Protagenic Therapeutics(PTIX) - 2022 Q4 - Annual Report

Part I Business Protagenic Therapeutics is a clinical-stage biopharmaceutical company developing treatments for stress-related neuropsychiatric disorders, with its lead candidate PT00114 advancing to a Phase I/IIa study in Q3 2023 - The company is a biopharmaceutical firm developing therapeutics for stress-related neuropsychiatric and mood disorders, with its lead compound being PT00114[25] - Protagenic anticipates re-submitting an Investigational New Drug (IND) application and initiating a Phase I/IIa study for PT00114 in Q3 2023, following regulatory feedback[26][27] - The company operates under an exclusive worldwide license agreement with the University of Toronto for its core TCAP technology, requiring a 2.5% royalty on net sales[64] - As of December 31, 2022, the company holds exclusive rights to a portfolio of intellectual property, including four issued patents in the US, Canada, EU, and Australia, with three additional issued patents and ten pending applications[79] Clinical Development and Strategy The company's strategy focuses on advancing its lead candidate, PT00114, through a Phase I/IIa 'basket trial' in Q3 2023 to evaluate safety and preliminary efficacy across multiple neuropsychiatric indications - The company plans a 'basket trial' to assess safety in healthy volunteers, then safety and preliminary efficacy in patients with depression (MDD), anxiety (GAD), opioid use disorder (OUD), and PTSD[29][32] - The clinical development program is led by Dr. Maurizio Fava of Massachusetts General Hospital, who also designed the Phase I/II clinical study[28] Market and Competition The company targets large neuropsychiatric markets with unmet needs, facing intense competition but believing PT00114's novel mechanism and preclinical profile offer competitive advantages - The target indications represent large patient populations with significant unmet medical needs, including depression, anxiety, PTSD, and substance use disorders[31][33][36][39][40] - The company faces competition from established drug classes such as opioid receptor modulators, atypical antipsychotics (e.g., Rexulti, Vraylar), ketamine/esketamine (Spravato), and emerging GABA/NMDA receptor modulators[69][72][73][74][76][77] - PT00114's potential competitive advantages, based on preclinical data, include rapid onset of action, long-lasting effects, natural crossing of the blood-brain barrier, and an anticipated better safety profile (e.g., no expected liver toxicities, non-addictive)[78][80] Intellectual Property Protagenic's crucial intellectual property portfolio, primarily licensed from the University of Toronto, includes four issued patents on its core TCAP technology and additional patents and pending applications as of year-end 2022 Intellectual Property Portfolio Status (as of Dec 31, 2022) | Category | Issued Patents | Pending Applications | | :--- | :--- | :--- | | Original Platform Technology (TCAP) | 4 (US, CA, EU, AU) | - | | Related Technology | 3 | 10 | - The company's exclusive worldwide rights to its core patent applications are secured through a License Agreement with the University of Toronto[79] Risk Factors The company faces substantial risks including ongoing operating losses, clinical trial uncertainties, reliance on third parties, potential Nasdaq delisting, and identified material weaknesses in internal financial controls - The company has a history of operating losses, with an accumulated deficit of $25,777,375 as of December 31, 2022, and expects losses to continue, making its ability to continue as a going concern dependent on raising additional capital[98][99] - The company's lead product candidate, PT00114, is in early development, and there is a high risk of failure in clinical trials, as the drug development and approval process is lengthy, expensive, and uncertain[114][118] - Protagenic relies on third parties for non-clinical studies, clinical trials, and manufacturing, and any failure by these parties to perform could adversely affect its business[131][138] - The company received a Nasdaq deficiency notice for its stock price falling below the $1.00 minimum bid requirement, and failure to regain and maintain compliance could lead to delisting[193][194] - Management identified material weaknesses in internal controls over financial reporting, including a lack of segregation of duties and ineffective risk assessment[209][210][213] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[219] Properties The company does not own real property, operating from leased executive office space in New York - The Company does not own any real property and leases its principal executive office space in New York[220] Legal Proceedings As of December 31, 2022, the company is not involved in any legal proceedings expected to materially affect its business or financial condition - There are no pending legal proceedings that are expected to have a material adverse effect on the company[221] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[222] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on the Nasdaq Capital Market, with limited volume and no anticipated cash dividends as earnings are retained for business development - The company's common stock and warrants are listed on the Nasdaq Capital Market under the symbols 'PTIX' and 'PTIXW', respectively[224] Quarterly Stock Price (2022, Post-Split Adjusted) | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | | Q1 2022 | 5.80 | 3.20 | | Q2 2022 | 3.68 | 2.60 | | Q3 2022 | 3.20 | 2.28 | | Q4 2022 | 2.60 | 1.40 | - The company has never paid cash dividends and does not intend to in the foreseeable future[227] Management's Discussion and Analysis of Financial Condition and Results of Operations For 2022, the company's loss from operations decreased to $3.6 million, with $0.2 million cash and $6.9 million working capital, believed sufficient to fund operations until Q3 2024 Results of Operations (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Research and Development | $1,589 | $1,137 | +$452 | | General and Administrative | $1,969 | $3,004 | -$1,035 | | Loss from Operations | ($3,558) | ($4,140) | +$582 | | Net Loss | ($3,555) | ($4,523) | +$968 | - The decrease in G&A expenses was primarily due to lower stock compensation expense in 2022 compared to 2021[234] - As of December 31, 2022, the