Soligenix(SNGX) - 2023 Q3 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1 Condensed Consolidated Financial Statements The company significantly reduced net loss and operating cash outflows in the first nine months of 2023, improving working capital and increasing cash through financing activities Condensed Consolidated Balance Sheets Key Condensed Consolidated Balance Sheet Data | Indicator | September 30, 2023 (Unaudited) | December 31, 2022 | | :----------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Cash and Cash Equivalents | $10,298,534 | $13,359,615 | | Total Assets | $11,302,829 | $14,279,717 | | Liabilities | | | | Total Liabilities | $7,081,674 | $16,750,500 | | Shareholders' Equity/(Deficit) | | | | Total Shareholders' Equity/(Deficit) | $4,221,155 | $(2,470,826) | Condensed Consolidated Statements of Operations Statements of Operations Comparison | Indicator | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | License Revenue | $— | $— | $— | $50,000 | | Grant Revenue | $130,440 | $166,140 | $594,547 | $532,843 | | Total Revenue | $130,440 | $166,140 | $594,547 | $582,843 | | Cost of Revenue | $(110,441) | $(129,440) | $(520,502) | $(414,957) | | Gross Profit | $19,999 | $36,700 | $74,045 | $167,886 | | Research and Development Expenses | $826,015 | $1,791,695 | $2,535,165 | $5,586,302 | | General and Administrative Expenses | $973,040 | $1,326,249 | $3,098,949 | $5,250,510 | | Total Operating Expenses | $1,799,055 | $3,117,944 | $5,634,114 | $10,836,812 | | Operating Loss | $(1,779,056) | $(3,081,244) | $(5,560,069) | $(10,668,926) | | Total Other Income (Expense) | $116,354 | $(227,759) | $78,037 | $(530,793) | | Net Loss | $(1,662,702) | $(3,309,003) | $(4,320,835) | $(10,044,784) | | Basic and Diluted Net Loss Per Share | $(0.16) | $(1.15) | $(0.63) | $(3.50) | Key Condensed Consolidated Statements of Operations Data | Indicator | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Total Revenue | $130,440 | $166,140 | $594,547 | $582,843 | | Operating Loss | $(1,779,056) | $(3,081,244) | $(5,560,069) | $(10,668,926) | | Net Loss | $(1,662,702) | $(3,309,003) | $(4,320,835) | $(10,044,784) | | Basic and Diluted Net Loss Per Share | $(0.16) | $(1.15) | $(0.63) | $(3.50) | Condensed Consolidated Statements of Comprehensive Loss Statements of Comprehensive Loss Comparison | Indicator | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net Loss | $(1,662,702) | $(3,309,003) | $(4,320,835) | $(10,044,784) | | Foreign Currency Translation Adjustment | $18,257 | $14,403 | $(429) | $(16,470) | | Comprehensive Loss | $(1,644,445) | $(3,294,600) | $(4,321,264) | $(10,061,254) | Condensed Consolidated Statements of Changes in Mezzanine Equity and Shareholders' Equity/(Deficit) Changes in Shareholders' Equity (Nine Months) | Change Item | Total for 9 Months Ended Sep 30, 2023 | Total for 9 Months Ended Sep 30, 2022 | | :------------------------------------------------- | :----------------------- | :----------------------- | | Balance as of Dec 31, 2022 / Dec 31, 2021 | $(2,470,826) | $10,722,598 | | Common Stock Sold Under B. Riley Market Offering Sales Agreement | $3,091,462 | — | | Issuance Costs Related to B. Riley Market Offering Sales Agreement | $(95,348) | — | | Redemption of Series D Preferred Stock | — | — | | Issuance of Common Stock and Pre-funded Warrants Related to May 2023 Public Offering | $8,495,817 | — | | Issuance Costs Related to May 2023 Public Offering | $(834,061) | — | | Common Stock Issued to Vendors | $73,000 | $150,002 | | Common Stock Issued Upon Exercise of Pre-funded Warrants | $3,299 | — | | Common Stock Issued Related to Silk Roads Purchase Option | $50,000 | — | | Stock-based Compensation Expense | $229,076 | $220,656 | | Foreign Currency Translation Adjustment | $(429) | $(16,470) | | Net Loss | $(4,320,835) | $(10,044,784) | | Balance as of Sep 30, 2023 / Sep 30, 2022 | $4,221,155 | $1,032,002 | Condensed Consolidated Statements of Cash Flows Cash Flow Statements Comparison | Indicator | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------- | :------------------- | :------------------- | | Net Cash Outflow from Operating Activities | $(6,775,896) | $(9,021,880) | | Net Cash Outflow from Investing Activities | $0 | $(13,073) | | Net Cash Inflow from Financing Activities | $3,709,688 | $0 | | Effect of Exchange Rate on Cash and Cash Equivalents | $5,127 | $(143,302) | | Net Decrease in Cash and Cash Equivalents | $(3,061,081) | $(9,178,255) | | Cash and Cash Equivalents at Beginning of Period | $13,359,615 | $26,043,897 | | Cash and Cash Equivalents at End of Period | $10,298,534 | $16,865,642 | Key Condensed Consolidated Statements of Cash Flows Data | Indicator | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------- | :------------------- | :------------------- | | Net Cash Outflow from Operating Activities | $(6,775,896) | $(9,021,880) | | Net Cash Outflow from Investing Activities | $0 | $(13,073) | | Net Cash