Dermata Therapeutics(DRMA) - 2023 Q3 - Quarterly Report

Part I: Financial Information This section presents the unaudited financial statements and related disclosures for the company Item 1: Financial Statements (Unaudited) This section presents the unaudited financial statements of Dermata Therapeutics, Inc. for the period ended September 30, 2023, including the Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, and Statements of Cash Flows, along with detailed notes explaining the company's organization, accounting policies, equity activities, and commitments Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of specific dates | Metric | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :-------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $6,631,483 | $6,241,294 | | Total assets | $7,323,383 | $6,944,488 | | Total liabilities | $916,817 | $922,634 | | Total stockholders' equity | $6,406,566 | $6,021,854 | Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net loss | Metric (Three Months Ended Sep 30) | 2023 | 2022 | | :--------------------------------- | :------------ | :------------ | | Research and development | $902,977 | $1,553,295 | | General and administrative | $909,001 | $892,777 | | Total operating expenses | $1,811,978 | $2,446,072 | | Net loss | $(1,719,211) | $(2,424,586) | | Net loss per share (basic & diluted)| $(0.54) | $(3.16) | | Weighted-average shares | 3,189,034 | 767,275 | | Metric (Nine Months Ended Sep 30) | 2023 | 2022 | | :-------------------------------- | :------------ | :------------ | | Research and development | $2,934,541 | $4,761,686 | | General and administrative | $2,887,533 | $3,201,111 | | Total operating expenses | $5,822,074 | $7,962,797 | | Net loss | $(5,660,717) | $(7,941,311) | | Net loss per share (basic & diluted)| $(2.46) | $(11.96) | | Weighted-average shares | 2,301,360 | 663,892 | Statements of Stockholders' Equity This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit - Total stockholders' equity increased from $6,021,854 at December 31, 2022, to $6,406,566 at September 30, 2023, primarily due to additional paid-in capital from stock and warrant issuances, offset by net losses[17][18] | Metric (as of Sep 30, 2023) | Amount | | :-------------------------- | :------------ | | Common Stock Shares | 3,189,034 | | Par Value | $319 | | Additional Paid-in Capital | $57,660,152 | | Accumulated Deficit | $(51,253,905) | | Total Stockholders' Equity | $6,406,566 | Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (Nine Months Ended Sep 30) | 2023 | 2022 | | :-------------------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(5,261,626) | $(7,008,636) | | Net cash provided by financing activities | $5,651,815 | $4,276,652 | | Net increase (decrease) in Cash and cash equivalents | $390,189 | $(2,731,984) | | Cash and cash equivalents at end of period | $6,631,483 | $8,066,822 | Notes to Financial Statements This section provides detailed explanations and additional information supporting the financial statements 1. Organization and Basis of Presentation This note describes the company's business, corporate structure, and the foundational principles used in preparing the financial statements - Dermata Therapeutics, Inc. is a clinical-stage biotechnology company focused on skin conditions, converted to a C-corporation in March 2021, and completed its IPO in August 2021, raising approximately $15.4 million net proceeds[25][26] - The company effected a 1-for-16 reverse stock split on March 13, 2023, retroactively adjusting all share and per-share amounts[28] - The company has an accumulated deficit of $51.3 million as of September 30, 2023, and expects current cash to fund operations only into Q2 2024, raising substantial doubt about its ability to continue as a going concern without additional capital[29][30][31] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods applied in the preparation of the financial statements - The company operates in a single segment focused on developing and commercializing pharmaceuticals[35] - Research and development costs, including license fees and milestone payments, are expensed as incurred[40] - Stock-based compensation expense is recognized using the straight-line method based on estimated fair values determined by the Black-Scholes valuation model[45][46] 3. Balance Sheet Details This note provides disaggregated information for specific balance sheet accounts, including prepaid expenses and accrued liabilities | Prepaid Expenses and Other Current Assets | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------- | :----------- | :----------- | | Prepaid insurance | $586,359 | $586,407 | | Prepaid research and development costs | $76,216 | $92,581 | | Total prepaid expenses and other current assets | $691,900 | $703,194 | | Accrued and Other Current Liabilities | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :----------- | :----------- | | Accrued research and development costs| $40,904 | $254,787 | | Accrued compensation and benefits | $329,049 | $170,389 | | Total accrued and other current liabilities | $442,359 | $425,932 | 4. Equity Securities This note details the company's equity activities, including stock offerings, warrant issuances, and their impact on capital structure - In May 2023, the company