Checkpoint Therapeutics(CKPT) - 2024 Q1 - Quarterly Report

Summary of Risk Factors This section provides a high-level overview of the principal risks associated with an investment in Checkpoint Therapeutics, highlighting significant challenges across financial stability, drug development, regulatory environment, intellectual property, and its relationship with Fortress Biotech Risks Related to our Finances and Capital Requirements The company has a history of significant losses and anticipates continued losses, raising substantial doubt about its ability to operate as a going concern, with future success contingent on raising additional capital that may be dilutive or restrictive - The company has incurred significant losses since inception and does not expect to be profitable in the foreseeable future[71] - There is substantial doubt about the company's ability to continue as a going concern, which may impede its ability to secure future financing[71] - Success depends on raising additional capital, which may dilute current stockholders or impose operational restrictions[71] Risks Inherent in Drug Development and Commercialization The company's growth is dependent on the successful development and commercialization of its product candidates, a process fraught with uncertainty where early positive trial results are not predictive of final outcomes and regulatory approval is not guaranteed - Future growth and success are entirely dependent on the ability to successfully develop and commercialize product candidates, which has not yet been achieved[75] - Early-stage clinical trial results are not necessarily predictive of future outcomes, and product candidates may fail in later trials[14] - Competitors may develop superior treatments, and products may not be accepted by the healthcare community, limiting revenue potential[14] Risks Related to Reliance on Third Parties The company relies heavily on third-party contract research organizations (CROs) and manufacturers for preclinical studies, clinical trials, and manufacturing, where any failure by these third parties could significantly delay product development and commercialization - The company depends on third-party CROs and manufacturers for critical development and manufacturing activities, and failure by these parties to perform, pass inspections, or meet deadlines could delay product candidates and limit revenue[72] Risks Relating to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries Operating in a heavily regulated industry, the company faces risks from potential changes in healthcare laws and regulations, where compliance with anti-kickback, fraud, and other healthcare laws is critical to avoid criminal sanctions, civil penalties, and reputational harm - The company operates in a heavily regulated industry and cannot predict the impact of future legislation or administrative actions on its operations[6] - Potential exposure to anti-kickback, fraud and abuse, and other healthcare laws could lead to criminal sanctions, civil penalties, and diminished profits[6] Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof The company's ability to commercialize its products is dependent on maintaining sufficient patent protection, facing risks of costly litigation over intellectual property rights and potential disputes with its licensors that could affect product development - Failure to maintain adequate patent protection could allow competitors to develop similar products, impairing commercialization efforts[7] - The company or its licensors may face costly and time-consuming litigation related to intellectual property infringement[7] - Disputes with licensors could negatively impact the development and commercialization of product candidates[7] Risks Relating to Our Control by Fortress Biotech, Inc. ("Fortress") Fortress Biotech controls a voting majority of the company's stock and receives annual share grants, leading to dilution for other stockholders, with agreements potentially less favorable than those from unaffiliated parties and shared directors creating potential conflicts of interest - Fortress controls a voting majority of common stock and receives annual share grants, which dilutes other stockholders and could reduce stock value[8] - Agreements with Fortress may not have been negotiated on arm's-length terms, potentially being less favorable than deals with unaffiliated third parties[8] - The sharing of certain directors with Fortress could create conflicts of interest between the two companies[77] PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed financial statements for the three months ended March 31, 2024, detail the company's financial position and performance, highlighting an increased cash position, reduced R&D expenses, continued net loss, and a substantial accumulated deficit, with notes emphasizing a going concern risk Condensed Balance Sheets As of March 31, 2024, the company's cash and cash equivalents increased to $11.2 million from $4.9 million at year-end 2023, driven by financing activities, with total assets growing to $12.0 million, total liabilities rising to $22.2 million, and a total stockholders' deficit of $10.3 million Condensed Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11,241 | $4,928 | | Total current assets | $11,975 | $5,378 | | Total Assets | $11,975 | $5,378 | | Liabilities & Stockholders' Equity (Deficit) | | | | Accounts payable and accrued expenses | $19,159 | $15,485 | | Total current liabilities | $22,225 | $18,425 | | Total Liabilities | $22,225 | $18,425 | | Accumulated deficit | $(325,278) | $(314,333) | | Total Stockholders' Equity (Deficit) | $(10,250) | $(13,047) | Condensed Statements of Operations For the first quarter of 2024, the company reported a net loss of $10.9 million, compared to $10.5 million in the prior year, with research and development expenses significantly decreasing to $8.5 million from $15.8 million, while the 2023 period included a $7.6 million gain on common stock warrant liabilities Condensed Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Revenue - related party | $— | $35 | | Research and development | $8,497 | $15,826 | | General and administrative | $2,451 | $2,292 | | Loss from operations | $(10,948) | $(18,083) | | Gain on common stock warrant liabilities | $— | $7,566 | | Net Loss | $(10,945) | $(10,474) | | Basic and diluted net loss per share | $(0.33) | $(0.89) | Condensed Statements of