Clene(CLNN) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations for Clene Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Clene Inc., including the balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets The company's total assets decreased from $44.493 million at December 31, 2022, to $39.888 million at March 31, 2023. Total liabilities slightly increased, leading to a significant decrease in total stockholders' equity (deficit) from $3.237 million to $(1.627) million, indicating a worsening financial position Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total Assets | $39,888 | $44,493 | | Total Liabilities | $41,515 | $41,256 | | Total Stockholders' Equity (Deficit) | $(1,627) | $3,237 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended March 31, 2023, the company reported a net loss of $11.770 million, an improvement from $13.354 million in the prior year. Total revenue significantly increased, while operating expenses decreased, contributing to a reduced loss from operations Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Total Revenue | $107 | $30 | 257% | | Total Operating Expenses | $10,839 | $13,366 | (19)% | | Loss from Operations | $(10,732) | $(13,336) | (20)% | | Net Loss | $(11,770) | $(13,354) | (12)% | | Net Loss Per Share (Basic & Diluted) | $(0.15) | $(0.21) | (29)% | Condensed Consolidated Statements of Stockholders' Equity (Deficit) The company's total stockholders' equity shifted from a positive $3.237 million at December 31, 2022, to a deficit of $(1.627) million at March 31, 2023, primarily due to a net loss of $11.770 million, partially offset by common stock issuance and stock-based compensation Condensed Consolidated Statements of Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | December 31, 2022 | March 31, 2023 | | :------------------------------------ | :---------------- | :------------- | | Total Stockholders' Equity (Deficit) | $3,237 | $(1,627) | | Net Loss | N/A | $(11,770) | | Issuance of Common Stock | N/A | $4,665 | | Stock-based Compensation Expense | N/A | $2,223 | Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2023, net cash used in operating activities decreased to $9.218 million from $13.084 million in the prior year. Investing activities provided $4.722 million, a significant improvement from a $24.522 million outflow, mainly due to proceeds from marketable securities maturities. Financing activities provided $4.588 million, up from $0.235 million, driven by common stock issuance Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(9,218) | $(13,084) | | Net Cash Provided by (Used in) Investing Activities | $4,722 | $(24,522) | | Net Cash Provided by Financing Activities | $4,588 | $235 | | Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $110 | $(37,358) | | Cash, Cash Equivalents and Restricted Cash – End of Period | $18,500 | $12,988 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's business, significant accounting policies, and specific financial statement line items, including information on its going concern status, clinical programs, and financial instruments. They highlight the company's focus on developing nanotechnology therapeutics for neurological disorders and its ongoing need for additional financing Note 1. Nature of the Business Clene Inc. is a clinical-stage pharmaceutical company focused on developing novel clean-surfaced nanotechnology therapeutics for central nervous system disorders like ALS, MS, and PD. It also markets dietary supplements through a subsidiary and a licensing agreement. The company faces substantial doubt about its ability to continue as a going concern due to significant losses and negative cash flows, necessitating additional financing and cost-saving measures - Clinical-stage pharmaceutical company pioneering discovery, development, and commercialization of novel clean-surfaced nanotechnology therapeutics[13][135][137] - Focuses on addressing high unmet medical needs in central nervous system disorders including Amyotrophic Lateral Sclerosis (ALS), Multiple Sclerosis (MS), and Parkinson's Disease (PD)[13][137] - Incurred significant losses and negative cash flows from operations since inception, with an accumulated deficit of $205.0 million as of March 31, 2023[15][16][176] - Substantial doubt about the Company's ability to continue as a going concern due to insufficient cash and resources within the next twelve months without additional financing[16][177] - Plans to mitigate funding needs by exploring equity/debt financing, licensing, and utilizing existing at-the-market facility and equity purchase agreement, alongside cost-saving initiatives[17][178] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the condensed consolidated financial statements, including the consolidation of subsidiaries, adherence to U.S. GAAP for interim reporting, and the use of estimates. It also details accounting policies for various financial instruments and activities, such as marketable securities, inventory, property and equipment, debt, leases, contingent earn-out liabilities, common stock warrants, grant funding, foreign currency translation, comprehensive loss, segment information, income taxes, and stock-based compensation - Condensed consolidated financial statements include Clene Inc. and its wholly-owned subsidiaries, prepared in accordance with U.S. GAAP for interim financial reporting[22] - Management makes estimates and assumptions that affect reported amounts, which are periodically reviewed[24] - Contingent Earn-outs are accounted for as a liability and subsequently remeasured to fair value at each reporting date, with changes recorded in other income (expense), net[41] - Operates in two reportable segments: (1) development and commercialization of novel clean-surfaced nanotechnology therapeutics ("Drugs"), and (2) development and commercialization of dietary supplements ("Supplements")[48] - Stock-based compensation arrangements are accounted for using a fair value-based method, recognized over the requisite service period[51] Note 3. Marketable Securities As of March 31, 2023, the company held no available-for-sale securities, having received $5.0 million from maturities during the quarter. At December 31, 2022, marketable securities totaled $4.983 million, primarily commercial paper and corporate debt securities Marketable Securities (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Available-for-Sale Securities | $0 | $4,983 | | Proceeds from Maturities (3 months ended March 31, 2023) | $5,000 | N/A | Note 4. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased to $6.229 million at March 31, 2023, from $5.648 million at December 31, 2022, driven by an increase in research and development tax credits receivable and other prepaid items, partially offset by a decrease in metals for R&D Prepaid Expenses and Other Current Assets (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------------- | :------------- | :---------------- | | Research and development tax credits receivable | $3,051 | $2,777 | | Metals to be used in research and development | $2,216 | $2,290 | | Other | $962 | $581 | | Total Prepaid Expenses and Other Current Assets | $6,229 | $5,648 | Note 5. Property and Equipment, Net Property and equipment, net, slightly decreased to $10.514 million at March 31, 2023, from $10.638 million at December 31, 2022. This was primarily due to increased accumulated depreciation, despite an increase in leasehold improvements. Depreciation expense for the three months ended March 31, 2023, was $0.402 million, up from $0.195 million in the prior year Property and Equipment, Net (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Total Property and Equipment, Net | $10,514 | $10,638 | | Leasehold Improvements | $9,966 | $5,677 | | Construction in Progress | $1,652 | $5,664 | | Accumulated Depreciation | $(5,664) | $(5,273) | Total Depreciation Expense (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Total Depreciation Expense | $402 | $195 | Note 6. Accrued Liabilities Accrued liabilities significantly increased to $5.933 million at March 31, 2023, from $3.863 million at December 31, 2022, primarily driven by higher accrued compensation and benefits and increased accrued CRO and clinical fees Accrued Liabilities (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Accrued Compensation and Benefits | $2,638 | $2,007 | | Accrued CRO and Clinical Fees | $2,752 | $1,297 | | Other | $543 | $559 | | Total Accrued Liabilities | $5,933 | $3,863 | Note 7. Leases The company leases laboratory and office space and equipment under operating and finance leases. Operating lease obligations had a weighted-average remaining term of 7.1 years and a discount rate of 9.6% as of March 31, 2023. Finance lease obligations had a weighted-average remaining term of 1.0 years and an interest rate of 10.8%. Total lease costs for the three months ended March 31, 2023, were $0.329 million - Operating leases primarily consist of real estate for office and laboratory space, with a weighted-average remaining term of 7.1 years and a discount rate of 9.6% as of March 31, 2023[63][64] - Finance leases are mainly for lab equipment, with a weighted-average remaining term of 1.0 years and an interest rate of 10.8% as of March 31, 2023[65][66] Components of Lease Cost (in thousands) | Lease Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------- | :-------------------------------- | :-------------------------------- | | Finance Lease Costs | $26 | $25 | | Operating Lease Costs | $253 | $230 | | Variable Lease Costs | $50 | $65 | | Total Lease Costs | $329 | $320 | Note 8. Notes Payable and Convertible Notes Payable As of March 31, 2023, total notes payable (net of current portion) were $6.713 million, and total convertible notes payable were $9.907 million. The company has various loan agreements, including with Maryland DHCD, Advance Cecil Inc., and Avenue Venture Opportunities Fund, L.P., with varying interest rates and maturity dates. The Avenue loan includes a $5.0 million convertible feature and requires maintaining at least $5.0 million in unrestricted cash Notes Payable and Convertible Notes Payable (in thousands) | Debt Type | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------- | :---------------- | | Notes Payable (net of current portion) | $6,713 | $9,483 | | Convertible Notes Payable | $9,907 | $9,770 | - The 2021 Avenue Loan (totaling $20.0 million funded) bears a variable interest rate (14.60% as of March 31, 2023) and includes a $5.0 million convertible feature[79][80] - A covenant of the 2021 Avenue Loan requires maintaining unrestricted cash and cash equivalents of at least $5.0 million[81] Future Principal Payments (in thousands) | Year | 2019 MD Loan | 2019 Cecil Loan | 2021 Avenue Loan | 2022 MD Loan | 2022 DHCD Loan | | :-------------------- | :----------- | :-------------- | :--------------- | :----------- | :------------- | | 2023 (remainder) | $0 | $0 | $6,667 | $0 | $0 | | 2024 | $0 | $0 | $13,333 | $0 | $0 | | 2025 | $0 | $0 | $0 | $347 | $0 | | 2026 | $0 | $0 | $0 | $369 | $0 | | 2027 | $0 | $0 | $0 | $317 | $0 | | 2028 | $0 | $0 | $0 | $0 | $5,000 | | Thereafter | $664 | $132 | $0 | $0 | $0 | | Subtotal of future principal payments | $664 | $132 | $20,000 | $1,033 | $5,000 | Note 9. Commitments and Contingencies The company has commitments for capital expenditures totaling $0.5 million as of March 31, 2023, related to manufacturing facilities. It also has a contingent repayment