Inflow/(Outflow) from Financing Activities | $3,709,688 | $0 | | Net Decrease in Cash and Cash Equivalents | $(3,061,081) | $(9,178,255) | | Cash and Cash Equivalents at End of Period | $10,298,534 | $16,865,642 | Notes to Condensed Consolidated Financial Statements Note 1. Nature of Business The company is a late-stage biopharmaceutical firm developing and commercializing rare disease treatments across two distinct business segments - The company is a late-stage biopharmaceutical company focused on developing and commercializing products for rare diseases, with two business segments: Specialized BioTherapeutics and Public Health Solutions[16] - The NDA application for HyBryte™ (for treating Cutaneous T-Cell Lymphoma, CTCL) was rejected by the FDA, which requested a second Phase III pivotal study to support US market approval; the company is actively discussing feasibility with the FDA[17][160] - As of September 30, 2023, the company's cash and cash equivalents were $10,298,534, a 23% decrease from December 31, 2022; working capital increased by 305% from a $2,663,721 deficit on December 31, 2022, to $5,450,322 on September 30, 2023[23] - Management anticipates existing cash will be sufficient to meet working capital and capital expenditure needs for the next 12 months[22] - The company completed a one-for-fifteen reverse stock split on February 9, 2023[28] - The company regained compliance with Nasdaq's shareholder equity requirements through capital raising activities on May 9, 2023, but received another non-compliance notice for the $1.00 minimum bid price on June 23, 2023[31][34] Note 2. Summary of Significant Accounting Policies This chapter outlines key accounting policies, including business segments, fair value measurement, revenue recognition, R&D expenses, equity compensation, and income taxes - The company divides its operations into two operating segments: Specialized BioTherapeutics and Public Health Solutions[39] - The fair value of convertible debt is estimated using a Monte Carlo valuation method, classified as Level 3 measurement[48] - Company revenue primarily derives from government contracts and grants, recognized as costs are incurred; license revenue is recognized under ASC 606, with no royalty revenue recognized to date[51][52][53][54] - Research and development expenses are charged to operations as incurred[55] Equity Compensation Assumptions (Black-Scholes Model) | Assumption | 2023 | 2022 | | :---------------- | :----- | :---------- | | Dividend Yield | 0% | 0% | | Expected Life | 4 years | 4 years | | Volatility | 94% | 87% | | Risk-Free Rate | 3.48% | 1.12%-3.23% | - The company recognized $1,161,197 and $1,154,935 in income tax benefits from the sale of New Jersey NOL carryforwards for the nine months ended September 30, 2023, and 2022, respectively[62] Changes in R&D Incentive Receivables | Item | Current | Long-Term | Total | | :------------------------------------ | :----- | :----- | :----- | | Balance as of Dec 31, 2022 | $104,198 | $24,114 | $128,312 | | UK R&D Incentive, Transferred | $24,114 | $(24,114) | $— | | UK R&D Incentive | $— | $18,536 | $18,536 | | 2021 and 2022 Incentive Adjustment | $(1,150) | $— | $(1,150) | | UK R&D Incentive Cash Received | $(104,422) | $— | $(104,422) | | Foreign Currency Translation | $112 | $(230) | $(118) | | Balance as of Sep 30, 2023 | $22,852 | $18,306 | $41,158 | Potentially Dilutive Common Shares (Anti-Dilutive) | Category | September 30, 2023 | September 30, 2022 | | :------------------- | :------------ | :------------ | | Common Stock Warrants | 6,538,500 | 3,992 | | Stock Options | 206,589 | 145,505 | | Convertible Debt | 2,159,414 | 162,602 | | Total | 8,904,503 | 312,099 | Note 3. Leases This chapter details the company's operating lease accounting, including right-of-use assets, lease liabilities, and related expenses, with a reconciliation table - The company classifies its Princeton office space lease as an operating lease, recording a right-of-use asset and lease liability accordingly, with the lease term extended to October 2025[69] Lease Assets and Liabilities Reconciliation | Item | Operating Leases | | :------------------------------------ | :------- | | Right-of-Use Lease Asset as of Jan 1, 2023 | $340,987 | | Less: Decrease/Amortization | $82,500 | | Right-of-Use Lease Asset as of Sep 30, 2023 | $258,487 | | Lease Liability as of Jan 1, 2023 | $342,575 | | Less: Repayments | $80,458 | | Lease Liability as of Sep 30, 2023 | $262,117 | | Lease Expense for 9 Months Ended Sep 30, 2023 | $102,016 | | Lease Expense for 9 Months Ended Sep 30, 2022 | $100,887 | | Remaining Lease Term as of Sep 30, 2023 (Months) | 25 | Note 4. Accrued Expenses This chapter details accrued expenses, primarily clinical trial costs, as of September 30, 2023, and December 31, 2022 Accrued Expenses Summary | Item | September 30, 2023 | December 31, 2022 | | :----------------- | :------------ | :------------ | | Clinical Trial Expenses | $2,082,200 | $1,884,117 | | Other | $304,636 | $423,629 | | Total | $2,386,836 | $2,307,746 | Note 5. Debt This chapter details the revised convertible debt agreement with Pontifax, including principal repayment, extended interest-free period, and future payment schedules - The company amended its $20 million convertible debt financing agreement with Pontifax on April 19, 2023, immediately repaying $5 million in principal, reducing the outstanding principal balance to $3 million[74] - The amended agreement extended the interest-free period to June 30, 2024, reduced quarterly principal repayments from $1 million to $750,000, and eliminated the minimum cash covenant[74] - The amendment resulted in a debt extinguishment loss of approximately $394,000 and other income of $387,500 from the change in fair value of convertible debt for the nine months ended September 30, 2023[75] Key Assumptions for Convertible Debt Fair Value Valuation | Assumption | April 19, 2023 | September 30, 2023 | | :----------- | :------------ | :------------ | | Stock Price | $1.72 | $0.56 | | Volatility | 75.20% | 110.50% | | Discount Rate | 16.28% | 14.84% | | Risk-Free Rate | 4.27% | 5.24% | Annual Principal and Interest Payments Under Pontifax Loan Agreement (as of September 30, 2023) | Year | Principal | Interest | Total | | :--- | :---------- | :--------- | :---------- | | 2023 | $— | $128,094 | $128,094 | | 2024 | $2,250,000 | $206,761 | $2,456,761 | | 2025 | $750,000 | $16,012 | $766,012 | | Total | $3,000,000 | $350,867 | $3,350,867 | Note 6. Income Taxes This chapter discloses the company's federal, state, and foreign net operating losses and income tax benefits from selling New Jersey NOL carryforwards - As of December 31, 2022, the company had approximately $124 million in federal net operating losses (NOLs), approximately $13.2 million in state NOLs, and approximately $1.4 million in foreign NOLs[78] - The company recognized $1,161,197 and $1,154,935 in income tax benefits for the nine months ended September 30, 2023, and 2022, respectively, from the sale of 2021 and 2020 New Jersey NOL carryforwards[79] Note 7. Shareholders' Equity This chapter details preferred stock, Series D redemption, 2023 public offering, and limitations on future stock sales under the B. Riley agreement - The company has authorized 350,000 shares of preferred stock, of which 50,000 shares were designated as Series D Preferred Stock as of December 31, 2022[80] - All Series D Preferred Stock was redeemed following a special meeting of shareholders on February 8, 2023[85] - The company completed a public offering on May 9, 2023, issuing 2,301,500 shares of common stock, pre-funded warrants to purchase 4,237,000 shares of common stock, and common warrants to purchase up to 6,538,500 shares of common stock, raising approximately $8.5 million in gross proceeds[86] - As of November 6, 2023, the company had $23.6 million available for future sales of common stock under the B. Riley market offering sales agreement, but is currently limited by General Instruction I.B.6 of Form S-3, which restricts sales to no more than one-third of the aggregate market value of non-affiliate equity in any 12-month period[93] Note 8. Concentrations This chapter highlights potential concentration risk due to company deposits exceeding FDIC protection limits at major financial institutions - As of September 30, 2023, and September 30, 2022, the company's deposits in major financial institutions exceeded the $250,000 Federal Deposit Insurance Corporation (FDIC) protected amount[94] Note 9. Commitments and Contingencies This chapter discloses future commitments, potential milestone payments, royalties, and contingencies related to CARES Act tax credits and the Emergent BioSolutions arbitration - As of September 30, 2023, the company has approximately $205,000 in licensing agreement commitments over the next five years, and potential milestone payments of up to $13.2 million and royalties of 2% to 3% of net sales upon clinical or commercial success[95] Contractual Obligations (as of September 30, 2023) | Year | Research and Development | Property and Other Leases | Total | | :-------------------------- | :--------- | :------------- | :--------- | | October 1 to December 31, 2023 | $21,000 | $33,841 | $54,841 | | 2024 | $46,000 | $136,917 | $182,917 | | 2025 | $46,000 | $116,250 | $162,250 | | 2026 | $46,000 | $— | $46,000 | | 2027 | $46,000 | $— | $46,000 | | Total | $205,000 | $287,008 | $492,008 | - The company received $120,771 in CARES Act Employee Retention Credit (CARES ERC) refunds, recorded as other income for the nine months ended September 30, 2023[103] - The COVID-19 pandemic impacted company operations but did not materially affect business, operating results, financial condition, or cash flows as of September 30, 2023, and September 30, 2022[105] - In the arbitration case with Emergent BioSolutions, the arbitration panel ruled Emergent committed multiple