Tonix Pharmaceuticals (TNXP) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows, with detailed notes on business and accounting policies Condensed Consolidated Balance Sheets Balance sheets show decreased cash, cash equivalents, and total assets from December 2022 to June 2023, driven by cash used in operations, investing, and a business acquisition | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $25,617 | $120,229 | | Inventory | $13,700 | — | | Total current assets | $51,329 | $130,777 | | Total assets | $159,736 | $225,690 | | Total current liabilities | $18,442 | $18,180 | | Total liabilities | $19,273 | $18,508 | | Total stockholders' equity | $140,463 | $207,182 | Condensed Consolidated Statements of Operations The company reported increased net losses for both the three and six months ended June 30, 2023, compared to the same periods in 2022, driven by higher research and development expenses | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $21,976 | $16,579 | $48,487 | $35,001 | | General and administrative | $7,026 | $6,757 | $14,417 | $14,771 | | Operating loss | $(29,002) | $(23,336) | $(62,904) | $(49,772) | | Net loss | $(28,356) | $(23,140) | $(61,361) | $(49,557) | | Net loss per common share, basic and diluted | $(2.68) | $(7.64) | $(5.88) | $(17.28) | Condensed Consolidated Statements of Comprehensive Loss The comprehensive loss for both the three and six months ended June 30, 2023, increased compared to the prior year, primarily reflecting the higher net loss and minor foreign currency translation losses | Metric | Three Months Ended June 30, 2023 (in thousands) | Three Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | $(28,356) | $(23,140) | $(61,361) | $(49,557) | | Foreign currency translation loss | $(1) | $(25) | $(45) | $(51) | | Comprehensive loss | $(28,357) | $(23,165) | $(61,406) | $(49,608) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased significantly from December 31, 2022, to June 30, 2023, primarily due to net losses and common stock repurchases, partially offset by stock issuances and stock-based compensation | Metric (in thousands) | Balance, December 31, 2022 | Balance, June 30, 2023 | | :------------------------------ | :------------------------- | :--------------------- | | Common stock shares outstanding | 12,368,620 | 10,762,341 | | Common stock amount | $12 | $11 | | Additional paid in capital | $677,375 | $686,025 | | Accumulated deficit | $(470,038) | $(545,361) | | Total stockholders' equity | $207,182 | $140,463 | | Repurchase of common stock | — | $(13,965) |\ | Issuance of common stock | — | $3,465 |\ | Stock-based compensation | — | $5,158 | Condensed Consolidated Statements of Cash Flows Net cash, cash equivalents, and restricted cash decreased substantially for the six months ended June 30, 2023, driven by operating, investing, and financing activities, reversing prior year's financing inflow | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(56,278) | $(52,217) | | Net cash used in investing activities | $(27,818) | $(34,656) | | Net cash (used in)/ provided by financing activities | $(10,471) | $85,240 | | Net decrease in cash, cash equivalents and restricted cash | $(94,610) | $(1,682) | | Cash, cash equivalents and restricted cash end of period | $25,860 | $177,218 | Notes to Condensed Consolidated Financial Statements These notes detail the company's business, significant accounting policies, and specific financial statement items, including acquisitions, equity transactions, and commitments NOTE 1 – BUSINESS Tonix Pharmaceuticals, a biopharmaceutical company, recently acquired acute migraine treatments and faces substantial doubt about its going concern ability due to recurring losses and limited cash into Q4 2023 - Tonix Pharmaceuticals acquired Zembrace® SymTouch® and Tosymra® for acute migraine treatment as of June 30, 2023[20] - The company has suffered recurring losses from operations and negative cash flows, raising substantial doubt about its ability to continue as a going concern[22][24] | Metric (in thousands) | June 30, 2023 | | :-------------------- | :------------ | | Working capital | $32,900 | | Accumulated deficit | $(545,400) | | Cash and cash equivalents | $25,600 | NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting principles, including a reverse stock split, business combinations, cash management, and expensing R&D costs, noting