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GRI Bio(GRI) - 2023 Q2 - Quarterly Report
GRI BioGRI Bio(US:GRI)2023-08-14 12:08

PART I. FINANCIAL INFORMATION This section provides unaudited interim consolidated financial statements and notes on financial position and operations Item 1. Financial Statements This section details unaudited interim consolidated financial statements and accompanying notes Consolidated Balance Sheets This section presents unaudited consolidated balance sheets as of June 30, 2023, and December 31, 2022 | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $4,799 | $9 | | Total current assets | $5,592 | $312 | | Total assets | $5,642 | $383 | | Accounts payable | $307 | $1,294 | | Accrued expenses | $1,193 | $36 | | Total current liabilities | $1,604 | $1,994 | | Total liabilities | $1,604 | $2,008 | | Additional paid-in-capital | $31,430 | $16,871 | | Accumulated deficit | $(27,392) | $(18,496) | | Total stockholders' equity (deficit) | $4,038 | $(1,625) | Consolidated Statements of Operations This section details unaudited consolidated statements of operations for the reported interim periods | Metric (in thousands) | 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 | $880 | $59 | $997 | $119 | | General and administrative | $5,054 | $130 | $5,926 | $268 | | Total operating expenses | $5,934 | $189 | $6,923 | $387 | | Loss from operations | $(5,934) | $(189) | $(6,923) | $(387) | | Change in fair value of warrant liability | $122 | $— | $122 | $— | | Interest expense, net | $(934) | $(106) | $(2,095) | $(210) | | Net loss | $(6,746) | $(295) | $(8,896) | $(597) | | Net loss per share, basic and diluted | $(2.79) | $(0.35) | $(5.23) | $(0.70) | | Weighted-average common shares outstanding | 2,417,785 | 851,419 | 1,701,864 | 851,419 | Consolidated Statements of Changes in Stockholders' Equity (Deficit) This section presents unaudited consolidated statements of changes in stockholders' equity (deficit) | Metric (in thousands) | December 31, 2022 | March 31, 2023 | June 30, 2023 | | :------------------------------------------ | :---------------- | :--------------- | :-------------- | | Balance, Stockholders' Equity (Deficit) | $(1,625) | $(3,230) | $4,038 | | Additional Paid-in Capital | $16,871 | $17,416 | $31,430 | | Accumulated Deficit | $(18,496) | $(20,646) | $(27,392) | | Common Stock Shares Outstanding | 999,748 | 1,000,215 | 2,956,354 | | Issuance of common stock in pre-closing financing | — | — | $11,721 | | Issuance of common stock for settlement of bridge note | — | — | $3,333 | | Issuance of common stock for reverse recapitalization expenses | — | — | $1,875 | | Net loss | $(2,150) | $(6,746) | Consolidated Statements of Cash Flows This section provides unaudited consolidated statements of cash flows for the reported periods | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(8,896) | $(597) | | Cash used in operating activities | $(2,119) | $(116) | | Cash used in investing activities | $(8) | $— | | Cash provided by financing activities | $6,917 | $35 | | Net increase (decrease) in cash and cash equivalents | $4,790 | $(81) | | Cash and cash equivalents at end of period | $4,799 | $9 | | Proceeds from issuance of common stock in pre-closing financing | $12,250 | $— | | Proceeds from issuance of bridge promissory note | $1,250 | $— | | Net liabilities assumed in reverse recapitalization | $(2,939) | $— | | Payment of reverse recapitalization costs | $(2,984) | $— | Notes to Unaudited Interim Consolidated Financial Statements This section provides detailed explanations of financial policies, significant events, and account balances 1. Organization and Description of Business This note describes the company's biopharmaceutical business and the recent reverse merger event - GRI Bio, Inc. is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing innovative therapies targeting serious diseases associated with dysregulated immune responses, including inflammatory, fibrotic, and autoimmune disorders20 - The company's lead product candidate, GRI-0621, is an oral inhibitor of type 1 Natural Killer T (iNKT I) cells, being developed for severe fibrotic lung diseases like idiopathic pulmonary fibrosis (IPF)20 - The product candidate portfolio also includes GRI-0803, a novel oral agonist of type 2 Natural Killer T (NKT II) cells, being developed for autoimmune disorders such as Systemic Lupus Erythematosus Disease (SLE) and multiple sclerosis (MS), along with a proprietary library of 500+ compounds20 - On April 21, 2023, the company (formerly Vallon Pharmaceuticals, Inc.) consummated a reverse merger with GRI Bio Operations, Inc. (Private GRI), with Private GRI surviving as a wholly-owned subsidiary and being accounted for as the accounting acquirer2123 2. Liquidity This note discusses the company's cash position, operating losses, and its ability to continue as a going concern - The company has incurred operating losses since inception in 2009, resulting in an accumulated deficit of $27,392 thousand through June 30, 202324 - As of June 30, 2023, the company had cash of approximately $4,799 thousand24 - Based on the current operating plan, existing cash and cash equivalents, including proceeds from the Equity SPA, are expected to fund operating expenses and capital expenditure requirements for twelve months from the date of the Merger28 - The company's ability to continue as a going concern is dependent on raising additional capital, leading to substantial doubt about its ability to continue as a going concern29 3. Basis of Presentation and Summary of Significant Accounting Policies This note outlines accounting principles, fair value measurements, and policies for debt and stock compensation - The unaudited interim financial statements are prepared in accordance with GAAP for interim financial periods and SEC rules, requiring management to make estimates and assumptions that affect reported amounts3032 - Fair value measurements for financial instruments, including liability classified warrants, are categorized into a three-level hierarchy, with Level 3 requiring significant unobservable inputs3538 - Debt discounts and debt issuance costs are amortized as additional interest expense over the estimated terms of the notes using the effective interest method4142 - Stock-based compensation expense for employee and non-employee awards is recognized using a fair value-based method (Black-Scholes option-pricing model) over the vesting period43 4. Merger with Vallon This note details the reverse recapitalization with Vallon Pharmaceuticals, Inc., and its financial implications - On April 21, 2023, the company (formerly Vallon Pharmaceuticals, Inc.) consummated a merger with Private GRI, with Private GRI surviving as a wholly-owned subsidiary and the company changing its name to 'GRI Bio, Inc.'47 - The merger was accounted for as a reverse recapitalization, with Private GRI determined to be the accounting acquirer, as its equity holders owned approximately 85% of the combined company's common stock and Private GRI management holds the majority of board seats and key management positions47 - Immediately after the Merger, there were 2,956,354 shares of the Company's common stock outstanding48 Net Liabilities Assumed | Net Liabilities Assumed (in thousands) | April 21, 2023 | | :----------------------------------- | :------------- | | Cash and cash equivalents | $941 | | Prepaid and other assets | $310 | | Accounts payable and accrued expenses | $(4,190) | | Total net liabilities assumed | $(2,939) | | Plus: Transaction costs | $(2,984) | | Total net liabilities assumed plus transaction costs | $(5,923) | 5. Fair Value Measurements This note explains the company's fair value hierarchy for financial instruments, particularly warrant liabilities - The company measures financial assets and liabilities at fair value using a three-level hierarchy, with Level 3 requiring inputs that are significant to the fair value measurement and unobservable50 Liabilities | Liabilities (in thousands) | June 30, 2023 (Level 3) | | :----------------------- | :---------------------- | | Warrant liability | $63 | | Total liabilities | $63 | Warrant Liability | Warrant Liability (in thousands) | Amount | | :------------------------------- | :----- | | Fair value as of December 31, 2022 | $185 | | Change in valuation | $(122) | | Fair value as of June 30, 2023 | $63 | Black-Scholes Valuation Assumptions | Black-Scholes Valuation Assumptions | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :------------ | :---------------- | | Volatility | 167.1 % | 139.9 % | | Expected term in years | 2.5 | 2.5 | | Dividend rate | 0.0 % | 0.0 % | | Risk-free interest rate | 4.68 % | 4.32 % | 6. Property and Equipment This note provides details on the company's property and equipment, including depreciation expenses Property and Equipment | Property and Equipment (in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------------------- | :------------ | :---------------- | | Computer equipment | $21 | $13 | | Furniture and fixtures | $12 | $13 | | Total | $33 | $26 | | Accumulated depreciation | $(24) | $(22) | | Property and equipment, net | $9 | $4 | - Depreciation expense related to property and equipment was $2 thousand for the six months ended June 30, 2023, compared to $1 thousand for the same period in 202253 7. Accrued Expenses This note itemizes the company's accrued expenses, including research and development, and payroll Accrued Expenses | Accrued Expenses (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------------------ | :------------ | :---------------- | | Research and development | $143 | $— | | General and administrative | $188 | $— | | Payroll and related | $862 | $36 | | Total accrued expenses | $1,193 | $36 | 8. Promissory Notes This note describes the issuance, settlement, and interest expense related to the company's promissory notes - Private GRI issued senior secured promissory notes (Bridge Notes) in an aggregate principal amount of $3,333 thousand for a purchase price of $2,500 thousand, with two closings in December 2022 and March 20235556 - Upon the Merger, the outstanding principal and accrued interest on the Bridge Notes were cancelled, and the associated Bridge Warrants were exchanged for Exchange Warrants5960 - Interest expense from amortization of debt discounts and issuance costs was $2,104 thousand for the six months ended June 30, 2023, compared to $0 for the same period in 202261 - The TEP Note, a convertible promissory note, had $3,500 thousand of outstanding principal and $650 thousand of accrued interest automatically convert into 155,210 shares of Private GRI's common stock in December 20226668 9. Stockholders' Equity This note details changes in stockholders' equity, including common stock issuance and warrant transactions - In connection with the Merger Agreement, the Investor agreed to invest $12,250 thousand in cash and cancel outstanding principal and accrued interest on Bridge Notes in return for Private GRI common stock70 - The company issued Series A-1, A-2, and T Warrants (Equity Warrants) to the Investor on May 8, 2023, with an allocated fair value of $5,675 thousand, classified as equity7476 - Bridge Warrants were exchanged for Exchange Warrants to purchase 421,589 shares of common stock, with an allocated fair value of $2,860 thousand, classified as equity77 Warrant Details | Warrant Type | Number of Shares | Exercise Price per Share | Expiration Date | | :-------------------------------- | :--------------- | :----------------------- | :------------------------------ | | Series A-1 Warrants | 1,269,210 | $13.51 | 60 months after registration date | | Series A-2 Warrants | 1,142,289 | $14.74 | June 2025 | | Series T Warrants | 814,467 | $12.28 | 24 months after registration date | | Exchange Warrants | 421,590 | $14.73 | 60 months after registration date | | Advisor Warrants | 2,402 | $61.39 | April 2028 | | Other Warrants | 38,232 | Varies | Varies | 10. Stock-Based Compensation This note outlines the company's stock-based compensation plan and related expenses - The company assumed the Private GRI Plan and approved the Amended and Restated GRI Bio, Inc. 2018 Equity Incentive Plan (A&R 2018 Plan), increasing the aggregate number of shares for awards by 168,905 to 216,666 shares8182 Stock-Based Compensation Expense | Stock-Based Compensation Expense (in thousands) | For the Three Months Ended June 30, 2023 | For the Three Months Ended June 30, 2022 | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :-------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Research and development | $— | $— | $— | $— | | General and administrative | $13 | $— | $26 | $— | | Total | $13 | $— | $26 | $— | - As of June 30, 2023, the unrecognized compensation cost related to unvested stock options expected to vest was $280 thousand, to be recognized over a weighted-average amortization period of 3.35 years86 11. Commitments and Contingencies This note discloses employment contracts, severance provisions, and potential equity award acceleration - The company has employment contracts with officers that include provisions for severance and continuation of benefits upon termination without cause or for good reason, with potential acceleration of equity awards following a change in control87 - A Separation and Release Agreement with the former CEO, David Baker, includes 18 months of salary and COBRA benefits continuation, and a lump sum payment equal to 150% of his target bonus88 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operations, liquidity, and critical accounting