breaches but did not award monetary damages to the company; the company's application to vacate the arbitration award was denied by the Delaware Court of Chancery on July 17, 2023[108] Note 10. Related Party Transaction This chapter describes the exclusive option agreement with Silk Road Therapeutics, including consideration paid and the decision to abandon the option - The company entered into an exclusive option agreement with Silk Road Therapeutics, Inc. on April 27, 2023, to evaluate its Pentoxifylline product candidate, paying $50,000 in cash and issuing 31,646 shares of common stock valued at $50,000 as consideration; the company ultimately decided to abandon the option[110] Note 11. Operating Segments This chapter details revenue, operating profit/loss, and identifiable assets for the Specialized BioTherapeutics and Public Health Solutions segments Operating Segment Revenue and Operating Profit/Loss (3 Months Ended September 30, 2023) | Indicator | Specialized BioTherapeutics | Public Health Solutions | Corporate | Total | | :----------------------- | :----------- | :--------------- | :--- | :------- | | Revenue | $— | $130,440 | $— | $130,440 | | Operating Profit/Loss | $(705,753) | $(24,819) | $(1,048,484) | $(1,779,056) | Operating Segment Revenue and Operating Profit/Loss (9 Months Ended September 30, 2023) | Indicator | Specialized BioTherapeutics | Public Health Solutions | Corporate | Total | | :----------------------- | :----------- | :--------------- | :--- | :------- | | Revenue | $223,870 | $370,677 | $— | $594,547 | | Operating Profit/Loss | $(2,227,430) | $(26,639) | $(3,306,000) | $(5,560,069) | Identifiable Assets by Operating Segment (as of September 30, 2023) | Segment | September 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :------------ | | Specialized BioTherapeutics | $58,704 | $103,742 | | Public Health Solutions | $70,557 | $121,290 | | Corporate | $11,173,568 | $14,054,685 | | Total | $11,302,829 | $14,279,717 | Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter discusses the company's financial condition and operating results, highlighting reduced net loss and expenses, improved liquidity, and ongoing challenges with HyBryte™ FDA approval and Nasdaq listing - The company's net loss for the nine months ended September 30, 2023, decreased by 57% year-over-year, primarily due to reduced operating expenses and interest expenses, and increased other income[254] - Research and development expenses decreased by 55% year-over-year, mainly due to lower manufacturing and regulatory costs associated with the HyBryte™ NDA application[256][257] - General and administrative expenses decreased by 41% year-over-year, primarily attributed to reduced legal and consulting fees related to the Emergent BioSolutions arbitration[258] - Cash and cash equivalents decreased by 23%, but working capital increased by 305%, primarily influenced by net proceeds from financing activities and the reclassification of convertible debt[261] Cautionary Note Regarding Forward-Looking Statements This chapter warns that forward-looking statements regarding future performance are subject to significant risks and uncertainties, potentially leading to material differences from expectations - This report contains forward-looking statements concerning future performance, prospects, and opportunities, which are subject to significant risks, uncertainties, and other factors that could cause actual results to differ materially from expectations[116] Note Regarding Reverse Stock Split This chapter explains the one-for-fifteen reverse stock split completed on February 9, 2023, with all share data restated accordingly - The company completed a one-for-fifteen reverse stock split on February 9, 2023, and all share and per-share data have been restated to reflect this split[120] Note Regarding Exclusive Option Agreement with Silk Road Therapeutics This chapter details the exclusive option agreement with Silk Road Therapeutics for product evaluation, which the company ultimately abandoned - The company entered into an exclusive option agreement with Silk Road Therapeutics on April 27, 2023, to evaluate its Pentoxifylline product candidate, but ultimately decided to abandon the option on August 25, 2023[121] Note Regarding Nasdaq Capital Market Listing Requirements This chapter details the company's Nasdaq compliance status, including regaining shareholder equity compliance and subsequent non-compliance with the minimum bid price requirement - The company regained compliance with Nasdaq's shareholder equity requirements through capital raising activities on May 9, 2023, but received another non-compliance notice for the $1.00 minimum bid price on June 23, 2023, requiring re-compliance by December 20, 2023[123][126][127] Our Business Overview This chapter provides a business overview, including corporate information, product candidates, market potential, and intellectual property protection across