its IPO on June 29, 2021, issuing 2,875,000 common shares at $6.00 per share, generating $14.8 million net proceeds[84] - IPO proceeds are allocated to complete the Phase 2b clinical trial of ibezapolstat for CDI, complete pre-clinical development of ACX-375C, and for general corporate purposes[84] - Health Holland awarded a $500,000 research grant to Leiden University Medical Center in July 2021, with the company participating as a scientific collaborator to study DNA Pol IIIC inhibitors[89] Effects of Coronavirus (COVID-19) on Our Business - The COVID-19 pandemic caused significant disruptions, including decreased enrollment rates in the Phase 2a clinical trial for ibezapolstat, though manufacturing and R&D activities with key vendors remained unchanged[86] - The company received a $66,503 Paycheck Protection Program (PPP) loan in May 2020, which was fully forgiven on April 13, 2021, resulting in a gain on extinguishment of debt[88] - The full impact of COVID-19 remains uncertain, but the company is monitoring developments and believes it is well-positioned, despite potential adverse effects on business, financial condition, and cash flows[87] Results of Operations Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020 | Expense Category | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | Percentage Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and Development Expenses | $1,127 | $660 | 71% Increase | | Selling, General and Administrative Expenses | $3,515 | $655 | 437% Increase | | Total Operating Expenses | $4,642 | $1,315 | 253% Increase | | Net Loss | $4,642 | $1,315 | 253% Increase | - The significant increase in Selling, General and Administrative Expenses was primarily driven by a $2.0 million increase in stock-based compensation, a $0.2 million increase in professional fees, $0.3 million related to other employee related expenses, and a $0.3 million increase in legal and insurance costs[93] Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020 | Expense Category | Sep 30, 2021 (in thousands) | Sep 30, 2020 (in thousands) | Percentage Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and Development Expenses | $1,314 | $1,745 | (25)% Decrease | | Selling, General and Administrative Expenses | $8,873 | $1,762 | 403% Increase | | Total Operating Expenses | $10,187 | $3,507 | 190% Increase | | Gain on PPP Loan Forgiveness | $67 | — | 100% Increase | | Net Loss | $10,120 | $3,507 | 189% Increase | - The decrease in Research and Development expenses was primarily due to a reduction in Phase 2a clinical trial related costs, which were completed in 2020[97] - The substantial increase in Selling, General and Administrative expenses was mainly due to a $4.5 million increase in stock-based compensation, $1.5 million in professional fees, $0.5 million of employee related expenses, a $0.3 million increase in stock-based director fees due to accelerated vesting, and $0.3 million increase in legal and insurance costs[98] Liquidity and Capital Resources - The company has incurred cumulative losses of approximately $23.9 million since inception as of September 30, 2021, with no revenue generated from operations[100] - Operations are funded primarily by equity issuances, including $12.9 million from equity financings between March 2018 and October 2020, and $14.8 million net proceeds from the June 2021 IPO[100] - As of September 30, 2021, the company had working capital of $14.3 million, primarily consisting of $14.5 million in cash, offset by $0.7 million in accounts payable and accrued expenses[103] - Management believes substantial doubt exists about the company's ability to continue as a going concern within one year due to expected future losses and the need for additional financing[102] Critical Accounting Policies and Estimates - Key accounting policies and estimates include federal income taxes (0% effective rate due to losses, full valuation allowance on deferred tax assets), concentration of credit risk (cash held in one FDIC-insured institution, exceeding limits at times), and expensing research and development costs when incurred[111][114][116] - Share-based compensation for officers, directors, and vendors is recognized based on grant-date fair value over the vesting period[117][118] - The company relies on a major vendor (CRO) for a significant portion of R&D expenditures (40% in 2020) and anticipates continued significant expenses with this vendor for clinical trials[120] Other Company Information - The company is an "emerging growth company" and "smaller reporting company" under the JOBS Act, allowing for reduced reporting requirements and an extended transition period for new accounting standards[121][122][235][236] - The company intends to rely on exemptions such as providing only two years of audited financial statements, not complying with auditor attestation for Section 404, and reduced executive compensation disclosures[233] Recent Accounting Pronouncements - The company does not believe any recently issued accounting pronouncements will significantly affect its financial accounting measurements or disclosures[123] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Acurx Pharmaceuticals, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures due to its status as a smaller reporting company[125] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2021, primarily due to inadequate segregation of duties given the small management team - Management concluded that disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2021[126] - The ineffectiveness is attributed to inadequate segregation of duties due to the small management team of three persons[127] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control during the quarter[129] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any litigation or legal proceedings that management believes would have a material adverse effect on its business - The company is not currently involved in any material litigation or legal proceedings[131] Item 1A. Risk Factors This section outlines various risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth prospects, categorized into risks related to business, regulatory approval, dependence on third parties, intellectual property, common stock ownership, and general factors Risks Related to Our Business - The company has a limited operating history since its organization in July 2017 and acquisition of its lead product candidate in February 2018, and expects to incur significant operating losses for several years[133][134] - The independent registered public accounting firm has expressed substantial doubt about the company's ability to continue as a going concern due to significant accumulated deficit and negative operating cash flows[135][136] - The company's success heavily relies on the successful development and commercialization of its lead product candidate, ibezapolstat, for CDI, which faces risks including clinical trial completion, regulatory approvals, manufacturing, market