Ernexa Therapeutics Inc 10-Q for FY2024 Q1
Ernexa Therapeutics Inc. (ERNA)
10-Q
2024-05-14
For: 2024-03-31
View Original
Added on
April 06, 2026
About this 10-Q
Ernexa Therapeutics Inc filed this 10-Q on May 14, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $47K
- compared with $0 a year earlier
- Net loss
- $6.65M
- compared with a net loss of $5.42M a year earlier
- Diluted EPS
- -$1.23
- compared with -$1.06 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to _____________
Commission file number: 001-11460
(Exact name of registrant as specified in its charter)
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(212 ) 582-1199
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading symbol
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 13, 2024, the registrant had outstanding 5,410,331
shares of common stock, $0.005 par value per share.
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Page
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PART I – FINANCIAL INFORMATION
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Item 1.
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Financial Statements (unaudited)
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5
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Item 2.
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Item 3.
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Item 4.
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PART II – OTHER INFORMATION
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans, capital needs, and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include those risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024, in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the SEC.
Readers are urged not to place undue reliance on the forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date of this Quarterly Report on Form 10-Q. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the PSLRA. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
We believe that the expectations reflected in forward-looking statements in this Quarterly Report on Form 10-Q are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward-looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect.
Unless stated otherwise or the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “Eterna” refer to Eterna Therapeutics Inc., references to “Eterna LLC” refer to Eterna Therapeutics LLC, a wholly owned subsidiary of Eterna, and references to the “Company,” “we,” “us” or “our” refer to Eterna and its subsidiaries, including Eterna LLC, Novellus, Inc. and Novellus Therapeutics Limited.
ETERNA THERAPEUTICS INC.
(In thousands, except par value amounts)
(unaudited)
| March 31, | December 31, | |||||||
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2024
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2023
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ASSETS
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Current assets:
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Cash
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$
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$
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Other receivables
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Prepaid expenses and other current assets
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Total current assets
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Restricted cash
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Property and equipment, net
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Right-of-use assets - operating leases
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Goodwill
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Other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
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Current liabilities:
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Accounts payable
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$
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$
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Accrued expenses
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Income taxes payable
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Operating lease liabilities, current
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Due to , current
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Deferred revenue, current
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Total current liabilities
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Convertible notes, net
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Warrant liabilities
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Operating lease liabilities, non-current
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Deferred revenue, non-current
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Contingent consideration liability
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Other liabilities
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Total liabilities
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Stockholders’ (deficit) equity:
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Preferred stock, $
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Common stock, $
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Additional paid-in capital
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Accumulated deficit
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(
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(
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Total stockholders’ (deficit) equity
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(
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Total liabilities and stockholders’ (deficit) equity
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$
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$
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The accompanying notes are an integral part of these condensed consolidated financial statements.
ETERNA THERAPEUTICS INC.
(In thousands, except per share amounts)
(unaudited)
| Three months ended March 31, | ||||||||
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2024
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2023
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Revenue
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Cost of revenues
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Gross loss
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Operating expenses:
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Research and development
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General and administrative
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Total operating expenses
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Loss from operations
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Other expense, net:
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Change in fair value of warrant liabilities
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Loss on non-controlling investment
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Total other expense, net
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Loss before income taxes
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Provision for income taxes
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Net loss
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| Net loss per common share - basic and diluted | $ | ( |
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Weighted average shares outstanding - basic and diluted
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The accompanying notes are an integral part of these condensed consolidated financial statements.
ETERNA THERAPEUTICS INC.
For the three months ended March 31, 2024 and 2023 (unaudited)
(in thousands)
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Stock
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Common Stock
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in
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Accumulated | ||||||||||||||||||||||||
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Shares
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Amount
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Shares
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Amount
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Capital
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Deficit
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Total
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Balances at January 1, 2024
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$ | $ | $ | $ | ( |
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Issuance of note warrants
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| Costs allocated to note warrants |
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Stock-based compensation
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Net loss
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Balances at March 31, 2024
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$ | $ | $ | $ | ( |
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Balances at January 1, 2023
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$ | $ | $ | $ | ( |
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Stock-based compensation
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Net loss
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Balances at March 31, 2023
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$ | $ | $ | $ | ( |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
ETERNA THERAPEUTICS INC.
(In thousands)
(unaudited)
| For the three months ended | ||||||||
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March 31,
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2024
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2023
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Cash flows from operating activities:
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Net loss
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$
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$
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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Stock-based compensation
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Amortization of right-of-use asset
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Gain on disposal of fixed assets
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Accrued interest expense
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Paid-in-kind interest expense
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Amortization of debt discount and debt issuance costs
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Change in fair value of warrant liabilities
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Loss on non-controlling investment
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Changes in operating assets and liabilities:
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Other receivables
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Prepaid expenses and other current assets
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Other non-current assets
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Accounts payable and accrued expenses
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Operating lease liability
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Due to related party
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Deferred revenue
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Other liabilities
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Net cash used in operating activities
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Cash flows from investing activities:
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Purchase of property and equipment
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Proceeds received from the sale of fixed assets
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Net cash used in investing activities
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Cash flows from financing activities:
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Proceeds received from the convertible notes financing
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Fees paid related to the convertible notes financing
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Net cash provided by financing activities
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Net decrease in cash and cash equivalents
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(
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(
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Cash, cash equivalents and restricted cash at beginning of period
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Cash, cash equivalents and restricted cash at end of period
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$
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$
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Supplemental disclosures of cash flow information:
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Cash paid during the period for:
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Interest
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$
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$
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Income taxes
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$ | $ | ||||||
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Supplemental disclosure of non-cash investing and financing activities:
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Note warrants issued
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$ | $ | ||||||
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Unpaid fees incurred in connection with the convertible notes financing
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$ | $ | ||||||
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Paid in-kind interest added to convertible notes principal
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$ | $ | ||||||
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Adjustment to lease liability and ROU asset due to remeasurement
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$ | $ | ||||||
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Property and equipment purchased but not paid
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$ | $ | ||||||
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Reconciliation of cash, cash equivalents and restricted cash at end of period:
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Cash and cash equivalents
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$ | $ | ||||||
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Restricted Cash
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Total Cash, cash equivalents and restricted cash at end of period
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$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ETERNA THERAPEUTICS INC.
(Unaudited)
| 1) |
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
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Description of Business
Eterna Therapeutics Inc. is a life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines. Eterna has in-licensed a
portfolio of over 100 patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming,
mRNA gene editing, the NoveSliceTM and UltraSliceTM gene-editing proteins, and the ToRNAdoTM mRNA delivery system, which Eterna collectively refers to as our “mRNA technology platform.” Eterna refers to aspects of its mRNA technology platform
as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.” Eterna licenses its mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under an exclusive license agreement. As used herein, the “Company” or
“Eterna” refers collectively to Eterna and its consolidated subsidiaries (Eterna LLC, Novellus, Inc. and Novellus Therapeutics Limited) unless otherwise stated or the context otherwise requires.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the
instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited financial
statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.
These condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in Eterna’s Annual Report on Form 10-K for the year ended December 31, 2023 filed
with the Securities and Exchange Commission (the “SEC”) on March 14, 2024, as amended by the Form 10-K/A filed with the SEC on March 18, 2024 (as amended, the “2023 10-K”). The accompanying condensed consolidated balance sheet as of December
31, 2023 has been derived from the audited financial statements contained in the 2023 10-K but does not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three
months ended March 31, 2024 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2024, or any other period.
| 2) |
LIQUIDITY AND CAPITAL RESOURCES
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The Company has incurred significant operating losses and has an accumulated deficit as a result of its efforts to develop product candidates, including conducting clinical trials and providing general and
administrative support for operations. As of March 31, 2024, the Company had an unrestricted cash balance of approximately $5.1
million and an accumulated deficit of approximately $193.6 million. For the three months ended March 31, 2024, the Company incurred a net loss of $6.6 million, and the Company used cash of $3.7
million in operating activities.
In October 2022, the Company entered into a sublease for approximately 45,500
square feet of office and laboratory space in Somerville, Massachusetts. Pursuant to the sublease, the Company delivered to the sublessor a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the sublease. The letter of credit was issued by the
Company’s commercial bank, which required that the Company cash collateralize the letter of credit by depositing $4.1 million in
a restricted cash account with such bank. The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease.
In April 2023, the Company entered into a standby equity purchase agreement (the “SEPA”) and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln
Park committed to purchase up to $10.0 million of the Company’s common stock in an “equity line” financing arrangement. During
the year ended December 31, 2023, the Company issued and sold approximately 214,000 shares of common stock under the SEPA for
gross proceeds of $0.3 million. No
shares have been sold under the SEPA during the three months ended March 31, 2024.
In July and December 2023, the Company received $16.5 1.4 million in gross proceeds from the issuance of additional
convertible notes. See Note 4 for additional information regarding these financings.
In connection with preparing the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2024, the Company’s management concluded that there is substantial doubt
regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these
condensed consolidated financial statements. The Company will need to raise additional capital, which could be through the sales of shares of its common stock under the SEPA, public or private equity offerings, debt financings,
out-licensing the Company’s intellectual property, strategic partnerships or other means. Other than the SEPA, the Company currently has no arrangements for capital, and no assurances can be given that it will be able to raise capital
when needed, on acceptable terms, or at all.
The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and
classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
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3)
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CONTRACT WITH CUSTOMER
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On February 21, 2023, the Company and Lineage Cell Therapeutics, Inc. (“Lineage”)
entered into an exclusive option and license agreement (the “Lineage Agreement”), which provided Lineage with the option (the “Option Right”) to obtain an exclusive sublicense of intellectual property from the Company and to request the Company to
develop a customized cell line. The Lineage Agreement was amended in August 2023 to provide for changes specifically related to the cell line customization activities such as (i) payment terms, (ii) certain definitions, (iii) certain courses of
action if the customized cell line selected by Lineage is not successful and (iv) documentation requirements. Lineage paid the Company a $0.3
million non-refundable up-front payment (the “Option Fee”) for the Option Right and paid an initial payment of $0.4 million to commence
the cell line customization activities, per the amended payment terms. If Lineage obtains the sublicense, the Company would be entitled to receive additional license fees, including milestone payments and royalties.
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”) when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods
or services.
Pursuant to ASC 606, the Company determined that the Option Right was an unexercised right held by Lineage under the Lineage Agreement at contract inception, as the cell line
customization activities and the sublicense were optional purchases at contract inception. These optional purchases of goods and services would be treated as separate contracts if and when Lineage determines that it will make such purchases.
Therefore, 100 % of the Option Fee was allocated to the Option Right. The Option Fee will remain in deferred revenue until such
time that Lineage enters into the sublicense or when the Option Right expires.
