QNRX 10-Q
Quoin Pharmaceuticals Ltd. (QNRX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to __________
Commission file number:
(Exact name of registrant as specified in its charter)
State of |
| |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
| ||
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
The | ||||
Ordinary Shares, no par value per share* | N/A |
* | Not for trading, but only in connection with the registration of the American Depositary Shares (“ADSs”) pursuant to requirements of the Securities and Exchange Commission. |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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
As of November 8, 2023, there were
QUOIN PHARMACEUTICALS LTD.
INDEX
| Page |
1 | |
|
|
2 | |
| |
2 | |
| |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 18 |
| |
Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 27 |
| |
27 | |
| |
28 | |
| |
28 | |
| |
28 | |
| |
28 | |
| |
28 | |
| |
28 | |
| |
28 | |
| |
29 | |
| |
30 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to, those described in Part I – Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”), as well as our subsequent reports filed with the Securities and Exchange Commission (“SEC”). Caution should be taken not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
You should read this Form 10-Q and the documents that we reference in this Form 10-Q and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Form 10-Q by these cautionary statements.
Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to the terms “Quoin,” “Quoin Ltd.,” the “Company,” “us,” “we”, and “our” refer to Quoin Pharmaceuticals Ltd. and its consolidated subsidiaries.
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
QUOIN PHARMACEUTICALS LTD.
Condensed Consolidated Balance Sheets
September 30, |
| December 31, | ||||
| 2023 |
| 2022 | |||
| (Unaudited) |
| ||||
ASSETS | ||||||
Current assets: |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Investments | | | ||||
Prepaid expenses |
| |
| | ||
Total current assets |
| |
| | ||
|
| |||||
Prepaid expenses - long term | ||||||
Intangible assets, net |
| |
| | ||
Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
| ||
Current liabilities: |
|
|
|
| ||
Accounts payable | $ | | $ | | ||
Accrued expenses |
| |
| | ||
Accrued interest and financing expense |
| |
| | ||
| |
| | |||
Total current liabilities |
| |
| | ||
|
| |||||
| | |||||
Total liabilities | $ | | $ | | ||
Commitments and contingencies |
|
|
|
| ||
Shareholders’ equity: |
|
|
|
| ||
Ordinary shares, | $ | | $ | | ||
Treasury stock, |
| ( |
| ( | ||
Additional paid in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
|
| |||||
Total liabilities and shareholders’ equity | $ | | $ | | ||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
2
QUOIN PHARMACEUTICALS LTD.
Condensed Consolidated Statements of Operations (Unaudited)
Nine months ended September 30, |
| Three months ended September 30, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Operating expenses | ||||||||||||
General and administrative | $ | | $ | | $ | | $ | | ||||
Research and development |
| |
| |
| | | |||||
|
|
|
| |||||||||
Total operating expenses |
| |
| |
| | | |||||
Other (income) and expenses | ||||||||||||
Forgiveness of accounts payable |
| — |
| ( |
| — |
| — | ||||
Warrant liability (income) expense | — | ( | — | — | ||||||||
Unrealized loss (gain) | | | ( | | ||||||||
Interest income |
| ( |
| ( |
| ( |
| ( | ||||
Interest and financing expense | — | 714,081 | — | | ||||||||
Total other (income) expense |
| ( |
| |
| ( |
| | ||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Deemed dividend on warrant modification | — | ( | — | ( | ||||||||
Net loss attributable to shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Loss per ADS |
|
|
|
|
|
|
| |||||
Loss per ADS |
|
|
|
|
|
|
|
| ||||
Basic | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Fully-diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average number of ADS’s outstanding |
|
|
|
|
|
|
|
| ||||
Basic |
| |
| |
| |
| | ||||
Fully-diluted |
| |
| |
| |
| | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
3
QUOIN PHARMACEUTICALS LTD.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
Three and Nine months ended September 30, 2022
|
|
| No |
|
| Additional |
|
| ||||||||||
Ordinary | Par | Treasury | Paid in | Accumulated | ||||||||||||||
| Shares |
| ADS’s |
| Value |
| Stock |
| Capital |
| Deficit |
| Total | |||||
Balance at January 1, 2022 |
| |
| |
