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GRI Bio(GRI) - 2022 Q3 - Quarterly Report
GRI BioGRI Bio(US:GRI)2022-11-03 20:34

Filing Information General Information Provides basic filing details for Vallon Pharmaceuticals, Inc.'s Form 10-Q, including incorporation, trading symbol, and filer status - Registrant is Vallon Pharmaceuticals, Inc., incorporated in Delaware, trading symbol VLON on The Nasdaq Capital Market2 - The company is a non-accelerated filer, smaller reporting company, and emerging growth company3 Balance Sheet Summary (in thousands) | Metric | Value | | :--- | :--- | | Shares Outstanding (as of Nov 2, 2022) | 12,742,342 | Special Note Regarding Forward-Looking Statements Highlights that the report contains forward-looking statements subject to risks and uncertainties, cautioning against reliance - Forward-looking statements are based on management's current expectations and projections, but are not guarantees of future performance or development9 - Key areas of forward-looking statements include strategic alternatives, clinical trial outcomes, market opportunities, regulatory approvals, intellectual property, and financial performance8 - The company does not plan to publicly update or revise any forward-looking statements after the report's distribution, except as required by law10 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited interim financial statements, reflecting ongoing operating losses and strategic alternative evaluations Balance Sheets Balance Sheet Summary (in thousands) | Item | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,732 | $3,702 | | Marketable securities, available-for-sale | $419 | $3,808 | | Total current assets | $5,569 | $8,129 | | Total assets | $5,569 | $8,335 | | Liabilities | | | | Total current liabilities | $2,110 | $2,445 | | Total liabilities | $2,110 | $2,517 | | Stockholders' Equity | | | | Total stockholders' equity | $3,459 | $5,818 | | Accumulated deficit | $(27,343) | $(21,902) | Statements of Operations and Comprehensive Loss Statements of Operations and Comprehensive Loss (in thousands, unaudited) | Item | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $(18) | $215 | $1,529 | $3,189 | | General and administrative | $1,422 | $1,038 | $4,014 | $2,976 | | Total operating expenses | $1,404 | $1,253 | $5,543 | $6,165 | | Loss from operations | $(1,404) | $(1,253) | $(5,543) | $(6,165) | | Change in fair value of warrant liability | $757 | — | $490 | — | | Loss on warrant conversion | $(388) | — | $(388) | — | | Net loss | $(1,033) | $(1,257) | $(5,441) | $(6,207) | | Net loss per share, basic and diluted | $(0.09) | $(0.18) | $(0.59) | $(0.96) | Statements of Changes in Stockholders' Equity (Deficit) Changes in Stockholders' Equity (Deficit) (in thousands, unaudited) | Item | Balance, Dec 31, 2021 | Balance, Sep 30, 2022 | | :--- | :--- | :--- | | Common Stock (shares) | 6,812,836 | 12,732,836 | | Common Stock (amount) | $0 | $1 | | Additional Paid-in Capital | $27,722 | $30,802 | | Accumulated Other Comprehensive Loss | $(2) | $(1) | | Accumulated Deficit | $(21,902) | $(27,343) | | Total Stockholders' Equity | $5,818 | $3,459 | - Issuance of common stock, net of offering expenses, contributed $2,161 thousand to equity during the nine months ended September 30, 202219 - Issuance of common stock upon warrant exercise contributed $960 thousand to equity during the nine months ended September 30, 202219 Statements of Cash Flows Statements of Cash Flows (in thousands, unaudited) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Operating activities | $(5,764) | $(6,729) | | Investing activities | $3,362 | $(3,266) | | Financing activities | $3,432 | $15,770 | | Net increase in cash and cash equivalents | $1,030 | $5,775 | | Cash and cash equivalents, at end of period | $4,732 | $5,884 | Notes to Unaudited Interim Financial Statements Provides detailed explanations for interim financial statements, covering business, liquidity, accounting policies, and equity changes 1. Organization and Description of Business - Vallon Pharmaceuticals, Inc. is a biopharmaceutical company focused on abuse-deterrent medications for CNS disorders24 - Lead product candidate ADAIR (dextroamphetamine for ADHD/narcolepsy) failed to meet its primary endpoint in the SEAL study in March 20222426 - The company is assessing the path forward for ADAIR and ADMIR and has engaged Ladenburg Thalmann & Co. Inc. to evaluate strategic alternatives to maximize stockholder value26 2. Liquidity - The company has incurred operating losses since inception, with an accumulated deficit of $27,343 thousand as of September 30, 2022, raising substantial doubt about its ability to continue as a going concern2732 - As of September 30, 2022, cash, cash equivalents, and marketable securities totaled approximately $5,151 thousand30 - Future capital requirements are uncertain and depend on strategic alternatives, potentially leading to dilution or restrictions if additional funds are raised3132 3. Basis of Presentation and Summary of Significant Accounting Policies - Unaudited interim financial statements are prepared in accordance with GAAP and SEC rules, with the December 31, 2021 balance sheet derived from audited statements33 - Key accounting estimates include valuation of share options, warrant liabilities, deferred tax assets, revenue recognition, and accrued expenses36 - Marketable securities are classified as available-for-sale and recorded at fair value, with unrealized gains/losses in comprehensive income37 - Warrants issued in May 2022 are classified as derivative liabilities and measured at fair value, with changes recognized in the Statements of Operations39 4. Marketable Securities and Fair Value Measurements Marketable Securities (Available-for-Sale, in thousands) | Type | Sep 30, 2022 Fair Value | Dec 31, 2021 Fair Value | | :--- | :--- | :--- | | Corporate bonds | $150 | $1,152 | | Municipal bonds | $269 | $2,656 | | Total | $419 | $3,808 | Fair Value Hierarchy (Sep 30, 2022, in thousands) | Item | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | | Marketable securities, available-for-sale | $0 | $419 | $0 | | Warrant liability | $0 | $0 | $225 | - A total of 2,220,000 warrants were exercised via Alternate Cashless Exercise, resulting in a $573 thousand reversal of warrant liability46 5. Accrued Expenses Accrued Expenses (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Research and development | $297 | $894 | | General and administrative | $106 | $183 | | Payroll and related | $297 | $291 | | Licensing related | — | $62 | | Total accrued expenses | $700 | $1,430 | 6. PPP Note and Convertible Notes - A $61 thousand Paycheck Protection Program (PPP) note was forgiven in January 2021, recognized as income51 - In January 2021, the company issued $350 thousand in 2021 Convertible Notes, which converted into 54,906 shares of common stock upon IPO completion5253 7. Stockholders' Equity (Deficit) - In February 2021, the company completed an IPO, issuing 2,250,000 shares at $8.00/share, raising $15,500 thousand net proceeds54 - In May 2022, the company sold 3,700,000 shares of common stock at $1.0632/share in a registered direct offering, generating approximately $3,900 thousand gross proceeds55 Warrants Outstanding as of September 30, 2022 | Number of Shares | Exercise Price per Share | Expiration Date | | :--- | :--- | :--- | | 112,500 | $10.00 | February 12, 2026 | | 1,480,000 | $0.9382 | May 17, 2027 | 8. Stock-Based Compensation Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $(97) | $22 | $(208) | $61 | | General and administrative | $(39) | $112 | $168 | $379 | | Total | $(136) | $134 | $(40) | $440 | Stock Option Activity (Nine Months Ended Sep 30, 2022) | Item | Number of options | Weighted average exercise price | | :--- | :--- | :--- | | Outstanding at Dec 31, 2021 | 708,490 | $3.60 | | Granted | 204,500 | $5.22 | | Forfeited | 216,406 | $4.06 | | Outstanding at Sep 30, 2022 | 696,584 | $3.93 | | Exercisable at Sep 30, 2022 | 315,991 | $3.37 | - Unrecognized compensation cost for unvested stock options was $839 thousand, expected to be recognized over 2.85 years64 - 188,023 Restricted Stock Units (RSUs) were granted during the nine months ended September 30, 2022, with performance-based RSUs not yet deemed probable of achievement66 9. Related Party Transactions - In January 2021, the company entered into a Convertible Promissory Note Purchase Agreement with existing stockholders, including Salmon Pharma (an affiliate of Medice) and CEO David Baker, for $350 thousand in convertible notes67 10. Commitments and Contingencies - Employment contracts with officers include provisions for severance and benefit continuation upon certain terminations, with potential equity award acceleration following a change in control68 - The global COVID-19 pandemic continues to present uncertainty and unforeseeable risks to operations, clinical development plans, and supply chains, with the company monitoring developments and making necessary operational modifications69 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of financial condition and results, detailing ADAIR trial impact, strategic alternatives, and liquidity challenges Overview and Recent Developments - Vallon Pharmaceuticals is a clinical-stage biopharmaceutical company focused on abuse-deterrent medications for CNS disorders72 - The SEAL study for ADAIR, a lead product candidate for ADHD and narcolepsy, did not meet its primary endpoint (Emax Drug Liking) in March 20227274 - The company is assessing the best path forward for ADAIR and ADMIR development programs and has engaged Ladenburg Thalmann & Co. Inc. to evaluate strategic alternatives, including potential merger, business combination, or asset acquisition/license, while streamlining operations to preserve capital75 License Agreement - In January 2020, the company entered into an exclusive license agreement with Medice for ADAIR development and commercialization throughout Europe76 - Medice paid a $0.1 million upfront payment and is obligated to pay up to $6.3 million in aggregate milestone payments and low-double digit tiered