two business segments Corporate Information This chapter outlines the company's incorporation history and name changes since its founding in Delaware - The company was incorporated in Delaware in 1987 and underwent several name changes, ultimately becoming Soligenix, Inc. in 2009[136] Our Product Candidates in Development This chapter details the company's product candidates in development across specialized biotherapeutics and public health solutions, including mechanisms, clinical progress, and market potential Specialized BioTherapeutics Overview This chapter outlines the company's specialized biotherapeutics pipeline, focusing on rare disease treatments like HyBryte™, SGX302, SGX942, and SGX203 - This business segment focuses on developing and commercializing products for rare diseases, primarily including HyBryte™, SGX302, SGX942, and SGX203[131][132] Synthetic Hypericin This chapter describes synthetic hypericin as a potent photosensitizer, activated by visible light, with antiproliferative effects on activated lymphocytes - Synthetic hypericin is a potent photosensitizer that, when activated by safe visible light, exhibits significant antiproliferative effects on activated lymphocytes and induces cell death[139][140][141] HyBryte™ – for Treating Cutaneous T-Cell Lymphoma This chapter details HyBryte™ as a novel photodynamic therapy for CTCL, including its Phase III results, FDA status, and market potential - HyBryte™ is a novel photodynamic therapy for CTCL, which successfully completed its Phase III FLASH study, but received a Refusal to File letter from the FDA after NDA submission, with the FDA requesting a second Phase III pivotal study[142][144][160] - HyBryte™ has received FDA Orphan Drug and Fast Track designations, as well as EMA Orphan Drug designation and MHRA Innovative Medicine designation[148] - The company estimates the global potential market for HyBryte™ in treating CTCL to exceed $250 million[163] Cutaneous T-Cell Lymphoma This chapter describes Cutaneous T-Cell Lymphoma (CTCL) epidemiology, incidence, and current treatment landscape, noting the lack of FDA-approved first-line therapies - CTCL is a rare non-Hodgkin lymphoma affecting over 20,000 people in the US, with approximately 2,800 new cases annually; currently, there are no FDA-approved first-line treatments for early-stage CTCL[164][165][167] SGX302 – for Treating Mild-to-Moderate Psoriasis This chapter introduces SGX302's expanded application for mild-to-moderate psoriasis, detailing its IND clearance, Phase IIa trial progress, and global market potential - SGX302 (synthetic hypericin) is being expanded for mild-to-moderate psoriasis treatment, has received FDA IND clearance, and initiated a Phase IIa clinical trial in December 2022[168][170] - The company estimates the global potential market for SGX302 in treating mild-to-moderate psoriasis to exceed $1 billion[169] - The Phase IIa trial has been expanded after showing biological effects in the initial five subjects and will explore SGX302's application in standard-of-care psoriasis settings[171] Psoriasis This chapter describes psoriasis as a chronic inflammatory skin disease, detailing its global prevalence and impact on patient quality of life - Psoriasis is a chronic, non-contagious, itchy, and often painful inflammatory skin disease affecting 3% of the US population (over 7.5 million people) and an estimated 60 million to 125 million people globally[172][174] Dusquetide This chapter introduces Dusquetide as an innate immune modulator that reduces inflammation, eliminates infection, and promotes tissue healing - Dusquetide is an innate immune modulator (IDR) that regulates the innate immune system to simultaneously reduce inflammation, clear infection, and promote tissue healing[175] SGX942 – for Treating Oral Mucositis in Head and Neck Cancer This chapter details SGX942's progress for oral mucositis in head and neck cancer, including regulatory designations, Phase III results, and future development - SGX942 has received FDA Fast Track designation and MHRA PIM designation for treating oral mucositis in head and neck cancer patients[178] - The primary endpoint of the Phase III DOM–INNATE study did not achieve statistical significance, but biological activity was observed, consistent with Phase II trial results; the company plans to design a second Phase III study and seek potential partners[186][187] - The European Patent Office has granted a patent for "Novel Peptides and Analogs for the Treatment of Oral Mucositis," covering the therapeutic use of dusquetide and its related IDR analogs[191] Oral Mucositis This chapter describes oral mucositis epidemiology and its high incidence and negative impact on head and neck cancer patients - Oral mucositis affects approximately 90,000 patients in the US, with similar numbers in Europe, and almost always occurs in head and neck cancer patients undergoing radiation therapy (over 80% incidence of severe