closed a private placement (2023 PIPE) selling 458,555 shares of Common Stock and 342,322 pre-funded warrants, generating approximately $1.5 million in net cash proceeds[53] - In March 2023, the company completed a public offering, selling 85,000 shares of Common Stock and 1,533,123 pre-funded warrants, raising approximately $4.2 million in net cash proceeds[54] | Warrant Type | Quantity Outstanding (Sep 30, 2023) | Exercise Price | | :------------------------------------ | :---------------------------------- | :------------- | | Pre-IPO Series 1a Warrants | 4,321 | $328.00 | | Pre-IPO Class B Common Warrants | 4,077 | $91.84 | | IPO Warrants | 184,820 | $112.00 | | IPO Underwriter Warrants | 8,035 | $128.80 | | April 2022 PIPE Common Warrants | 235,849 | $2.82 | | March 2023 Series A Common Warrants | 1,618,123 | $2.82 | | March 2023 Series B Common Warrants | 1,618,123 | $2.82 | | March 2023 Offering Placement Agent Warrants | 113,269 | $3.8625 | | May 2023 PIPE Common Warrants | 800,877 | $2.16 | | May 2023 PIPE Placement Agent Warrants| 56,061 | $2.8563 | | Total warrants outstanding | 4,643,555 | | - The intrinsic value of all outstanding warrants as of September 30, 2023, was zero, as their exercise prices were above the closing market price of $1.06 per share[70] 5. Equity Incentive Plan This note describes the company's stock-based compensation plans, including authorized shares, expense recognition, and outstanding options - The 2021 Omnibus Equity Incentive Plan was amended in August 2023, increasing authorized shares for issuance by 513,150 to a total of 629,069 shares[72] | Stock-based Compensation Expense | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :------------------------------- | :------------------------------ | :------------------------------ | | Research and development | $48,425 | $54,907 | | General and administrative | $82,752 | $180,076 | | Total | $131,177 | $234,983 | | Stock-based Compensation Expense | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $145,275 | $163,417 | | General and administrative | $248,339 | $546,018 | | Total | $393,614 | $709,435 | - As of September 30, 2023, total unrecognized compensation cost related to stock options was approximately $0.8 million, expected to be recognized over a weighted-average period of 1.8 years[84] 6. Commitments and Contingencies This note outlines the company's contractual obligations, license agreements, and potential risks from supply chain dependencies - The company has a license agreement with Villani, Inc. for its Spongilla technology, requiring future milestone payments up to $40.5 million and single-digit royalty payments on net sales[85] - The company relies on a Russian entity for the exclusive supply of Spongilla raw material, and potential new sanctions against Russia could negatively impact its ability to obtain additional supply, affecting its business and financial condition[86] 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 operational results, highlighting its status as a clinical-stage dermatology company, its product candidates DMT310 and DMT410, recent equity financings, critical accounting policies, and its liquidity challenges, including the need for additional funding to continue operations and advance its pipeline Overview This section introduces the company's business, product pipeline, and summarizes its financial performance and strategic direction - Dermata Therapeutics is a clinical-stage medical dermatology company developing product candidates DMT310 and DMT410, both utilizing proprietary Spongilla technology for various skin conditions[94][96] - DMT310, the lead candidate, is a once-weekly treatment for acne vulgaris, showing a 45% reduction in inflammatory lesions in a Phase 2b study, with Phase 3 trials planned for H2 2023 following FDA feedback[98][100] - DMT410 is a combination treatment for topical delivery of botulinum toxin, demonstrating 80% reduction in sweat production in a Phase 1 hyperhidrosis trial, and the company is seeking partners for Phase 2 studies[102] - The company has incurred significant operating losses, with a net loss of $1.7 million for Q3 2023 and an accumulated deficit of $51.3 million, and expects continued losses as it advances its pipeline[104][105] Recent Developments This section highlights significant events and transactions, particularly recent equity financings and their impact on capital - In March 2023, the company completed a public offering, raising approximately $4.2 million net proceeds from the sale of common stock and warrants[107] - In May 2023, a private placement (2023 PIPE) generated approximately $1.5 million net proceeds from the sale of common stock and pre-funded warrants, intended for general corporate purposes including R&D and clinical trials[108] Critical Accounting Policies and Use of Estimates This section discusses accounting policies requiring significant judgment and estimates, such as R&D expenses and stock-based compensation - The company's financial statements require significant estimates and judgments, particularly for accrued research and development expenses, stock-based compensation, and the fair value of equity instruments[109] - Research and development expenses are estimated based on patient enrollment, milestones, and