The Option Right and the cell line customization activities are accounted for as
separate contracts, and the Company has determined that the amended terms discussed above represent a modification to the cell line customization contract. Because there were no goods or services transferred to Lineage before entering into the
amendment, and therefore, no previously recognized revenue, there was no catch-up adjustment to revenue required at the time of the amendment.
Lineage will make payments to the Company for the cell line customization activities
over the development period. The Company will only earn the remaining full amount of the cell line customization fee if it makes certain progress towards delivery of the customized cell line. The Company has determined that $0.4 million of consideration received could be recognized without the probability of being reversed, and it has placed a constraint on the remaining
contractual customization fee. The $0.4 million is being recognized equally over the development period, which is expected to be
approximately 20 to 25 months, as the level of effort to perform the services is happening at the same rate over time. If the development period is expected to be longer or shorter than originally planned, the Company will recognize a cumulative
catch-up adjustment in the period that such determination is made. For the three months ended March 31, 2024, the Company recognized less than $0.1
million of revenue for the customization activities. The Company did no t recognize any revenue for the three months ended March 31,
2023.
The granting of the license that the Company may provide to Lineage if Lineage
exercises the Option Right is not considered a performance obligation at this time, as it is an optional request that the customer may make in the future and will be accounted for as a separate contract when the customer exercises the Option
Right.
The Company recognizes direct labor and supplies used in the customization
activities as incurred and are recorded as a cost of revenue. As provided for in the A&R Factor License Agreement discussed in Note 9, the Company is obligated to pay Factor Limited 20 % of any amounts the Company receives from a customer that is related to the licensed technology under the A&R Factor License Agreement, which is also recorded as a cost of
revenue. For the three months ended March 31, 2023, the Company recognized less than $0.1 million in license fees, which is recorded
in cost of revenues, due to Factor Limited as a result of receiving the $0.3 million Option Fee payment from Lineage. There was no such license fee incurred during the three months ended March 31, 2024.
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4)
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CONVERTIBLE NOTES FINANCINGS
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On
July 14, 2023, the Company received $8.7 million from a private placement in which the Company issued $8.7 million in aggregate principal amount of convertible notes (the “July 2023 convertible notes”) and warrants to purchase an aggregate of
approximately 6.1 million shares of its common stock (the “July 2023 warrants”). The Company recognized approximately $0.2 million in fees associated with the transaction.
On December 14, 2023, the Company entered into a purchase agreement with certain
purchasers for the private placement of $9.2 million of convertible notes (the “December 2023 convertible notes” and together with the
July 2023 convertible notes, the “convertible notes”) and warrants to purchase an aggregate of approximately 9.6 million shares of the
Company’s common stock (the “December 2023 warrants” and together with the July 2023 warrants, the “note warrants”).
There were two closings under the
December 14, 2023 purchase agreement – one on December 15, 2023 and the second on January 11, 2024. At the first closing, the Company received $7.8
million and issued $7.8 million of December 2023 convertible notes and December 2023 warrants to purchase approximately 8.1 million shares of its common stock. At the second closing, the Company received $1.4 million and issued $1.4 million of December 2023
convertible notes and December 2023 warrants to purchase approximately 1.5 million shares its common stock.
See Note 12 for more information on the note warrants.
The July 2023 convertible notes bear interest at 6 % per annum, and the December 2023 convertible notes bear interest at 12 %
per annum, both of which are payable quarterly in arrears. At the Company’s election, it may pay interest either in cash or in-kind by increasing the outstanding principal amount of the convertible notes. The convertible notes mature on the five-year anniversary of the date of their issuance, unless earlier converted or repurchased. The Company does not have the option to redeem any of
the convertible notes prior to maturity.
At the option of the holders, the convertible notes may be converted from time-to-time in whole or in part into shares
of the Company’s common stock at an initial conversion rate of, with respect to the July 2023 convertible notes, $2.86 per share and,
with respect to the December 2023 convertible notes, $1.9194 per share, subject to customary adjustments for stock splits, stock
dividends, recapitalization and the like. As of March 31, 2024, none of the convertible notes were converted into shares of common
stock.
The convertible notes do not contain any ratchet or other financial antidilution provisions. The convertible notes contain conversion limitations such that no conversion may be made if the aggregate
number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 %,
9.99 % or 19.99 %
immediately after conversion thereof, subject to certain increases not in excess of either 9.99 % or 19.99 % at the option of such holder.
The convertible notes provide for customary events of default which include (subject in certain cases to customary grace and
cure periods), among others: nonpayment of principal or interest, breach of covenants or other agreements in the convertible notes; the occurrence of a material adverse effect event (as defined in the related securities purchase agreement) and
certain events of bankruptcy. Generally, if an undisputed event of default occurs and is continuing under the convertible notes, the holder thereof may require the Company to redeem some or all of their convertible notes at a redemption price
equal to 100 % of the principal amount of the convertible notes being redeemed, plus accrued and unpaid interest thereon. As of March
31, 2024, there were no events of default that occurred under the Convertible notes.
The Company determined that
there were no embedded derivatives within the convertible notes that required bifurcation from the host agreement. In connection with the December 2023 convertible notes that were issued on January 11, 2024, the Company allocated the gross proceeds
received and the fees incurred over the applicable convertible notes and warrants based on their relative fair values as follows (in thousands):
|
|
Allocation of Proceeds and Costs
|
Allocation of
|
||||||||||||||||||
|
|
Relative
Fair Value |
Allocation
Percentage |
Proceeds
|
Costs
|
Proceeds,
Net |
|||||||||||||||
|
Convertible notes
|
$
|
|
|
%
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Note warrants
|
|
|
%
|
|
(
|
)
|
|
|||||||||||||
|
|
$
|
|
|
%
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
The Company estimated the fair values of the convertible notes as of
January 11, 2024 based off a valuation performed by a third-party specialist as of December 15, 2023 using a binomial tree model and the following assumptions:
|
|
Stock
Price |
Credit
Spread |
Volatility
|
Risk-Free
Rate |
||||||||||||
|
Convertible notes
|
$
|
|
|
|
%
|
|
%
|
|||||||||
The fair value of the note warrants, all of which qualified for equity
classification, was determined using the Black-Scholes pricing model as of January 11, 2024 using the following assumptions:
|
|
Stock
Price |
Exercise
Price |
Expected
Life |
Volatility
|
Dividend
|
Risk-Free
Rate |
|||||||||||||||
|
Warrants
|
$
|
|
$
|
|
|
|
%
|
|
%
|
|
%
|
||||||||||
The amount of proceeds allocated to
the note warrants resulted in a corresponding reduction in the carrying value of the respective convertible notes as a debt discount, which is amortized with the debt issuance costs as a component of interest expense based on the effective
interest rate method over the contractual terms of the convertible notes.
The following table shows the
activity that occurred during the three months ended March 31, 2024 for the convertible notes on the accompanying condensed consolidated balance sheet:
|
|
Gross
convertible
notes
|
Debt
discount
and debt
issuance
costs
|
Convertible
notes, net
|
|||||||||
|
|
||||||||||||
|
Beginning balanace as of January 1, 2024
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
December 2023 notes issued in January 2024
|
|
(
|
)
|
|
||||||||
|
Paid-in-kind interest added to principal
|
|
-
|
|
|||||||||
|
Amortization of debt discount and debt issuance costs
|
-
|
|
|
|||||||||
|
Ending balanace as of March 31, 2024
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
To date, the Company has elected to
pay in-kind the accrued interest payable on the convertible notes and has added the accrued and unpaid interest to the principal amount of the applicable convertible note. The Company has recognized approximately $0.8 million in interest expense for the three months ended March 31, 2024 for the convertible notes, which includes $0.4 million for the amortization of the debt discount and debt issuance costs and $0.4 million recorded in accrued expenses in the accompanying condensed consolidated balance sheet.
| 5) |
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between
willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The fair value hierarchy is as follows:
| • |
Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement
date.
|
| • |
Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or
liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
|
| • |
Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.
|
The carrying amounts
reported on the balance sheet for cash and cash equivalents, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due
to their short maturities.
The Company issued approximately 343,000 warrants in connection with a private placement during the first
quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability.
The
Company completed an asset acquisition on April 26, 2023 with Exacis Biotherapeutics, Inc. (Exacis”), which consisted of primarily acquiring an exclusive license agreement by and between Exacis and Factor Limited. See Note 9 for additional
information. As part of the consideration paid to Exacis for the acquisition, the Company agreed to make certain contingent payments to Exacis related to reaching two separate targets of the Company’s market capitalization ($100.0 million and $200.0 million).
Such payments would be in the form of issuing $2 million worth of shares of the Company’s common stock to Exacis for each target
achieved (the “market cap contingent consideration.”).
The market cap contingent consideration is indexed to or settled in the Company’s own shares. As a result, the Company classified the market cap contingent consideration as a liability measured at fair value because
the financial instrument embodies a conditional obligation (the Company would only issue the shares on the condition that the applicable market capitalization threshold is met), and at inception, the monetary value of the obligation is based
solely on a fixed monetary amount ($2.0 million worth of shares for each market capitalization threshold), which will be settleable with a variable number of the Company’s
shares.
The Company uses a Black-Scholes option pricing model to estimate the fair value of its warrant liabilities and a
Monte Carlo simulation model to estimate the fair value of the contingent consideration related to the market cap contingent consideration, both of which are considered a Level 3 fair value measurement. The Company remeasures the fair value
of the warrant liabilities and the market cap contingent consideration at each reporting period and changes in the fair values are recognized in the statement of operations.
The following tables summarize the liabilities that are measured at fair value as of March 31, 2024 and December 31,2023 (in thousands):
|
Description
|
Level
|
March 31,
2024
|
December 31,
2023
|
|||||||||
|
Liabilities:
|
||||||||||||
|
Warrant liabilities - Q1-22 warrants
|
3
|
$ |
|
$ |
|
|||||||
| Market cap contingent consideration |
3 |
$ |
$ |
|||||||||
Certain inputs used in Black-Scholes
and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a
significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed consolidated
statement of operations.
The following table presents
the changes in the liabilities measured at fair value from January 1, 2024 through March 31, 2024 (in thousands):
|
|
Warrant
Liabilities
|
Contingent
Consideration
|
||||||
|
Fair value at January 1, 2024
|
$
|
|
$ | |||||
|
Change in fair value
|
|
|
||||||
|
Fair value at March 31, 2024
|
$
|
|
$ | |||||
With the assistance of a third-party specialist, the Company assessed the fair value of the
contingent consideration at March 31, 2024 and determined that fair value did not materially change from the liability recorded at December 31, 2023, and therefore did no t recognize a change in the fair value as of March 31, 2024.