Stockholders' Equity (Deficit) The stockholders' deficit improved from $13.0 million at the end of 2023 to $10.3 million at March 31, 2024, primarily driven by net proceeds from a registered direct offering, partially offset by the net loss for the quarter and stock-based compensation expenses Changes in Stockholders' Equity (Deficit) for Q1 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2023 | $(13,047) | | Issuance of common shares, net of costs | $12,637 | | Issuance of common shares - Founders Agreement | $396 | | Stock-based compensation expense | $709 | | Net loss | $(10,945) | | Balance at March 31, 2024 | $(10,250) | Condensed Statements of Cash Flows For the first quarter of 2024, net cash used in operating activities was $6.5 million, a significant reduction from the prior year, with net cash provided by financing activities at $12.8 million, resulting in a net increase in cash and cash equivalents of $6.3 million, ending the quarter with $11.2 million Condensed Statement of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,474) | $(14,031) | | Net cash provided by financing activities | $12,787 | $6,809 | | Net increase (decrease) in cash | $6,313 | $(7,222) | | Cash and cash equivalents at end of period | $11,241 | $4,846 | Notes to Condensed Financial Statements The notes provide critical context, detailing the company's status as a clinical-stage entity with a significant accumulated deficit of $325.3 million and substantial doubt about its ability to continue as a going concern, with cash sufficient only into Q3 2024, and outlining financing activities and related-party agreements - The company has substantial doubt about its ability to continue as a going concern, as its cash and cash equivalents are only sufficient to fund operating expenses into the third quarter of 2024[59] - As of March 31, 2024, the company had an accumulated deficit of $325.3 million[46] - In January 2024, the company closed a registered direct offering with gross proceeds of approximately $14.0 million[58] - Under its Founders Agreement, the company owes its majority shareholder, Fortress, an annual equity fee of 2.5% of its fully diluted equity, with the January 1, 2024 issuance deferred due to a lack of sufficient authorized shares[10][193] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's status as a clinical-stage entity focused on its lead candidates, cosibelimab and olafertinib, highlighting the FDA's Complete Response Letter (CRL) for cosibelimab due to manufacturing issues, a $7.3 million decrease in Q1 2024 R&D expenses, and reiterating the critical liquidity situation with cash sufficient only into Q3 2024 - The FDA issued a Complete Response Letter (CRL) for the cosibelimab BLA in December 2023, citing findings at a third-party contract manufacturing organization, and Checkpoint intends to resubmit the BLA[219] Comparison of Operating Expenses (in millions) | Expense Category | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Research & Development | $8.5 | $15.8 | $(7.3) | | General & Administrative | $2.5 | $2.3 | $0.2 | - The decrease in R&D expenses was primarily due to a reduction in manufacturing costs and the absence of prior period expenses, including a $3.2 million PDUFA fee and $2.3 million in license fees related to the BLA filing[242] - The company's cash and cash equivalents are only sufficient to fund operations into the third quarter of 2024, raising substantial doubt about its ability to continue as a going concern[278] Quantitative and Qualitative Disclosures about Market Risk The company is classified as a "smaller reporting company" under Exchange Act rules and is therefore not required to provide the information typically disclosed under this item - As a smaller reporting company, Checkpoint Therapeutics is not required to provide quantitative and qualitative disclosures about market risk[296] Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures are effective as of the end of the period[119] - No changes occurred during the fiscal quarter ended March 31, 2024, that have materially affected, or are not reasonably likely to materially affect, the company's internal control over financial reporting[201] PART II. OTHER INFORMATION Legal Proceedings The company is currently facing two significant legal challenges: a consolidated putative stockholder class action lawsuit and a derivative lawsuit, with the company believing the allegations in both cases are without merit and planning to defend itself vigorously, though the outcome and potential financial impact are uncertain - The company and certain executive officers are defendants in a consolidated stockholder class action lawsuit (Moore v. Checkpoint Therapeutics, Inc.) alleging false and misleading statements between March 2021 and December 2023[115][185] - A derivative lawsuit (Geary v. Oliviero, et al.) has been filed against certain current and former directors and officers, asserting claims for breach of fiduciary duty under Delaware law and violations of the Exchange Act[186][195] - The company believes the allegations are without merit and intends to defend itself vigorously, but it is unable to predict the outcome or estimate a range of possible losses at this time[93][187] Risk Factors This section details the numerous and significant risks facing the company, categorized into financial condition, business strategy, drug development uncertainties, reliance on third parties, regulatory landscape, intellectual property protection, data security, and its relationship with its controlling shareholder Recent Sales of Unregistered Securities The company has not provided new information regarding recent sales of unregistered securities in this report, stating that such information has been previously disclosed in other SEC filings - No new information is provided under this item; the company refers to information previously included in its Annual Report on Form 10-K or in a Current Report on Form 8-K[399] Exhibits This section lists the exhibits filed concurrently with the Form 10-Q, including the Amended and Restated Non-Employee Directors Compensation Plan, certifications from the Principal Executive Officer and Principal Financial Officer, and the company's financial statements formatted in XBRL - The report includes several exhibits, such as the Amended and Restated Non-Employee Directors Compensation Plan[403] - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits[518]