no material impact from new accounting standards - On May 10, 2023, the company effected a 1-for-6.25 reverse stock split, retrospectively adjusting all common stock and per share data[29] - The company accounts for business combinations using the acquisition method, allocating consideration to acquired net assets at fair value, with any excess recorded as goodwill[32] - Research and development costs, including acquired intellectual property without alternative future uses, are expensed as incurred[43] - The adoption of ASU 2020-06 (convertible instruments) and ASU 2016-13 (credit losses) on January 1, 2023, did not impact the company's financial position, results of operations, or cash flows[57][58] NOTE 3 – PROPERTY AND EQUIPMENT, NET Net property and equipment increased to $95.7 million by June 30, 2023, from $93.8 million at December 31, 2022, reflecting investments in R&D facilities, with $1.8 million depreciation expense | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total property and equipment, net | $95,717 | $93,814 | | Accumulated depreciation and amortization | $(3,467) | $(1,653) | - Depreciation and amortization expense for the six months ended June 30, 2023, was $1.8 million, significantly higher than $165 thousand in the prior year[37] - The company has acquired and developed facilities in Frederick, MD, Dartmouth, MA (for vaccine development), and Hamilton, MT (for vaccine manufacturing), with the Montana site not yet ready for intended use[60][61][62] NOTE 4 – GOODWILL AND INTANGIBLE ASSETS Goodwill of $965 thousand and developed technology intangible assets of $10.1 million were recognized from the USL Acquisition, with no amortization recorded in the first six months of 2023 | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Goodwill | $965 | $— | | Developed technology | $10,100 | $— | | Internet domain rights | $120 | $120 | | Total intangible assets, net | $10,220 | $120 | - Goodwill and developed technology assets were acquired in connection with the USL Acquisition on June 30, 2023[40][38] Amortization Schedule for Developed Technology | Year Ending December 31, | Amortization (in thousands) | | :----------------------- | :-------------------------- | | Remainder of 2023 | $428 | | 2024 | $856 | | 2025 | $856 | | 2026 | $856 | | 2027 and beyond | $7,104 | | Total | $10,100 | NOTE 5 – FAIR VALUE MEASUREMENTS The company values cash equivalents using Level 1 quoted prices, totaling $19.2 million as of June 30, 2023, and $116.3 million as of December 31, 2022, with no Level 2 or 3 assets/liabilities | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Cash equivalents (Level 1) | $19,200 | $116,300 | NOTE 6 – STOCKHOLDERS' EQUITY A 1-for-6.25 reverse stock split on May 10, 2023, reduced outstanding common stock from 64.6 million to 10.3 million shares and authorized shares from 1 billion to 160 million, regaining NASDAQ compliance - A 1-for-6.25 reverse stock split was effective May 10, 2023, reducing outstanding common stock from 64,627,246 to 10,340,506 shares[71] - The number of authorized common stock shares was reduced from 1,000,000,000 to 160,000,000[71] - The reverse stock split enabled the company to regain compliance with NASDAQ's minimum bid price requirement[71] NOTE 7 – TEMPORARY EQUITY Series A and B Convertible Redeemable Preferred Stock, issued in October and June 2022, were classified as temporary equity and subsequently redeemed for cash in December and August 2022, respectively - In October 2022, the company issued 1.4 million Series A and 100,000 Series B Preferred Stock for gross proceeds of $14.3 million, with a conversion price of $6.25 per share[72] - All outstanding preferred stock from the October 2022 offering was redeemed in December 2022 at 105% of the stated value, totaling $15.8 million[77] - In June 2022, the company issued 2.5 million Series A and 500,000 Series B Preferred Stock for gross proceeds of $28.5 million, with a conversion price of $25.00 per share[78] - All outstanding preferred stock from the June 2022 offering was redeemed in August 2022 at 105% of the stated value, totaling $31.5 million[83] NOTE 8 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH On June 30, 2023, Tonix acquired Zembrace® SymTouch® and Tosymra® from Upsher-Smith for approximately $26.5 million, including inventory, intangibles, and goodwill, with pro forma net product sales of $7.6 million - On June 30, 2023, Tonix acquired Zembrace® SymTouch® and Tosymra® products from Upsher-Smith Laboratories for an aggregate purchase price of approximately $26.5 million[84][86] Acquired Assets | Acquired Assets (in thousands) | Amount | | :----------------------------- | :----- | | Inventory | $13,700 | | Prepaid expenses and other | $1,757 | | Intangible assets, net | $10,100 | | Goodwill | $965 | | Fair value of assets acquired | $26,522 | - A Transition Services Agreement was entered into, with USL providing services for base fees of $100 thousand-$150 thousand per month plus additional service fees[85] Pro Forma Net Product Sales | Pro Forma Metric (in thousands) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :------------------------------ | :------------------------------- | :----------------------------- | | Net Product Sales | $3,544 | $7,621 | NOTE 9 – ASSET PURCHASE AGREEMENT WITH HEALION In February 2023, Tonix acquired preclinical infectious disease assets from Healion Bio Inc. for $1.2 million, expensed as R&D costs due to their preclinical stage and lack of alternative future use - Acquired preclinical infectious disease assets, including next-generation antiviral technology, from Healion Bio Inc. for $1.2 million in February 2023[97] - The $1.2 million cash consideration was expensed as research and development costs due to the preclinical stage and lack of alternative future use[97] NOTE 10 – ASSET PURCHASE AGREEMENT WITH KATANA In December 2020, Tonix acquired Katana assets for insulin resistance and obesity for $0.7 million, expensed as R&D, including an exclusive license from the University of Geneva with development obligations - Acquired Katana assets related to insulin resistance and obesity for $0.7 million in December 2020, expensed as R&D costs[98] - Assumed an exclusive license agreement with the University of Geneva, obligating Tonix to diligently develop and market products and pay annual maintenance fees[99] NOTE 11 – ASSET PURCHASE AGREEMENT WITH TRIGEMINA In June 2020, Tonix acquired Trigemina assets for migraine and pain treatment for $2.4 million (cash and stock), expensed as R&D, including an exclusive license from Stanford University - Acquired Trigemina assets for migraine and pain treatment technologies in June 2020 for $824,759 cash, 10,000 shares of common stock, and $250,241 to Stanford, totaling $2.4 million[100] - The acquisition costs were expensed as research and development due to the preclinical stage and lack of alternative future use[100] - Assumed an exclusive license agreement with Stanford University, obligating Tonix to diligently develop and market products and pay annual maintenance fees[101][103] NOTE 12 – ASSET PURCHASE AGREEMENT WITH TRIMARAN In August 2019, Tonix acquired TRImaran's pyran-based CNS assets for $168,500, expensed as R&D, with potential $3.4 million milestone payments and an exclusive license from Wayne State University - Acquired TRImaran's assets related to pyran-based compounds for CNS disorders in August 2019 for $168,500, expensed as R&D costs[104] - Agreed to pay TRImaran and Selling Shareholders up to $3.4 million in restricted stock or cash upon achievement of specified development, regulatory, and sales milestones[104] - Entered into an exclusive license agreement with Wayne State University (WSU) for the technology, including single-digit royalties on net sales and additional milestone payments totaling approximately $3.4 million[105][106] NOTE 13 – LICENSE AGREEMENT WITH CURIA In December 2022, Tonix licensed three humanized murine mAbs for SARS-CoV-2 from Curia, with an upfront fee of approximately $0.4 million, single-digit royalties, and contingent milestone payments - Entered into an exclusive license agreement with Curia in December 2022 for three humanized murine mAbs for SARS-CoV-2 infection[107] - Paid an upfront license fee of approximately $0.4 million, with future single-digit royalties and contingent milestone payments[107] NOTE 14 – LICENSE AGREEMENT WITH UNIVERSITY OF ALBERTA In May 2022, Tonix licensed broad-spectrum antiviral drugs from the University of Alberta, involving a low-five digit fee, single-digit royalties, and contingent milestone payments - Entered into an exclusive license agreement with the University of Alberta in May 2022 for broad-spectrum antiviral drugs[108] - Paid a low-five digit license fee, with future single-digit