The table below
is provided for comparative purposes only and presents information about the fair value of the Company’s convertible notes relative to the carrying values recognized in the condensed consolidated balance sheet as of March 31, 2024 and
December 31, 2023 (in thousands).
|
March 31, 2024
|
December 31, 2023 | |||||||||||||||||||
|
|
Level |
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
|||||||||||||||
|
Convertible notes
|
3 |
$
|
|
$
|
|
$ |
$ |
|||||||||||||
The carrying value in the table above is shown before the allocation of the proceeds to the note warrants. The Company assessed the fair value of the convertible notes as of March 31,2024 using a Monte Carlo simulation
model and as of December 31, 2023 using a binomial model, both of which are considered a Level 3 measurement.
| 6) |
GOODWILL
|
In 2018, the Company acquired IRX Therapeutics (“IRX”), which was accounted for as a business combination. The Company recorded goodwill in the
amount of $2.0 million related to the IRX acquisition . Goodwill is not amortized but is
tested for impairment annually, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the entity is less than its carrying value. Because management evaluates
the Company as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the entity is less than its
carrying value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. If the entity does not pass the qualitative assessment,
then the entity’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the entity exceeds its fair value.
As of March 31, 2024, the Company evaluated potential triggering events that could indicate that the fair value of the entity is less than its
carrying value and determined there were no such events that occurred.
|
7)
|
LEASES
|
The Company currently has operating leases for office and laboratory space in (a) the borough of Manhattan in New York, New York, (b) Cambridge, Massachusetts, and (c) Somerville, Massachusetts, which expire in 2026, 2028, and 2033,
respectively.
In October 2022, the Company entered into a sublease with a subsidiary of Bristol-Myers Squibb Company, as sublessor (“Sublessor”), for office, laboratory and research and development space of approximately 45,500 square feet in Somerville, Massachusetts. The lease expires in November 2033 and is subject to a five-year extension. Rent payments under the sublease began on November 29, 2023. The Company pays base rent of approximately $0.5 million per month during the first year of the term, which will increase 3 % per year thereafter. The Company also makes monthly payments for parking, which are based on market rates that can change from time to time, and pay its share of
traditional lease expenses, including certain taxes, operating expenses and utilities.
The Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $4.1
million. Provided there are no events of default by the Company under the sublease, the letter of credit will be reduced on an incremental basis throughout the term.
The Sublessor agreed to provide the Company with a tenant improvement allowance (“TIA”) of $190 per rentable square foot,
or $8.6 million. Tenant improvements in excess of this amount will be at the Company’s own cost. Construction was substantially
complete in January 2024, however, as of March 31, 2024, the Company did not have the certificate of occupancy due to circumstances beyond its control, and therefore, has not yet been able to use the premises for its intended purpose. The
total out-of-pocket costs for the improvements was approximately $1.6 million. As of March 31, 2024, the Company received the
entire $8.6 million TIA.
The Company performed an analysis on the accounting ownership of the tenant improvement assets and determined that such assets were sublessor/lessor owned. As a result, TIA payments made by the Sublessor
to the Company for the tenant improvement assets are considered a reimbursement rather than a lease incentive and not included as part of the consideration of the contract. Amounts paid by the Company for sublessor/lessor owned assets in
excess of the TIA are considered non-cash lease payments and are added to the consideration in the contract.
The Company is in discussions with the Sublessor to possibly renegotiate the terms of the sublease, which may include, among other things, deferment of rent payments as well as a reduction of the lease term, square footage, and/or
base rent. As a result, the Company has not made its rent payments on the Somerville sublease due for February, March, April or May 2024. To date, the Company owes the sublessor approximately $2.3 million in past due rent payments, including its share of amounts related to property taxes and common area maintenance costs. See Note 15 for more information
related to the past due rent.
In February 2024, the Company recognized a reduction of out-of-pocket expenses of approximately $0.4 million for the
buildout of sublessor/lessor owned assets as a result of discounts provided to the Company from certain vendors. The change in the timing of the past due rent payments described above and these cost reductions were accounted for as a lease
modification of the existing lease. The Company determined that the lease continued to be classified as an operating lease after modification and remeasured the liability for the remaining unpaid lease payments, including an aggregate $0.6 million of unpaid out-of-pocket costs above the TIA that the Company will pay for sublessor/lessor owned assets, as well as remeasuring any
variable lease payment that is based on an index or rate. The Company also requested a third-party specialist to reassess the incremental borrowing rate, which is the rate of interest that a lessee would have to pay to borrow on a
collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. This reassessment resulted in a decrease to the incremental borrowing rate from 14.4 % to 11.1 % as of the modification date. The
remeasurement resulted in an increase to the lease liability of approximately $4.2 million with a corresponding adjustment to the
ROU asset.
For the three months ended March 31, 2024 and 2023, the net operating lease expenses were as follows (in thousands):
|
Three months ended March 31,
|
||||||||
| 2024 |
2023 |
|||||||
|
Operating lease expense
|
$
|
|
$
|
|
||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||
|
Variable lease expense
|
|
|
||||||
|
Total lease expense
|
$
|
|
$
|
|
||||
The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2024 and the ending balances
as of March 31, 2024, including the changes during the period (in thousands).
|
Operating Lease
ROU Assets
|
||||
|
Operating lease ROU assets at January 1, 2024
|
$
|
|
||
|
Adjustment to ROU asset for remeasurement of Somerville Sublease liability
|
||||
|
Amortization of operating lease ROU assets
|
(
|
)
|
||
|
Operating lease ROU assets at March 31, 2024
|
$
|
|
||
|
Operating Lease
Liabilities
|
||||
|
Operating lease liabilities at January 1, 2024
|
$
|
|
||
|
Adjustment to lease liablity due to remeasurement of Somerville Sublease
|
||||
|
Accretion of interest for Somerville Sublease
|
||||
|
Principal payments on operating lease liabilities
|
(
|
)
|
||
|
Operating lease liabilities at March 31, 2024
|
|
|||
|
Less non-current portion
|
|
|||
|
Current portion at March 31, 2024
|
$
|
|
||
As of March 31, 2024, the Company’s operating leases had a weighted-average remaining life of 9.5 years with a weighted-average discount rate of 11.07 %.
The maturities of the
operating lease liabilities are as follows (in thousands):
|
As of
March 31,
2024
|
||||
|
2024
|
$
|
|
||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
Thereafter
|
|
|||
|
Total payments
|
|
|||
|
Less imputed interest
|
(
|
)
|
||
|
Total operating lease liabilities
|
$
|
|
||
|
8)
|
ACCRUED EXPENSES
|
Accrued expenses at March 31, 2024 and December 31, 2023 consisted of the
following (in thousands):
|
March 31,
2024 |
December 31,
2023
|
|||||||
|
Convertible notes interest
|
$ | $ | ||||||
|
Legal fees and related
|
|
|
||||||
|
Somerville facility
|
|
|
||||||
|
Professional fees
|
|
|
||||||
|
Accrued compensation
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total accrued expenses
|
$
|
|
$
|
|
||||
| 9) |
RELATED PARTY TRANSACTIONS
|
Agreements with Factor Bioscience Inc. and Affiliates
As of March 31, 2024, the Company had the agreements described below with Factor Bioscience Inc. and/or Dr. Matthew Angel. These agreements have been deemed related party transactions because the Company’s former
chief executive officer, Dr. Angel, is the chairman and chief executive officer of Factor Bioscience Inc. and a director of its subsidiary, Factor Bioscience Limited (“Factor Limited” and together with Factor Bioscience Inc. and its other
affiliates, “Factor Bioscience”). Dr. Angel resigned as the Company’s chief executive officer effective December 31, 2023.
In September 2022, the
Company entered into a Master Services Agreement (the “MSA”) with Factor Bioscience, pursuant to which Factor Bioscience agreed to provide services to the Company as agreed between the Company and Factor Bioscience and as set forth in one or
more work orders under the MSA, including the first work order included in the MSA (“WO1”). The MSA contains customary confidentiality provisions and representations and warranties of the parties, and the MSA may be terminated by either party upon 30 days’ prior notice, subject to any superseding termination provisions contained in a particular work order.
Under WO1, Factor Bioscience
agreed to provide the Company with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training, and the Company agreed to pay Factor Bioscience an initial fee of $5.0 million, payable in 12 equal
monthly installments of approximately $0.4 million. Of the $5.0 million, the Company allocated $3.5 million to the
License Fee Obligation (as defined below). Following the initial 12-month period, the Company agreed to continue paying Factor Bioscience the monthly fee of $0.4 million until such time as WO1 is terminated. Upon entering into the MSA, the Company paid a deposit of $0.4
million, which will be applied to the last month of WO1. The Company may terminate WO1 on or after the second anniversary of the date of the MSA, subject to providing Factor Bioscience with 120
days’ prior notice. Factor Bioscience may terminate WO1 only on and after the fourth anniversary of the
date of the MSA, subject to providing the Company with 120 days’ prior notice. On May 11, 2024, the Company and Factor Bioscience
amended the termination provision of the WO1 to allow the Company to provide 75 days’ notice to terminate WO1 if such notice is provided no later than June 30, 2024. Beginning on July 1, 2024, the Company will then be required to provide 120
days' notice to terminate WO1.
In connection with entering into the MSA, Factor Limited entered into a waiver agreement with Eterna LLC, pursuant to which Factor Limited agreed to waive payment of $3.5 million otherwise payable to it (the “License Fee Obligation”) in October 2022 by Eterna LLC under the exclusive license agreement entered into
in April 2021 by and among Eterna LLC, Novellus Limited and Factor Limited (the “Original Factor License Agreement”). Under the terms of the waiver agreement, the License Fee Obligation is waived conditionally on the Company paying Factor
Bioscience a minimum of $3.5 million due under the MSA.
Because the License Fee Obligation was conditionally waived until the Company paid Factor Bioscience a minimum of $3.5
million under the MSA, the Company recorded a liability of $3.5 million. As of March 31, 2024, there was approximately $1.2 million of the unamortized License Fee Obligation remaining, which is recorded on the accompanying condensed consolidated balance sheet in the
“due to related party, current” line item.
In September 2022, Novellus Inc. (“Novellus”) and the Company entered into a Second Amendment to the Limited Waiver and Assignment Agreement (the “Waiver and Assignment
Agreement”) with Drs. Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company agreed to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the
Company or Novellus for certain claims and actions and any pending or future litigation brought against the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowyrda legal matters described in Note 10 (the “Covered
Claims”). The Founders will continue to be solely responsible for any payments made to satisfy a judgement or settlement of any pending or future wage act claims. Under the Waiver and Assignment Agreement, the Founders agreed that they
are not entitled to, and waived any right to, indemnification or advancement of past, present or future legal fees, costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in
respect of the Covered Claims. The Company and the Founders will share in any recoveries up to the point at which the parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess
recoveries. The Company has the sole authority to direct and control the prosecution, defense and settlement of the Covered Claims.