mucositis)[194] Oral BDP This chapter introduces oral BDP as a locally acting therapy specifically designed for gastrointestinal inflammation - BDP (beclomethasone 17,21-dipropionate) is an oral, locally acting therapy specifically designed to treat gastrointestinal inflammation[195][196] SGX203 – for Treating Pediatric Crohn's Disease This chapter introduces SGX203's progress for pediatric Crohn's disease, including regulatory designations and the global market potential for BDP applications - SGX203 has received FDA Orphan Drug and Fast Track designations for treating pediatric Crohn's disease; the company estimates the global potential market for all BDP applications to exceed $500 million[196][197] Pediatric Crohn's Disease This chapter describes pediatric Crohn's disease epidemiology and its unique challenges for children and adolescents, including growth and bone health impacts - Pediatric Crohn's disease affects approximately 80,000 patients in the US, with similar numbers in Europe, posing unique challenges for children and adolescents, potentially leading to growth retardation, delayed puberty, and weakened bones[199][200] Public Health Solutions Overview This chapter outlines the company's public health solutions pipeline, including RiVax®, SGX943, and vaccine programs, leveraging ThermoVax® technology - This business segment includes RiVax® (ricin toxin vaccine), SGX943 (treatment for antibiotic-resistant and emerging infectious diseases), and vaccine programs for filoviruses and COVID-19, utilizing the ThermoVax® thermostability platform technology[133] ThermoVax® – Thermostability Platform Technology This chapter introduces ThermoVax® as a novel vaccine thermostability platform designed to eliminate cold chain, reduce costs, and minimize waste - ThermoVax® is a novel vaccine thermostability method designed to eliminate the need for cold chain production, transport, and storage, thereby reducing costs and vaccine waste[201][202] - Preclinical studies have shown that ThermoVax® can produce stable vaccine formulations that generate effective antibody responses even after one year of storage at 40°C[204] - In September 2023, positive data demonstrated two-year stability for thermostabilized bivalent and trivalent filovirus vaccine candidates at 40°C[221] RiVax® – Ricin Toxin Vaccine This chapter details RiVax®, the company's ricin toxin vaccine candidate, including animal model protection, clinical results, regulatory status, and market potential - RiVax® is the company's proprietary ricin toxin vaccine candidate, which has shown 100% protection in animal models and demonstrated good tolerability and immunogenicity in two Phase I clinical trials[222][223] - RiVax® has received FDA Orphan Drug and Fast Track designations, as well as EMA Orphan Drug designation in the European Union[231] - The company estimates potential government procurement contracts for RiVax® could be up to $200 million[232] - If approved by the FDA, the RiVax® vaccine could qualify for a Biodefense Priority Review Voucher (PRV), which is transferable and has recently sold for approximately $100 million[233] - In July 2022, the company signed a global exclusive agreement with SERB to license and supply the ricin toxin antigen used in the RiVax® vaccine for the development of novel ricin intoxication treatments[234] Ricin Toxin This chapter describes ricin toxin as a Category B biological agent with no FDA-approved vaccine or antidote, highlighting its threat - Ricin toxin is classified as a Category B biological agent by the US Centers for Disease Control and Prevention, with no FDA-approved vaccine or antidote currently available[235][236] SGX943 – for Treating Emerging and/or Antibiotic-Resistant Infectious Diseases This chapter introduces SGX943, an innate immune modulator effective against Gram-negative and Gram-positive bacterial infections, irrespective of antibiotic resistance - SGX943 is an innate immune modulator (IDR) that has shown efficacy against both Gram-negative and Gram-positive bacterial infections in preclinical models, irrespective of whether the bacteria are antibiotic-resistant[237][238] Intellectual Property This chapter explains how the company protects its proprietary technologies and product candidates through trade secrets, patents, copyrights, trademarks, and agreements - The company protects the proprietary status of its technologies and product candidates through trade secrets, patent, copyright, and trademark laws, as well as confidentiality and licensing agreements[243] Critical Accounting Policies This chapter outlines critical accounting policies, including revenue recognition, research and development expenses, and the use of estimates and assumptions Revenue Recognition This chapter details revenue recognition from government contracts and grants based on costs incurred, and licensing revenue under ASC 606 - Company revenue primarily derives from government contracts and