Better Therapeutics(BTTX) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed financial statements for Better Therapeutics, Inc., including the Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' (Deficit)/Equity, and Statements of Cash Flows, along with detailed notes explaining the company's business, significant accounting policies, debt, equity, and recent financial events Condensed Balance Sheets This table provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' deficit at specific dates | ASSETS / LIABILITIES (in thousands) | June 30, 2023 (unaudited) | December 31, 2022 (audited) | | :---------------------------------- | :------------------------ | :-------------------------- | | Cash and cash equivalents | $6,196 | $15,740 | | Total current assets | $7,422 | $18,446 | | Total Assets | $11,604 | $22,943 | | Total current liabilities | $13,873 | $13,494 | | Long-term debt, net | $8,519 | $10,348 | | Total liabilities | $22,392 | $23,842 | | Accumulated deficit | $(128,449) | $(111,503) | | Total Stockholders' Deficit | $(10,788) | $(899) | Condensed Statements of Operations and Comprehensive Loss This table summarizes the company's financial performance over specific periods, showing revenues, expenses, and net loss | (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $2,240 | $4,241 | $5,629 | $7,914 | | Sales and marketing | $1,704 | $1,683 | $3,808 | $3,727 | | General and administrative | $3,081 | $3,675 | $6,513 | $7,303 | | Total operating expenses | $7,025 | $9,599 | $15,950 | $18,944 | | Loss from operations | $(7,025) | $(9,599) | $(15,950) | $(18,944) | | Interest expense, net | $(563) | $(329) | $(994) | $(646) | | Net loss | $(7,589) | $(9,928) | $(16,946) | $(19,590) | | Net loss per share, basic and diluted | $(0.24) | $(0.42) | $(0.62) | $(0.83) | Condensed Statements of Stockholders' (Deficit)/Equity This table details changes in the company's equity or deficit over time, including net loss, stock issuances, and share-based compensation | (in thousands, except share data) | Common Shares | Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Deficit | | :-------------------------------- | :------------ | :----------- | :------------------------- | :------------------ | :-------------------------- | | Balance as of December 31, 2022 | 23,851,022 | $2 | $110,602 | $(111,503) | $(899) | | Net loss (Q1 2023) | — | — | — | $(9,357) | $(9,357) | | Issuance of common stock, net | 7,878,786 | $1 | $6,099 | — | $6,100 | | Share-based compensation | — | — | $493 | — | $493 | | Balance as of June 30, 2023 | 31,797,101 | $3 | $117,658 | $(128,449) | $(10,788) | Condensed Statements of Cash Flows This table outlines the cash inflows and outflows from operating, investing, and financing activities over specific periods | CASH FLOWS (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(13,803) | $(15,581) | | Net cash used in investing activities | $(1,024) | $(446) | | Net cash provided by financing activities | $5,283 | $5,146 | | Net change in cash and cash equivalents | $(9,544) | $(10,881) | | Cash and cash equivalents, end of period | $6,196 | $29,685 | Notes to Condensed Financial Statements This section provides detailed explanations and additional information supporting the condensed financial statements Note 1. Description of Business and Summary of Significant Accounting Policies This note describes the company's core business, product development, recent financing activities, and significant accounting policies - Better Therapeutics, Inc. is a prescription digital therapeutics company developing software-based cognitive behavioral therapy (CBT) for cardiometabolic diseases (CMDx), with initial focus on Type 2 Diabetes (T2D), hypertension, hyperlipidemia, NAFLD, NASH, and CKD[44][129] - In July 2023, the FDA authorized AspyreRx (formerly BT-001), a prescription-only PDT for T2D, which is expected to launch commercially in Q4 2023[18][101] - The company is conducting real-world evidence studies for AspyreRx, with interim results expected in Q4 2023, to provide long-term data on usage and outcomes[19][105] - The company completed a private placement in April 2023, raising approximately $6.5 million, and further capital raises in July 2023 totaling $4.5 million, to support the commercial launch of AspyreRx[20][25][127][128] - As of June 30, 2023, the company had $6.2 million in cash and an accumulated deficit of $(128.4) million, raising substantial doubt about its ability to continue as a going concern beyond Q4 2023 without additional funding[25][51][117][205][230][540] - The company received Nasdaq deficiency letters in June 2023 for not meeting minimum bid price and market value of listed securities requirements, with a deadline of December 13, 2023, to regain compliance[50][575] Note 2. Debt This note details the company's secured term loan agreement, including its maturity, interest rates, and recent amendments - The company's secured term loan agreement with Hercules Capital (up to $50 million) has a maturity date of August 1, 2025, with interest-only payments until March 1, 2023, after which principal became payable[58][149] - An amendment in April 2023 ceased amortization payments until November 1, 2023, upon achieving certain benchmarks, including FDA authorization of AspyreRx[31][175] - As of June 30, 2023, the outstanding debt balance was $14.2 million, with an interest rate of 13.95%[58][149] Note 