In November 2022, following the expiration of one of the milestone deadlines for certain regulatory filings required under the Third Amended and Restated Exclusive License Agreement between Novellus Limited and Factor Limited entered
into in November 2020 (the “Novellus-Factor License Agreement”), which permitted Factor Limited to terminate the license granted to Novellus Limited thereunder, the Company entered into the first amendment to the Original Factor License
Agreement (as amended, the “2021 Factor License Agreement”), pursuant to which, among other things, Factor Limited granted to Eterna LLC an exclusive, sublicensable license under certain patents owned by Factor Limited (the “Factor Patents”)
for the purpose of identifying and pursuing certain opportunities to grant to third parties sublicenses to the Factor Patents. The Original Factor License Agreement also (i) terminated the Novellus-Factor License Agreement, (ii) confirmed
Factor Limited’s grant to Eterna LLC of the rights and licenses Novellus Limited previously granted to Eterna LLC under the Novellus-Factor License Agreement on the same terms and conditions as granted by Novellus Limited to Eterna LLC under
such agreement, (iii) confirmed that the sublicense granted by Novellus Limited in accordance with the Novellus-Factor License Agreement to NoveCite, Inc., a company which the Company has a 25 % non-controlling interest (“NoveCite”), survived termination of the Novellus-Factor License Agreement; and (iv) removed Novellus Limited from the Original Factor
License Agreement and the license agreement entered into on October 6, 2020 between Novellus Limited and NoveCite, Inc, as amended, and replaced Novellus Limited with Factor Limited as the direct licensor to Eterna LLC and NoveCite under such
agreements, respectively.
On February 20, 2023, the Company, entered into an exclusive license agreement (the “Feb 2023 Factor Exclusive License Agreement”) with Factor Limited, pursuant to which Factor Limited granted to the Company an exclusive,
sublicensable, worldwide license under certain patents owned by Factor Limited for the purpose of, among other things, identifying and pursuing certain opportunities to develop products in respect of such patents and to otherwise grant to
third parties sublicenses to such patents. The Feb 2023 Factor Exclusive License Agreement, which terminated and superseded the Amended Factor License Agreement, was subsequently terminated and superseded by the A&R Factor License
Agreement (as defined below).
On November 14, 2023, the Company entered into an amended and restated exclusive license agreement (the “A&R Factor License Agreement”) with Factor Limited to replace in its entirety the exclusive license agreement between the
parties dated February 20, 2023 and the amendment thereto. Under the terms of the A&R Factor License Agreement, Factor Limited granted to the Company an exclusive, sublicensable license under certain patents owned by Factor Limited (the
“Factor Patents”). The A&R Factor License Agreement also provides for, among other things, the expansion of the Company’s license rights to include (i) the field of use of the Factor Patents to include veterinary uses (ii) know-how that
is necessary or reasonably useful to practice to the licensed patents, (iii) the ability to sublicense through multiple tiers (as opposed to only permitting a direct sublicense) and (iv) the transfer of technology to the Company, subject to
the use restrictions in the A&R Factor License Agreement. The term of the A&R Factor License Agreement expires on November 22, 2027, but will be automatically extended for an additional five years (such period, the “Renewal Term”) if the Company pays at least $6.0
million to Factor Limited from fees from sublicenses to the Factor Patents (“Sublicense Fees”), other cash on hand or a combination of both sources of funds. The Company will pay to Factor Limited 20 % of any Sublicense Fee received by the Company during the term of the A&R Factor License Agreement. Beginning in September 2024, the Company will also begin
paying Factor Limited a monthly maintenance fee of approximately $0.4 million until the expiration of the A&R Factor License
Agreement, including any Renewal Term. The Company may terminate the A&R Factor License Agreement upon 120 days’ written
notice to Factor Limited, and both parties have additional customary termination rights. Under the A&R Factor License Agreement, the Company is obligated to pay the expenses incurred by Factor Limited in preparing, filing, prosecuting
and maintaining the Factor Patents and the Company agreed to bear all costs and expenses associated with enforcing and defending the Factor Patents in any action or proceeding arising from pursuit of sublicensing opportunities under the
license granted under the A&R Factor License Agreement.
Exacis Asset Acquisition
On April 26, 2023, the Company entered into ta purchase agreement with Exacis pursuant to which the Company acquired certain assets from Exacis, including all of Exacis’ right, title
and interest in a license that Exacis previously entered into with Factor Limited. The Company assumed none of Exacis’ liabilities, other than liabilities under the acquired license that accrue subsequent to the closing date.
The Exacis asset acquisition was deemed a related party transaction because, at the time of the acquisition, (i) Dr. Gregory Fiore was both the chief
executive officer of Exacis and a member of the Company’s board of directors, (ii) Dr. Angel was both the Company’s chief executive officer and chairman of Exacis’ scientific advisory board, and (iii) an affiliate of Factor Bioscience was
the majority stockholder of Exacis.
In October 2022, the Company entered into an Option Agreement on October 8, 2022 with Exacis (the “Exacis Option Agreement”), pursuant to which Exacis granted the Company the option to
negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans. The Exacis Option Agreement provided for the Company paying Exacis a fee of $250,000 for the option, which would be creditable against the fees or purchase price payable under any such license if entered into by the
Company in accordance with Exacis Option Agreement. The Company did not exercise the option, and the Exacis Option Agreement terminated on December 31, 2022.
Consulting Agreement with Former Director
In May 2023, the Company entered into a consulting agreement with Dr. Fiore, whereby Dr. Fiore agreed to provide business development consulting services to the Company for a monthly retainer of $20,000 . The consulting agreement was terminable for any reason by either party upon 15 days’ written notice. The Company terminated the consulting agreement, effective July 31, 2023. Dr. Fiore served on the Company’s board of directors from June 2022 to October
4, 2023.
July 2023 and December 2023 Financings
Investors in the July 2023 convertible note financing included Brant Binder, Richard Wagner, Charles Cherington and Nicholas Singer, and investors in the
December 2023 convertible note financing included Messrs. Cherington and Singer. Each of them participated in the applicable financing under the same terms and subject to the same conditions as all the other investors. See Note 4
for additional information regarding the financings. Mr. Binder served on the Company’s board of directors from July 6, 2023 to August 8, 2023, Mr. Wagner served on the Company’s board of directors from July 6, 2023 to August 8,
2023, Mr. Cherington served on the Company’s board of directors from March 2021 to July 6, 2023, and Mr. Singer served on the Company’s board of directors from June 2022 to July 6, 2023.
Q4-22 PIPE
In November 2022, the Company entered into a securities purchase agreement with certain investors providing for the
issuance of approximately of 2,185,000 units, each unit consisting of (i) one share of the Company’s common stock and (ii) two
warrants to purchase shares of the Company’s common stock, at a purchase price of $3.53 per unit. The financing closed in
December 2022. Messrs. Cherington and Singer invested in the financing on the same terms and subject to the same conditions as all other investors in the financing. Mr. Cherington served on the Company’s board of directors from March
2021 to July 6, 2023, and Mr. Singer served on the Company’s board of directors from June 2022 to July 6, 2023.
| 10) |
COMMITMENTS AND CONTINGENCIES
|
Litigation Matters
The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs
associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the
amount can be reasonably estimated.
Novellus, Inc. v. Sowyrda et al., C.A. No.
2184CV02436-BLS2
On October 25, 2021 Novellus, Inc. filed a complaint in the Superior Court of Massachusetts, Suffolk County, against former Novellus, Inc.
employees Paul Sowyrda and John Westman and certain other former investors in Novellus LLC (Novellus, Inc.’s former parent company prior to our acquisition of Novellus, Inc.), alleging breach of fiduciary duty, breach of
contract and civil conspiracy. Eterna acquired Novellus, Inc. on July 16, 2021. On May 27, 2022 Novellus, Inc. amended the complaint to withdraw all claims against all defendants except Paul Sowyrda and John Westman. On
July 1, 2022, Westman filed a motion to compel arbitration or in the alternative, to stay the litigation pending the disposition of certain litigation in the Court of Chancery for the State of Delaware filed by Mr. Sowyrda
against Novellus LLC, Dr. Christopher Rohde, Dr. Matthew Angel, Leonard Mazur and Factor Bioscience, Inc. captioned Zelickson et al., v. Angel et al., C.A. 2021-1014-JRS and by Westman against Novellus LLC captioned Westman
v. Novellus LLC, C.A. No. 2021-0882-NAC (together, the “Delaware Actions”). On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr. Matthew Angel and
Dr. Christopher Rohde alleging violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit. Sowyrda also joined in
Westman’s motion to stay the case pending the Delaware Actions. Novellus, Inc.’s claims and Mr. Sowyrda’s counterclaims relate to alleged conduct that took place before Eterna acquired Novellus, Inc.
On November 15, 2022, prior to a decision on Westman’s and Sowyrda’s motion to compel or stay, the parties agreed to voluntarily dismiss and consolidate the Delaware Actions with
this action. On December 15, 2022, Sowyrda filed an Amended Answer to the Amended Complaint, asserted affirmative defenses and filed Amended Counterclaims against Dr. Angel, Dr. Rohde, Novellus LLC, Novellus Inc., Factor
Bioscience Inc., and Eterna Therapeutics Inc. (collectively,
the “Counterclaim Defendants”) alleging against various Counterclaim Defendants breach of contract, breaches of the implied duty of good faith and fair dealing, breaches of fiduciary duty, breaches of the
operating agreement, aiding and abetting breaches of fiduciary duty, tortious interference with contract, equitable accounting, violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor
Standards Act, unjust enrichment, and quantum meruit. Also on December 15, 2022, Westman filed an answer to the Amended Complaint and asserted similar counterclaims against the same Counterclaim Defendants. Westman and
Sowyrda each asserted claims for indemnification and/or advancement against Novellus, Inc. On January 11, 2023, Westman and Sowyrda served a joint motion to enforce their advancement and/or indemnification rights against
Novellus Inc. Novellus Inc. vigorously opposes this motion and served its opposition on January 27, 2023. On February 8, 2023, Westman and Sowyrda served a reply in support of their motion to enforce
indemnification/advancement rights, and submitted the motion to the Court. Novellus Inc. answered Westman and Sowyrda’s counterclaims on January 27, 2023, denying liability. The remaining Counterclaim Defendants served a
motion to dismiss most of the remaining counterclaims on January 27, 2023. The Court entered an order granting the Counterclaim Defendants’ motion to dismiss and denying Sowyrda and Westman’s motion to enforce on June 15,
2023. The Court’s order dismissed all of Westman’s claims against Counterclaim Defendants except his claim for indemnification, and all of Sowyrda’s claims except his claim for indemnification and his employment-related
claims, which Counterclaim Defendants did not move to dismiss. On July 6, 2023, Westman and Sowyrda filed a petition for interlocutory review with a single justice of the Massachusetts Appeals Court, seeking to overturn
the judge’s decision granting the Counterclaim Defendants’ motion to dismiss most of the remaining counterclaims, but not the decision denying Westman and Sowyrda’s motion to enforce advancement rights. On
July 25, 2023, the parties to the appeal filed a joint motion to the single justice in the appellate court to stay the appeal to allow for amended counterclaims to be filed by Counterclaim Plaintiffs and a motion to dismiss to
be filed by Counterclaim Defendants. Counterclaim Plaintiffs filed an initial set of amended counterclaims on August 15, 2023. Counterclaim Plaintiffs amended and refiled their amended counterclaims on September 29, 2023.