grants, recognized based on subcontractor costs and internal costs incurred; license revenue is recognized under ASC 606, with no royalty revenue recognized to date[246][247][248][249] Research and Development Costs This chapter explains the company's accounting for R&D expenses, expensed as incurred, and the importance of estimating accrued costs for various services - The company needs to estimate accrued research and development expenses, including payments to contract research organizations (CROs), research sites, vendors, and for product manufacturing and distribution[250][251] Use of Estimates and Assumptions This chapter emphasizes the necessity of management estimates and assumptions in financial reporting, such as stock option fair value and accrued clinical trial expenses - The preparation of financial statements requires management to make estimates and assumptions, such as the fair value of stock options and accrued expenses for ongoing clinical trials[253] Material Changes in Results of Operations This chapter analyzes material year-over-year changes in operating results, including revenue, gross profit, R&D, G&A expenses, and net loss, explaining key drivers Changes in Operating Results (3 Months Ended September 30, 2023 vs. Prior Year Period) | Indicator | 2023 | 2022 | Change Amount | Change Rate | | :----------------------- | :----- | :----- | :----- | :----- | | Net Loss | $(1,662,702) | $(3,309,003) | $1,646,301 | -50% | | Revenue | $130,440 | $166,140 | $(35,700) | -21% | | Cost of Revenue | $(110,441) | $(129,440) | $18,999 | -15% | | Gross Profit | $19,999 | $36,700 | $(16,701) | -46% | | Research and Development Expenses | $826,015 | $1,791,695 | $(965,680) | -54% | | General and Administrative Expenses | $973,040 | $1,326,249 | $(353,209) | -27% | | Interest Expense, Net | $(66,363) | $215,146 | $(281,509) | -131% | Changes in Operating Results (9 Months Ended September 30, 2023 vs. Prior Year Period) | Indicator | 2023 | 2022 | Change Amount | Change Rate | | :----------------------- | :----- | :----- | :----- | :----- | | Net Loss | $(4,320,835) | $(10,044,784) | $5,723,949 | -57% | | Revenue | $594,547 | $582,843 | $11,704 | 2% | | Cost of Revenue | $(520,502) | $(414,957) | $(105,545) | 25% | | Gross Profit | $74,045 | $167,886 | $(93,841) | -56% | | Research and Development Expenses | $2,535,165 | $5,586,302 | $(3,051,137) | -55% | | General and Administrative Expenses | $3,098,949 | $5,250,510 | $(2,151,561) | -41% | | Interest Expense, Net | $97,399 | $641,768 | $(544,369) | -85% | Financial Condition This chapter discusses the company's financial condition, focusing on changes in cash and working capital, explaining drivers, and assessing future liquidity Cash and Working Capital Comparison | Indicator | September 30, 2023 | December 31, 2022 | Change Amount | Change Rate | | :------------------- | :------------ | :------------- | :----- | :----- | | Cash and Cash Equivalents | $10,298,534 | $13,359,615 | $(3,061,081) | -23% | | Working Capital | $5,450,322 | $(2,663,721) | $8,114,043 | 305% | - Cash decreased primarily due to $7 million in debt principal repayments and approximately $6.8 million in cash outflows from operating activities, partially offset by approximately $7.7 million in net proceeds from the May 2023 public offering and approximately $3 million from stock sales under the B. Riley sales agreement[261] - Working capital increased primarily due to net proceeds from financing activities and the reclassification of convertible debt during the nine months ended September 30, 2023[261] - Management believes that existing cash, based on operating budgets, current cash outflow rates, cash on hand, and proceeds from government contracts and grant programs, will be sufficient to meet working capital and capital expenditure needs for the next 12 months[262] Expenditures This chapter details estimated R&D expenditures for the next 12 months, including product-specific expenses and government reimbursements - Total estimated research and development expenditures for the next 12 months are approximately $4.8 million, with $4.7 million allocated to the Specialized BioTherapeutics business and $100,000 to the Public Health Solutions business[272] - Approximately $500,000 in contract and grant reimbursement revenue is expected over the next 12 months to offset R&D expenses in the Public Health Solutions business segment[272] Research and Development Expenses and Government Contract and Grant Reimbursements (9 Months Ended September 30, 2023) | Item | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Research and Development Expenses | | | | RiVax® and ThermoVax® Vaccines | $100,613 | $299,086 | | SGX942 (Dusquetide) | $(47,088) | $242,610 | | HyBryte™ (SGX301 or Synthetic Hypericin) | $2,147,245 | $4,745,133 | | Other | $334,395 | $299,473 | | Total R&D Expenses | $2,535,165 | $5,586,302 | | Government Contract and Grant Reimbursements | | | | RiVax® and