3. Accrued Liabilities This note provides a breakdown of the company's accrued liabilities, including amounts due to service providers and professionals | Accrued Liabilities (in thousands) | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------ | :---------------- | | Due to service providers | $1,656 | $1,335 | | Due to professionals | $158 | $506 | | Financed insurance | $460 | $963 | | Accrued interest | $164 | $168 | | Other | $10 | $654 | | Total Other accrued liabilities | $2,448 | $3,626 | Note 4. Fair Value Measurements This note explains the valuation methods for financial instruments and their classification within the fair value hierarchy - The carrying value of financial instruments (cash equivalents, accounts payable, accrued liabilities, notes payable) approximates fair value due to their short-term nature. Money market funds are classified as Level 1 financial instruments[80][184] Note 5. Net Loss Per Share Attributable to Common Stockholders This note details the calculation of net loss per share, considering common stock outstanding and potentially dilutive securities | (in thousands, except per share amounts) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--------------------------------------- | :------------------------------- | :----------------------------- | | Net loss | $(7,589) | $(16,946) | | Weighted-average common stock outstanding | 31,232,684 | 27,562,525 | | Loss per share, basic and diluted | $(0.24) | $(0.62) | - All potentially dilutive securities were anti-dilutive for the periods presented due to net losses, resulting in basic net loss per share equaling diluted net loss per share[55][62][190] Note 6. Share-Based Compensation This note outlines the company's stock option and incentive plans, including activity, unrecognized expense, and compensation expense - The 2021 Stock Option and Incentive Plan initially reserved 3.6 million shares, with an automatic annual increase. As of June 30, 2023, 1.5 million shares were reserved[64] - The 2022 Inducement Plan reserved 600 thousand shares for prospective officers and employees, with 400 thousand shares remaining reserved as of June 30, 2023[65] | Stock Options Activity (in thousands, except per share data) | Shares Subject to Options Outstanding | Weighted-Average Exercise Price | | :--------------------------------------------------------- | :------------------------------------ | :------------------------------ | | Balance as of December 31, 2022 | 3,999,223 | $3.95 | | Granted | 984,560 | $1.07 | | Exercised | (1,544) | $0.50 | | Forfeited | (366,903) | $4.01 | | Balance as of June 30, 2023 | 4,615,336 | $3.49 | - Total unrecognized compensation expense for unvested stock options was $2.7 million as of June 30, 2023, to be recognized over a weighted-average period of 4.75 years[84] | Equity-Based Compensation Expense (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $300 | $316 | | Sales and marketing | $48 | $31 | | General and administrative | $540 | $420 | | Total equity-based compensation expense | $888 | $767 | Note 7. Income Taxes This note explains the company's income tax position, including the effective tax rate and factors influencing it - The effective tax rate was zero for the six months ended June 30, 2023 and 2022, primarily due to a change in valuation allowance[94] Note 8. Commitments and Contingencies This note describes the company's involvement in legal matters and its estimated accrued liabilities related to disputes - The company is involved in claims and legal matters in the ordinary course of business, with an estimated accrued liability of $1.1 million as of June 30, 2023, related to a disputed change order with a vendor[95] Note 9. Restructuring This note details the company's workforce reduction initiative and the associated restructuring charges and payments - In March 2023, the company announced a workforce reduction of approximately 35% of its employees as part of a cost reduction initiative[96][212] | Restructuring Activity (in thousands) | Employee Severance and Related Benefits | | :------------------------------------ | :-------------------------------------- | | Balance at December 31, 2022 | - | | Charges | $430 | | Payments | $(393) | | Balance at June 30, 2023 | $37 | Note 10. Subsequent Events This note reports significant events occurring after the balance sheet date, including additional capital raises - In July 2023, the company completed a private placement of 2,897,657 shares for $2.1 million and a registered direct offering of 3,859,649 shares for $2.2 million, with net proceeds intended to support the commercial launch of AspyreRx[98][128][137][545] - The company also issued and sold 2,023,583 shares for $2.4 million in 'at-the-market' offerings in July 2023 but suspended and terminated the related prospectus[127][136] 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 performance and condition, highlighting key operational developments, financial results for the three and six months ended June 30, 2023, and an analysis of liquidity, capital resources, and critical accounting policies Overview This section introduces Better Therapeutics as a prescription digital therapeutics company, its product AspyreRx, and its clinical trial successes - Better Therapeutics is a prescription digital therapeutics company focused on cardiometabolic diseases, with AspyreRx (formerly BT-001) for T2D recently authorized