| — | $ | ( | $ | | $ | ( | $ | | ||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||
Cashless exercise of warrants | | | — | — | — | — | — | |||||||||||
Reclassification of warrant liability upon issuance of Exchange warrant | — | — | — | — | | — | | |||||||||||
Balance at March 31, 2022 | | | — | $ | ( | $ | | $ | ( | $ | ( | |||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Stock based compensation | — | — | — | — | | — | | |||||||||||
Cashless exercise of warrants | | | — | — | — | — | — | |||||||||||
Balance at June 30, 2022 | | | — | $ | ( | $ | | $ | ( | $ | ( | |||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Stock based compensation | — | — | — | — | | — | | |||||||||||
Issuance of ADS and Pre-Funded Warrants, net | | | — | — | | — | | |||||||||||
Cashless exercise of warrants | | | — | — | — | — | — | |||||||||||
Settlement of accrued expenses | | | — | — | | — | | |||||||||||
Deemed dividend on warrant modifcation | — | — | — | — | | ( | — | |||||||||||
Balance at September 30, 2022 | | | — | $ | ( | $ | | $ | ( | $ | | |||||||
Three and Nine months ended September 30, 2023
|
| No |
|
| Additional |
|
| |||||||||||
| Ordinary | Par | Treasury | Paid in | Accumulated | |||||||||||||
| Shares |
| ADS’s |
| Value |
| Stock |
| Capital |
| Deficit |
| Total | |||||
Balance at January 1, 2023 | — | $ | ( | $ | $ | ( | $ | |||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Issuance of ADS and Pre-Funded Warrants, net |
| |
| |
| — |
| — |
| |
| — |
| | ||||
Stock based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||
Balance at March 31, 2023 |
| |
| |
| — | $ | ( | $ | | $ | ( | $ | | ||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||
Stock based compensation |
| — | — | — |
| — |
| |
| — |
| | ||||||
Balance at June 30, 2023 |
| |
| |
| — | $ | ( | $ | | $ | ( | $ | | ||||
Net loss | — |
| — |
| — |
| — | — | ( | ( | ||||||||
Stock based compensation | — |
| — |
| — |
| — | | — | | ||||||||
Balance at September 30, 2023 |
| |
| |
| — | $ | ( | $ | | $ | ( | $ | | ||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
4
QUOIN PHARMACEUTICALS LTD.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | |||||
| 2023 |
| 2022 | |||
Cash flows used in operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Change in fair value of warrant liability |
| — |
| ( | ||
Stock based compensation |
| |
| | ||
Forgiveness of trade payable |
| — |
| ( | ||
Amortization of intangibles |
| |
| | ||
Increase in accrued interest and financing expense | — | 402,411 | ||||
Unrealized gain and accrued interest on investments | ( | ( | ||||
Changes in assets and liabilities: |
|
|
|
| ||
Increase in accounts payable and accrued expenses |
| |
| ( | ||
Decrease in prepaid expenses & other assets |
| |
| | ||
Net cash used in operating activities | $ | ( | $ | ( | ||
Cash flows used in investing activities: |
|
|
|
| ||
Purchase of investments | $ | ( | $ | ( | ||
Proceeds from maturity of investments | | — | ||||
Payment for license acquisition |
| — |
| ( | ||
Net cash used in investing activities | $ | ( | $ | ( | ||
Cash flows provided by financing activities: |
|
|
|
| ||
Payment of amounts due to officers | $ | ( | $ | ( | ||
Proceeds from sale of equity securities, net | | | ||||
Net cash provided by financing activities | $ | | $ | | ||
Net change in cash and cash equivalents: |
| |
| ( | ||
Cash and cash equivalents - beginning of period |
| |
| | ||
Cash and cash equivalents - end of period | $ | | $ | | ||
Supplemental information - Non cash items: |
|
|
|
| ||
Reclassification of warrant liability to equity upon issuance of “Exchange warrants” | $ | — | $ | | ||
Deemed dividend on warrant modification | $ | — | $ | | ||
Offering expenses associated with warrant modification | $ | | $ | | ||
Settlement of accrued expenses | $ | — | $ | | ||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
5
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
NOTE 1 – ORGANIZATION AND BUSINESS
Quoin Pharmaceuticals Ltd. (“Quoin Ltd.,” or the “Company”), formerly known as Cellect Biotechnology Ltd. (“Cellect”), is the holding company for Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin Inc.”). Quoin Inc. was incorporated in Delaware on March 5, 2018. On October 28, 2021, Cellect completed the business combination with Quoin Inc., with Quoin Inc. surviving as a wholly-owned subsidiary of Cellect (the “Merger”). Immediately after completion of the Merger, Cellect changed its name to “Quoin Pharmaceuticals Ltd.”
