Qualigen Therapeutics(QLGN) - 2021 Q4 - Annual Report

Part I Item 1. Business Qualigen Therapeutics develops cancer therapeutics and commercializes diagnostic systems, transitioning to direct FastPack sales - The company is a diversified life sciences entity focused on developing cancer treatments and commercializing diagnostics[18] - The therapeutics pipeline includes QN-302 (G4 selective transcription inhibitor), QN-247 (DNA coated gold nanoparticle), and RAS-F (RAS oncogene protein-protein interaction inhibitor)[18] - The FastPack System is the company's commercial diagnostic product line, sold in the U.S. and Europe. The distribution agreement with Sekisui Diagnostics is set to expire on March 31, 2022, after which Qualigen will manage distribution directly[20] Fiscal Year 2021 Revenue Breakdown | Customer | Percentage of Total Revenue | | :--- | :--- | | Sekisui | 62% | | Low T | 22% | Product Candidates Qualigen's pipeline includes oncology candidates QN-302, QN-247, RAS-F, and the STARS device, with QN-165 deprioritized - QN-302: A G4 selective transcription inhibitor in-licensed from University College London, targeting cancers with high G4 prevalence, such as pancreatic ductal adenocarcinoma (PDAC). The company plans to seek Orphan Drug status[26][27][31] - QN-247: An aptamer-based drug candidate targeting nucleolin, overexpressed in cancer cells. Preclinical studies show promise for AML and potential to enhance radiation therapy. The company also plans to seek Orphan Drug status for indications like pancreatic cancer and AML[32][34][36] - RAS-F: A family of small molecule inhibitors targeting RAS oncogene protein-protein interactions, licensed from the University of Louisville, to treat RAS-driven cancers[38] - STARS™: A therapeutic device concept for removing tumor cells and viruses from blood. A U.S. patent has been issued, and the company is seeking strategic partners[42][43] - QN-165: This program for treating COVID-19 has been deprioritized after the FDA required additional preclinical studies for its IND application. The company's strategic focus has shifted to oncology[46] Strategic Partners and Sales Channels Qualigen partners with UCL and UofL for therapeutics, assuming direct FastPack distribution post-Sekisui agreement expiration - Key therapeutic partners include University College London (UCL) for QN-302 and the University of Louisville (UofL) for QN-247 and RAS-F[50][51] - The primary diagnostics distribution agreement with Sekisui expires on March 31, 2022, after which Qualigen will take over distribution and recognize 100% of revenue from FastPack sales[52][55] - An agreement with Yi Xin grants exclusive rights to manufacture and sell FastPack-based products in China, with rights to expand to other global markets under specific conditions after May 2022[57] Regulatory Matters Products face extensive FDA and international regulation, requiring device clearances and multi-phase drug clinical trials - Diagnostic products have obtained 17 FDA clearances/approvals and 28 CE Marks to date. No drug candidates have received regulatory approval[62] - In the U.S., medical devices require either 510(k) premarket notification clearance for lower-risk devices or a more stringent Premarket Approval (PMA) for higher-risk (Class III) devices[64][66] - In the EU, the company must comply with the new Medical Device Regulation (MDR), which has stricter requirements for clinical evidence, labeling, and post-market reporting[68] - The U.S. drug approval process requires preclinical testing, an effective IND application, and successful completion of Phase 1, 2, and 3 clinical trials before submitting a New Drug Application (NDA) to the FDA[74][78] Intellectual Property The company holds 147 patents and applications for its FastPack, STARS, and in-licensed therapeutic programs - The company holds a total of 147 issued, allowed, or pending patents and applications, plus 35 trademark registrations or applications[83] - The therapeutics patent portfolio includes 43 issued and 11 pending patents for the QN-247 program (expiring 2032-2038), 15 pending for the RAS program, and 11 (2 issued) for the QN-302 program (expiring 2030-2033), all of which are in-licensed[86] Item 1A. Risk Factors Significant risks stem from high-risk therapeutics development, intense diagnostics competition, and internal control weaknesses Risks Related to Our Therapeutics and Diagnostics Pipeline Therapeutics development is high-risk, requiring capital, facing uncertain approval, third-party reliance, and competition - The company's focus on developing therapeutic product candidates is a high-risk strategy with no guarantee of commercial, legal, operational, scientific, or financial success[94] - The company does not have enough working capital to fully execute its strategic plan and will need to raise additional capital, which may not be available on desirable terms and could lead to stockholder dilution[95][96] - Drug and device development is a lengthy, expensive, and uncertain process. Most drug candidates fail, and there is no guarantee of regulatory approval for QN-302, QN-247, RAS-F, or STARS[100] - The company relies on third parties like UofL and CROs to conduct preclinical studies and clinical trials, and on contract manufacturers for production. Failure by these third parties to perform could significantly delay or impair development efforts[128][132] Risks Related to Our Diagnostics Business Diagnostics faces post-Sekisui transition, intense competition, and declining reimbursement rates - The company may face logistical and relationship challenges during the transition period after its distribution agreement with Sekisui expires on March 31, 2022[153][154] - The FastPack system faces heavy competition from both large central lab systems and newer point-of-care technologies from competitors with greater resources[155] - Reduced Medicare and private insurer reimbursement for diagnostic tests constrains pricing and negatively impacts the diagnostics business[156] Other Business Risks Risks include key personnel dependence, IT failures, COVID-19 impacts, and a material weakness in internal financial controls - The company is highly dependent on its key executive team and its ability to attract and retain qualified personnel[159] - The COVID-19 pandemic significantly reduced