Counterclaim Defendants served their motion to dismiss all of the amended counterclaims, except for Sowyrda’s employment-related claims, on October 13, 2023. Oral argument on the motion to dismiss the amended counterclaims is
currently scheduled for May 21, 2024.
Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or
reimburse certain legal expenses incurred by former officers and directors of Novellus, Inc. in connection with the foregoing Westman and Sowyrda matters. However, a future advance or reimbursement is not currently probable
nor can it be reasonably estimated.
eTheRNA Immunotherapies NV and eTheRNA Inc. v. Eterna Therapeutics Inc. C.A. No. 123CV11732
On July 31, 2023, eTheRNA Immunotherapies NV and eTheRNA Inc. filed a complaint against the Company alleging the following claims: (1) federal trademark infringement; (2) federal unfair
competition; (3) Massachusetts state common law trademark infringement; (4) Massachusetts state unfair competition. On April 2, 2024, the parties settled the claims and stipulated to dismiss the complaint with prejudice.
Per the settlement agreement entered into between the parties on March 19, 2024, the Company plans to phase-out its current use of the ETERNA trademark by October 31, 2024.
Licensing Agreements
On November 14, 2023, the Company entered into the A&R Factor License
Agreement with Factor Limited. See Note 9 for details of this agreement.
Retirement Savings
Plan
The Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to 90 % of their pay on a pre-tax basis. Beginning on January 1, 2023, the Company began matching employees’ contributions at a rate of 100 % of the first 3 % of
the employee’s contribution and 50 % of the next 2 % of the employee’s contribution, for a maximum Company match of 4 %.
| 11) |
STOCK-BASED COMPENSATION
|
Stock Options
During the three months ended March 31, 2024 and 2023, the Company granted the
following stock options (in thousands):
|
|
Three months ended March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Stock options granted
|
|
|
||||||
On January 1,
2024, Sanjeev Luther was appointed as President, Chief Executive Officer and a director of the Company. Upon his appointment, he was granted a non-qualified stock option to purchase approximately 1,685,000 shares of the Company’s common stock. The stock option has an exercise price of $1.80 per share, which was equal to the fair market value (as defined in the 2020 Restated Equity Incentive Plan) of the Company’s common stock on the date of grant, will vest over four years , with 25 % of the shares
vesting on the first anniversary of the grant date and the remaining 75 % of the shares vesting in equal monthly installments over the three years
thereafter, in each case, subject to continued service. The stock option was granted pursuant to the terms of Mr. Luther’s employment agreement and as a material inducement to his joining the Company in accordance with Nasdaq Listing Rule
5635(c)(4).
On April 26, 2024,
the vesting terms of Mr. Luther’s stock option award was amended so that the stock option vests over three years , with 25 % of the shares vesting on the first anniversary of the grant date and the remaining 75 % of the shares will vest in equal monthly installments over the remaining
two years , in each case, subject to continued service.
The Company
recognizes stock-based compensation expense for stock options granted to employees, directors and certain consultants. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock
options granted is recognized as expense over the requisite service period on a straight-lined basis.
The following weighted-average assumptions were used for stock options granted during the three months ended March 31,
2024 and 2023:
| Three months ended March 31, | ||||||||
|
|
2024
|
2023
|
||||||
|
Weighted average risk-free rate
|
|
%
|
|
%
|
||||
|
Weighted average volatility
|
|
%
|
|
%
|
||||
|
Dividend yield
|
|
%
|
|
%
|
||||
|
Expected term
|
|
|
||||||
The
per-share weighted average grant-date fair value of stock options granted during the three months ended March 31, 2024 and 2023 was $1.45
and $3.15 , respectively.
Vesting
of all stock option grants is subject to continuous service with the Company through the applicable vesting date. As of March 31, 2024, there were approximately 2,085,000 stock options outstanding.
Restricted Stock Units
The
Company recognizes the fair value of RSUs as expense on a straight-line basis over the requisite service period. For performance-based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is
determined to be probable.
Outstanding
RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the
applicable vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date,
which is the grant date.
In
lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which
is equal to the amount of withholding taxes payable. No
The Company did no
Stock-Based Compensation Expense
For the three months ended March 31, 2024 and 2023, the Company
recognized stock-based compensation expense as follows (in thousands):
|
|
Three months ended March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Research and development
|
$
|
|
$
|
|
||||
|
General and administrative
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| 12) |
WARRANTS
|
As discussed in Notes 4 and 5,
respectively, the Company issued the note warrants and the Q1-22 warrants. The Company also has warrants outstanding from a private placement completed in the fourth quarter of 2022 (the “Q4-22 warrants”).
As of March 31, 2024, the Company has the following warrants outstanding:
|
|
Warrants
Outstanding (in thousands) |
Exercise
Price |
Expiration
Date |
Classification
|
|||||||
| Q1-22 warrants | $ |
Liability |
|||||||||
| Q4-22 warrants |
$ |
Equity |
|||||||||
| July 2023 note warrants |
$ |
Equity | |||||||||
| December 2023 note warrant issued December 15, 2023 |
$ | Equity | |||||||||
| December 2023 note warrant issued January 11, 2024 |
$ | Equity |
|||||||||
As
of March 31, 2024, the weighted average remaining contractual life of the warrants outstanding was 4.46 years and the weighted
average exercise price was $2.05 .
| 13) |
NET LOSS PER SHARE
|
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for
participating securities. The convertible notes contractually entitle the holders thereof to participate in dividends but does not contractually require the holders to participate in the Company’s losses. As such, the two-class method is not
applicable during periods with a net loss.
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common
stock outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common
stock outstanding plus dilutive securities. Shares of common stock issuable upon exercise, conversion or vesting of outstanding stock options, RSUs, warrants and shares of Series A convertible preferred stock are considered potential shares of
common stock and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. The outstanding convertible notes are also considered potential shares of common stock and are included in the
calculation of diluted net loss per share using the “if-converted” method, and the more dilutive of either the two-class method or the if-converted method is reported. Diluted net loss per share is the same as basic net loss per share for periods
in which the effect of potentially dilutive shares of common stock is antidilutive.
The following table presents the number of shares subject to outstanding warrants, stock options, RSUs, Series A convertible preferred stock
and convertible notes that were excluded from the computation of diluted net loss per share of common stock for the three months ended March 31, 2024 and 2023, as their effect was anti-dilutive (in thousands):
|
Three months ended March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Warrants
|
|
|
||||||
| Convertible Notes converted into common stock |
||||||||
|
Stock options
|
|
|
||||||
|
Preferred stock converted into common stock
|
|
|
||||||
|
RSUs
|
|
|
||||||
|
Total potential common shares excluded from computation
|
|
|
||||||
| 14) |
RECENT ACCOUNTING PRONOUNCEMENTS
|
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2024 that would apply
to the Company that are not disclosed in the 2023 10-K.
| 15) |
SUBSEQUENT EVENTS
|
On May 3, 2024, the Company received a notice from the Sublessor of the Somerville, Massachusetts
facility regarding past due rent payments of approximately $2.3 million, including its share of amounts related to property taxes and
common area maintenance costs, that the Company has not paid for the months of February, March, April and May 2024. Failure to pay the past due rent payments in full, plus approximately $70,000 in late fees and interest, within five business days from the date of the notice constitutes an event of default under the sublease. The Company had discussions with
the Sublessor subsequent to receiving the notice about remedying the event of default, and as a result of those discussions, did not pay any of the past due rent payments or any of the late fees or interest within such five business day period.
The Company also has been stet discussions with the Sublessor to renegotiate the terms of the sublease, which may include, among other things, deferment of rent payments and/or a reduction of the lease term, square footage, and/or base rent.
If an event of default exists under the sublease, beyond applicable notice and cure periods, the Sublessor may draw down the letter of credit
and use, apply or retain such portion of the proceeds from the letter of credit as may be necessary (i) for the payment of any rent or any other sum in default, (ii) for the payment of any other amount which the Sublessor may, in accordance
with the terms of the sublease, spend or become obligated to spend by reason of the Company’s default, or (iii) to compensate the Sublessor, in accordance with the terms of the sublease, for any other loss or damage which the Sublessor may
suffer by reason of the Company’s default, including costs and reasonable attorneys’ fees incurred by the Sublessor to recover possession of the premises following a default by the Company. As of the date of filing of this report, the Sublessor
has not drawn down on the letter of credit. The use or application of the proceeds from the letter of credit or any portion thereof does not prevent the Sublessor from exercising any other right or remedy provided under the sublease or under
law. If any portion of the letter of credit is so used or applied, the Company must, upon demand therefor, amend the letter of credit, provide an additional letter of credit or deposit cash with the Sublessor, in each such case in an amount
sufficient to restore the security deposit within 10 business days to the appropriate amount. See the risk factor titled, “Our monthly rent payment obligations under our sublease are significant and we currently owe approximately $2.3 million in past due rent. An event of default under our sublease could be an event of default under our outstanding convertible notes,” in Item
1A. Risk Factors of Part II of this report.
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information included
elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed
with the Securities and Exchange Commission (the “SEC”) on March 14, 2023, as amended by the Form 10-K/A filed with the SEC on March 18, 2024 (as amended, the “2023 10-K”). The
following discussion contains or is based on assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the 2023 10-K and as
described from time to time in our other filings with the SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines. We have in-licensed a portfolio of over 100
patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSliceTM and UltraSliceTM gene-editing proteins, and the ToRNAdoTM mRNA delivery system, which we collectively
refer to as our “mRNA technology platform.” We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.” We license our mRNA technology platform from Factor Bioscience Limited (“Factor
Limited”) under an exclusive license agreement.
We believe that our proprietary technology platform can be used to develop novel pharmaceutical products to treat a broad range of diseases and address unmet medical needs.
In the short term, we are planning to derive revenue by leveraging our core intellectual property (“IP”) portfolio by licensing our IP to third parties in out-licensing or co-development
arrangements. In addition, we are also planning to enhance our developmental activities through preclinical studies in selected indications.
In the mid-term, we are planning to transform our preclinical stage company into a clinical-stage company through investigational new drug application (“IND”)-enabling studies, IND approval, and
initiation of our first-in-human study. After achieving the initial milestones, we’ll seek to diversify our pipeline of product candidates and strengthen the mRNA technology platform with the goal of generating IND applications each year.
In the long term, we aspire to become a therapeutics company with multiple approved gene and cellular therapy products across multiple indications in oncology, autoimmune diseases, and rare
diseases.