obligation to the National Multiple Sclerosis Society (NMSS) for a $0.3 million grant, with potential repayments ranging from $0.2 million to $1.5 million based on future commercial sales milestones of CNM-Au8 for MS. Management assesses the likelihood of these contingent events as less than probable - Commitments for capital expenditures totaled $0.5 million as of March 31, 2023, related to manufacturing facilities[85] - Contingent repayment obligation to NMSS for a $0.3 million grant, with potential repayments ranging from $0.2 million to $1.5 million based on future commercial sales of CNM-Au8 for MS[87] - Management assesses the likelihood of occurrence of contingent events for NMSS repayment as less than probable, thus no contingent liability is recognized[87] Note 10. Income Taxes The company incurred a net loss before income taxes of $11.770 million for the three months ended March 31, 2023. It is subject to taxation in the U.S., Australia, and the Netherlands. A full valuation allowance is recorded against net deferred tax assets due to cumulative losses and uncertainty of future taxable income Loss Before Income Taxes (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss Before Income Taxes | $(11,770) | $(13,354) | - A full valuation allowance is recorded against net deferred tax assets due to the uncertainty of realizing benefits from future taxable income[89][198] Note 11. Benefit Plans The company maintains a 401(k) plan with matching contributions and two stock compensation plans (2014 Stock Plan and 2020 Stock Plan). Total stock-based compensation expense for the three months ended March 31, 2023, was $2.223 million, slightly up from $2.202 million in the prior year. As of March 31, 2023, $16.8 million of unrecognized stock-based compensation costs related to non-vested stock options remain - Maintains a 401(k) plan with 100% matching contributions up to 3% of annual compensation, limited to $4,500[90] Total Stock-Based Compensation Expense (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total Stock-Based Compensation Expense | $2,223 | $2,202 | - As of March 31, 2023, 16,205,404 stock options were outstanding, and 812,170 stock awards were unvested[96][99] - Approximately $16.8 million of unrecognized stock-based compensation costs related to non-vested stock options as of March 31, 2023, expected to be recognized over a weighted-average period of 2.36 years[96] Note 12. Fair Value The company measures cash, cash equivalents, and marketable securities at fair value. Contingent earn-out liabilities are classified as Level 3 financial instruments and are remeasured at fair value each reporting period using a Monte Carlo valuation model. The fair value of these liabilities increased for the three months ended March 31, 2023, resulting in losses - Cash, cash equivalents, and marketable securities are carried at fair value[101] Level 3 Financial Instruments (in thousands) | Level 3 Financial Instruments | March 31, 2023 | December 31, 2022 | | :----------------------------------------- | :------------- | :---------------- | | Clene Nanomedicine contingent earn-out liability | $2,319 | $2,264 | | Initial Stockholders contingent earn-out liability | $298 | $291 | - Contingent earn-out liabilities are valued using a Monte Carlo valuation model, with inputs including expected stock price volatility (115.00%), risk-free interest rate (3.90%), and expected term (2.75 years) as of March 31, 2023[103][104][111][193][194] Note 13. Capital Stock As of March 31, 2023, the company had 77,987,349 shares of common stock issued and outstanding, with 150,000,000 shares authorized. Post-quarter, stockholders approved an increase in authorized shares to 300,000,000. The company has various outstanding warrants to purchase common stock and has raised capital through public offerings and an at-the-market (ATM) agreement, selling 2,895,090 shares for $4.5 million gross proceeds in Q1 2023 Common Stock Authorization and Issuance | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Authorized Common Stock Shares | 150,000,000 | 150,000,000 | | Issued & Outstanding Common Stock Shares | 77,987,349 | 74,759,591 | - On May 9, 2023, stockholders approved an amendment to increase authorized common stock shares to 300,000,000[112] - Sold 2,895,090 shares of Common Stock under the ATM Agreement, generating gross proceeds of $4.5 million during the three months ended March 31, 2023[119][190] - Total outstanding warrants to purchase common stock were 4,477,045 shares as of March 31, 2023[115] Note 14. Net Loss Per Share The basic and diluted net loss per share for the three months ended March 31, 2023, was $(0.15), an improvement from $(0.21) in the prior year. The weighted average common shares outstanding increased to 76,049,665 Net Loss Per Share (Basic and Diluted) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss Per Share (Basic & Diluted) | $(0.15) | $(0.21) | | Weighted Average Common Shares Outstanding | 76,049,665 | 62,852,863 | - Potentially dilutive securities, including convertible notes, common stock warrants, options, unvested restricted stock awards, and contingent earn-out shares, totaled 29,819,656 as of March 31, 2023[126] Note 15. Related Party Transactions The company has a license and exclusive supply agreement with 4Life Research LLC, a related party, for the sale of certain dietary supplements. Total revenue from related parties for the three months ended March 31, 2023, was $0.106 million, significantly up from $0.023 million in the prior year, driven by increased product and royalty revenue - Exclusive license and supply agreement with 4Life Research LLC, a related party, for the sale of certain dietary supplements (Zinc Factor, Gold