royalties and contingent milestone payments[108][109] NOTE 15 – LICENSE AGREEMENT WITH INSERM In February 2021, Tonix licensed oxytocin-based therapeutics for Prader-Willi syndrome from Inserm, with annual fees, $0.4 million sales milestone payments, and royalties on net sales - Licensed oxytocin-based therapeutics for Prader-Willi syndrome and non-organic failure to thrive disease from Inserm in February 2021[111] - The agreement provides for annual fees, milestone payments totaling approximately $0.4 million upon sales milestones, and royalties on net sales[111] NOTE 16 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY Tonix holds multiple exclusive licenses from Columbia University for TFF2 Technology and cocaine esterase, with upfront fees, royalties, and milestone payments totaling $4.1 million and $3 million, respectively, plus SARS-CoV-2 mAbs - Exclusive license for TFF2 Technology (recombinant Trefoil Family Factor 2) from Columbia University, involving a five-digit license fee, single-digit royalties, and contingent milestone payments totaling $4.1 million[112][113][114][115] - Exclusive license for double-mutant cocaine esterase from Columbia University, involving a six-digit license fee, single-digit royalties, and contingent milestone payments totaling $3 million[116][117][118][121] - Exercised an option in February 2023 for an exclusive license from Columbia for a portfolio of fully human and murine mAbs for SARS-CoV-2 infection[122] NOTE 17 – SALE AND PURCHASE OF COMMON STOCK Common stock sales via Lincoln Park generated $0.4 million net proceeds, while ATM offerings yielded $3.0 million net proceeds for the six months ended June 30, 2023, a significant decrease from $51.5 million in 2022 - Under the 2022 Purchase Agreement with Lincoln Park, the company sold 0.1 million shares of common stock for net proceeds of approximately $0.4 million during the six months ended June 30, 2023[125] - Through At-the-Market (ATM) offerings, the company sold approximately 1.0 million shares for net proceeds of $3.0 million during the six months ended June 30, 2023, a decrease from $51.5 million in the same period of 2022[131] NOTE 18 – STOCK-BASED COMPENSATION The Amended and Restated 2020 Stock Incentive Plan has 1,057,051 options available. Stock-based compensation expense was $5.2 million for the six months ended June 30, 2023, with $10.3 million unrecognized cost - As of June 30, 2023, 1,057,051 options were available for future grants under the Amended and Restated 2020 Stock Incentive Plan[138] Stock-Based Compensation Expense | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Stock-based compensation expense (total) | $2.4 million | $5.2 million | | - General and Administration | $1.6 million | $3.6 million | | - Research and Development | $0.8 million | $1.6 million | - As of June 30, 2023, the company had approximately $10.3 million of total unrecognized compensation cost related to non-vested awards, expected to be recognized over a weighted average period of 1.87 years[145] NOTE 19 – STOCK WARRANTS As of June 30, 2023, 3,196 outstanding warrants existed, with exercise prices from $100.00 to $7,000.00 and expirations between December 2023 and February 2025; no warrants were exercised in 2023 or 2022 Outstanding Warrants | Exercise Price | Number Outstanding | Expiration Date | | :------------- | :----------------- | :-------------- | | $100.00 | 125 | November 2024 | | $114.00 | 618 | February 2025 | | $7,000.00 | 2,453 | December 2023 | | Total | 3,196 | | - No warrants were exercised during the six months ended June 30, 2023, or 2022[150] NOTE 20 – LEASES Operating lease agreements for office space resulted in right-of-use assets and total lease liabilities of $1.2 million each. Future minimum lease payments total $1.267 million, with $0.3 million operating lease expense Lease Liabilities and Right-of-Use Assets | Metric (in thousands) | June 30, 2023 | | :-------------------- | :------------ | | Right-of-use assets | $1,200 | | Total lease liability | $1,200 | | Current lease liability | $400 | | Long-term lease liability | $800 | Future Minimum Lease Payments | Year Ending December 31, | Future Minimum Lease Payments (in thousands) | | :----------------------- | :------------------------------------------- | | 2023 | $237 | | 2024 | $460 | | 2025 | $299 | | 2026 | $142 | | 2027 and beyond | $246 | | Total | $1,267 | - Operating