We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.”
mRNA Delivery
Nucleic acids, such as mRNA, can be used to induce cells to express desired proteins, including proteins that are capable of re-writing genetic and epigenetic cellular programs. However, the plasma
membrane surrounding cells normally protects cells from exogenous nucleic acids, preventing efficient uptake and protein translation. Delivery systems can be used to enhance the uptake of nucleic acids by cells. Conventional delivery systems, such
as lipid nanoparticle (“LNP”)-based delivery, often suffer from endosomal entrapment and toxicity, which can limit their therapeutic use. Our mRNA delivery technology is designed to use a novel chemical substance that is designed to deliver nucleic
acids, including mRNA, to cells both ex vivo and in vivo. Our nucleic-acid delivery technology is also designed for ex vivo
delivery of mRNA encoding gene-editing proteins and reprogramming factors, including to primary cells, insertion of exogenous sequences into genomic safe-harbor loci, and in vivo delivery of mRNA to the
brain, eye, skin, and lung, which may be useful for the development of mRNA-based therapeutic.
mRNA Gene Editing
Our mRNA gene-editing technology is designed to delete, insert, and repair DNA sequences in living cells, which may be useful for correcting disease-causing mutations, making cells resistant to
infection and degenerative disease, modulating the expression of immunoregulatory proteins to enable the generation of durable allogeneic cell therapies, and engineering immune cells to more effectively fight cancer.
Conventional gene-editing technologies typically employ plasmids or viruses to express gene-editing proteins, which can result in low-efficiency editing and unwanted mutagenesis when an exogenous
nucleic acid fragment is inserted at random locations in the genome. Our mRNA gene-editing technology instead is designed to employ mRNA to express gene-editing proteins, which can potentially enable gene editing without unwanted insertional
mutagenesis, because, unlike conventional gene-editing technologies that employ viruses or DNA-based vectors, mRNA does not typically cause unwanted insertional mutagenesis. We believe the efficiency of our mRNA gene-editing technology has the
potential to support development of product candidates that could create new therapeutic approaches. For example, we anticipate that our mRNA gene-editing technology can be used to generate allogeneic chimeric antigen receptor T-cell (“CAR-T”)
therapies for the treatment of cancer. In such allogeneic CAR-T therapies, mRNA encoding gene-editing proteins would be used to inactivate the endogenous T-cell receptor to prevent therapeutic T-cells from causing graft-versus-host disease (“GvHD”).
GvHD occurs when transplanted cells view the patient’s (i.e. the host’s) cells as a threat and attack the host’s cells. We expect that this same mechanism of action can generate allogeneic stem cell-derived therapies in which mRNA encoding
gene-editing proteins could be used to inactivate one or more components of the human leukocyte antigen (“HLA”) complex to render the cells immuno-nonreactive or “stealth,” which may be useful for the development of allogeneic cell-based therapies.
mRNA Cell Reprogramming
Our mRNA cell-reprogramming technology is capable of generating clonal lines of pluripotent stem cells that can be expanded and differentiated into many desired cell types that may be useful for the
development of regenerative cell therapies.
Conventional cell-reprogramming technologies (e.g., using Sendai virus or episomal vectors) can result in low efficiency reprogramming, can select for cells with abnormal growth characteristics, and
can leave traces of the vector in reprogrammed cells. Our mRNA cell-reprogramming technology instead is designed to employ mRNA to express reprogramming factors, which can enable cell reprogramming without
leaving traces of the vector in reprogrammed cells, because, unlike conventional cell-reprogramming technologies that employ viruses or DNA-based vectors, mRNA does not typically leave traces of the vector in reprogrammed cells.
Recent Developments
Private Placement of Convertible Notes and Warrants
On December 14, 2023, we entered into a purchase agreement with certain purchasers for the private placement of $9.2 million of convertible notes (the “December 2023 convertible notes” and together
with the July 2023 convertible notes, the “convertible notes”) and warrants to purchase an aggregate of approximately 9.6 million shares of our common stock (the “December 2023 warrants” and together with the July 2023 warrants, the “note
warrants”). There were two closings under this purchase agreement: on December 15, 2023, we received $7.8 million and issued $7.8 million in December 2023 convertible notes and December 2023 warrants to purchase approximately 8.1 million shares of
our common stock, and on January 11, 2024, we received the remaining $1.4 million and issued an aggregate of $1.4 million in December 2023 convertible notes and December 2023 warrants to purchase approximately 1.5 million shares of our common
stock. See Notes 4 and 12 to the accompanying condensed consolidated financial statements for additional information.
Notice of Default under Sublease
We have not paid our rent obligations under our Somerville, Massachusetts sublease for February, March, April or May 2024, and, as of the date of filing of this report, we owe approximately $2.3
million in past due rent. On May 3, 2024, we received a notice of default from the sublessor related to the foregoing and have had subsequent discussions with the Sublessor about remedying the event of default. See “Liquidity and Capital
Resources—Material Cash Requirements—Somerville Sublease,” below.
Basis of Presentation
Revenue
Our near-term focus is on deploying our mRNA technology platform through strategic partnerships. We are not currently developing any product candidates. Our future revenue, if any, is primarily
expected to come from out-licensing our mRNA technology platform and/or aspects thereof.
In February 2023, we entered into an exclusive option and license agreement with a third party, under which we granted such third party an option to obtain an exclusive sublicense to certain of our
technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us of $0.3 million. In August 2023, that third party requested that we begin developing certain induced pluripotent stem cell lines in
exchange for a cell line customization fee. The third party paid us $0.4 million towards the customization fee, which we are recognizing ratably over the customization period, which is expected to be approximately 20 to 25 months. We will only
earn the remaining amount of the customization fee if we make certain progress towards delivery of the customized cell line. We estimate the amount of consideration we expect to recognize as revenue that is not probable of having a significant
reversal of such recognized revenue, and we place a constraint on the remaining contractual consideration. As it becomes evident that the constrained amounts are no longer at risk of a significant reversal of revenue, we will remove the constraint
from the related revenue and recognize a cumulative catch-up adjustment to revenue in the period in which the constraint was removed. For additional information, see Note 3 to the accompanying condensed consolidated financial statements.
Cost of Revenues
We recognize direct labor and supplies associated with generating our revenue as cost of revenues. As provided for in the amended and restated exclusive license agreement we entered into with
Factor Limited (the “A&R Factor License Agreement”) discussed in Note 9 to the accompanying condensed consolidated financial statements, we are obligated to pay Factor Limited 20% of any amounts we receive from a customer that is related to the
licensed technology under the A&R Factor License Agreement, which we also recognize as a cost of revenue.
Research and Development Expenses
We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as
support for selected investigator-sponsored research. Upfront payments and milestone payments we make for the in-licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not
expected to have any alternative future uses other than the specific research and development project for which it was intended.
The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, supplies and materials, preclinical study costs, expensed licensed
technology, consulting, scientific advisors and other third-party costs, and allocations of various overhead costs related to our research and development efforts.
We have contracted with third parties to perform various studies. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. We accrue for third
party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted
accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement
of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other
professional fees, travel, insurance, and other corporate costs.
Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023
|
Three months ended March 31,
|
||||||||||||
|
(In thousands)
|
2024
|
2023
|
Change
|
|||||||||
|
Revenue
|
$
|
47
|
$
|
-
|
$
|
47
|
||||||
|
Cost of revenues
|
61
|
50
|
11
|
|||||||||
|
Gross loss
|
(14
|
)
|
(50
|
)
|
36
|
|||||||
|
Operating expenses:
|
||||||||||||
|
Research and development
|
1,458
|
1,674
|
(216
|
)
|
||||||||
|
General and administrative
|
4,315
|
3,592
|
723
|
|||||||||
|
Total operating expenses
|
5,773
|
5,266
|
507
|
|||||||||
|
Loss from operations
|
(5,787
|
)
|
(5,316
|
)
|
(471
|
)
|
||||||
|
Other expense, net:
|
||||||||||||
|
Change in fair value of warrant liabilities
|
(70
|
)
|
(45
|
)
|
(25
|
)
|
||||||
|
Loss on non-controlling investment
|
-
|
(51
|
)
|
51
|
||||||||
|
Interest (expense) income, net
|
(786
|
)
|
1
|
(787
|
)
|
|||||||
|
Total other expense, net
|
(856
|
)
|
(95
|
)
|
(761
|
)
|
||||||
|
-
|
||||||||||||
|
Loss before income taxes
|
(6,643
|
)
|
(5,411
|
)
|
(1,232
|
)
|
||||||
|
Provision for income taxes
|
(4
|
)
|
(5
|
)
|
1
|
|||||||
|
Net loss
|
$
|
(6,647
|
)
|
$
|
(5,416
|
)
|
$
|
(1,231
|
)
|
|||
Revenue
During the three March 31, 2024, we recognized revenue related to the cell line customization activities that we are performing for a third party. We did not perform any such activities, or
otherwise recognize any revenue, during the three months ended March 31, 2023.
Cost of Revenue
During the three months ended March 31, 2024, our cost of revenues included direct labor and materials to perform the customization cell line activities for a third party. During the three months
ended March 31 2023, we received a $0.3 upfront payment pursuant to a customer contract with this third party. Although the $0.3 million was recorded as deferred revenue as of March 31, 2023, the obligation to pay Factor Limited the 20% license fee
was incurred upon receipt of the payment from the third party, and was therefore recognized as a cost of revenue during the three months ended March 31, 2023. As of March 31, 2024, the $0.3 upfront payment continues to be recognized in long-term
deferred revenue in the accompanying condensed consolidated balance sheet.
Research and Development Expenses
|
Three months ended March 31,
|
||||||||||||
|
2024
|
2023
|
Change
|
||||||||||
|
(in thousands)
|
||||||||||||
|
Professional fees
|
$
|
103
|
$
|
280
|
$
|
(177
|
)
|
|||||
|
Stock-based compensation
|
46
|
64
|
(18
|
)
|
||||||||
|
Payroll-related
|
325
|
203
|
122
|
|||||||||
|
MSA fees
|
812
|
812
|
-
|
|||||||||
|
Other expenses, net
|
172
|
315
|
(143
|
)
|
||||||||
|
Total research and development expenses
|
$
|
1,458
|
$
|
1,674
|
$
|
(216
|
)
|
|||||
Total research and development expenses decreased by approximately $0.2 million for the three months ended March 31, 2024 when compared to the three months ended March 31, 2023 primarily due to a
decrease in professional fees related to closing down a clinical trial we ended in 2022 and other miscellaneous expenses, partially offset by increased payroll expense due to severance recognized during the three months ended March 31, 2024.