ThermoVax® Vaccines | $— | $22,161 | | CiVax™ | $260,778 | $315,845 | | SGX943 | $35,429 | $76,951 | | HyBryte™ (Investigator-Initiated Studies) | $224,295 | $— | | Total Reimbursements | $520,502 | $414,957 | | Total | $3,055,667 | $6,001,259 | Contractual Obligations This chapter discloses contractual obligations, including licensing fees, milestone payments, royalties, lease obligations, and convertible debt payment schedules - As of September 30, 2023, the company has approximately $205,000 in licensing fee commitments over the next five years, and potential milestone payments of up to $13.2 million and royalties of 2% to 3% of net sales upon clinical or commercial success[274] - The company currently leases approximately 6,200 square feet of office space, with the lease term extended to October 2025, and rent will gradually increase[275][276] - If HyBryte™ receives FDA approval, the company is obligated to pay Hy Biopharma up to $5 million, payable in the company's common stock, but not exceeding 19.9% of the company's outstanding shares[279] - Following the amendment of the convertible debt agreement with Pontifax, $5 million in principal was immediately repaid, leaving an outstanding principal balance of $3 million, and the interest-free period was extended[282] Contingencies This chapter discloses contingencies, including CARES Act tax credits, COVID-19 impact, and the Emergent BioSolutions arbitration case - The company received $120,771 in CARES Act Employee Retention Credit (CARES ERC) refunds, recorded as other income for the nine months ended September 30, 2023[288] - The COVID-19 pandemic impacted company operations but did not materially affect business, operating results, financial condition, or cash flows as of September 30, 2023, and September 30, 2022[290] - In the arbitration case with Emergent BioSolutions, the arbitration panel ruled Emergent committed multiple breaches but did not award monetary damages to the company; the company's application to vacate the arbitration award was denied by the Delaware Court of Chancery on July 17, 2023[293] Item 3 Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign currency exchange rate risks but believes it has no significant market risk exposure due to short-term marketable securities - The company primarily faces interest rate sensitivity risk, influenced by changes in US interest rates, and exchange rate fluctuation risk related to foreign currency transactions[294] - The company does not have derivative financial instruments, and most investments are in short-term marketable securities, thus it believes it does not have any significant market risk exposure[294] Item 4 Controls and Procedures Management assessed disclosure controls and procedures as effective, with no material changes to internal controls or substantial impact from COVID-19 during the period - As of September 30, 2023, the company's management assessed and concluded that its disclosure controls and procedures were effective[296] - No material changes occurred in internal controls over financial reporting during the reporting period[297] - Despite employees working under a hybrid model, the COVID-19 pandemic did not substantially impact internal controls over financial reporting[298] Part II OTHER INFORMATION Item 1 Legal Proceedings The arbitration panel ruled Emergent BioSolutions breached contracts but awarded no monetary damages, and the company's appeal to vacate the award was denied - The company initiated arbitration against Emergent BioSolutions and its subsidiary in July 2020, alleging breach of contract, warranty, and fraud, seeking over $19 million in damages[301][306] - The arbitration panel ruled that Emergent committed multiple breaches but did not award monetary damages to the company[306] - The company's application to vacate the arbitration award was denied by the Delaware Court of Chancery on July 17, 2023, affirming the arbitration panel's decision[306] Item 1A Risk Factors This chapter references significant risk factors from the Form 10-K, advising investors to review them for potential material adverse effects on the company - The company's business faces significant risks, including those disclosed in the annual report on Form 10-K[307] Item 6 Exhibits This chapter lists required exhibits, including CEO and CFO certifications and XBRL-related documents, filed under the Securities Exchange Act - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer filed pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[309] - Exhibits also include Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase, as well as the Cover Page Interactive Data File[309] SIGNATURES This chapter contains the report signed by the President and CEO, and the CFO, as required by the Securities Exchange Act - The report was signed by Dr. Christopher J. Schaber, President and Chief Executive Officer, and Jonathan Guarino, Chief Financial Officer, on November 13, 2023[313]