by the FDA and expected to launch in Q4 2023[101][129] - The company's PDTs deliver a novel form of CBT to address root causes of diseases, aiming for broad reimbursement coverage and significant health economic benefits[103][131] - BT-001 clinical trial met primary and secondary endpoints, showing statistically significant and clinically meaningful A1c improvements, with positive patient engagement and safety data[133] - Positive top-line results were achieved in the LivVita study for NAFLD and NASH, showing a 16% average relative reduction in liver fat (MRI-PDFF) and significant improvements in ALT and FAST Score[45][520] Recent Events This section summarizes recent financing activities, including private placements and 'at-the-market' offerings - The company completed an April Private Placement of 7,878,786 common shares for $6.5 million[107] - In July 2023, the company issued 2,023,583 common shares for $2.4 million via an 'at-the-market' offering, but subsequently suspended and terminated the related prospectus[136][108] - Also in July 2023, the company completed a private placement of 2,897,657 shares for $2.1 million and a registered direct offering of 3,859,649 shares for $2.2 million, with proceeds for AspyreRx commercial launch[137][545] Impact of Macroeconomic Events This section discusses how global economic uncertainty, including inflation and rising interest rates, could affect the company's operations - Global economic uncertainty, including political instability, conflict (Ukraine), rising interest rates, and high inflation, could materially and adversely affect the company's business, financial condition, and results of operations[138] Components of Results of Operations This section explains the primary revenue sources and categorizes operating expenses, detailing their components and expected trends - Primary revenue sources are expected from reimbursement coverage for treatments by commercial insurers, Medicare, Medicaid, and Veterans Administration[111] - Operating expenses are categorized into research and development, sales and marketing, and general and administrative[112] - R&D expenses include external costs (CROs, consultants, software development) and internal personnel costs, with capitalized internal-use software costs presented separately[113][141] - Sales and marketing expenses are expected to increase as the company prepares for the commercial launch of AspyreRx, focusing on payers, patients, and healthcare providers[142] - General and administrative expenses are expected to increase due to anticipated headcount increases and costs associated with operating as a public company[538] Results of Operations This section analyzes the company's financial performance, detailing changes in R&D, sales and marketing, G&A expenses, and net loss | (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | R&D Expenses | $2,240 | $4,241 | $(2,001) | (47)% | | S&M Expenses | $1,704 | $1,683 | $21 | 1% | | G&A Expenses | $3,081 | $3,675 | $(594) | (16)% | | Net Loss | $(7,589) | $(9,928) | $2,339 | (24)% | | (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | R&D Expenses | $5,629 | $7,914 | $(2,285) | (29)% | | S&M Expenses | $3,808 | $3,727 | $81 | 2% | | G&A Expenses | $6,513 | $7,303 | $(790) | (11)% | | Net Loss | $(16,946) | $(19,590) | $2,644 | (13)% | - R&D expenses decreased primarily due to completion of the BT-001 pivotal trial, personnel cost reductions from restructuring, and increased capitalized software development costs[116][145] - Sales and marketing expenses remained relatively flat for the three months, but increased slightly for the six months due to higher personnel costs for AspyreRx commercial launch preparation, offset by severance costs[146][539] - General and administrative expenses decreased due to lower business insurance costs, partially offset by a write-off of capitalized costs related to unpursued financing strategies[118][524] - Net interest expense increased due to higher interest rates and an additional $5.0 million borrowed under the secured term loan agreement in Q2 2022[119][148] Liquidity and Capital Resources This section assesses the company's cash position, funding needs, and cash flow activities, addressing its ability to continue as a going concern - As of June 30, 2023, the company had $6.2 million in cash and an accumulated deficit of $(128.4) million, with current capital expected to fund operations through Q4 2023, raising substantial doubt about its going concern ability[151][540] - The company will require substantial additional funding for product development, regulatory authorization, and commercialization infrastructure[540] | Cash Flows (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------ | :----------------------------- | :----------------------------- | | Operating Activities | $(13,803) | $(15,581) | | Investing Activities | $(1,024) | $(446) | | Financing Activities | $5,283 | $5,146 | - Net cash used in operating activities decreased to $13.8 million in H1 2023 from $15.6 million in H1 2022, primarily due to a lower net loss and changes in operating assets and liabilities[178][153] - Cash used in investing activities increased to $1.0 million in H1 2023 from $0.4 million in H1 2022, mainly due to capitalized internal-use software costs and capital expenditures[179][549] - Cash provided by financing activities was $5.3 million in H1 2023, primarily from