diagnostic product sales in 2020 due to deferral of non-emergency physician visits, and future outbreaks could have similar adverse impacts[170][171] - A material weakness in internal controls over financial reporting was identified in the 2021 audit, which could adversely affect the accuracy of financial reporting and investor confidence[177] Item 2. Properties The company leases a 23,000 square foot facility in Carlsbad, California, serving as its headquarters for all operations - The company leases a 23,000 square foot facility in Carlsbad, California for all its operations[181] Item 3. Legal Proceedings The company is in settlement negotiations after its Motion to Dismiss was granted in a lawsuit by Mediant Communications Inc - On November 9, 2021, Mediant Communications Inc. filed a lawsuit against the company over an alleged implied contract. The company's Motion to Dismiss was granted on March 14, 2022, and settlement negotiations are ongoing[346] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under QLGN, with 692 holders and a recent warrant issuance to a consultant - Common stock is listed on the Nasdaq Capital Market under the symbol "QLGN"[184] - As of March 25, 2022, there were 692 registered holders of record of the company's common stock[185] - On December 3, 2021, the company issued a warrant to a consultant to purchase 600,000 shares of common stock at $1.32 per share, exempt from registration under Section 4(a)(2) of the Securities Act[186] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FY2021 revenue grew to $5.7 million, but a $17.9 million net loss resulted from higher R&D and G&A Results of Operations FY2021 revenues increased to $5.7 million, but operating loss widened to $22.7 million due to higher R&D and G&A Comparison of Operations (FY 2021 vs. 2020 Transition Period) | Metric | Year Ended Dec 31, 2021 (12 months) | Nine Months Ended Dec 31, 2020 (9 months) | | :--- | :--- | :--- | | Total Revenues | $5,653,725 | $2,849,561 | | Net product sales | $5,021,721 | $2,849,561 | | License revenue | $632,004 | $0 | | Total Expenses | $28,316,761 | $14,745,487 | | Cost of product sales | $4,332,485 | $2,640,148 | | General and administrative | $11,724,964 | $7,105,337 | | Research and development | $11,716,718 | $3,316,099 | | Loss from Operations | ($22,663,036) | ($11,895,926) | | (Gain) loss on warrant liabilities | ($4,723,187) | $8,310,100 | | Net Loss | ($17,897,137) | ($19,546,366) | - Research and development costs increased sharply to $11.7 million in Fiscal 2021, with 88% ($10.4 million) attributable to therapeutics, up from $3.3 million in the 2020 transition period[220] - The significant swing in 'Other Expense (Income)' was driven by the change in fair value of warrant liabilities, resulting in a $4.7 million gain in 2021 versus an $8.3 million loss in the 2020 transition period, primarily due to stock price fluctuations[226] Liquidity and Capital Resources The company had $17.5 million cash at year-end, sufficient for 12 months, but needs additional financing for clinical development - The company had $17.5 million in cash as of December 31, 2021, which is believed to be sufficient to fund operations for the subsequent 12-month period[231] - Significant additional financing will be required to fully execute the business plan, particularly for clinical trials of therapeutic drug candidates[232] Cash Flow Summary (FY 2021 vs. 2020 Transition Period) | Cash Flow Activity | Year Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash used in Operating activities | ($14,730,742) | ($10,162,935) | | Net cash used in Investing activities | ($141,364) | ($65,094) | | Net cash provided by Financing activities | $8,433,808 | $34,051,478 | Item 8. Consolidated Financial Statements and Supplementary Data Audited FY2021 financials show a $17.9 million net loss; warrant liability valuation is a Critical Audit Matter - The independent auditor identified the valuation of warrant liabilities as a Critical Audit Matter, noting the process was especially challenging due to the significant assumptions and management judgment required for the Monte Carlo simulation model[254][255] Consolidated Balance Sheet Summary | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $22,835,705 | $29,126,772 | | Cash | $17,538,272 | $23,976,570 | | Total Liabilities | $6,270,971 | $10,832,212 | | Warrant liabilities | $1,686,200 | $8,310,100 | | Total Stockholders' Equity | $16,564,734 | $18,294,560 | - Subsequent to year-end, the company in-licensed the QN-302 drug program from UCL, received a Nasdaq notice for failing to meet the $1.00 minimum bid price requirement, and extended its RAS inhibitor research agreement with ULRF[405][406][410] - An error was identified in previously issued 2021 interim financial statements related to the accounting for exercised liability-classified warrants, resulting in a $1.9 million overstatement of the gain on change in fair value of warrant liabilities. This error was corrected in the annual report[403] Item 9A. Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in internal control over financial reporting - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were not effective[413] - A material weakness was identified in internal control over financial reporting related to a lack of accounting department resources and/or procedures to ensure proper recording and disclosure of complex items, such as warrant valuations, in compliance with U.S. GAAP[416] - Remediation efforts include utilizing external consulting resources with expertise in U.S. GAAP and public company reporting to assist with complex and non-recurring transactions[417][418] Part III Items 10-14 Information for Items 10-14 is incorporated by reference from the 2022 Proxy Statement - Information for Items 10 (Directors, Executive Officers and Corporate Governance), 11 (Executive Compensation), 12 (Security Ownership), 13 (Certain Relationships and Related Transactions), and 14 (Principal Accounting Fees and Services) is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[425][426][427] Part IV Item 15. Exhibits and Financial Statement Schedules This section provides a comprehensive index of financial statements, schedules, and exhibits - This section contains the list of financial statements filed with the report and a detailed index of all exhibits[431][432]