policies Overview This section provides a business overview, highlighting biopharmaceutical therapies and lead product candidates - GRI Bio is a clinical-stage biopharmaceutical company focused on developing therapies for serious diseases associated with dysregulated immune responses, including inflammatory, fibrotic, and autoimmune disorders91 - The lead product candidate, GRI-0621, an oral inhibitor of type 1 Natural Killer T (iNKT) cells, is being developed for severe fibrotic lung diseases like idiopathic pulmonary fibrosis (IPF); a Phase 2a trial in 36 IPF patients is initiating in the second half of 2023, with topline results expected in the second half of 202492 - GRI-0803, a novel oral agonist of type 2 Natural Killer T (type 2 NKT) cells, is being developed for autoimmune disorders, with preclinical work in Systemic Lupus Erythematosus Disease (SLE) and multiple sclerosis (MS); an IND filing for a Phase 1a and 1b trial targeting SLE is expected in the first half of 202493 Merger with Vallon Pharmaceuticals, Inc. This section details the reverse merger with Vallon Pharmaceuticals and associated equity and warrant transactions - On April 21, 2023, the company (formerly Vallon Pharmaceuticals, Inc.) completed a merger with GRI Bio Operations, Inc. (Private GRI), changing its name to 'GRI Bio, Inc.'94 - The Equity SPA involved an investor agreeing to invest $12.25 million in cash and cancel $3.3 million in outstanding principal and accrued interest on Bridge Notes in exchange for Private GRI common stock95 - Upon the Merger, Series A-1, A-2, and T Warrants were issued to the Investor, and Bridge Warrants were exchanged for Exchange Warrants to purchase an aggregate of 421,589 shares of the Company's common stock9697 Financial Operations Overview This section outlines key financial drivers: R&D, G&A expenses, and warrant liability valuation - Research and development expenses primarily relate to the GRI-0621 development program and are expected to increase as planned clinical and preclinical activities advance9899 - General and administrative expenses are expected to increase substantially due to costs associated with operating as a public company, including compliance, insurance, legal, accounting, investor relations, and increased personnel101 - Warrant liability is measured at fair value using a Black-Scholes valuation model and revalued at each reporting date, with changes recognized in the consolidated statements of operations102 - Interest expense, net, includes amortization of debt discounts, debt issuance costs, and interest related to the TEP Notes and Bridge Notes103 Results of Operations This section analyzes operating expenses, net loss, and interest expense for the reported interim periods Three Months Ended June 30, 2023 and 2022 | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change (2023 vs 2022) | | :------------------------------------ | :------------------------------- | :------------------------------- | :-------------------- | | Research and development | $880 | $59 | +$821 | | General and administrative | $5,054 | $130 | +$4,924 | | Net loss | $(6,746) | $(295) | $(6,451) | | Interest expense, net | $(934) | $(106) | $(828) | Six Months Ended June 30, 2023 and 2022 | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (2023 vs 2022) | | :------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | | Research and development | $997 | $119 | +$878 | | General and administrative | $5,926 | $268 | +$5,658 | | Net loss | $(8,896) | $(597) | $(8,299) | | Interest expense, net | $(2,095) | $(210) | $(1,885) | - The $5.0 million increase in General and administrative expenses for the three months ended June 30, 2023, was primarily due to $3.8 million in professional fees associated with the Merger, $0.8 million in personnel expenses, and $0.3 million in consulting, administrative, and insurance expenses related to operating as a public company106 - The change in fair value of warrant liability resulted in a $0.1 million decrease for the three months ended June 30, 2023, and a $0.1 million increase for the six months ended June 30, 2023107112 Liquidity and Capital Resources This section discusses the company's cash position, funding, and ability to meet future operating needs - The company incurred net losses of $8.9 million and $0.6 million for the six months ended June 30, 2023 and 2022, respectively, and had an accumulated deficit of $27.4 million as of June 30, 2023114 - As of June 30, 2023, the company had $4.8 million in cash, primarily financed