General and Administrative Expenses
|
Three months ended March 31,
|
||||||||||||
|
2024
|
2023
|
Change
|
||||||||||
|
(in thousands)
|
||||||||||||
|
Occupancy expense
|
$
|
1,901
|
$
|
23
|
$
|
1,878
|
||||||
|
Payroll-related
|
532
|
357
|
175
|
|||||||||
|
Professional fees
|
1,285
|
1,935
|
(650
|
)
|
||||||||
|
Stock-based compensation
|
236
|
625
|
(389
|
)
|
||||||||
|
Insurance
|
216
|
533
|
(317
|
)
|
||||||||
|
Other expenses, net
|
145
|
119
|
26
|
|||||||||
|
Total general and administrative expenses
|
$
|
4,315
|
$
|
3,592
|
$
|
723
|
||||||
Our general and administrative expenses increased by approximately $0.7 million for the three months ended March 31, 2024 when compared to the three months ended March 31, 2023 primarily due to
increased occupancy expense related to the Somerville sublease that we began to incur in July 2023, as well as increased payroll related to increased general and administrative headcount. These increases were partially offset by decreases in
professional fees related to legal services, insurance expense due to lower premiums and stock-based compensation expense resulting from a decrease in the fair value of stock options expensed during the three months ended March 31, 2024 compared to
the fair value of the stock options expensed during the three months ended March 31, 2023.
Change in Fair Value of Warrant Liabilities
For the three months ended March 31, 2024 and 2023, we recognized expense related to the change in the fair value of warrant liabilities due to an increase in the market price of our common stock.
Loss on Non-Controlling Investment
We account for our 25% non-controlling investment in NoveCite, Inc. (“NoveCite”) under the equity method. We have not guaranteed any obligations of NoveCite, nor are we otherwise committed to
providing further financial support for NoveCite. Therefore, we only record 25% of NoveCite’s losses up to our investment carrying amount.. As a result, we did not recognize additional losses related to NoveCite for the three months ended March 31,
2024. For the three months ended March 31, 2023, we recognized approximately $0.1 million of loss.
Interest (Expense) Income, net
We recognized an increase in interest expense for the three months ended March 31, 2024 of approximately $0.8 million primarily due to approximately $0.4 million of interest related to the
convertible notes as well as the amortization of the debt discount and debt issuance costs associated with the convertible note financings of approximately $0.4 million. There were no convertible notes (or similar debt instruments) outstanding
during the three months ended March 31, 2023. This increase in expense was partially offset by an increase in interest income from our cash that was deposited into interest-bearing accounts.
Provision for Income Taxes
During 2024, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our net
operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation
allowance.
Liquidity and Capital Resources
At March 31, 2024, we had cash and cash equivalents of approximately $9.2 million, of which approximately $4.1 million was restricted cash (see—Material Cash Requirements—Somerville Sublease,
below) and an accumulated deficit of approximately $193.6 million. We have to date incurred operating losses, and we expect these losses to continue in the future. For the three months ended March 31, 2024, we incurred a net loss of $6.6 million,
and we used $3.7 million in operating activities.
Currently, our sole source of liquidity is through sales of our common stock under the standby equity purchase agreement (the “SEPA”) we entered into with Lincoln Park Capital Fund, LLC (“Lincoln
Park”) in April 2023, pursuant to which Lincoln Park committed to purchase up to $10.0 million of our common stock. Such sales of common stock by us, if any, are subject to certain conditions and limitations set forth in the SEPA, including a
condition that we may not direct Lincoln Park to purchase any shares of common stock under the SEPA if such purchase would result in Lincoln Park beneficially owning more than 4.99% of our issued and outstanding shares of common stock. Sales under
the SEPA may occur from time to time, at our sole discretion, through April 2025. To date, we have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the 74,000 commitment shares, and have received
approximately $0.3 million in gross proceeds from such sales. We sold no shares under the SEPA during the three months ended March 31, 2024.
Based on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the 12 months following the issuance date of the
accompanying condensed consolidated financial statements. We can provide no assurance that we will be able to obtain additional capital when needed, on favorable terms, or at all. If we cannot raise capital when needed, on favorable terms or at
all, we will need to reevaluate our planned operations and may need to reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. If we become unable to continue as a going concern, we may have to liquidate
our assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. See the risk factor in Item 1A of Part II of our
2023 10-K titled, “We will require substantial additional capital to fund our operations, and if we fail to obtain the necessary financing, we may not be able to pursue our business strategy.”
Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock and of convertible notes. We will continue to
evaluate and plan to raise additional funds to support our working capital needs through public or private equity offerings, debt financings, strategic partnerships, out-licensing our intellectual property or other means. There can be no assurance
that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Our ability to raise capital through sales of our common stock will depend on a variety of factors including, among
others, market conditions, the trading price and volume of our common stock, and investor sentiment. In addition, macroeconomic factors and volatility in the financial market, which may be exacerbated in the short term by concerns over inflation,
interest rates, impacts of the wars in Ukraine and the Middle East, strained relations between the U.S. and several other countries, and social and political discord and unrest in the U.S., among other things, may make equity or debt financings
more difficult, more costly or more dilutive to our stockholders.
In addition, equity or debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions
and security interests in our assets. If we raise capital through collaborative arrangements, we may be required to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us.
We prepared the accompanying condensed consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of
business. As discussed above, there is substantial doubt about our ability to continue as a going concern because we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12 months
from the date of issuance of the accompanying condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and
reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.
In addition, while we are not presently pursuing product development, we may do so in the future. Developing product candidates, conducting clinical trials and commercializing products requires
substantial capital, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates.
Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized as follows:
|
For the three months ended
March 31,
|
||||||||||||
|
(in thousands)
|
2024
|
2023
|
Change
|
|||||||||
|
Cash (used in) provided by:
|
||||||||||||
|
Operating activities
|
$
|
(3,747
|
)
|
$
|
(6,049
|
)
|
$
|
2,302
|
||||
|
Investing activities
|
(97
|
)
|
-
|
(97
|
)
|
|||||||
|
Financing activities
|
1,385
|
-
|
1,385
|
|||||||||
|
Net decrease in cash and cash equivalents
|
$
|
(2,459
|
)
|
$
|
(6,049
|
)
|
$
|
3,590
|
||||
Net Cash Used in Operating Activities
There was a decrease of approximately $2.3 million in cash used in operating activities for the three months ended March 31, 2024 compared to the same period in 2023. This change was due to a
decrease in cash used in operating assets and liabilities of $2.5 million, primarily related to accounts payable and accrued expenses, partially offset by a $0.2 million increase in net loss, after giving effect to adjustments made for non-cash
transactions, for the three months ended March 31, 2024 compared to the same period in 2023.
Net Cash Used in Investing Activities
We used approximately $0.1 million to pay for the purchases of property and equipment during the three months ended March 31, 2024. There were no investing activities during the three months ended
March 31, 2023.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024 includes approximately $1.4 million of proceeds received from the second closing of the December 2023 convertible
notes financing that occurred in January 2024. There were no financing activities during the three months ended March 31, 2023.
Material Cash Requirements
Somerville Sublease
In October 2022, we entered into a sublease for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts. The term of the sublease is approximately 10 years,
and our base rent obligations over the term is estimated to be approximately $63.0 million, plus our share of the sublessor’s parking spaces and operating expenses. Our base rent obligations under the sublease during 2024 are expected to be $0.5
million per month. As part of the sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million, which will be reduced on an incremental basis throughout the term of the sublease. The letter of credit
was issued by our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank. The amount of required restricted cash collateral will decline
in parallel with the reduction in the amount of the letter of credit over the term of the sublease.
On May 3, 2024, we received a notice from the sublessor regarding past due rent payments of approximately $2.3 million, including our share of amounts related to property taxes and common area
maintenance costs, that we have not paid for the months of February, March, April and May 2024. Failure to pay the past due rent payments in full, plus approximately $70,000 in late fees and interest, within five business days from the date of the
notice constitutes an event of default under the sublease. We had discussions with the Sublessor subsequent to receiving notice about remedying the event of default, and as a result of those discussions, we did not pay any of the past due rent
payments or any of the late fees or interest within such five business day period. We also have been in, and intend to continue, discussions with the sublessor to renegotiate the terms of the sublease, which may include, among other things,
deferment of rent payments and/or a reduction of the lease term, square footage, and/or base rent.
If an event of default exists under the sublease, beyond applicable notice and cure periods, the sublessor may draw down the letter of credit and use, apply or retain such portion of the proceeds
from the letter of credit as may be necessary (i) for the payment of any rent or any other sum in default, (ii) for the payment of any other amount which the sublessor may, in accordance with the terms of the sublease, spend or become obligated to
spend by reason of our default, or (iii) to compensate the sublessor, in accordance with the terms of the sublease, for any other loss or damage which the sublessor may suffer by reason of our default, including costs and reasonable attorneys’ fees
incurred by the sublessor to recover possession of the premises following a default by us. As of the date of filing of this report, the sublessor has not drawn down on the letter of credit. The use or application of the proceeds from the letter of
credit or any portion thereof does not prevent the sublessor from exercising any other right or remedy provided under the sublease or under law. If any portion of the letter of credit is so used or applied, we must, upon demand therefor, amend the
letter of credit, provide an additional letter of credit or deposit cash with the sublessor, in each such case in an amount sufficient to restore the security deposit within 10 business days to the appropriate amount. See the risk factor titled,
“Our monthly rent payment obligations under our sublease are significant and we currently owe approximately $2.3 million in past due rent. An event of default under our sublease could be an event of default under our outstanding convertible notes,”
in Item 1A. Risk Factors of Part II of this report.
Convertible Notes
As of the date of this report, the aggregate amount outstanding under our convertible notes, including accrued interest that has been paid in-kind, is $18.5 million, of which $9.0 million and $9.5
million relates to the July 2023 convertible notes and the December 2023 convertible notes, respectively. Unless earlier called for redemption by the holders thereof, the convertible notes mature on the five-year anniversary of their date of
issuance. We may not redeem any of the convertible notes prior to maturity. See Note 4 to the accompanying condensed consolidated financial statements for additional information. See also the risk factor titled, “Our monthly rent payment
obligations under our sublease are significant and we currently owe approximately $2.3 million in past due rent. An event of default under our sublease could be an event of default under our outstanding convertible notes,” in Item 1A. Risk Factors
of Part II of this report.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three months ended March 31, 2024 from those described in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section of the 2023 10-K.
Recent Accounting Pronouncements
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2024 that
would apply to us that are not disclosed in the 2023 10-K.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk.
|
Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.
| Item 4. |
Controls and Procedures.
|
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in
our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including
our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this
Quarterly Report on Form 10-Q under the supervision, and with the participation, of our management, including our President and Chief Executive Officer (who serves as our principal executive officer) and our Senior Vice President of Finance (who
serves as our principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on that evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that our disclosure controls and procedures were not effective as of the end of the period
covered by this Quarterly Report on Form 10-Q in providing reasonable assurance of achieving the desired control objectives due primarily to the material weakness discussed below.