company had cash of $215,189 and working capital of $6,915,783, which management believes are sufficient to fund operations until the end of Q3 2024[240][241] Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating | ($1,994) | ($2,799) | | Net Cash Provided by/(Used in) Investing | $1,597 | ($9,910) | | Net Cash Provided by Financing | $0 | $12,578 | Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[253] Financial Statements and Supplementary Data Audited consolidated financial statements for 2022 and 2021 show decreased total assets to $8.0 million, stable liabilities, an accumulated deficit of $25.8 million, and a net loss of $3.6 million for 2022 Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash | $215 | $541 | | Marketable Securities | $7,764 | $9,830 | | Total Assets | $8,037 | $11,060 | | Total Current Liabilities | $1,120 | $800 | | Total Liabilities | $1,120 | $1,118 | | Accumulated Deficit | ($25,777) | ($22,222) | | Total Stockholders' Equity | $6,918 | $9,942 | Consolidated Statement of Operations Data (in thousands) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Research and Development | $1,589 | $1,137 | | General and Administrative | $1,969 | $3,004 | | Loss from Operations | ($3,558) | ($4,140) | | Net Loss | ($3,555) | ($4,523) | | Net Loss Per Share | ($0.82) | ($1.24) | - The company effectuated a 1-for-4 reverse stock split on March 22, 2023, and all share and per-share data in the financial statements have been adjusted to reflect this split[429] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[255] Controls and Procedures Management concluded that internal controls over financial reporting were ineffective as of December 31, 2022, due to material weaknesses, with a remediation plan initiated - Management concluded that internal control over financial reporting was not effective as of December 31, 2022[257][260] - Material weaknesses were identified, including: 1) lack of adequate segregation of duties within accounting functions, and 2) a limited level of multiple reviews in the financial reporting process[262][268] - To remediate these weaknesses, the company has engaged an independent third party to help enhance segregation of duties and implement additional controls[265] Other Information The company executed a 1-for-4 reverse stock split on March 22, 2023, to regain Nasdaq compliance after receiving a deficiency notice for its minimum bid price - On March 22, 2023, the company implemented a 1-for-4 reverse stock split to regain compliance with Nasdaq's minimum $1.00 bid price requirement[270] Part III Directors, Executive Officers and Corporate Governance This section details the company's leadership, board composition, five standing committees, and adopted Code of Business Conduct and Ethics - The executive team includes Garo H. Armen, PhD, as Executive Chairman and Alexander K. Arrow, M.D., CFA, as Chief Financial Officer[275] - The Board of Directors has five standing committees: Audit, Compensation, Nominating and Corporate Governance, Science, and Clinical and Regulatory[296] - The Audit Committee is composed of independent directors Brian Corvese (Chairperson), Timothy Wright, and Khalil Barrage, with Mr. Corvese designated as the 'audit committee financial expert'[297] Executive Compensation Executive compensation for 2022 primarily included a $150,000 CFO salary, with other officers and directors compensated mainly through stock option grants Summary Compensation (2022) | Name and Principal Position | Salary ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Garo H. Armen, Chairman | 0 | 0 | 0 | | Alexander K. Arrow, CFO | 150,000 | 0 | 150,000 | - Compensation for key personnel, including the COO, CMO, and scientific advisors, is provided through consulting agreements and primarily consists of stock option grants[312][314][315] - Non-employee directors are compensated with annual grants of stock options, with additional options for chairing a committee[319] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 26, 2023, Executive Chairman Garo H. Armen was the largest beneficial owner with 26% of common stock, while all directors and executive officers collectively owned 36% - Executive Chairman Garo H. Armen is the largest beneficial owner with 26% of the common stock[371] - All directors and executive officers as a group beneficially own approximately 36% of the company's outstanding common stock[371] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan category | Securities to be issued upon exercise | Weighted-average exercise price ($) | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 2,894,624 | $10.54 | 48,719 | Certain Relationships and Related Transactions, and Director Independence The company discloses related-party transactions, including no-cost office space from Agenus, convertible note investments, and stock option grants, with a formal review policy and independent director determinations - The company utilizes office space from Agenus, Inc., where Executive Chairman Dr. Garo Armen is also Chairman and CEO, at no cost[380] - Past related-party transactions include investments in a convertible note offering by Dr. Armen and director Khalil Barrage, and stock option grants to Dr. Armen's son for consulting work[382][383] - The Board has determined that Messrs. Barrage, Corvese, and Wright are independent directors, while Dr. Buell and Dr. Stein are not considered independent due to their roles and relationships with the company and its chairman[387][390][391] Principal Accountant Fees and Services This section details fees paid to Malone Bailey LLP for audit and other services in fiscal years 2022 and 2021, all pre-approved by the Audit Committee Accountant Fees (Malone Bailey LLP) | Fee Type | Fiscal Year 2022 ($) | Fiscal Year 2021 ($) | | :--- | :--- | :--- | | Audit fees | $85,000 | $68,000 | | Audit-related fees | $0 | $62,750 | | Tax Fees | $0 | $0 | | All other fees | $0 | $0 | | Total | $85,000 | $130,750 | Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including consolidated financial statements and a comprehensive index of exhibits - This section provides a list of all financial statements, schedules, and exhibits filed with the Form 10-K, including the company's certificate of incorporation, bylaws, material contracts like the technology license agreement, and executive certifications[399][402][403][404]