acceptance, and competition[137][138] - The COVID-19 pandemic could adversely impact business operations, including preclinical studies and clinical trials, through delays in enrollment, site initiation, supply chain disruptions, and regulatory review[155][156] Risks Related to Regulatory Approval - Failure of clinical trials to demonstrate safety and efficacy to regulatory authorities (FDA, EMA) could lead to additional costs, delays, or inability to complete development and commercialization of product candidates[173] - The company may experience unforeseen events during clinical trials, such as negative results, slow patient enrollment, or non-compliance by third-party contractors, which could delay or prevent marketing approval[175][176] - The company's research, development, manufacture, and marketing activities are subject to extensive government regulation, and failure to obtain or comply with approvals could delay product introduction and impact business[180][181] - Current and future healthcare legislative and regulatory actions, including efforts to control prescription drug prices and changes to programs like Medicare and Medicaid, could adversely affect the company's results of operations[182][183][184][185][186][188][189] Risks Related to Our Dependence on Third Parties - The company lacks internal sales and marketing infrastructure and experience, requiring it to either build its own sales force or outsource these functions, which carries risks of high costs, delays, and lower profitability[190][191][192][193] - The company relies on third-party manufacturers for product candidates, increasing risks of insufficient quantities, unacceptable costs, and delays, especially given single-source suppliers for some raw materials[194][195] - Reliance on third-party clinical investigators, CROs, and consultants for preclinical studies and clinical trials means less control over timing and quality, and potential delays or failures if these parties do not perform adequately[200][201] - The ability to commercialize product candidates depends on adequate reimbursement from third-party payers, and efforts to contain healthcare costs could limit market acceptance and revenues[202][203][204] Risks Related to Intellectual Property - The company may be involved in expensive and time-consuming lawsuits to protect or enforce its patents, with risks that patents could be invalidated, unenforceable, or circumvented by competitors[209][210] - Intellectual property litigation could divert substantial resources and management attention, potentially leading to significant expenses, damages, or injunctions preventing product commercialization[211][212] - The company may need to license third-party intellectual property, which may not be available on commercially reasonable terms or at all, potentially harming development and commercialization efforts[213][214] - Failure to adequately protect trade secrets, including unpatented know-how, could harm the company's business and competitive position if such information is disclosed or independently developed by competitors[218][219] Risks Related to Ownership of Our Common Stock - The company expects increased expenses and will need substantial additional funding, and inability to raise capital when needed could force delays, reductions, or elimination of product development or commercialization efforts[220][221][222][223][224][225] - Raising additional capital through equity or convertible debt could cause significant dilution to stockholders, while debt financing may impose restrictive covenants[226][227][228] - Future sales of a substantial number of common shares by existing stockholders or in connection with future acquisitions/financings could depress the stock price[229] - Provisions in corporate charter documents and Delaware law, such as classified board, restrictions on stockholder action, and preferred stock issuance authority, could make an acquisition more difficult[230][231][232] - The company's status as an "emerging growth company" and "smaller reporting company" allows for reduced reporting requirements, which may make its common stock less attractive to some investors and increase price volatility[233][234][236][237] General Risk Factors - Cyber incidents or attacks could lead to information theft, data corruption, operational disruption, and financial loss, and the company may lack sufficient protection as an early-stage entity[245][246] - The company is exposed to risks of misconduct by employees, investigators, consultants, and partners, including non-compliance with regulations and fraud, which could result in sanctions or reputational harm[247][248] - Limitations on the effectiveness of internal controls could lead to errors or fraud, materially harming the company, as control systems provide only reasonable, not absolute, assurance[249][250] - Litigation, including product liability, intellectual property, or other legal proceedings, could result in substantial costs, diversion of management resources, and negative impact on business and financial condition[144][145][254] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the net proceeds from the company's IPO completed on June 29, 2021, and confirms the planned use of these proceeds for clinical trials, preclinical development, and general corporate purposes, with no material change from the original prospectus - The company completed its IPO on June 29, 2021, issuing 2,875,000 common shares at $6.00 per share, resulting in net proceeds of $14.8 million after deducting underwriting discounts and offering expenses[261] - IPO proceeds are designated for completing the Phase 2b clinical trial of ibezapolstat for CDI, completing pre-clinical development of ACX-375C, and for general corporate purposes[261] - There has been no material change in the planned use of proceeds from the IPO as described in the prospectus[263] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[263] Item 4. Mine Safety Disclosure This item is not applicable to the company - This item is not applicable to the company[263] Item 5. Other Information No other information was reported under this item - No other information was reported[263] Item 6. Exhibits This section lists the exhibits filed or incorporated by reference as part of the Quarterly Report, including certifications, XBRL documents, and the cover page interactive data file - The report includes certifications from the Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[265][267] - Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Labels, Presentation Linkbase Documents) and the Cover Page Interactive Data File are filed as exhibits[267] Signatures The report is duly signed on behalf of Acurx Pharmaceuticals, Inc. by its President and Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) on November 12, 2021 - The report was signed by David P. Luci, President and Chief Executive Officer, and Robert G. Shawah, Chief Financial Officer, on November 12, 2021[270]