royalties on net sales76 COVID-19 Impact - The global COVID-19 pandemic continues to pose uncertain risks to the company's operations, business plan, and clinical development, including potential impacts on trial enrollment, sites, CROs, and manufacturers77 - The company is conducting business with modifications like remote work and reduced employee travel, actively monitoring the situation and prepared to take further actions77 Financial Operations Overview Research and Development Expenses - R&D expenses primarily include personnel costs, third-party contractors for research and clinical trials, and manufacturing drug supplies7879 - The company plans to significantly decrease R&D expenses while considering future plans for ADAIR and ADMIR programs and strategic alternatives80 General and Administrative Expenses - G&A expenses consist mainly of compensation, consulting fees, professional fees (legal, accounting), travel, facilities, and public company compliance costs8182 - G&A expenses may increase due to professional and advisory fees related to the evaluation of strategic alternatives82 Other Income - Other income primarily consists of income recognized from the forgiveness of the $61 thousand PPP promissory note in January 20218499 Revaluation of Derivative Instruments - The mandatory conversion feature of the 2021 Convertible Notes was bifurcated and treated as a derivative liability under ASC 81585 - Upon conversion of the notes at the IPO closing, the embedded derivative liability was remeasured and removed from the balance sheet85 Warrant Liability, Change in Fair Value and Warrant Conversion - Warrants issued in May 2022 were classified as derivative liabilities under ASC 815-40 due to an exercise price reduction provision86 - These warrants are measured at fair value at each reporting date, with changes recognized in the Statements of Operations86 - Upon exercise, the intrinsic value of shares issued is transferred to stockholders' equity, and the difference between intrinsic value and warrant fair value is recorded as gain or loss86 Interest Income (Expense), net - Interest income (expense), net, includes interest earned on cash/marketable securities, amortization of premiums/discounts on marketable securities, and interest expense on finance leases87 Results of Operations Net loss decreased due to reduced R&D and favorable warrant liability changes, offset by increased G&A for strategic evaluations Comparison of the Three Months Ended September 30, 2022 and 2021 Operating Results (Three Months Ended Sep 30, in thousands) | Item | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $(18) | $215 | $(233) | | General and administrative | $1,422 | $1,038 | $384 | | Total operating expenses | $1,404 | $1,253 | $151 | | Loss from operations | $(1,404) | $(1,253) | $(151) | | Change in fair value of warrant liability | $757 | — | $757 | | Loss on warrant conversion | $(388) | — | $(388) | | Net loss | $(1,033) | $(1,257) | $224 | - Research and development expenses decreased by $0.2 million, primarily due to a decrease in personnel expenses and reversal of stock compensation89 - General and administrative expenses increased by $0.4 million, mainly due to $0.6 million in expenses related to strategic alternative evaluations, partially offset by a $0.2 million decrease in personnel expenses90 - A $0.8 million decrease in the fair value of outstanding warrants was recognized, along with a $0.4 million loss on warrant conversion9293 Comparison of the Nine Months Ended September 30, 2022 and 2021 Operating Results (Nine Months Ended Sep 30, in thousands) | Item | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $1,529 | $3,189 | $(1,660) | | General and administrative | $4,014 | $2,976 | $1,038 | | Total operating expenses | $5,543 | $6,165 | $(622) | | Loss from operations | $(5,543) | $(6,165) | $622 | | Other income | — | $61 | $(61) | | Revaluation of derivative liability | — | $(89) | $89 | | Change in fair value of warrant liability | $490 | — | $490 | | Loss on warrant conversion | $(388) | — | $(388) | | Net loss | $(5,441) | $(6,207) | $766 | - Research and development expenses decreased by $1.7 million, primarily due to a $1.3 million decrease in ADAIR registration development program expenses, $0.3 million in personnel expenses, and $0.1 million in consulting expenses97 - General and administrative expenses increased by $1.0 million, mainly due to increased expenses and fees from the evaluation of strategic alternatives98 - A $0.5 million decrease in the fair value of warrant liability was recognized from inception to September 30, 2022, along with a $0.4 million loss on warrant conversion103104 Liquidity and Capital Resources - The company has incurred significant losses since inception, with a net loss of $5.4 million for the nine months ended September 30, 2022, and an accumulated deficit of $27.3 million106 - As of September 30, 2022, cash and cash equivalents were $4.7 million107 Cash Flows Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | $(5,764) | $(6,729) | | Investing activities | $3,362 | $(3,266) | | Financing activities | $3,432 | $15,770 | | Net increase in cash and cash equivalents | $1,030 | $5,775 | - Net cash provided by financing activities in 2022 was $3.4 million, primarily from a registered direct financing, a significant decrease from $15.8 million in 2021 which included IPO and convertible note financings110 2021 Convertible Note Financing - In January 2021, the company issued $350,000 in 2021 Convertible Notes to existing stockholders, including related parties111 - These notes bore 7.0% interest and converted into 54,906 shares of common stock at a 20% discount to the IPO price immediately prior to the IPO closing111 Future Funding Requirements - The company has not generated product revenue and its long-term prospects were highly dependent on ADAIR, which failed its primary endpoint112 - Future capital requirements are difficult to forecast and depend on strategic alternatives, potentially requiring additional equity or debt financing, which could lead to dilution or restrictive covenants112113 - There is substantial doubt about the company's ability to continue as a going concern, as it expects to incur ongoing expenses and operating losses while evaluating strategic options113 Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements during the periods presented and does not currently have any115 Critical Accounting Policies and Estimates - The company's critical accounting policies are described in Note 3 of its Annual Report on Form 10-K for the year ended December 31, 2021117 - There have been no material changes to significant accounting policies during the nine months ended September 30, 2022, except for items mentioned in Note 3 of the interim financial statements117 Emerging Growth Company Status - The company is an 'emerging growth company' under the JOBS Act, allowing it to rely on exemptions from certain disclosure requirements118 - Exemptions include reduced executive compensation disclosure, no non-binding stockholder advisory votes, and exemption from auditor attestation on internal control over financial reporting122 - The company has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards118 Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company qualifies as a smaller reporting company - This item is not applicable to a smaller reporting company119 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes in internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022121 - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected or are reasonably likely to materially affect internal control over financial reporting122 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to material legal proceedings, but ordinary course claims could have adverse effects - The company is not currently a party to any material legal proceedings124 - Litigation, even if not material, can adversely affect the company due to defense/settlement costs and diversion of management resources124 Item 1A. Risk Factors Updates risk factors, focusing on uncertainties from strategic alternatives, potential dissolution, and dependence on key employees - No material changes from previously disclosed risk factors, except for those related to the evaluation of strategic alternatives125 - Activities to evaluate strategic alternatives may not be successful, and if no transaction is completed, the board may pursue dissolution and liquidation, potentially leading to stockholders losing all or a significant portion of their investment126131132 - The company's prospects were highly dependent on ADAIR, and its clinical trial failure means further development requires substantial capital and time with no guarantee of success or approval133 - The company is substantially dependent on remaining employees, particularly the CEO and CFO, to facilitate a strategic transaction, and their loss could harm the company's ability to pursue alternatives and fulfill reporting obligations134 - The company has no approved products, a limited operating history, and has incurred net losses since inception, anticipating continued losses, making future performance difficult to predict136140 - Additional capital will be required to fund operations and product development, and failure to obtain necessary financing could lead to delays, reductions, or termination of development programs143147 Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate documents, amendments, and certifications - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, amendments to the Securities Purchase Agreement and Common Stock Purchase Warrant, and certifications from the Principal Executive Officer and Principal Financial Officer152 - Interactive Data Files (iXBRL) are provided for the cover page and taxonomy extensions152 Signatures Contains required signatures, certifying the report was signed by the Chief Financial Officer on November 3, 2022 - The report was signed on November 3, 2022, by Leanne M. Kelly, Chief Financial Officer (Principal Financial and Accounting Officer) of Vallon Pharmaceuticals, Inc159