Fresh Tracks Therapeutics(FRTX) - 2023 Q1 - Quarterly Report

FORWARD-LOOKING STATEMENTS FORWARD-LOOKING STATEMENTS This report contains forward-looking statements regarding future financial, business, and research performance, including strategy, operations, financial position, liquidity, revenue, expenses, clinical trials, intellectual property, regulatory approvals, and commercialization prospects, based on management's current expectations and projections - This report contains forward-looking statements regarding future financial, business, and research performance, including strategy, operations, financial position, liquidity, revenue, expenses, clinical trials, intellectual property, regulatory approvals, and commercialization prospects. These statements are based on management's current expectations and projections[6][7] - Forward-looking statements involve substantial risks and uncertainties, including those detailed in the Annual Report on Form 10-K and this Quarterly Report's 'Risk Factors' section. Actual results may differ materially due to competitive and rapidly changing environments, and the company undertakes no obligation to revise these statements, except as required by law[6][7][8] PART I. FINANCIAL INFORMATION PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements This section presents Fresh Tracks Therapeutics, Inc.'s unaudited condensed consolidated financial statements, encompassing balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes on organization, accounting policies, strategic agreements, and capital structure Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $10,764 | $8,680 | $2,084 | 24.01% | | Total current assets | $11,813 | $10,083 | $1,730 | 17.16% | | Total assets | $11,967 | $10,271 | $1,696 | 16.51% | | Total current liabilities | $2,101 | $3,077 | $(976) | -31.72% | | Total stockholders' equity | $9,866 | $7,194 | $2,672 | 37.14% | - The company's cash and cash equivalents increased by $2.084 million, or 24.01%, from December 31, 2022, to March 31, 2023[13] - Total current liabilities decreased by $976 thousand, or 31.72%, primarily due to a reduction in accrued liabilities[13] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total revenue | $9 | $92 | $(83) | -90.22% | | Research and development | $1,936 | $6,013 | $(4,077) | -67.79% | | General and administrative | $2,414 | $3,486 | $(1,072) | -30.75% | | Total operating expenses | $4,350 | $9,499 | $(5,149) | -54.21% | | Net loss attributable to common stockholders | $(4,276) | $(9,410) | $5,134 | -54.56% | | Net loss per common share, basic and diluted | $(1.14) | $(3.55) | $2.41 | -67.89% | - Net loss significantly decreased by $5.134 million, or 54.56%, for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to reduced operating expenses[15] - Total revenue decreased by $83 thousand, or 90.22%, from $92 thousand in Q1 2022 to $9 thousand in Q1 2023[15] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands, except shares) | Metric | December 31, 2022 | March 31, 2023 | Change ($) | Change (%) | | :----------------------------------- | :---------------- | :------------- | :--------- | :--------- | | Common Stock (Shares) | 3,018,940 | 5,906,475 | 2,887,535 | 95.65% | | Common Stock (Par Value) | $30 | $59 | $29 | 96.67% | | Additional Paid-In Capital | $173,633 | $180,552 | $6,919 | 3.98% | | Accumulated Deficit | $(166,469) | $(170,745) | $(4,276) | 2.57% | | Total Stockholders' Equity | $7,194 | $9,866 | $2,672 | 37.14% | - The number of common shares issued and outstanding nearly doubled, increasing by 2,887,535 shares, primarily due to issuances under ATM agreements[17] - Total stockholders' equity increased by $2.672 million, or 37.14%, driven by proceeds from common stock issuance and stock-based compensation, partially offset by net loss[17] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in operating activities | $(4,485) | $(9,540) | $5,055 | | Net cash provided by (used in) financing activities | $6,569 | $(55) | $6,624 | | Net increase (decrease) in cash and cash equivalents | $2,084 | $(9,595) | $11,679 | | Cash and cash equivalents—Ending | $10,764 | $17,289 | $(6,525) | - Net cash used in operating activities decreased by $5.055 million, or 53%, for the three months ended March 31, 2023, compared to the same period in 2022[20] - Net cash provided by financing activities significantly increased by $6.624 million, primarily due to proceeds from common stock issuance under ATM agreements in Q1 2023[20] Notes to Condensed Consolidated Financial Statements Note 1. Organization and Nature of Operations - Fresh Tracks Therapeutics, Inc. is a clinical-stage pharmaceutical company focused on developing innovative prescription therapeutics for autoimmune, inflammatory, and other debilitating diseases, with a pipeline including