Factor)[127][160] Total Revenue from Related Parties (in thousands) | Revenue Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Product Revenue from Related Parties | $63 | $0 | | Royalty Revenue from Related Parties | $43 | $23 | | Total Revenue from Related Parties | $106 | $23 | Note 16. Segment Information The company operates in two reportable segments: Drugs and Supplements. For the three months ended March 31, 2023, the Drugs segment reported a loss from operations of $10.798 million, while the Supplements segment generated income from operations of $0.066 million. Total revenue from external customers was $0.107 million, entirely from the Supplements segment - Operates in two reportable segments: Drugs (development and commercialization of novel clean-surfaced nanotechnology therapeutics) and Supplements (development and commercialization of dietary supplements)[48][130] Segment Performance (3 months ended March 31, 2023, in thousands) | Segment | Revenue from External Customers | Loss (Income) from Operations | | :---------- | :------------------------------ | :---------------------------- | | Drugs | $0 | $(10,798) | | Supplements | $107 | $66 | | Consolidated | $107 | $(10,732) | Note 17. Subsequent Events Subsequent to March 31, 2023, the company sold 400,000 shares of common stock under the Purchase Agreement with Lincoln Park Capital Fund, LLC, generating $0.4 million in proceeds, and issued 2,893 additional commitment shares - Subsequent to March 31, 2023, sold 400,000 shares of Common Stock under the Purchase Agreement with Lincoln Park Capital Fund, LLC, generating $0.4 million in proceeds, and issued 2,893 Additional Commitment Shares[133] 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 and results of operations, highlighting its focus as a clinical-stage pharmaceutical company developing CSN® therapeutics for neurological disorders. It details recent clinical program developments for ALS and MS, discusses the impact of the COVID-19 pandemic, and analyzes key financial drivers including R&D, G&A expenses, and other income/expense. The company continues to face significant losses and going concern doubts, necessitating further financing Business Overview Clene Inc. is a clinical-stage pharmaceutical company focused on developing novel clean-surfaced nanotechnology (CSN®) therapeutics for central nervous system disorders like ALS, MS, and PD. Its proprietary electro-crystal-chemistry platform produces highly catalytic, non-toxic nanocrystals. The company has not generated significant drug revenue and relies on dietary supplement sales, which are small compared to operating expenses - Pioneering the discovery, development, and commercialization of novel clean-surfaced nanotechnology (CSN®) therapeutics[135] - Development and clinical efforts focused on central nervous system disorders including Amyotrophic Lateral Sclerosis (ALS), Multiple Sclerosis (MS), and Parkinson's Disease (PD)[137] - Proprietary electro-crystal-chemistry drug development platform produces nanocrystals with unusually high, unique catalytic activities[136] - Has never been profitable and incurred operating losses since inception; revenue from dietary supplements is small compared to operating expenses[137] Recent Developments of Our Clinical Programs The company provided updates on its clinical programs for ALS and MS. For ALS, topline data from the Phase 2/3 HEALEY ALS Platform Trial was reported, with full analyses expected mid-2023. An international Phase 3 study (RESTORE-ALS) is planned for H1 2024, contingent on funding, with potential for accelerated FDA approval by end of 2024 if biomarker data is supportive. For MS, updated exploratory data from Phase 2 VISIONARY-MS was reported, and an international Phase 3 study is expected to initiate mid-2024, also contingent on funding - ALS Program (CNM-Au8): - Topline data from Phase 2/3 HEALEY ALS Platform Trial reported in October 2022; full analyses (biomarkers, efficacy) expected mid-2023[139][141][142] - Open Label Extension (OLE) survival data expected mid-2023, exploratory efficacy results in the second half of 2023[139][141][142] - Increased capacity of the second Expanded Access Program (EAP) up to 200 participants, contingent on funding[139][141][142] - Planning to initiate an international Phase 3 study, RESTORE-ALS, in the first half of 2024, contingent on funding[139][141][142] - Anticipates a request-to-file NDA meeting with the FDA in Q4 2023, with potential accelerated approval by the end of 2024 if biomarker data is supportive[139][141][142] - MS Program (CNM-Au8): - Updated exploratory data from Phase 2 VISIONARY-MS clinical trial reported in February and March 2023; additional OLE results expected in the second half of 2023[143] - Initiated a second dosing cohort in the REPAIR-MS Phase 2 clinical trial, expected to be complete in the second half of 2023[143] - Planning to initiate an international Phase 3 MS study in mid-2024, contingent on funding[143] - CNM-Au8 was well-tolerated without long-term safety concerns in both RESCUE-ALS and the HEALEY ALS Platform Trial[142] Recent Competition Update The ALS treatment landscape saw several developments, including FDA approvals for orally administered edaravone (May 2022) and Amylyx's AMX0035 (Relyvrio, Sept 2022). Prilenia's pridopidine did not meet primary endpoints in HEALEY ALS, but showed positive trends. BrainStorm's NurOwn BLA review by FDA advisory committee is pending, despite not meeting primary endpoints in Phase 3, due to subgroup and biomarker trends. Biogen's tofersen (QALSODY) received accelerated FDA approval for SOD1-ALS in April 2023, based on plasma NfL as a surrogate biomarker - FDA approved orally administered edaravone (May 2022) and Amylyx's