Eliem Therapeutics(ELYM) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) For the three months ended March 31, 2024, Eliem Therapeutics reported a significant reduction in net loss to $1.7 million from $22.3 million in the prior-year period, primarily driven by a substantial decrease in operating expenses following a 2023 restructuring. The company's financial position remains stable with $105.0 million in cash and cash equivalents. A key subsequent event is the definitive agreement to acquire Tenet Medicines, Inc., coupled with a planned $120 million private placement, signaling a major strategic shift towards autoimmune disorders Condensed Consolidated Balance Sheets Balance Sheet Summary (In thousands) | Balance Sheet Items (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $105,031 | $93,112 | | Total current assets | $109,223 | $110,255 | | Total assets | $109,334 | $110,469 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $2,950 | $2,833 | | Total liabilities | $2,950 | $2,870 | | Total stockholders' equity | $106,384 | $107,599 | - Cash and cash equivalents increased by $11.9 million during the first quarter of 2024, while short-term marketable securities were reduced to zero from $13.7 million as they matured[7] Condensed Consolidated Statements of Operations and Comprehensive Loss Operating Summary (In thousands) | Operating Results (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Research and development | $1,091 | $5,720 | | General and administrative | $1,914 | $17,718 | | Total operating expenses | $3,005 | $23,438 | | Loss from operations | ($3,005) | ($23,438) | | Net loss | ($1,697) | ($22,290) | | Net loss per share, basic and diluted | ($0.06) | ($0.84) | - The significant decrease in operating expenses and net loss is primarily due to the absence of major restructuring costs that were incurred in the first quarter of 2023[10][77] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (In thousands) | Cash Flow Summary (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,819) | ($15,177) | | Net cash provided by investing activities | $13,751 | $5,797 | | Net cash provided by financing activities | $15 | $1 | | Net change in cash and cash equivalents | $11,919 | ($9,148) | - The significant reduction in cash used for operating activities reflects the lower net loss and reduced operational scale. Cash from investing activities was positive due to $13.75 million in proceeds from maturing marketable securities[15] Notes to Unaudited Condensed Consolidated Financial Statements - On April 10, 2024, the company entered into an agreement to acquire Tenet Medicines, Inc., a developer of an anti-CD19 monoclonal antibody (TNT119) for autoimmune disorders[21][79] - Concurrent with the acquisition agreement, Eliem entered into a Securities Purchase Agreement for a private placement to raise approximately $120.0 million in gross proceeds[22][80] - The company's restructuring plan, initiated in February 2023 and expanded in October 2023, resulted in a 55% workforce reduction and a pause in the development of its Kv7 program to conserve financial resources[19][20][74] - As of March 31, 2024, the company had $105.0 million in cash and cash equivalents and believes these funds are sufficient to meet operating requirements for at least the next twelve months[26] - In Q1 2023, the company recorded $15.8 million in restructuring costs, including $9.0 million in stock-based compensation and $6.8 million in severance and benefits, which significantly impacted the prior year's operating expenses[70][77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion centers on the company's strategic pivot from developing therapies for neuronal excitability disorders to acquiring Tenet Medicines and its autoimmune-focused clinical program, TNT119. The analysis highlights a significant year-over-year decrease in operating expenses and net loss for Q1 2024, attributed to the 2023 restructuring and pausing of internal R&D programs. The company's liquidity is deemed sufficient for the next 12 months, but future operations are highly dependent on the successful consummation of the planned acquisition and the associated $120 million private placement Overview - The company has paused development of its internal programs (Kv7 and ETX-155) and is pursuing a strategic acquisition of Tenet Medicines, Inc. to focus on its clinical-stage anti-CD19 antibody, TNT119, for autoimmune disorders[93][95] - A concurrent private placement is expected to raise approximately $120.0 million in gross proceeds to fund the combined company's operations[96] - The company's future is highly dependent on the successful closing of the Acquisition and Private Placement, which is expected in mid-2024[99][101] Results of Operations Expense Summary (In thousands) | Expense Category (In thousands) | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $1,091 | $5,720 | $(4,629) | (80.9)% | | General and administrative | $1,914 | $17,718 | $(15,804) | (89.2)% | | Total operating expenses | $3,005 | $23,438 | $(20,433) | (87.2)% | - Research and development expenses decreased by $4.6 million (80.9%) due to a $3.2 million reduction in personnel-related costs (including prior-period restructuring charges) and a $2.5 million decrease in direct clinical expenses from pausing the ETX-123 and ETX-155 programs[118] - General and administrative expenses decreased by $15.8 million (89.2%), primarily driven by a $15.0 million reduction in personnel-related expenses, which included $14.0 million in restructuring costs in the prior-year period[119] Liquidity and Capital Resources - As of March 31, 2024, the company had cash and cash equivalents of $105.0 million[122] - Management believes current cash is sufficient to fund projected operating requirements for at least the next twelve months[123] - Future operations and continued cash generation are highly dependent on the successful closing of the Tenet acquisition and the associated private placement[123] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Eliem Therapeutics is not required to provide the information for this item - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[136] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024. This conclusion is based on the existence of material weaknesses in internal control over financial reporting, specifically a lack of sufficient accounting personnel and the absence of formal accounting policies and controls. The company has outlined remediation efforts, including hiring qualified personnel and implementing improved policies and systems - The company's executive chairman concluded that disclosure controls and procedures were not effective as of March 31, 2024, due to material weaknesses in internal control over financial reporting[138] - The identified material weaknesses include: 1) a lack of a sufficient number of professionals with appropriate accounting knowledge and experience, and 2) the absence of formal accounting policies, procedures, and controls for complete and timely financial reporting[140][141] - Remediation efforts are underway, including hiring qualified personnel and designing and implementing improved policies, processes, and internal controls[143][145] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of the filing date, the company reports that it is not involved in any material legal proceedings - The company was not involved in any material legal proceedings as of the date of the filing of this Quarterly Report on Form 10-Q[147] Item 1A. Risk Factors The company outlines extensive risks, with a primary focus on the successful completion of the acquisition of Tenet Medicines and the concurrent private placement. Key risks include the potential failure of the transaction, stockholder dilution, and the challenges of integrating a new business focused on autoimmune diseases. Other significant risks relate to the company's history of losses, dependence on future clinical trial success for Tenet's TNT119, regulatory hurdles, reliance on third parties, intellectual property protection, and previously identified material weaknesses in internal financial controls Risks Related to the Acquisition and the Private Placement - Failure to complete the acquisition could adversely impact the company, potentially requiring payment of a $1.0 million termination fee to Tenet and causing a decline in stock price[151][167] - The closing of the associated $120.0 million private placement is contingent on the consummation of the acquisition[154] - Existing stockholders will experience substantial ownership dilution from the shares issued in the acquisition and the private placement, and may not realize a commensurate benefit[161] Risks Related to our Financial Position and Need for Additional Capital - The company has a history of significant operating losses, with an accumulated deficit of $157.7 million as of March 31, 2024, and expects to incur substantial losses for the foreseeable future[170] - Even if the acquisition and private placement are completed, the company will require substantial additional funding to support continuing operations and future development programs[172] - The company currently has no source of product revenue and its ability to become profitable depends on the successful development and commercialization of future product candidates[177] Risks Related to our Business and the Development of our Product Candidates - Future success is substantially dependent on obtaining regulatory approval for and commercializing future product candidates, such as Tenet's TNT119[181] - Preclinical and clinical development is a lengthy, expensive, and uncertain process, and the outcome of early trials may not predict the success of later trials[192] - Future product candidates may cause undesirable side effects that could delay or prevent regulatory approval or limit their commercial profile[202] Risks Related to Intellectual Property - The company's success depends on its ability to obtain, maintain, and enforce patents and other intellectual property rights for its product candidates[244] - The company may become involved in lawsuits to protect or enforce its intellectual property, which could be expensive and unsuccessful[251] - Changes in patent law could diminish the value of patents, and protecting intellectual property rights globally is prohibitively expensive and challenging[255][265] Risks Related to our Common Stock - The trading price of the company's common stock has been and may continue to be volatile[293] - Anti-takeover provisions in the company's charter and Delaware law could make an acquisition more difficult and limit the market price of the common stock[301] - The company has identified and is remediating material weaknesses in its internal control over financial reporting, which could adversely affect its ability to report financial results accurately and timely[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period. The net proceeds from its August 2021 IPO were $83.1 million, which are intended for working capital and general corporate activities, with specific use dependent on the closing of the planned acquisition and private placement - There were no unregistered sales of equity securities during the quarter[335] - The net proceeds from the company's IPO were $83.1 million, intended for working capital and general corporate purposes, with specific allocation pending the outcome of the Tenet acquisition[336] Item 3. Defaults Upon Senior Securities This item is not applicable as the company has no defaults upon senior securities - Not applicable[337] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[338] Item 5. Other Information The company reports that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or other non-Rule 10b5-1 trading arrangement during the quarterly period ended March 31, 2024[339] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger with Tenet Medicines, the Securities Purchase Agreement for the private placement, and various officer certifications - Key exhibits filed include the Agreement and Plan of Merger and Reorganization with Tenet Medicines, Inc., the Securities Purchase Agreement, and related support and lock-up agreements[341]