lease expense was $0.3 million for both the six months ended June 30, 2023, and 2022[156] NOTE 21 – COMMITMENTS The company has outstanding commitments of approximately $62.8 million for future research and development work. Additionally, it contributed $0.5 million to its 401(k) plan for the six months ended June 30, 2023 - Outstanding commitments for future research and development work aggregated approximately $62.8 million at June 30, 2023[158] 401(k) Contributions | Metric (in thousands) | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :----------------------------- | | 401(k) contributions | $200 | $500 | NOTE 22 – SUBSEQUENT EVENTS Subsequent to the quarter end, on August 1, 2023, the company closed an equity offering, selling common stock and warrants, which generated approximately $6.2 million in net proceeds - On July 27, 2023, the company entered into a securities purchase agreement to sell 2,530,000 shares of common stock, pre-funded warrants for up to 4,470,000 shares, and common warrants for up to 7,000,000 shares[160] - The offering closed on August 1, 2023, generating approximately $6.2 million in net proceeds after deducting offering expenses[161] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, highlighting the business overview, detailed analysis of operating results, recent license and asset purchase agreements, and critical accounting policies. It emphasizes the company's ongoing need for additional financing due to recurring losses and significant R&D investments Business Overview Tonix Pharmaceuticals is a biopharmaceutical company focused on commercializing and developing therapeutics across CNS, rare disease, immunology, and infectious disease, with recent acquisitions for acute migraine and a pipeline of investigational drugs - Tonix is a biopharmaceutical company focused on commercializing, developing, discovering, and licensing therapeutics[165] - The company recently acquired and markets Zembrace® SymTouch® and Tosymra® for acute migraine treatment[165] - Key development candidates include TNX-102 SL for fibromyalgia (mid-Phase 3) and fibromyalgia-type Long COVID (Phase 2), TNX-601 ER for MDD (Phase 2), TNX-1900 for chronic migraine (Phase 2), TNX-1300 for cocaine intoxication (Breakthrough Therapy designation, Phase 2 expected), TNX-2900 for Prader-Willi syndrome (Orphan Drug designation), TNX-1500 for organ transplant rejection (Phase 1 expected), and TNX-801 vaccine for smallpox/mpox[165] Results of Operations The company's operating results are expected to fluctuate due to product sales and R&D efforts. Net loss increased for both the three and six months ended June 30, 2023, primarily driven by higher research and development expenses - Operating results are anticipated to fluctuate due to sales of Zembrace® and Tosymra®, R&D progress, and regulatory outcomes[167] | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $21,976 | $16,579 | $48,487 | $35,001 | | General and administrative | $7,026 | $6,757 | $14,417 | $14,771 | | Net loss | $(28,356) | $(23,140) | $(61,361) | $(49,557) | Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 R&D expenses increased 33% to $22.0 million due to higher clinical, employee, lab, and building costs. G&A expenses rose 3% to $7.0 million, mainly from legal expenses - Research and development expenses increased by $5.4 million (33%) to $22.0 million, driven by increased clinical expenses ($1.4 million), employee-related expenses ($1.3 million), lab supplies ($0.6 million), and building-related expenses ($1.4 million)[168] - General and administrative expenses increased by $0.2 million (3%) to $7.0 million, primarily due to a $0.4 million increase in legal expenses, partially offset by a $0.2 million decrease in employee-related expenses[171] - Net loss for the three months ended June 30, 2023, increased by $5.3 million (23%) to $28.4 million[172] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 R&D expenses rose 39% to $48.5 million due to increased clinical, non-clinical, employee, office, and lab costs, partially offset by lower manufacturing. G&A decreased 3% to $14.4 million due to lower financial reporting - Research and development expenses increased by $13.5 million (39%) to $48.5 million, driven by increased clinical expenses ($5.4 million), non-clinical expenses ($1.3 million), employee-related expenses ($3.2 million), office-related expenses ($2.9 