FRTX-02 (DYRK1A inhibitor) and FRTX-10 (STING inhibitor)[23] - The company effected a 1-for-45 reverse stock split on July 5, 2022, adjusting all common stock shares and per-share amounts retrospectively[24] - As of March 31, 2023, the company had $10.8 million in cash and cash equivalents and an accumulated deficit of $170.7 million, expecting current cash to fund operations for at least the next 12 months. The Board is exploring strategic options, including financing, asset sales/licensing, or mergers, to fund pipeline development[25][26] Note 2. Summary of Significant Accounting Policies - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting, including the accounts of Fresh Tracks Therapeutics, Inc. and its wholly-owned subsidiary, Brickell Subsidiary, Inc[27][28] - Revenue recognition follows a five-step model, primarily from upfront fees, milestones, research reimbursements, consulting services, and royalties. The company evaluates performance obligations to determine if revenue is recognized over time or at a point in time[40][41][42] - Research and development costs are expensed as incurred, including formulation, nonclinical/clinical studies, manufacturing, in-licensing fees, and personnel costs. Milestone payments for acquired assets are expensed when probable and estimable[49][51] - Basic and diluted net loss per share are computed by dividing net loss by the weighted-average common shares outstanding. Potentially dilutive securities are excluded when anti-dilutive[52] Note 3. Strategic Agreements - The company holds exclusive worldwide rights to FRTX-02 and other next-generation kinase inhibitors through a License and Development Agreement with Voronoi, with potential milestone payments up to $211.0 million for FRTX-02 and $107.5 million for the kinase inhibitor platform, plus tiered royalties[57][58] - An Exclusive License Agreement with Carna Biosciences grants worldwide rights to STING inhibitors, involving a $2.0 million upfront payment (expensed in Q1 2022) and potential success-based payments up to $258.0 million, plus tiered royalties[59][60] - The company sold its rights to sofpironium bromide assets to Botanix in May 2022, receiving an upfront payment, development reimbursements, and a $2.0 million milestone for FDA NDA acceptance. It is eligible for up to $168.0 million in additional regulatory/sales milestones and tiered earnout payments on net sales[62][65] - Under a Transition Services Agreement (TSA) with Botanix, the company provides consulting services for sofpironium bromide gel, 15% NDA filing and approval, recognizing $9 thousand in contract revenue for Q1 2023[69] Note 4. Detailed Account Balances Prepaid Expenses and Other Current Assets (in thousands) | Prepaid Expenses and Other Current Assets | March 31, 2023 | December 31, 2022 | | :------------------------------------------------------- | :------------- | :---------------- | | Prepaid insurance | $496 | $521 | | Contract asset | $220 | $254 | | Prepaid research and development expenses | $159 | $254 | | Accounts receivable | $45 | $250 | | Total | $1,049 | $1,403 | Accrued Liabilities (in thousands) | Accrued Liabilities | March 31, 2023 | December 31, 2022 | | :--------------------------------- | :------------- | :---------------- | | Accrued compensation | $731 | $1,320 | | Accrued professional fees | $404 | $705 | | Accrued research and development expenses | $303 | $432 | | Total | $1,438 | $2,457 | - Accrued liabilities decreased by $1.019 million from December 31, 2022, to March 31, 2023, primarily due to reductions in accrued compensation and professional fees[75] Note 5. Commitments and Contingencies - The company's Colorado office lease (Boulder Lease) was amended in December 2022, extending the term to December 31, 2025, but with an option to terminate by June 30, 2023, if notice is provided by April 30, 2023[76] - As of March 31, 2023, the present value of the lease liability was $28 thousand, with total maturities through December 31, 2023, of $29 thousand[78] - On May 4, 2023, the company further amended the Boulder Lease to terminate it effective August 31, 2023, to reduce operating expenses[78][191] Note 6. Capital Stock - As of March 31, 2023, the company had 5,906,475 shares of common stock issued and outstanding, with 300,000,000 shares authorized[13] Reserved Shares (March 31, 2023) | Reserved Shares | Number of Shares | | :------------------------------- | :--------------- | | Common stock warrants | 621,063 | | Common stock options outstanding | 197,055 | | Unvested restricted stock units | 141,250 | | ESPP shares available for grant | 42,728 | | Omnibus Plan shares available for grant | 18,854 | | Total | 1,020,950 | - During the three months ended March 31, 2023, the company sold 2,887,535 shares of common stock under the 2021 ATM