Effective July 18, 2023, the ratio of American Depositary Shares (“ADSs”) evidencing ordinary shares changed from 1 ADS representing five thousand (
The Company is a clinical stage specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. The Company’s initial focus is on the development of products, using proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. The Company’s first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary in-licensed Invisicare® technology, is under development as a potential treatment for Netherton Syndrome (“NS”), a rare hereditary genetic disease. QRX003 is currently being tested in two clinical studies in the United States (“U.S.”) under an open Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). Dosing of patients commenced in December 2022 for the first study and in March 2023 for the second study. The Company is also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, the Company has entered into Research Agreements with the Queensland University of Technology (“QUT”), which include an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma. To date, no products have been commercialized and revenue has not been generated.
NOTE 2 - LIQUIDITY RISKS AND OTHER UNCERTAINTIES
The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”), which contemplates continuation of the Company as a going concern. The Company has incurred net losses every year since inception and has an accumulated deficit of approximately $
Additional financing will still be required to complete the research and development of the Company’s therapeutic targets and its other operating requirements until it achieves commercial profitability, if ever. Such financing may not be available at acceptable terms, if at all. If the Company is unable to obtain additional funding when it becomes necessary, the development of its product candidates will be impacted and the Company would likely be forced to delay, reduce, or terminate some or all of its development programs, all of which could have a material adverse effect on the Company’s business and financial condition.
6
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
Other risks and uncertainties:
The Company is subject to risks common to development stage biopharmaceutical companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, pre-clinical and clinical trial outcome risks, regulatory approval risks, uncertainty of market acceptance and additional financing requirements.
The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products.
There can be no assurance that the Company’s products, if approved, will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed.
The Company is also dependent on several third party suppliers, in some cases a single source supplier including the contract research organization managing both of the Company’s current clinical studies, the supplier of the active pharmaceutical ingredient (API), as well as the contract manufacturer of the drug substance for the expected clinical development.
Nasdaq Listing
On April 5, 2023, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that the closing bid price per ADS was below the required minimum of $
There can be no assurance that the Company will be able to maintain compliance with Nasdaq’s minimum bid-price requirement for continued listing. If the Company’s ADSs are delisted from Nasdaq, it will have a material negative impact on the actual and potential liquidity of the Company’s securities, as well as a material negative impact on the Company’s ability to raise future capital.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2023 and for the three and nine months then ended. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures as of December 31, 2022 and for the year then ended which are included in the Company’s Annual Report on Form 10- K, filed with the SEC on March 15, 2023. The Company operates in
7
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Estimates are used in the following areas, among others: stock-based compensation research and development expense recognition, intangible asset estimated useful lives and impairment assessments, allowances of deferred tax assets, and cash flow assumptions regarding going concern considerations.
Cash and cash equivalents:
The Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. The Company, from time to time during the periods presented, has had bank account balances in excess of federally insured limits where substantially all cash is held in the United States. The Company has not experienced losses in such accounts. The Company believes that it is not subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Warrants:
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) provided that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The Company assesses classification of its warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets, liabilities and equity is required. The Company evaluated the warrants to assess their proper classification using the applicable criteria enumerated under U.S. GAAP and determined that such warrants meet the criteria for equity classification in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.