million), and lab supplies ($2.5 million), offset by a $3.2 million decrease in manufacturing expenses[173] - General and administrative expenses decreased by $0.4 million (3%) to $14.4 million, primarily due to a $1.1 million decrease in financial reporting expenses, partially offset by increases in legal and accounting fees[178] - Net loss for the six months ended June 30, 2023, increased by $11.8 million (24%) to $61.4 million[179] License Agreements The company holds several exclusive license agreements for therapeutic candidates, including SARS-CoV-2 mAbs, broad-spectrum antivirals, oxytocin-based therapeutics, TFF2 Technology, and cocaine esterase, involving upfront fees, royalties, and milestone payments - Exercised an option in February 2023 for an exclusive license from Columbia for a portfolio of fully human and murine mAbs for SARS-CoV-2 infection[180] - Entered into an exclusive license agreement with Curia in December 2022 for three humanized murine mAbs for SARS-CoV-2 infection, involving an upfront fee of approximately $0.4 million, single-digit royalties, and contingent milestone payments[181] - Holds exclusive licenses from Columbia University for TFF2 Technology and a double-mutant cocaine esterase, with contingent milestone payments totaling $4.1 million and $3 million, respectively, in addition to license fees and royalties[184][188][189][193] Asset Purchase Agreements The company completed several asset purchase agreements, notably acquiring Zembrace® SymTouch® and Tosymra® from Upsher-Smith for $26.5 million. Other acquisitions include preclinical infectious disease, insulin resistance, migraine/pain, and pyran-based compounds, with costs generally expensed as R&D - Acquired Zembrace® SymTouch® and Tosymra® products from Upsher-Smith Laboratories for approximately $26.5 million on June 30, 2023, including a $22.2 million upfront cash payment and a $3.0 million deferred payment[194][196] - Acquired preclinical infectious disease assets from Healion Bio Inc. for $1.2 million in February 2023, expensed as R&D costs[197] - Acquired Katana assets (insulin resistance) for $0.7 million in December 2020, Trigemina assets (migraine/pain) for $2.4 million (cash and stock) in June 2020, and TRImaran assets (pyran-based compounds) for $168,500 in August 2019; all were expensed as R&D costs due to their preclinical stage or lack of alternative future use[198][202][205] Liquidity and Capital Resources As of June 30, 2023, the company had $32.9 million working capital and $25.6 million cash, but faces substantial doubt about its going concern ability, with resources projected only into Q4 2023, necessitating additional funding | Metric (in thousands) | June 30, 2023 | | :-------------------- | :------------ | | Working capital | $32,900 | | Cash and cash equivalents | $25,600 | | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(56,278) | $(52,217) | | Net cash used in investing activities | $(27,818) | $(34,656) | | Net cash (used) provided by financing activities | $(10,471) | $85,240 | - The company's cash resources at June 30, 2023, and subsequent equity offerings are expected to meet operating and capital expenditure requirements only into the fourth quarter of 2023, raising substantial doubt about its ability to continue as a going concern[211][212] Future Liquidity Requirements The company anticipates continued losses and increasing R&D, requiring additional capital beyond Q4 2023. Future funding may involve equity, debt, or collaborations, with risks of dilution or delayed development if financing is not secured - The company expects to incur losses and increasing research and development expenses for the near future, requiring additional capital beyond Q4 2023[213] - Future capital requirements depend on R&D progress, regulatory approvals, intellectual property costs, competitive products, and financing availability[214] - Potential financing mechanisms include equity or debt securities, credit facilities, or collaborative arrangements, with risks of shareholder dilution or delays/reductions in R&D programs if funding is insufficient[216][217] Share Repurchase Program In Q1 2023, the company repurchased 2,512,044 shares for $12.5 million under its 2022 program and 160,000 shares for $1.1 million under a new 2023 program, allowing open market or private transactions - Repurchased 2,512,044 shares under the 2022 share repurchase