AMX0035 (Relyvrio, September 2022) for the treatment of ALS[144] - Prilenia Therapeutics' pridopidine did not meet primary and key secondary endpoints in the HEALEY ALS Platform Trial, but showed consistent, positive trends and a reduction in neurofilament light chain (NfL) levels[145] - BrainStorm Cell Therapeutics' NurOwn BLA for ALS is under FDA advisory committee review, despite its Phase 3 trial not meeting primary endpoints, due to subgroup trends and biomarker data[146] - Biogen Inc.'s tofersen (QALSODY) received accelerated FDA approval for SOD1-ALS (April 2023) based on plasma NfL as a surrogate biomarker, with reductions in NfL preceding and predicting slowing of clinical decline[148] Impact of the COVID-19 Pandemic The COVID-19 pandemic continues to pose risks and uncertainties, potentially affecting preclinical studies, clinical trials, and regulatory activities. While the company has experienced temporary disruptions, it has not incurred material business disruptions or asset impairment losses to date. The full extent of future impact remains uncertain - The COVID-19 pandemic poses risks and uncertainties, potentially affecting the ability to initiate and complete preclinical studies and clinical trials, delay future trials, and disrupt regulatory activities[149] - Experienced temporary research restrictions, pauses, and early conclusion of one clinical trial, but no material business disruptions or impairment losses to date[21][150] Financial Overview The company's financial performance is significantly influenced by research and development (R&D) expenses, general and administrative (G&A) expenses, and other income/expense. R&D costs are expected to decrease in 2023 but increase in future years as assets advance to Phase 3. G&A expenses are contingent on FDA meetings and potential NDA filing, with increases expected for commercialization efforts or decreases if NDA filing is not pursued - Research and development expenses are a significant investment, primarily for CNM-Au8, expected to decrease in 2023 due to trial completion but increase in future years for Phase 3 advancement[152] - General and administrative expenses are contingent on FDA end-of-Phase 2 meetings and potential NDA filing; expected to increase for commercial build-out or decrease with cost-saving initiatives if NDA is not pursued[155][156] - Total other income (expense), net, includes changes in fair value of common stock warrant liability and contingent earn-outs, interest income/expense, lease termination gains/losses, and R&D tax credits/grants[157] Results of Operations For the three months ended March 31, 2023, total revenue increased by 257% to $0.107 million, driven by product and royalty revenue from the Supplements segment. Total operating expenses decreased by 19% to $10.839 million, leading to a 20% reduction in loss from operations to $10.732 million. Net loss improved by 12% to $11.770 million Revenue Total revenue for Q1 2023 was $0.107 million, a 257% increase year-over-year, primarily from product revenue ($0.064 million) and royalty revenue ($0.043 million) in the Supplements segment. This growth was due to the timing of 4Life's purchases of Zinc Factor and Gold Factor Revenue (in thousands) | Revenue Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :-------------- | :-------------------------------- | :-------------------------------- | :--------- | | Product Revenue | $64 | $7 | 814% | | Royalty Revenue | $43 | $23 | 87% | | Total Revenue | $107 | $30 | 257% | - Product revenue from sales of aqueous zinc-silver ion dietary supplement (rMetx™ ZnAg Immune Boost / Zinc Factor) and aqueous gold dietary supplement (Gold Factor) through dOrbital, Inc. or 4Life[160] Cost of Revenue Cost of revenue was $5,000 for the three months ended March 31, 2023, up from $0 in the prior year, related to production and distribution costs for dietary supplements Cost of Revenue (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Cost of Revenue | $5 | $0 | Research and Development Expense R&D expense decreased by 14% to $7.395 million for the three months ended March 31, 2023. This was mainly due to decreased expenses for CNM-Au8 (due to completion of blinded periods in trials) and CNM-ZnAg (due to trial completion), and reduced personnel costs. Partially offsetting this were increased expenses for EAPs, REPAIR-MS, RESCUE-ALS OLE, and unallocated costs (rent, utilities, depreciation) Research and Development Expense (in thousands) | R&D Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | CNM-Au8 | $2,133 | $2,805 | (24)% | | CNM-ZnAg | $813 | $1,409 | (42)% | | Unallocated | $1,159 | $1,004 | 15% | | Personnel | $2,317 | $2,618 | (11)% | | Stock-based Compensation | $973 | $744 | 31% | | Total R&D Expense | $7,395 | $8,580 | (14)% | - Decrease in CNM-Au8 expenses primarily due to completion of blinded periods in HEALEY ALS Platform Trial, REPAIR-PD, and VISIONARY-MS clinical trials[163] - Increase in CNM-Au8 expenses related to two EAPs, REPAIR-MS clinical trial (initiation of second dosing cohort), and RESCUE-ALS clinical trial (ongoing OLE)[163] - Decrease in CNM-ZnAg expenses primarily due to completion of the clinical trial for treatment of COVID-19 in 2022[163] General and Administrative Expense G&A expense decreased by 28% to $3.439 million for the three months ended March 31, 2023. This reduction was primarily due to lower directors' and officers' insurance fees, legal fees, finance and accounting fees, public and investor relations costs, personnel expenses (due to headcount reduction), and stock-based compensation General and Administrative Expense (in thousands) | G&A Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Directors' and Officers' Insurance | $398 | $849 | | Legal | $108 | $178 | | Finance and Accounting | $259 | $411 | | Public and Investor Relations | $144 | $330 | | Personnel | $989 | $1,181 | | Stock-based Compensation | $1,250 | $1,458 | | Other | $291 | $379 | | Total G&A Expense | $3,439 | $4,786 | - Decreases across most G&A categories, including directors' and officers' insurance, legal, finance and accounting, public and investor relations, personnel (due to headcount reduction), and stock-based compensation[165] Total Other Income (Expense), Net Total other income (expense), net, was a net expense of $1.038 million for the three months ended March 31, 2023, a significant increase from a net expense of $18,000 in the prior year. This change was driven by increased interest income (due to rising rates) and interest expense, commitment share expense, and changes in fair value of contingent earn-out liabilities, partially offset by increased R&D tax credits Total Other Income (Expense), Net (in thousands) | Other Income (Expense) Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Interest Income | $172 | $24 | 617% | | Interest Expense | $(1,066) | $(782) | 36% | | Gain on Termination of Lease | $0 | $420 | * | | Commitment Share Expense | $(399) | $0 | * | | R&D Tax Credits & Unrestricted Grants | $314 | $299 | 5% | | Total Other Income (Expense), Net | $(1,038) | $(18) | 5,667% | - Increase in interest income primarily due to increasing interest rates on cash, cash equivalents, and marketable securities[168] - Commitment share expense of $0.399 million due to shares of Common Stock issued to Lincoln Park Capital Fund, LLC as an initial fee[168] - Losses from changes in fair value of contingent earn-out liabilities due to changes in common stock price and valuation model assumptions[168] Taxation The company is subject to income taxes in the U.S., Australia, and the Netherlands. A full valuation allowance is maintained against U.S. deferred tax assets due to cumulative losses and uncertainty of future taxable income. Clene Australia received $0.3 million in R&D tax credits for both 2023 and 2022 - Subject to taxation in the U.S. (federal 21%, Utah 4.85%, Maryland 8.25%), Australia (30%/25%), and Netherlands (15%/25.8%)[169][170][171] - A full valuation allowance is recorded against U.S. net deferred tax assets due to uncertainty of realization from future taxable income[169][198] - Clene Australia received $0.3 million in research and development tax credits for the three months ended March 31, 2023 and 2022[170] Liquidity and Capital Resources The company has incurred significant losses and negative cash flows since inception and expects to incur additional losses. It recognizes the need for substantial additional capital to fund operations and R&D. Primary funding sources have included equity financing ($135.1 million), debt ($59.6 million), Reverse Recapitalization ($9.4 million), R&D tax credits ($6.4 million), grants ($2.2 million), and stock option/warrant exercises ($1.0 million). The company faces substantial doubt about its ability to continue as a going concern without additional financing, despite cost-saving measures - Incurred significant losses and negative cash flows from operations since inception, expecting additional losses to fund R&D and operations[173][176][177] - Primary historical funding sources include: $135.1 million from equity financing, $59.6 million from borrowings (convertible notes, notes payable), $9.4 million from Reverse Recapitalization, $6.4 million from refundable R&D tax credits, $2.2 million from grants, and $1.0 million from stock option/warrant exercises[174] - Substantial doubt about the Company's ability to continue as a going concern due to insufficient cash and resources within the next twelve months without additional financing[177] - Implemented cost-saving initiatives (delaying R&D, reducing executive compensation, hiring freeze, staff elimination) but these do not alleviate going concern doubt beyond one year[178] Short-Term Material Cash Requirements For the next twelve months, primary capital requirements include funding R&D, personnel, regulatory, and clinical trial costs for CNM-Au8, as well as general and administrative expenses. Firm commitments include $0.1 million for finance lease obligations, $1.1 million for operating lease obligations, $12.5 million for notes payable principal and interest, and $0.5 million for capital expenditures. The company expects to meet these needs through cash on hand and additional financing - Primary capital requirements for the next twelve months are to fund R&D, personnel, regulatory, and clinical trial costs for CNM-Au8, and general and administrative costs[180] Short-Term Material Cash Requirements (in millions) | Commitment Type | Amount | | :-------------------------- | :----- | | Finance Lease Obligations | $0.1 | | Operating Lease Obligations | $1.1 | | Notes Payable (Principal & Interest) | $12.5 | | Capital Expenditures | $0.5 | Long-Term Material Cash Requirements Beyond twelve months, the company's capital requirements will continue to fund R&D, personnel, regulatory, and clinical trial costs for CNM-Au8, and G&A expenses. Known obligations include $20,000 for finance lease obligations, $7.2 million for operating lease obligations, and $19.7 million for notes payable interest and principal repayment. Long-term liquidity is expected to be met through equity, debt, or other capital sources - Primary capital requirements beyond twelve months are to fund R&D, personnel, regulatory, and clinical trial costs for CNM-Au8, and general and administrative costs[182] Long-Term Material Cash Requirements (in millions) | Commitment Type | Amount | | :-------------------------- | :----- | | Finance Lease Obligations | $0.02 | | Operating Lease Obligations | $7.2 | | Notes Payable (Principal & Interest) | $19.7 | Use of Funds The primary use of cash in all periods was to fund R&D, regulatory and clinical trial costs, and general corporate expenditures. For Q1 2023, net cash used in operating activities was $9.2 million, net cash provided by investing activities was $4.7 million, and net cash provided by financing activities was $4.6 million - Primary use of cash in all periods was to fund research and development, regulatory and other clinical trial costs, and general corporate expenditures[184] Cash Flow Activities (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(9,218) | $(13,084) | | Net Cash Provided by (Used in) Investing Activities | $4,722 | $(24,522) | | Net Cash Provided by Financing Activities | $4,588 | $235 | Operating Activities Net cash used in operating activities decreased to $9.2 million in Q1 2023 from $13.1 million in Q1 2022. This was driven by a lower net loss, non-cash adjustments (depreciation, stock-based compensation, commitment share expense), and changes in operating assets and liabilities, including a decrease in accounts payable and an increase in accrued liabilities - Net cash used in operating activities decreased to $9.2 million in Q1 2023 from $13.1 million in Q1 2022[184][185] - Significant non-cash items in Q1 2023 included $2.2 million in stock-based compensation, $0.4 million in depreciation, and $0.4 million in commitment share expense[185] - Changes in operating assets and liabilities in Q1 2023 included a $2.4 million decrease in accounts payable and a $2.1 million increase in accrued liabilities[185] Investing Activities Net cash provided by investing activities was $4.7 million in Q1 2023, a significant turnaround from a $24.5 million outflow in Q1 2022. This was primarily due to $5.0 million in proceeds from marketable securities maturities, partially offset by $0.3 million in property and equipment purchases - Net cash provided by investing activities was $4.7 million in Q1 2023, a significant improvement from $24.5 million used in Q1 2022[184][188] - Q1 2023 investing activities consisted of $5.0 million in proceeds from maturities of marketable securities, partially offset by $0.3 million in purchases of property and equipment[188] Financing Activities Net cash provided by financing activities increased to $4.6 million in Q1 2023 from $0.2 million in Q1 2022. This was mainly due to $4.3 million in proceeds from common stock issuance (net of offering costs) and $0.4 million from notes payable issuance - Net cash provided by financing activities was $4.6 million for Q1 2023, compared to $0.2 million for Q1 2022[184][189] - Q1 2023 financing activities included $4.3 million from issuance of common stock (net of offering costs) and $0.4 million from issuance of notes payable[189] Critical Accounting Estimates The company's critical accounting estimates involve significant judgment and estimation uncertainty, particularly for contingent earn-out liabilities, convertible notes, income taxes, and stock-based compensation. These estimates impact reported financial condition and results of operations Contingent Earn-Out Liabilities Contingent earn-out liabilities are measured at fair value using a Monte Carlo valuation model, requiring significant judgment on inputs like expected stock price volatility (115.00%), risk-free interest rate (3.90%), and expected term (2.75 years) as of March 31, 2023. Changes in fair value resulted in losses for the three months ended March 31, 2023 and 2022 - Fair value of contingent earn-out liabilities is estimated using a Monte Carlo valuation model[193] Contingent Earn-Out Liabilities Valuation Inputs | Valuation Input | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Expected Stock Price Volatility | 115.00% | 115.00% | | Risk-Free Interest Rate | 3.90% | 4.20% | | Expected Dividend Yield | 0.00% | 0.00% | | Expected Term (in years) | 2.75 | 3.00 | - Changes in fair value resulted in a loss of $0.1 million for Clene Nanomedicine Contingent Earn-out and $7,000 for Initial Stockholders Contingent Earn-out for Q1 2023[194] Convertible Notes The Avenue Conversion Feature and the 2022 DHCD Loan conversion option are not separated from the host contract and are accounted for as single liabilities at amortized cost, as they did not meet derivative accounting requirements - The Avenue Conversion Feature and the 2022 DHCD Loan conversion option are accounted for as single liabilities measured at amortized cost, as they did not meet derivative accounting requirements[195][196] Convertible Notes Carrying Value (in millions) | Convertible Note | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | 2021 Avenue Loan | $4.9 | $4.8 | | 2022 DHCD Loan | $5.0 | $5.0 | Income Taxes The company applies a two-step process for income tax uncertainty and maintains a full valuation allowance against deferred tax assets due to cumulative losses and uncertainty of future taxable income, requiring significant judgment - Applies a two-step process to determine the amount of tax benefit to be recognized for income tax uncertainty[198] - Maintains a full valuation allowance against deferred tax assets due to cumulative loss position and uncertainty of generating future taxable income[198] Stock-Based Compensation Stock-based compensation is accounted for using a fair value-based method. Stock options are valued using a Black-Scholes model, and restricted stock awards with market conditions use a Monte Carlo model, both requiring significant judgment on inputs like volatility, risk-free rate, and expected term - Stock options are valued using a Black-Scholes option-pricing model, and restricted stock awards with market