common stock issuance and employee stock purchase plan, offset by debt payments[180] - The company has no contractual obligations or off-balance sheet arrangements as of June 30, 2023[181][541] Critical Accounting Policies and Estimates This section highlights key accounting policies and estimates that require significant management judgment, such as software capitalization and tax valuation allowances - Management's financial statements rely on estimates and assumptions for capitalized internal-use software costs, fair values of stock-based awards, and valuation allowance for deferred tax assets[526] - Capitalized internal-use software costs are amortized over an estimated useful life of 3 years[156] - Long-lived assets are reviewed for impairment when circumstances indicate that the carrying amount may not be recoverable[157] - Equity-based compensation for employees is recognized over the service period, while non-employee awards are measured at grant date fair value[186][158] - Net loss per share calculations are based on weighted-average common shares outstanding, with all potentially dilutive securities considered anti-dilutive due to net losses[190] - Income taxes are accounted for using the asset and liability method, with a valuation allowance established for deferred tax assets when recovery is not more likely than not[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Better Therapeutics, Inc. is not required to provide the information typically required by this item - The company qualifies as a 'smaller reporting company' and is therefore not required to provide quantitative and qualitative disclosures about market risk[193] Item 4. Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023[165] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023[544] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings - There are no material legal proceedings to report[167][196] Item 1A. Risk Factors This section outlines significant risks and uncertainties that could materially affect the company's business, financial condition, and operating results. Key risks include the company's limited operating history, substantial doubt about its ability to continue as a going concern, dependence on AspyreRx commercialization, intense competition, extensive government regulation, and potential stock price volatility - The company has a limited operating history and has incurred significant financial losses since inception, with substantial doubt about its ability to continue as a going concern[173][205][225][230][233] - The business is highly dependent on the successful commercialization of AspyreRx, and failure to achieve market acceptance or delays would materially harm the business[225][246][247] - The company will need substantial additional funding and may be forced to delay, reduce, or terminate product development or commercialization efforts if unable to raise capital[225][235][237] - The clinical and commercial landscapes for cardiometabolic diseases are highly competitive, with risks from competitors developing more effective or safer technologies[225][249][278] - The company's products and operations are subject to extensive government regulation, and failure to comply or delays in obtaining regulatory authorizations could harm the business[199][338][392][393] - The insurance coverage and reimbursement status of newly-authorized products is uncertain, and failure to obtain adequate coverage could limit marketability and revenue generation[227][381][411][412] - The company's Loan Agreement with Hercules Capital contains restrictions and subjective acceleration clauses that limit operational flexibility and could lead to immediate repayment demands[225][299][331] - The price of the common stock may be volatile due to various factors, including operating performance, macroeconomic conditions, and analyst reports[228][435][465] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities, specifically the April and July private placements, and the intended use of proceeds to support the commercial launch of AspyreRx - In April 2023, the company issued 7,878,786 common shares for approximately $6.5 million in a private placement, with proceeds intended for AspyreRx commercial launch and strategic initiatives[512] - In July 2023, the company issued 2,897,654 common shares for approximately $2.1 million in a private placement, with net proceeds also supporting the launch of AspyreRx[485] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There are no defaults upon senior securities to report[530] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There are no mine safety disclosures to report[487] Item 5. Other Information The company reported no other information - There is no other information to report[514] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, purchase agreements, and certifications - Key exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Securities Purchase Agreements from April and July 2023, the First Amendment to the Loan and Security Agreement, and ATM Sales Agreement[488] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act are also filed[488][532] Signatures The report is duly signed on behalf of Better Therapeutics, Inc. by its Chief Executive Officer and Chief Financial Officer - The report is signed by Frank Karbe, Chief Executive Officer, and Mark Heinen, Chief Financial Officer, on August 9, 2023[517][533]