program for approximately $12.5 million in Q1 2023[218] - Approved a new 2023 share repurchase program in January 2023 for up to an additional $12.5 million, under which 160,000 shares were repurchased for $1.1 million in Q1 2023[219] Convertible Redeemable Preferred stock Series A and B Convertible Redeemable Preferred Stock were issued in October 2022 ($14.3 million gross) and June 2022 ($28.5 million gross), then fully redeemed for cash in December 2022 ($15.8 million) and August 2022 ($31.5 million) - Issued Series A and Series B Preferred Stock in October 2022 for gross proceeds of $14.3 million; all shares were redeemed in December 2022 for $15.8 million[220][221] - Issued Series A and Series B Preferred Stock in June 2022 for gross proceeds of $28.5 million; all shares were redeemed in August 2022 for $31.5 million[222][223] July 2023 Financing On August 1, 2023, the company completed an equity offering, selling common stock and warrants, which generated approximately $6.2 million in net proceeds - On July 27, 2023, the company entered into an agreement to sell 2,530,000 shares of common stock, pre-funded warrants for up to 4,470,000 shares, and common warrants for up to 7,000,000 shares[224] - The offering closed on August 1, 2023, yielding approximately $6.2 million in net proceeds after deducting offering expenses[225] 2022 Lincoln Park Transaction In August 2022, the company entered a purchase agreement with Lincoln Park Capital Fund, LLC for up to $50 million of common stock, issuing 100,000 shares as consideration. 0.1 million shares were sold for $0.4 million net proceeds in H1 2023 - Entered into a purchase agreement with Lincoln Park Capital Fund, LLC in August 2022 to sell up to $50 million of common stock[226] - Issued 100,000 shares of common stock to Lincoln Park as consideration for its commitment, valued at $1.0 million[227] - Sold 0.1 million shares of common stock for net proceeds of approximately $0.4 million during the six months ended June 30, 2023[229] Purchase Agreement with Lincoln Park In December 2021, the company entered a purchase agreement with Lincoln Park for up to $80 million of common stock, issuing 14,546 commitment shares. $6.5 million net proceeds were generated in H1 2022, but no 2023 sales occurred, requiring shareholder approval for future sales - Entered into a purchase agreement with Lincoln Park Capital Fund, LLC in December 2021 to sell up to $80 million of common stock[230] - Issued 14,546 shares of common stock to Lincoln Park as consideration, valued at $1.6 million[231] - Sold 0.2 million shares for net proceeds of approximately $6.5 million during the six months ended June 30, 2022; no sales occurred in 2023. Further sales require shareholder approval due to NASDAQ rules[232][233] At-the-Market Offerings Through an ATM sales agreement with AGP, the company can sell up to $320.0 million in common stock. 1.0 million shares were sold for $3.0 million net proceeds in H1 2023, a significant decrease from $51.5 million in H1 2022 - Has a sales agreement with AGP for at-the-market (ATM) offerings, allowing sales of common stock up to $320.0 million[234] - Sold approximately 1.0 million shares for net proceeds of $3.0 million during the six months ended June 30, 2023[234] - In contrast, during the six months ended June 30, 2022, approximately 2.4 million shares were sold for net proceeds of $51.5 million[234] Stock Compensation The Amended and Restated 2020 Stock Incentive Plan has 1,057,051 options available. Stock-based compensation expense was $5.2 million for H1 2023, with $10.3 million unrecognized compensation cost remaining - The Amended and Restated 2020 Stock Incentive Plan allows for various equity awards and includes an 'evergreen provision' for annual increases in available shares[237] - As of June 30, 2023, 1,057,051 shares were available for future grants under the Amended and Restated 2020 Plan[238] Stock-Based Compensation Expense | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Stock-based compensation expense (total) | $2.4 million | $5.2 million | | - General and Administration | $1.6 million | $3.6 million | | - Research and Development | $0.8 million | $1.6 million | - Approximately $10.3 million of total unrecognized compensation cost related to non-vested awards remains as of June 30, 2023, to be recognized over a weighted average period of 1.87 years[244] Employee Stock