NeuroBo Pharmaceuticals(NRBO) - 2022 Q3 - Quarterly Report

Filing Information This section details the company's Form 10-Q filing, identifying NeuroBo Pharmaceuticals as a non-accelerated, smaller reporting company with 6.5 million shares outstanding as of November 2022 Form 10-Q Details NeuroBo Pharmaceuticals filed its Q3 2022 Form 10-Q, identifying as a non-accelerated, smaller reporting company with 6.5 million shares outstanding - NeuroBo Pharmaceuticals, Inc. filed a Quarterly Report on Form 10-Q for the period ended September 30, 2022[2] - The company is classified as a non-accelerated filer and a smaller reporting company[4] Common Stock Details | Metric | Value | | :--- | :--- | | Common stock, $0.001 par value | NRBO | | Shares outstanding as of Nov 11, 2022 | 6,503,528 | PART I – FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls assessment ITEM 1 – FINANCIAL STATEMENTS This section provides NeuroBo's unaudited condensed consolidated financial statements and notes for Q3 2022 and prior periods Condensed Consolidated Balance Sheets Total assets decreased from $16.8 million to $7.6 million, driven by reduced cash, with a substantial drop in stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Cash | $6,356 | $16,387 | | Total current assets | $7,554 | $16,584 | | Total assets | $7,557 | $16,799 | | Total current liabilities | $1,619 | $2,157 | | Total liabilities | $1,619 | $2,202 | | Total stockholders' equity | $5,938 | $14,597 | - Cash decreased by $10,031 thousand from December 31, 2021, to September 30, 2022[8] - Total stockholders' equity decreased by $8,659 thousand, from $14,597 thousand to $5,938 thousand[8] Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss improved to $3.1 million (3M) and $9.3 million (9M) in 2022, primarily due to reduced research and development expenses Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $571 | $1,394 | $2,473 | $4,549 | | General and administrative | $2,533 | $2,070 | $6,725 | $6,171 | | Total operating expenses | $3,104 | $3,464 | $9,198 | $10,720 | | Net loss | $(3,113) | $(3,461) | $(9,291) | $(10,706) | | Net loss per share, basic and diluted | $(3.50) | $(4.66) | $(10.45) | $(14.58) | - Net loss decreased by $348 thousand for the three months ended September 30, 2022, compared to the same period in 2021[10] - Net loss decreased by $1,415 thousand for the nine months ended September 30, 2022, compared to the same period in 2021[10] Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity declined from $14.6 million to $5.9 million, mainly due to $9.3 million in net losses, partially offset by stock-based compensation Changes in Stockholders' Equity (in thousands) | Metric | Balance at Dec 31, 2021 | Stock-based compensation | Net loss | Balance at Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Equity | $14,597 | $636 | $(9,291) | $5,938 | - Accumulated deficit increased from $(81,828) thousand at December 31, 2021, to $(91,119) thousand at September 30, 2022[12] Condensed Consolidated Statements of Cash Flows Net cash used in operations decreased to $9.9 million, while financing shifted from $9.1 million inflow to $0.1 million outflow, resulting in a $10.0 million net cash decrease Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,905) | $(12,235) | | Net cash provided by (used in) investing activities | $8 | $(3) | | Net cash (used in) provided by financing activities | $(134) | $9,140 | | Net decrease in cash | $(10,031) | $(3,098) | | Cash at end of period | $6,356 | $6,984 | - Net cash used in operating activities decreased by $2,330 thousand year-over-year[15] - Net cash from financing activities shifted from a $9,140 thousand inflow in 2021 to a $134 thousand outflow in 2022[15] Notes to Condensed Consolidated Financial Statements Notes detail operations, accounting policies, and recent events, including new license agreements, $32.3 million in financing, and a reverse stock split Note 1. The Company and Basis of Presentation NeuroBo is a clinical-stage biotech focused on NASH, obesity, and T2D, with $32.3 million in recent financing addressing going concern doubts after a reverse stock split - NeuroBo is a clinical-stage biotechnology company with primary programs for NASH, obesity, and T2D (DA-1241, DA-1726) and other programs for viral, neurodegenerative, and cardiometabolic diseases (ANA001, NB-01, NB-02, Gemcabene)[17][18] - The company has an accumulated deficit of $91.1 million as of September 