vendor efforts, with adjustments made as additional information becomes available[111][112] - Stock-based compensation is valued using the Black-Scholes option pricing model, relying on subjective assumptions like expected life and share price volatility[113] Results of Operations This section analyzes the company's financial performance, detailing changes in research and development and general and administrative expenses Operating Results (Three Months Ended September 30) | Metric | 2023 | 2022 | Difference | | :------------------------- | :------------ | :------------ | :------------ | | Research and development | $902,977 | $1,553,295 | $(650,318) | | General and administrative | $909,001 | $892,777 | $16,224 | | Total operating expenses | $1,811,978 | $2,446,072 | $(634,094) | | Net loss | $(1,719,211) | $(2,424,586) | $705,375 | - Research and development expenses decreased by $0.7 million in Q3 2023 compared to Q3 2022, primarily due to decreased clinical expenses from the DMT310 rosacea study, partially offset by increased CMC expenses for the DMT310 Phase 3 program[117] Operating Results (Nine Months Ended September 30) | Metric | 2023 | 2022 | Difference | | :------------------------- | :------------ | :------------ | :------------ | | Research and development | $2,934,541 | $4,761,686 | $(1,827,145) | | General and administrative | $2,887,533 | $3,201,111 | $(313,578) | | Total operating expenses | $5,822,074 | $7,962,797 | $(2,140,723) | | Net loss | $(5,660,717) | $(7,941,311) | $2,280,594 | - General and administrative expenses decreased by $0.3 million for the nine months ended September 30, 2023, driven by lower insurance costs and stock-based compensation, partially offset by increased public company expenses[123] Cash Flows This section analyzes the sources and uses of cash from operating and financing activities, highlighting changes in liquidity Cash Flow Summary (Nine Months Ended September 30) | Activity | 2023 | 2022 | | :------------------------- | :------------ | :------------ | | Operating activities | $(5,261,626) | $(7,008,636) | | Financing activities | $5,651,815 | $4,276,652 | - Cash used in operating activities decreased from $7.0 million in 2022 to $5.3 million in 2023, primarily due to a lower net loss and reduced non-cash stock-based compensation[126][127] - Cash provided by financing activities increased to $5.7 million in 2023, mainly from net proceeds of $4.2 million from the March 2023 Offering and $1.5 million from the May 2023 Offering[128] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations and fund future operations, emphasizing capital needs - As of September 30, 2023, the company had $6.6 million in cash and cash equivalents and an accumulated deficit of $51.3 million[129] - Current cash balances are expected to fund operations only into the second quarter of 2024, necessitating additional capital to finance future operations and mitigate going concern risk[129][134] - Future funding requirements are substantial, driven by ongoing R&D, clinical trials for DMT310 and DMT410, potential commercialization, and expansion of corporate infrastructure[131][132] Item 3: Quantitative and Qualitative Disclosures about Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for the company - The company has no applicable quantitative and qualitative disclosures about market risk[140] Item 4: Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the period - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective at the reasonable assurance level[142] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[143] Part II: Other Information This section provides additional information not covered in the financial statements, including legal, risk, and equity matters Item 1: Legal Proceedings The company is not currently a party to any material legal proceedings and is unaware of any threatened legal proceedings that would have a material adverse effect on its financial condition or operations - The company is not a party to any material legal proceedings[144] Item 1A: Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for 2022 and the Quarterly Report on Form 10-Q for Q1 2023 have occurred during the quarter ended September 30, 2023 - No material changes to previously disclosed risk factors occurred during the quarter ended September 30, 2023[145] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[146] Item 3: Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[147] Item 4: Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the company[149] Item 5: Other Information There is no other information to report for the period - No other information to report[150] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and amendments to the equity incentive plan - Key exhibits include certifications (31.1*, 31.2*, 32.1**), XBRL instance and taxonomy documents (101.INS*, 101.SCH*, 101.CAL*, 101.DEF*, 101.LAB*, 101.PRE*), and the Second Amendment to the 2021 Omnibus Equity Incentive Plan (10.1)[151] Signatures This section confirms the official submission of the report, signed by authorized executive officers - The report was signed on November 9, 2023, by Gerald T. Proehl, President and Chief Executive Officer, and Kyri K. Van Hoose, Senior Vice President, Chief Financial Officer[156]