through the issuance of common stock, warrants, convertible notes, and promissory notes115 Cash Flow Activity | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(2,119) | $(116) | | Net cash used in investing activities | $(8) | $— | | Net cash provided by financing activities | $6,917 | $35 | | Net increase (decrease) in cash and cash equivalents | $4,790 | $(81) | - Cash provided by financing activities for the six months ended June 30, 2023, was $6.9 million, primarily due to $12.3 million from the Equity SPA and $1.3 million from Bridge Notes, offset by merger-related costs and liabilities118 - Existing cash and cash equivalents are expected to fund operating expenses and capital expenditure requirements for twelve months from the Merger date, but substantial additional funding will be required for continuing operations, raising substantial doubt about the company's ability to continue as a going concern122123 Critical Accounting Policies and Estimates This section highlights significant accounting policies and estimates requiring management's judgment - The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses125 - Management evaluates these estimates and judgments on an ongoing basis, basing them on historical experience and other reasonable factors, though actual results could differ125 Emerging Growth Company Status This section explains the company's 'emerging growth company' status and regulatory exemptions - The company is an 'emerging growth company' (EGC) as defined in the JOBS Act, allowing it to rely on exemptions from certain disclosure requirements applicable to other public companies127 - These exemptions include reduced disclosure about executive compensation, no non-binding stockholder advisory votes, and exemption from auditor attestation on internal control over financial reporting127 - The company will remain an EGC until the earliest of reaching $1.235 billion in annual gross revenues, December 31, 2026, issuing over $1.0 billion in nonconvertible debt, or becoming a large accelerated filer127 Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures are not applicable as the company qualifies as a smaller reporting company - Quantitative and Qualitative Disclosures About Market Risk are not applicable to a smaller reporting company128 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, with no material internal control changes - The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, and concluded they were effective130 - No changes in internal control over financial reporting occurred during the fiscal quarter that have materially affected or are reasonably likely to materially affect internal control over financial reporting131 PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report134 Item 1A. Risk Factors No material changes to risk factors previously disclosed in prior annual and quarterly reports - No material changes from the risk factors previously disclosed in Vallon's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023135 Item 2. Unregistered Sales of Securities The company reported no unregistered sales of securities - There were no unregistered sales of securities136 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities137 Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - There were no mine safety disclosures138 Item 5. Other Information Employment agreement for Albert Agro, M.D., ratified, detailing salary, bonus, and severance provisions - On August 10, 2023, the Compensation Committee ratified an employment agreement with Albert Agro, M.D., effective July 1, 2023, superseding a previous consulting agreement139 - The Employment Agreement includes an annual base salary of $325,000 and an annual target cash bonus of 35%141 - Severance provisions include salary continuation and COBRA premium reimbursement for twelve months upon termination without 'cause' or resignation for 'good reason'139 - In the event of termination following a 'change in control', severance periods increase to 18 months, all unvested equity awards automatically accelerate, and an additional payment equivalent to 1.5 times the Annual Base Salary is provided139 Item 6. Exhibits This section lists all exhibits filed with Form 10-Q, including governance documents, plans, agreements, and certifications - The report includes various exhibits such as the Certificate of Incorporation, Amended and Restated Bylaws, A&R 2018 Equity Incentive Plan, several Employment Agreements, a Separation Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act)143