30, 2022, and has experienced net losses and negative cash flows since inception[28] - Subsequent to September 30, 2022, the company raised approximately $32.3 million in gross proceeds from a public offering and private placement, expected to provide adequate liquidity for at least twelve months[29] - A one-for-thirty reverse stock split became effective on September 12, 2022, retroactively adjusting all common stock and per share amounts[26][27] Note 2. Summary of Significant Accounting Policies This note details significant accounting policies, including expensing R&D and G&A costs, stock-based compensation, and assessing ASU 2016-13 impact - Research and development costs are expensed as incurred, including clinical trial costs, manufacturing costs, and license fees[33] - Stock-based compensation is recognized at the grant-date fair value in accordance with ASC 718[34] - The company is assessing the impact of ASU 2016-13, 'Financial Instruments – Credit Losses,' effective for smaller reporting companies after December 15, 2022[37] Note 3. Balance Sheet Detail Property and equipment, net, decreased from $110 thousand to $3 thousand due to equipment sales, and accrued liabilities also declined Property and Equipment, Net (in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Research and development equipment | $0 | $158 | | Office equipment | $30 | $63 | | Total property and equipment, net | $3 | $110 | - A loss on sale of property and equipment of $75 thousand was recognized during the nine months ended September 30, 2022, due to the termination of the Korea lease[38] Accrued Liabilities (in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | External research and development expenses | $356 | $854 | | Payroll related | $0 | $376 | | Total accrued liabilities | $544 | $1,301 | Note 4. Commitments and Contingencies The company has operating lease commitments and significant contingent liabilities for milestone and royalty payments, with no current recognition due to uncertainty - The Korea Lease was terminated effective April 30, 2022, with no gain or loss recognized[44] Operating Lease Expenses (in thousands) | Lease | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Corporate headquarters | $3 | $7 | $11 | $41 | | Korea Lease (non-cash) | N/A | N/A | $8 | $18 | | Korea Lease (cash payments) | N/A | N/A | $11 | $24 | - Potential milestone payments for Niclosamide Product (ANA Merger) total up to $175.5 million, plus a 2.5% royalty on annual worldwide net sales[47] - Potential milestone payments under the YourChoice Agreement total $19.5 million, plus a 0.5% royalty on annual worldwide net sales of Niclosamide Product[50] - Under the CVR Agreement, CVR Holders are entitled to 80% of proceeds from Gemcabene for cardiovascular conditions and 10% for other indications[52] - Milestone payments under the Pfizer Agreement for Gemcabene total up to $37 million, plus tiered royalties on net sales[55][57] Note 5. License and Collaboration Agreement The Beijing SL Agreement grants exclusive rights to Gemcabene in Asia, with potential milestone and royalty payments, but no revenue recognized to date - The Beijing SL Agreement grants Beijing SL an exclusive royalty-bearing license to Gemcabene in mainland China, Hong Kong, Macau, and Taiwan[60] - No revenue has been recognized under the Beijing SL Agreement as of September 30, 2022[60] Note 6. Stockholders' Equity As of September 30, 2022, 228,235 warrants were outstanding, primarily from 2021 issuances, with various exercise prices and expiration dates Outstanding Warrants (in thousands) | Warrant Issuance | Number of Warrants (Sep 30, 2022) | Number of Warrants (Dec 31, 2021) | Exercise Price | | :--- | :--- | :--- | :--- | | March 2017 | - | 1,315 | $7,800.00 | | July 2018 | 48 | 48 | $5,602.50 | | April 2020 | 1,252 | 1,252 | $375.00 | | January 2021 | 83,338 | 83,338 | $180.90 | | October 2021 | 143,597 | 143,597 | $112.50 | | Total | 228,235 | 229,550 | | Note 7. Stock-based Compensation Stock-based compensation expense increased to $218 thousand (3M) and $636 thousand (9M), with $0.7 million unrecognized cost remaining Stock-based Compensation Expense (in thousands) | Period | 2022 | 2021 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $218 | $107 | | Nine Months Ended Sep 30 | $636 | $474 | Stock Option Activity (9 Months Ended Sep 30, 2022) | Metric | Number of Options | Weighted Average Exercise Price | | :--- | :--- | :--- | | Outstanding at Dec 31, 2021 | 32,498 | $119.72 | | Granted | 5,995 | $17.83 | | Forfeited/Cancelled | (2,000) | $181.20 | | Outstanding at Sep 30, 2022 | 36,493 | $99.62 | - Unrecognized stock-based compensation cost was $0.7 million as of September 30, 2022, with a weighted average recognition period of 1.1 years[70] Note 8. Net Loss Per Common Share Basic and diluted net loss per share are identical due to antidilutive securities, with 36,493 stock options and 228,235 warrants excluded - There is no difference between basic and diluted net loss per share as all potentially dilutive securities were antidilutive[71] Anti-Dilutive Securities Excluded from EPS Calculation | Security | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Stock options | 36,493 | 18,801 | 36,493 | 18,801 | | Warrants | 228,235 | 85,953 | 228,235 | 85,953 | Note 9. Income Taxes The effective tax rate was zero percent for all periods, with a full valuation allowance on net deferred tax assets resulting in no income tax benefit - The effective tax rate was zero percent for the three and nine months ended September 30, 2022 and 2021[73] - A full valuation allowance was recorded on net deferred tax assets, leading to no income tax benefit[73] Note 10. Related Party Transactions NeuroBo entered an exclusive license agreement with Dong-A ST for DA-1241 and DA-1726, including a $22 million upfront payment and significant milestone potential - The company has manufacturing and supply agreements with Dong-A ST for NB-01 and NB-02, with no manufacturing costs incurred in the reported periods[75][76] - An exclusive License Agreement with Dong-A ST for DA-1241 and DA-1726 became effective on November 8, 2022[77] - The License Agreement includes an upfront payment of $22 million in Series A Convertible Preferred Stock, single-digit royalties, and potential regulatory milestone payments of up to $178 million for DA-1726 and $138 million for DA-1241[78] - A Securities Purchase Agreement with Dong-A ST involves the purchase of $15 million in Series A Preferred Stock and warrants, contingent on a Qualified Financing[80] Note 11. Subsequent Events Post-quarter, NeuroBo closed a public offering raising $17.3 million, and Dong-A ST completed a $15 million private placement, activating the License Agreement - On November 8, 2022, the company closed a public offering, raising approximately $17.3 million in gross proceeds[81] - The public offering included Class A Units (common stock + Series A & B Warrants) and Class B Units (Series B Convertible Preferred Stock + Series A & B Warrants)[81] - In a concurrent private placement, Dong-A ST purchased $15 million of Series A Convertible Preferred Stock and warrants, triggering the effectiveness of the License Agreement[82][83] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, strategic shift to new programs, recent financing, COVID-19 impact, and future funding needs Forward-Looking Statements This section contains forward-looking statements subject to risks and uncertainties regarding business operations, clinical activities, and funding needs - The report contains forward-looking statements regarding business operations, cash flow, business development, clinical activities, product development, and commercialization efforts[87] - These statements are subject to risks and uncertainties, including regulatory approvals, funding needs, and competitive product offerings[89] Overview NeuroBo is a clinical-stage biotech focused on NASH, obesity, and T2D with lead programs DA-1241 and DA-1726, plus other therapeutic programs - NeuroBo is a clinical-stage biotechnology company with two primary programs: DA-1241 for NASH and T2D, and DA-1726 for NASH and obesity[90][92] - Additional therapeutic programs include ANA001 for moderate COVID-19, NB-01 for painful diabetic neuropathy, NB-02 for neurodegenerative diseases, and Gemcabene for cardiometabolic diseases and potentially COVID-19[92][95] Recent Developments NeuroBo entered an exclusive license agreement with Dong-A ST for DA-1241 and DA-1726, including a $22 million upfront payment and significant milestone potential - An exclusive license agreement with Dong-A ST for DA-1241 and DA-1726 became effective on November 8, 2022[94] - The license agreement includes an upfront payment of $22 million in Series A Convertible Preferred Stock and potential milestone payments up to $178 million for DA-1726 and $138 million for