Investments:
Investments as of September 30, 2023 and December 31, 2022 consist of U.S. Treasury Bills, which are classified as trading securities, totaling $
Long-lived assets:
Long-lived assets are comprised of acquired technology and licensed rights to use technology, which are considered platform technology with alternative future uses beyond the current products in development. Such intangible assets are being amortized on a straight-line basis over their expected useful life of
8
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
The Company assesses the impairment for long-lived assets whenever events or circumstances indicate the carrying value may not be recoverable. Factors we consider that could trigger an impairment review include the following:
| ● | Significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business, |
| ● | Significant underperformance relative to expected historical or projected development milestones, |
| ● | Significant negative regulatory or economic trends, and |
| ● | Significant technological changes which could render the platform technology obsolete. |
The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three and nine months ended September 30, 2023 and 2022, there were
Research and development:
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials when applicable, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expenses in future periods as the related services are rendered.
Income taxes:
The Company accounts for its income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company maintains a full valuation allowance on its existing deferred tax assets.
The Company also accounts for uncertain tax positions using the more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the Company’s income tax returns. As of September 30, 2023 and December 31, 2022, the Company had no uncertain tax positions which affected its financial position and its results of operations or its cash flows and will continue to evaluate for uncertain tax positions in the future. If at any time the Company should record interest and penalties in connection with income taxes, the interest and the penalties will be expensed within the interest and general and administrative expenses, respectively.
Stock based compensation:
The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant is estimated as of the date of grant using the Black-Scholes option-
9
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
Since the Company has a limited history of trading as a public company, the Company’s expected stock volatility is based on a weighting of its historical volatility along with a group of a publicly traded set of peer companies. The Company utilizes the simplified method to estimate the expected term. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield was assumed to be zero as the Company has not paid and dividends since its inception and does not anticipate paying dividends in the foreseeable future.
Fair value of financial instruments:
The Company considers its cash and cash equivalents, investments, accounts payable, accrued expenses to meet the definition of financial instruments. The carrying amounts of these financial instruments approximated their fair values due to the short maturities.
The Company measures fair value as required by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Earnings (loss) per share:
The Company reports loss per share in accordance with ASC 260-10, Earnings Per Share, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net earnings (loss) per share gives effect to ordinary shares equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
For the three and nine months ended September 30, 2023, the number of shares excluded from the diluted net earnings (loss) per share included outstanding warrants to purchase
NOTE 4 – ACCRUED INTEREST AND FINANCING EXPENSE
On October 2, 2020, Quoin Inc. issued promissory notes (the “2020 Notes”) and warrants to certain investors (“2020 Noteholders”). The 2020 Notes were mandatorily convertible into
10
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. For certain instruments, including cash and cash equivalents, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
Fair value is estimated using various valuation models, which utilize certain inputs and assumptions that market participants would use in pricing the asset or liability. The inputs and assumptions used in valuation models are classified in the fair value hierarchy as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Quoted market prices for similar instruments in an active market; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations inputs of which are observable and can be corroborated by market data.