conditions use a Monte Carlo valuation model[200][201] Stock-Based Compensation Valuation Inputs | Valuation Input | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Expected Stock Price Volatility | 96.22% – 103.24% | 89.57% – 93.07% | | Risk-Free Interest Rate | 3.38% – 3.98% | 1.65% – 2.02% | | Expected Dividend Yield | 0.00% | 0.00% | | Expected Term (in years) | 5.00 – 6.08 | 5.00 – 6.98 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Clene Inc. is not required to provide specific quantitative and qualitative disclosures about market risk in this report - As a smaller reporting company, Clene Inc. is not required to provide information regarding quantitative and qualitative disclosures about market risk[202] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses in internal control over financial reporting. These weaknesses relate to an ineffective control environment, inadequate controls over reconciliations and manual journal entries, and deficiencies in IT general controls. Management is actively engaged in remediation efforts, including strengthening the accounting team, engaging external consultants, and implementing a new ERP system Evaluation of Disclosure Controls and Procedures As of March 31, 2023, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were not effective as of March 31, 2023, due to material weaknesses in internal control over financial reporting[203] Material Weaknesses in Internal Control over Financial Reporting Material weaknesses identified include an ineffective control environment, inadequate controls over preparation and review of reconciliations and segregation of duties for manual journal entries, and deficiencies in IT general controls (user access, program change management, computer operations, program development testing). These deficiencies could lead to material misstatements - Did not design or maintain an effective control environment commensurate with financial reporting requirements[206] - Did not design and maintain controls over the preparation and review of reconciliations and segregation of duties over manual journal entries[206] - Did not design and maintain information technology (IT) general controls for IT systems relevant to financial statements, specifically user access, program change management, computer operations, and program development testing[206] Material Weakness Remediation Management is actively remediating material weaknesses by strengthening the internal accounting team, engaging external consultants for GAAP application and policy assessment, and implementing a new Enterprise Resource Planning (ERP) system. Additional activities include adding more technical accounting resources - Strengthened internal accounting team, including hiring a new Chief Financial Officer, to provide oversight and additional review[208] - Engaged external consultants to support evaluation of complex GAAP applications and assist with documenting accounting policies and procedures[208] - Implemented a new Enterprise Resource Planning (ERP) system to enhance financial record accuracy and enforce systematic segregation of duties[208] - Continuing remediation activities in 2023, including adding more technical accounting resources[208] Changes in Internal Control over Financial Reporting Other than the remediation activities described, there were no material changes in internal control over financial reporting during the quarter ended March 31, 2023 - No material changes in internal control over financial reporting during the quarter ended March 31, 2023, other than the described remediation activities[210] PART II — OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, defaults on senior securities, mine safety disclosures, and a list of exhibits Item 1. Legal Proceedings The company is not currently a party to any material pending legal proceedings, though it may be involved in ordinary course legal matters from time to time - Not currently a party to any material pending legal proceedings[212] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Annual Report on Form 10-K, except for an additional risk factor concerning intellectual property discovered through government-funded programs. This new risk highlights potential federal regulations like "march-in" rights, reporting requirements, and a preference for U.S.-based manufacturing, which could limit exclusive rights or ability to contract with non-U.S. manufacturers - No material changes to risk factors since the 2022 Annual Report on Form 10-K, except for an additional risk factor[213] - New risk factor: Intellectual property discovered through government-funded programs may be subject to federal regulations (e.g., "march-in" rights, reporting requirements, preference for U.S.-based manufacturing), potentially limiting exclusive rights or ability to contract with non-U.S. manufacturers[214][215] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds reported[216] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities reported[216] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[216] Item 5. Other Information The company reported no other information for this item - No other information to report under Item 5[217] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to the Certificate of Incorporation, Bylaws, Purchase Agreement, Registration Rights Agreement, and various certifications (CEO, CFO). It also includes XBRL documents - Lists exhibits filed, including corporate governance documents (Fourth Amended and Restated Certificate of Incorporation, Bylaws), financing agreements (Purchase Agreement, Registration Rights Agreement), and certifications (CEO, CFO)[217] - Includes Inline XBRL Instance Document and related taxonomy extension documents[217]