DA-1241[95][97] - A public offering closed on November 8, 2022, raising approximately $17.3 million in gross proceeds[101] - Dong-A ST purchased $15 million of Series A Convertible Preferred Stock and warrants in a concurrent private placement[99] COVID-19 Impact COVID-19 continues to pose uncertainties and risks to operations, though no significant negative financial impacts have occurred to date, future effects remain unpredictable - The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to the company's operations and business plan[103] - To date, the company has not experienced significant negative impacts on its consolidated statements of operations or cash flows, except for adjustments to scientific activity[104] - The extent of the future impact of COVID-19 on the company's financial condition, liquidity, or results of operations is uncertain[105] Current Scientific Activity NeuroBo focuses on DA-1241 and DA-1726 development, ceased NB-01's prior pathway, closed ANA001 enrollment, and postponed NB-02 due to macroeconomic conditions - Primary programs are DA-1241 for NASH and T2D (Phase 2a study planned) and DA-1726 for NASH and obesity (IND application and human clinical trials planned)[106][107] - Enrollment in the Phase 2 clinical trial of ANA001 for moderate COVID-19 closed in July 2022, with data analysis expected in Q4 2022[110] - Development of NB-01 on its prior regulatory pathway has ceased; alternatives like orphan drug or nutraceutical are being explored[111][114] - Work on NB-02's IND application and first human clinical trials is postponed due to global health and macroeconomic conditions, with strategic partnerships being considered[112] Results of Operations Net loss decreased for both three and nine months ended September 30, 2022, primarily due to reduced R&D expenses, despite a slight increase in G&A Operating Results (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (9M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Research and development | $571 | $1,394 | $(823) | $2,473 | $4,549 | $(2,076) | | General and administrative | $2,533 | $2,070 | $463 | $6,725 | $6,171 | $554 | | Total operating expenses | $3,104 | $3,464 | $(360) | $9,198 | $10,720 | $(1,522) | | Net loss | $(3,113) | $(3,461) | $348 | $(9,291) | $(10,706) | $1,415 | - Research and development expenses decreased by $0.8 million for the three months and $2.1 million for the nine months ended September 30, 2022, primarily due to reduced clinical trial activity and drug manufacturing costs for ANA001[118][124] - General and administrative expenses increased by $0.5 million for both the three and nine months ended September 30, 2022, mainly due to higher legal and professional fees[120][125] Liquidity and Capital Resources Cash decreased to $6.4 million, with $9.9 million used in operations; $32.3 million raised post-quarter is expected to fund operations for 12 months Cash Flows Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,905) | $(12,235) | | Net cash provided by (used in) investing activities | $8 | $(3) | | Net cash (used in) provided by financing activities | $(134) | $9,140 | | Net decrease in cash | $(10,031) | $(3,098) | - Cash used in operating activities decreased by $2.3 million year-over-year, primarily due to lower net loss and changes in working capital[130][131] - Subsequent to September 30, 2022, the company raised approximately $32.3 million in gross proceeds from equity offerings, expected to fund operations for at least 12 months[138] - The company expects to continue incurring significant operating losses and will need to raise additional funds to support its development activities[135][138] Critical Accounting Policies and Estimates No material changes were made to critical accounting policies or estimates during the three and nine months ended September 30, 2022 - No material changes to critical accounting policies or estimates were made during the three and nine months ended September 30, 2022[140] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recently issued accounting pronouncements and their ongoing impact assessment - Refer to Note 2 for a discussion of recently issued accounting pronouncements[141] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 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[142] ITEM 4. Controls and Procedures Disclosure controls were ineffective as of September 30, 2022, due to material weaknesses in segregation of duties