Purchase Plan The 2022 ESPP allows eligible employees to purchase common stock at a discount. In January 2023, 14,999 shares were issued under the 2022 ESPP from payroll deductions, totaling approximately $29,000 - The 2022 ESPP allows eligible employees to purchase up to 15,000 shares of common stock at 85% of the fair market value[246] - In January 2023, 14,999 shares purchased under the 2022 ESPP were issued, with approximately $29,000 of employee payroll deductions transferred to additional paid-in capital[247] Commitments The company has outstanding contractual commitments of approximately $62.8 million for future research and development work. Additionally, future minimum operating lease payments total $1.267 million - Outstanding commitments for future research and development work aggregated approximately $62.8 million at June 30, 2023[249] Future Minimum Lease Payments | Year Ending December 31, | Future Minimum Lease Payments (in thousands) | | :----------------------- | :------------------------------------------- | | 2023 | $237 | | 2024 | $460 | | 2025 | $299 | | 2026 | $142 | | 2027 and beyond | $246 | | Total | $1,267 | Critical Accounting Policies and Estimates This section outlines critical accounting policies and estimates requiring significant management judgment, including business combinations, R&D costs, stock-based compensation, and redeemable preferred stock, noting no material impact from new pronouncements - Business combinations are accounted for using the acquisition method, requiring estimates of fair values for acquired assets and liabilities, with any excess recorded as goodwill[253] - Research and development costs, including acquired intellectual property without alternative future uses, are expensed as incurred, with accrual estimates based on trial progress and third-party reporting[254][255] - Stock-based payments are measured at fair value on the grant date and recognized as compensation expense over the vesting period[256] - Conditionally redeemable preferred shares are classified as temporary equity until redemption conditions are removed or lapse[257] - The adoption of ASU 2020-06 (convertible instruments) and ASU 2016-13 (credit losses) on January 1, 2023, did not impact the company's financial position, results of operations, or cash flows[259][260] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company for the reported period - This item is not applicable to the company[261] ITEM 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023. There were no material changes in internal control over financial reporting during the quarter - As of June 30, 2023, the company's disclosure controls and procedures were deemed effective at a reasonable assurance level[263] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[264] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits ITEM 1. Legal Proceedings The company is not currently a party to any material legal proceedings or claims - The company is not currently a party to any material legal proceedings or claims[267] ITEM 1A. Risk Factors There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes from the risk factors set forth in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[268] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[269] ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[270] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - None[271] ITEM 5. Other Information There is no other information to report for the period - None[272] ITEM 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including articles of incorporation, bylaws, asset purchase agreements, transition services agreements, and certifications - Includes various corporate documents such as Articles of Incorporation, Bylaws, and Certificates of Change[274] - Lists key agreements like the Asset Purchase Agreement with Upsher-Smith Laboratories and the Transition Services Agreement[274] - Contains certifications from the Chief Executive Officer and Chief Financial Officer as required by the Exchange Act and Sarbanes-Oxley Act[274] SIGNATURES The report is duly signed on behalf of Tonix Pharmaceuticals Holding Corp. by its Chief Executive Officer, Seth Lederman, and Chief Financial Officer, Bradley Saenger, as of August 10, 2023 - The report is signed by Seth Lederman, Chief Executive Officer, and Bradley Saenger, Chief Financial Officer, on August 10, 2023[279]