Agreement, generating net proceeds of $6.6 million[85] - The company is subject to SEC's 'baby shelf rules,' limiting equity issuances under shelf registration statements to one-third of its public float in a 12-month period, which may restrict future capital raising[87] Note 7. Stock-Based Compensation - The 2020 Omnibus Long-Term Incentive Plan (Omnibus Plan) replaced prior plans for new award grants. As of March 31, 2023, 323,364 shares were authorized, and 18,854 shares remained available for grant under the Omnibus Plan[95][96] - The Employee Stock Purchase Plan (ESPP) allows qualified employees to purchase common stock at 85% of the lower of the opening or closing price of a six-month purchase period. As of March 31, 2023, 42,728 shares were available for issuance under the ESPP[97][98] Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation Expense | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $92 | $103 | | General and administrative | $287 | $448 | | Total stock-based compensation expense | $379 | $551 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis covers the company's financial condition and operational results for the three months ended March 31, 2023, including strategic focus, pipeline development, financial performance, liquidity, and future outlook Overview - Fresh Tracks Therapeutics is a clinical-stage pharmaceutical company developing innovative prescription therapeutics for autoimmune, inflammatory, and other debilitating diseases, aiming to disrupt existing treatment paradigms with first-in-class potential new chemical entities[100] Exploration of Strategic Options - The Board and executive management are exploring strategic options to advance the pipeline, including financing, asset sales/licensing, acquisitions, mergers, or other strategic transactions, with MTS Health Partners, LP retained as financial advisor[101] Research and Development Programs - FRTX-02 is a novel, orally bioavailable DYRK1A inhibitor, the lead development-stage program, with first-in-class potential for autoimmune and inflammatory diseases. It has shown promising preclinical results in atopic dermatitis and rheumatoid arthritis models, aiming to restore immune balance[103][104] - FRTX-10 is a preclinical-stage covalent STING inhibitor candidate, acquired in February 2022, targeting excessive STING signaling linked to autoimmune, inflammatory, and rare genetic diseases. It aims to inhibit both wild-type and gain-of-function STING mutants[107][109] - The company also has a platform of next-generation kinase inhibitors, including DYRK1, LRRK2, CLK, and TTK inhibitors, with potential for neuroinflammatory conditions (e.g., Down Syndrome, Alzheimer's, Parkinson's) and other autoimmune, inflammatory, and oncology areas[111] Topline Results of FRTX-02 (Phase 1 Part A and B) Clinical Trial - The Phase 1 clinical trial (FRTX-02-101) for FRTX-02, initiated in May 2022, is a randomized, double-blind, placebo-controlled study evaluating safety, tolerability, pharmacokinetics (PK), and pharmacodynamics (PD) in healthy subjects and patients with atopic dermatitis (AD). Parts 1A (SAD) and 1B (MAD) were completed in Q4 2022, with positive topline results reported in March 2023[104][105][113] - FRTX-02 was generally safe and well-tolerated in SAD and MAD cohorts (75 mg and 150 mg), with no discontinuations due to TEAEs. QTc prolongation was observed in two subjects in the 300 mg MAD cohort, which resolved after dosing cessation[114] - PK data showed dose-proportional exposure, supporting once-daily oral dosing, with Cmax and AUC values at or above pharmacologically active levels. Exploratory PD assessment demonstrated FRTX-02 reduced disease-relevant proinflammatory cytokines (e.g., IFNγ, IL-23, IL-10, IL-6, TNFα) in whole blood[115][116] Strategic, Licensing, and Other Arrangements - The company has a License and Development Agreement with Voronoi for FRTX-02 and next-generation kinase inhibitors, with potential milestone payments up to $318.5 million and tiered royalties[117][118] - An Exclusive License Agreement with Carna Biosciences provides rights to STING inhibitors, including a $2.0 million upfront payment in Q1 2022 and potential success-based payments up to $258.0 million, plus tiered royalties[119][120] - In May 2022, the company sold its sofpironium bromide assets to Botanix, receiving an upfront payment, development reimbursements, and a $2.0 million milestone for FDA NDA acceptance. It is eligible for up to $168.0 million in additional regulatory/sales milestones and tiered earnout payments[121][124] - The company recognized $9 thousand in contract revenue for Q1 2023 from consulting services provided to Botanix under a Transition Services Agreement (TSA) related to the sofpironium bromide gel NDA[128] Reverse Stock Split - On July 5, 