Management’s Plan for Remediation of Material Weakness in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We were unable to timely file our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 with the SEC due to identifying errors in our financial statements reported in our
Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 during our preparation of the financial statements for the quarter ended March 31, 2022. Management concluded that the errors were the result of accounting personnel’s lack
of technical proficiency in complex matters. On June 30, 2022, we filed an amendment to our Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 to correct the errors in our financial statements for the years ended December 31,
2021 and 2020 and for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021.
Management has implemented measures designed to ensure that the deficiencies contributing to the ineffectiveness of our internal control over financial reporting are remediated, such that the
internal controls are designed, implemented and operating effectively. The remediation actions to date include:
| • |
enhancing the business process controls related to reviews over technical, complex, and non-recurring transactions;
|
| • |
providing additional training to accounting personnel; and
|
| • |
using an external accounting advisor to review management’s conclusions on technical, complex and non-recurring matters.
|
The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these
controls are operating effectively. As of March 31, 2024, we continue to season and enhance such controls to ensure that they will continue to operate effectively for a sufficient period of time before management can make conclusions on the
operating effectiveness.
We are committed to developing a strong internal control environment, and we believe the remediation efforts that we have implemented and will implement will result in significant improvements in
our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to
taking further action and implementing additional enhancements or improvements, as necessary.
Changes in Internal Control over Financial Reporting
Except for the actions intended to remediate the material weakness as described above, there was no change in our internal control over financial reporting during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
| Item 1. |
Legal Proceedings.
|
The information set forth under “Note 10—Commitments and Contingencies—Legal Matters” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is
incorporated in this Item 1 by reference.
From time to time we may become involved in legal proceedings arising in the ordinary course of business. Except as described above, we do not believe there is any litigation pending that could have,
individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.
| Item 1A. |
Risk Factors.
|
An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties
described in our 2023 10-K, in addition to other information in this report, when evaluating our business and before deciding whether to purchase, hold or sell shares of our common stock. Each of these risks and uncertainties, as well as additional
risks and uncertainties not presently known to us or that we currently consider immaterial, could harm our business, financial condition, results of operations and/or growth prospects, as well as adversely affect the market price of our common
stock, in which case you may lose all or part of your investment. There have been no material changes to the risk factors described in the 2023 10-K, except as follows:
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock.
As previously reported, we received a notice (the “Notice”) from the Listing Qualifications Staff (“Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that we
are not in compliance with Nasdaq Listing Rule 5550(b)(1) because we reported stockholders’ equity of less than $2.5 million as of December 31, 2024. Our stockholders’ equity was $2.2 million as of December 31, 2024. The Notice had no immediate
effect on our Nasdaq listing.
We submitted a plan to the Staff advising of actions we have taken or will take to regain compliance with Nasdaq Listing Rule 5550(b)(1). If the Staff determines to
accept the plan, the Staff can grant us an extension of up to 180 calendar days from the date of the Notice to regain compliance. If the plan is not accepted or if we are unable to regain compliance within any extension period granted by
Nasdaq, Nasdaq would be required to issue a delisting determination. In such event, we may be entitled to request a hearing before a Nasdaq Hearings Panel to appeal such determination.
We can provide no assurance that our plan to regain compliance with Nasdaq Listing Rule 5550(b)(1) will be accepted by Nasdaq, or if accepted, that we will be
able to regain compliance with Nasdaq Listing Rule 5550(b)(1) within any extension period granted by Nasdaq, or that we will be able to continue to satisfy any other continued listing requirements of Nasdaq.
If our common stock is delisted by Nasdaq, and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter
market. If this were to occur, then we could face significant material adverse consequences, including: a material reduction in the liquidity of our common stock and a corresponding material reduction in the trading price of our common stock; a
more limited market quotations for our securities; a determination that our common stock is a “penny stock” that requires brokers to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary
trading market for our securities; more limited research coverage by stock analysts; loss of reputation; more difficult and more expensive equity financings in the future; the potential loss of confidence by investors; and fewer business
development opportunities.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as
“covered securities.” If our common stock remains listed on Nasdaq, our common stock will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate
companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If our securities were no longer listed on Nasdaq and therefore
not “covered securities,” we would be subject to regulation in each state in which we offer our securities.
Our monthly rent payment obligations under our sublease are significant and we currently owe approximately $2.3 million in past due rent. An event of default under our sublease could be an event of default under our outstanding convertible notes.
The remaining term of our sublease for office and laboratory space in Somerville, Massachusetts is approximately 9.6 years, and our base rent obligations over the remaining term is estimated to be
approximately $61.7 million, plus our share of the sublessor’s parking spaces and operating expenses. Our base rent obligations under the sublease during 2024 are expected to be $0.5 million per month. We have not paid our rent obligations under
the sublease for February, March, April or May 2024, and, as of the date of filing this report, we owe approximately $2.3 million in past due rent, including our share of amounts related to property taxes and common area maintenance costs.
Under the sublease, an event of default exists if we fail to pay any installment of rent or other charge or money obligation when due and such default continues for five business days after written
notice from the sublessor thereof; except that such notice and cure period does not apply after the first two occasions during any consecutive 12-month period in which a default notice for such a failure is given to us.
On May 3, 2024, we received a notice, dated May 2, 2024, from the sublessor stating that we have past due
rent payments of approximately $2.3 million, including our share of amounts related to property taxes and common area maintenance costs, for the months of February, March, April and May 2024. Failure to pay the past due rent payments in full,
plus approximately $70,000 in late fees and interest, within five business days from the date of the notice will constitute an event of default under the sublease. We had discussions with the Sublessor subsequent to receiving notice about
remedying the event of default, and as a result of those discussions, we did not pay any of the past due rent payments or any of the late fees or interest within such five business day period. We also have been in, and intend to continue,
discussions with the sublessor renegotiate the terms of the sublease, which may include, among other things, deferment of rent payments and/or a reduction of the lease term, square footage, and/or base rent.
As part of the sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million. The letter of credit was issued by our commercial bank, which required that
we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.
If we default, beyond applicable notice and cure periods, with respect to any provision of the sublease, including the provisions relating to the payment of rent, the sublessor may draw down the
letter of credit and use, apply or retain such portion of the proceeds from the letter of credit as may be necessary (i) for the payment of any rent or any other sum in default, (ii) for the payment of any other amount which the sublessor may, in
accordance with the terms of the sublease, spend or become obligated to spend by reason of our default, or (iii) to compensate the sublessor, in accordance with the terms of the sublease, for any other loss or damage which the sublessor may suffer
by reason of our default, including costs and reasonable attorneys’ fees incurred by the sublessor to recover possession of the premises following a default by us. The use or application of the proceeds from the letter of credit or any portion
thereof does not prevent the sublessor from exercising any other right or remedy provided under the sublease or under law. If any portion of the letter of credit is so used or applied, we must, upon demand therefor, amend the letter of credit,
provide an additional letter of credit or deposit cash with the sublessor, in each such case in an amount sufficient to restore the security deposit within 10 business days to the appropriate amount.
If we seek to terminate the sublease, we may nonetheless be required to perform our obligations under the sublease including, among other things, paying the base rent for the balance of the term if
we cannot negotiate a mutually acceptable termination payment.
As mentioned above, we have been, and continue to be, in discussions with the sublessor to remedy the existing event of default under the
sublease and to renegotiate the terms of the sublease, which may include, among other things, deferment of rent and/or a reduction of the lease term, square footage, and/or base rent. However, no assurances can be given that we will succeed in
remedying the existing event of default or renegotiating any of the terms of the sublease. Moreover, an event of default under our outstanding convertible notes includes (i) a final judgment for the payment of
money aggregating in excess of $2.0 million rendered against us which is not, within 45 days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 45 days after the expiration of such stay, and (ii)
a material adverse effect on our results of operations, assets, business, prospects or condition (financial or otherwise). If an event of default were found to exist under our convertible notes, the holders thereof may require us to redeem all
or any portion of their convertible notes. As of the date of the filing of this report, the aggregate amount outstanding under our convertible notes, including accrued interest that has been paid in-kind, is $18.5 million. In the event of
default under our sublease and/or our convertible notes, we could have to file for bankruptcy or cease operations. See the risk factor titled, “We will require substantial additional capital to fund our operations and execute our business
strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all,” in Part I, Item 1A of the 2023 10-K.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds.
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None
| Item 3. |
Defaults Upon Senior Securities.
|
None.
| Item 4. |
Mine Safety Disclosures.
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Not Applicable.
| Item 5. |
Other Information.
|
(a) None.
(b) None.
(c) During the quarter covered by this report, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any
Rule 10b5-1 10b5-1
|
Exhibit
|
Description
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Incorporated By
Reference
|
|
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Inducement Stock Option Award Agreement entered into with Sanjeev Luther
|
Exhibit 99.1 to Form S-8 filed on January 16, 2024
|
||
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Employment Agreement, dated as of December 19, 2023, by and among Eterna Therapeutics Inc. and Sanjeev Luther.
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Exhibit 10.3 to Form 8-K filed on December 20, 2023
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||
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Employment Agreement, effective January 1, 2023, by and among Eterna Therapeutics Inc. and Dorothy Clarke.
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Exhibit 10.16 to Form 10-K filed on March 14, 2024
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||
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Filed herewith
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||
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
Filed herewith
|
||
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Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished herewith
|
||
|
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Furnished herewith
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
|
Filed herewith
|
|
|
101.SCH
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Inline XBRL Taxonomy Extension Schema Document
|
Filed herewith
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
Filed herewith
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
Filed herewith
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
Filed herewith
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
Filed herewith
|
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
|
* Indicates management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
ETERNA THERAPEUTICS INC.
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||
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Date: May 14, 2024
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By:
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/s/ Sanjeev Luther
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Sanjeev Luther
|
||
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President and Chief Executive Officer
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||
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(Principal Executive Officer)
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||
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Date: May 14, 2024
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By:
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/s/ Sandra Gurrola
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Sandra Gurrola
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||
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Senior Vice President of Finance
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||
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(Principal Financial Officer and Principal Accounting Officer)
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||
32
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sanjeev Luther, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: May 14, 2024
|
/s/ Sanjeev Luther
|
|
Sanjeev Luther
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sandra Gurrola, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: May 14, 2024
|
/s/ Sandra Gurrola
|
|
Sandra Gurrola
|
|
|
Senior Vice President of Finance
|
|
|
(Principal Financial Officer)
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge on the date hereof:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.
|
Date: May 14, 2024
|
/s/ Sanjeev Luther
|
|
Sanjeev Luther
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to her knowledge on the date hereof:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.
|
Date: May 14, 2024
|
/s/ Sandra Gurrola
|
|
Sandra Gurrola
|
|
|
Senior Vice President of Finance
|
|
|
(Principal Financial Officer)
|
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.