and logical access, with remediation efforts underway - Disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses[147] - Material weaknesses include a lack of segregation of duties over financial reporting and inadequate logical access controls over computer applications[148] - Remediation efforts include enhancing controls over wire disbursements, improving clinical site expense monitoring, and restricting administrator rights to financial reporting systems[150] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and a list of exhibits ITEM 1. Legal Proceedings The company is not currently involved in material legal proceedings, but acknowledges litigation risks including costs and diversion of resources - The company is not currently a party to any legal proceedings likely to have a material adverse effect on its business[153] - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[153] ITEM 1A. Risk Factors This section details business risks, including NASH development, milestone payments, and regulatory approvals, plus common stock risks related to Dong-A ST's potential control Risks Related to the Business Business risks include challenges in NASH development, significant milestone payments, uncertain regulatory approvals, intense market competition, and difficult patient enrollment - Developing DA-1241 for NASH is difficult due to the lack of approved products and evolving regulatory pathways, making timing and costs unpredictable[155] - The company may be required to make significant milestone and royalty payments under the 2022 License Agreement, potentially impacting financial condition[156] - Successfully obtaining regulatory approval for product candidates is a complex, lengthy, expensive, and uncertain process, with a high risk of delay or denial[163][164] - The company faces substantial competition in the development and commercialization of new products for T2D, NASH, obesity, and COVID-19 from larger, more experienced pharmaceutical and biotechnology companies[172][175][177][178][179][181] - Enrollment and retention of patients in clinical trials, particularly for NASH, is an expensive, time-consuming process and can be hindered by various factors[170][171] Risks Relating to Our Common Stock and Ownership Dong-A ST's potential majority ownership could grant significant control, leading to 'controlled company' status and potential conflicts, while warrants may cause dilution - If stockholder approval is received, Dong-A ST may own more than 50% of common stock, leading to significant control and potential conflicts of interest with other shareholders[185][188] - Dong-A ST's significant ownership could result in NeuroBo being a 'controlled company' under Nasdaq rules, allowing exemptions from certain corporate governance requirements[190] - The terms of Series B Convertible Preferred Stock and warrants could impede the company's ability to enter into certain transactions or obtain additional financing[191][194] - The exercise of Series A and Series B Warrants on a 'cashless' basis could result in additional dilution without providing additional proceeds to the company[196] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds to report[197] ITEM 3. Default upon Senior Securities No defaults upon senior securities were reported for the period - No defaults upon senior securities to report[198] ITEM 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[199] ITEM 5. Other Information No other information is reported for the period - No other information to report[200] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, key agreements, and executive certifications - Exhibits include corporate governance documents (Certificate of Incorporation, Bylaws, Certificates of Designation for Preferred Stock)[202] - Key agreements filed as exhibits include the License Agreement and Securities Purchase Agreement with Dong-A ST, and the Underwriting Agreement for the public offering[202][204] - Certifications from the Principal Executive Officer and Principal Financial Officer are included[204] SIGNATURES This section contains the official signatures for the report, confirming its submission by authorized personnel Report Signatures The report was signed by Gil Price, M.D., President and CEO (Principal Financial Officer), on November 14, 2022 - The report was signed by Gil Price, M.D., President and Chief Executive Officer (Principal Financial Officer), on November 14, 2022[207][208]