2022, the company effected a 1-for-45 reverse stock split of its outstanding common stock, which was approved by stockholders on June 30, 2022. All share and per-share amounts in the financial statements and MD&A reflect this adjustment[133][134] Significant Financing Arrangements - In Q1 2023, the company sold 2,887,535 shares of common stock under the 2021 ATM Agreement, generating aggregate net proceeds of $6.6 million. Approximately $38.0 million of shares remained available for sale under this agreement as of March 31, 2023[139][140] - The company is subject to SEC's 'baby shelf rules,' which limit equity issuances under a shelf registration statement to one-third of its public float in a 12-month period, potentially restricting future capital raising under ATM agreements or other offerings[142] - Under a Purchase Agreement with Lincoln Park Capital Fund, LLC, the company has the right, but not the obligation, to sell up to $28.0 million in common stock. As of March 31, 2023, approximately $26.9 million remained available for sale[144][146] Financial Overview - The company has incurred significant operating losses and had an accumulated deficit of $170.7 million as of March 31, 2023, with a net loss of $4.3 million for Q1 2023[150] - Operations are financed primarily through common stock and warrant sales, convertible preferred stock, debt, and payments from license/collaboration agreements. The company expects to incur substantial losses for several years and will need to raise additional capital[150][151] - The Board is exploring strategic options (financing, asset sales/licensing, M&A) to fund the development of its pipeline, as timely financing or strategic partnerships are crucial for conducting additional R&D activities[152][153] Key Components of Operations - Revenue is recognized from strategic agreements, including upfront fees, milestones, sublicense income, earnout payments, and royalties. The company expects to continue recognizing contract revenue related to sofpironium bromide gel royalties after March 31, 2023[154] - Research and development expenses primarily consist of payments to CROs, upfront in-licensing fees, personnel costs, supplies, and facility overhead[155] - General and administrative expenses include personnel costs (executive, sales, marketing, finance, HR) and professional fees (legal, accounting, sublicensing)[156] Critical Accounting Estimates - Critical accounting estimates include revenue recognition and accrued research and development expenses, which require management judgment and assumptions that may differ from actual results[158] - There were no changes to critical accounting estimates during the three months ended March 31, 2023, as disclosed in the Annual Report on Form 10-K for December 31, 2022[159] Recent Accounting Pronouncements - The adoption of recently issued accounting standards is not expected to have a material impact on the company's condensed consolidated financial statements or disclosures[160] Results of Operations Comparison of the Three Months Ended March 31, 2023 and 2022 Comparison of the Three Months Ended March 31, 2023 and 2022 (in thousands) | Metric | March 31, 2023 | March 31, 2022 | Change ($) | Change (%) | | :-------------------- | :------------- | :------------- | :--------- | :--------- | | Revenue | $9 | $92 | $(83) | -90.22% | | R&D expenses | $(1,936) | $(6,013) | $4,077 | -67.79% | | G&A expenses | $(2,414) | $(3,486) | $1,072 | -30.75% | | Other income (expense), net | $65 | $(3) | $68 | -2266.67% | | Net loss | $(4,276) | $(9,410) | $5,134 | -54.56% | Revenue - Revenue decreased by approximately $0.1 million (90.22%) for Q1 2023 compared to Q1 2022. Q1 2023 revenue primarily consisted of contract revenue from services under the TSA with Botanix, while Q1 2022 revenue was royalty revenue from ECCLOCK sales in Japan[162] Research and Development Expenses R&D Program Expenses (in thousands) | R&D Program Expenses | March 31, 2023 | March 31, 2022 | Change ($) | | :---------------------------------- | :------------- | :------------- | :--------- | | Sofpironium bromide | $0 | $2,168 | $(2,168) | | DYRK1A inhibitor (FRTX-02) | $936 | $728 | $208 | | STING inhibitor (FRTX-10) | $102 | $2,010 | $(1,908) | | Personnel and other unallocated | $898 | $1,107 | $(209) | | Total R&D expenses | $1,936 | $6,013 | $(4,077) | - Total R&D expenses decreased by $4.1 million (67.79%) for Q1 2023, primarily due to a $2.2 million reduction in sofpironium bromide clinical expenses (following asset sale to Botanix) and a $1.9 million decrease in STING inhibitor program costs (due to Q1 2022 upfront in-licensing fees)[163][164] - Costs for the DYRK1A inhibitor program (FRTX-02) increased by $0.2 million due to ongoing Phase 1 clinical trial activities[163][164] General and Administrative Expenses - General and administrative expenses decreased by $1.1 million (30.75%) for Q1 2023 compared to Q1 2022, driven by lower legal and compliance fees ($0.6 million), other expenses ($0.3 million), and compensation-related expenses ($0.2 million)[165] Total Other Income (Expense), Net - Total other income (expense), net increased by $0.1 million for Q1 2023 compared to Q1 2022, primarily due to higher interest income earned on money market funds and interest-bearing accounts[166] Liquidity and Capital Resources Cash Flows Cash Flow Activity (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(4,485) | $(9,540) | | Net cash provided by (used in) financing activities | $6,569 | $(55) | | Total net increase (decrease) | $2,084 | $(9,595) | Operating Activities - Net cash used in operating activities decreased by $5.1 million to $4.5 million in Q1 2023, compared to $9.5 million in Q1 2022, primarily due to a decrease in net loss and changes in working capital[172] Financing Activities - Net cash provided by financing activities increased by $6.6 million in Q1 2023, primarily from $6.6 million in net proceeds from common stock sales under the 2021 ATM Agreement[173] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Fresh Tracks Therapeutics, Inc. is exempt from providing quantitative and qualitative disclosures regarding market risk - The company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is therefore not required to provide information under this item[174] ITEM 4. Controls and Procedures This section evaluates the company's disclosure controls and procedures, affirming their effectiveness and reporting no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - The company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required under the Exchange Act, acknowledging that such controls provide only reasonable assurance[175] Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures - Based on an evaluation conducted by management, including the principal executive officer and principal financial officer, the company's disclosure controls and procedures were concluded to be effective at a reasonable assurance level as of March 31, 2023[176] Changes in Internal Control over Financial Reporting - Management determined that there were no changes in internal control over financial reporting during the three months ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[177] PART II. OTHER INFORMATION PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company is not currently involved in any legal proceedings that would materially adversely affect its business - The company is not presently involved in any legal proceedings that, if determined adversely, would individually or collectively have a material adverse effect on the company[180] ITEM 1A. Risk Factors This section updates risk factors, emphasizing the company's non-compliance with Nasdaq listing requirements for independent directors and minimum bid price, and potential delisting consequences - The company received a Nasdaq notice on August 19, 2022, for noncompliance with independent director and audit committee requirements (Nasdaq Listing Rule 5605) due to a director's departure, and has a cure period until July 28, 2023, or January 24, 2023, depending on the annual meeting date[182][183] - On April 24, 2023, the company received another Nasdaq notice for non-compliance with the minimum $1.00 closing bid price requirement (Nasdaq Marketplace Rule 5550(a)(2)), with a 180-calendar day period until October 23, 2023, to regain compliance[185] - Inability to regain Nasdaq compliance could lead to delisting, resulting in limited market quotations, decreased trading liquidity, adverse effects on future financing, loss of investor confidence, and a potential decline in stock price[186][187] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[188] ITEM 3. Defaults Upon Senior Securities This item is not applicable to the company for the current reporting period - This item is not applicable[189] ITEM 4. Mine Safety Disclosures This item is not applicable to the company for the current reporting period - This item is not applicable[190] ITEM 5. Other Information The company disclosed the termination of its Boulder Lease, effective August 31, 2023, aimed at reducing operating expenses - On May 4, 2023, the company amended the Boulder Lease to terminate it effective August 31, 2023, in exchange for a $5,051 termination fee. This action aims to reduce operating expenses for its corporate headquarters[191] ITEM 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, employment agreements, and certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, several employment and consulting agreements, and certifications from the Principal Executive Officer and Principal Financial Officer[192][193][194]