Level 3: Unobservable inputs and assumptions that are supported by little or no market activity and that are significant to the fair value of the asset and liability. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining the appropriate hierarchy levels, the Company analyzes the assets and liabilities that are subject to fair value disclosure. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy at September 30, 2023 and December 31, 2022:
September 30, 2023 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
US Treasury Bills |
| $ | |
| $ | — | $ | — | $ | | ||
Total US Treasury Bills Asset |
| $ | |
| $ | — | $ | — | $ | | ||
December 31, 2022 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
US Treasury Bills | $ | | $ | — | $ | — | $ | | ||||
Total US Treasury Bills Asset | $ | | $ | — | $ | — | $ | | ||||
11
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
NOTE 6 – STOCK BASED COMPENSATION
In March 2022, the Board of Directors of the Company approved the Amended and Restated Equity Incentive Plan (the “Amended Plan”), which was approved by the shareholders at the Company’s Annual General Meeting of Shareholders held on April 12, 2022. The Amended Plan increased the number of ordinary shares reserved for issuance under such equity incentive plan to
The following table summarizes stock-based activities under the Amended Plan:
|
| Weighted |
| Weighted | |||
Average | Average | ||||||
ADS Underlying | Exercise | Contractual | |||||
Options | Price | Terms | |||||
Outstanding at December 31, 2022 |
| | $ | |
| ||
Granted |
| | $ | |
| ||
Forfeited/Cancelled |
| — | $ | — |
| ||
Outstanding at September 30, 2023 |
| | $ | |
| ||
Exercisable options at September 30, 2023 |
| | $ | |
| ||
The intrinsic value of outstanding options at September 30, 2023 was $
Stock based compensation expense was approximately $
Stock based compensation expense was approximately $
At September 30, 2023, the total unrecognized compensation expense related to non-vested options was approximately $
NOTE 7 – PREPAID EXPENSES
Prepaid expenses are as follows:
| September 30, |
| December 31, | |||
2023 | 2022 | |||||
Prepaid R&D costs | $ | | $ | | ||
Prepaid insurance |
| |
| | ||
Prepaid expense |
| |
| | ||
Total | $ | | $ | | ||
Less: Short-term portion | ( | ( | ||||
Long-term portion | $ | | $ | | ||
12
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
NOTE 8 - ACCRUED EXPENSES
Accrued expenses are as follows:
| September 30, |
| December 31, | |||
2023 | 2022 | |||||
Research contract expenses (note 12) | $ | | $ | | ||
Payroll |
| |
| | ||
Payroll taxes (note 11) |
| |
| | ||
Professional fees |
| |
| | ||
Other Expenses |
| |
| | ||
Total | $ | | $ | | ||
NOTE 9 – IN-LICENSED TECHNOLOGY
Polytherapeutics:
On March 24, 2018, Quoin Inc. entered into a securities purchase agreement (the “Acquisition Agreement”), in which it agreed to acquire all of the equity interests in Polytherapeutics, Inc. (the “Seller” or “Polytherapeutics”) for $
Skinvisible:
In October 2019, Quoin Inc. entered into the Exclusive Licensing Agreement (as amended from time to time, the “License Agreement”) with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted the Company an exclusive royalty-bearing license relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including those related to QRX003 and QRX004. The Company made Skinvisible a one-time non-refundable, non-creditable license fee of $
13
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
NOTE 10 - INTANGIBLE ASSETS
Intangible assets are as follows:
| September 30, |
| December 31, | |||
2023 | 2022 | |||||
Acquired technology – Polytherapeutics | $ | | $ | | ||
Technology license – Skinvisible |
| |
| | ||
Total cost |
| |
| | ||
Accumulated amortization |
| ( |
| ( | ||
Net book value | $ | | $ | | ||
The Company recorded amortization expense of approximately $
NOTE 11 - RELATED PARTY TRANSACTIONS
Due to Officers/Founders:
Due to the limited funding of Quoin Inc. prior to the consummation of the Merger, the compensation, including salary, office and car allowances and other benefits, due to Dr. Myers and Ms. Carter under their respective employment agreements, as well as reimbursement of expenses and other amounts paid to third parties on behalf of Quoin Inc., were accrued as indebtedness to Dr. Myers and Ms. Carter. Following the closing of the Merger, Quoin Inc. began making payments of $
As of September 30, 2023, approximately $
Amounts due to officers at September 30, 2023 and December 31, 2022 consisted of the following:
| September 30, |
| December 31, | |||
2023 | 2022 | |||||
$ | |
| $ | | ||
| — |
| | |||
$ | |
| $ | | ||
| ( |
| ( | |||
$ | | $ | | |||
Expenses:
Research and development expense, incurred in the three months ended September 30, 2023 and 2022, was $
14
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
Interest Payable:
See Note 4 for interest payable on the 2020 Notes.
NOTE 12 – RESEARCH, CONSULTING AGREEMENTS AND COMMITMENTS
Research agreements
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of
In November 2021, the Company entered into a commitment with Queensland University of Technology for research related services associated with Netherton Syndrome of approximately $
Consulting agreement:
Quoin Inc. entered into a consulting agreement with an Investor Relations (IR) firm, which provided for a monthly fee of $
Performance milestones and Royalties
See Note 9 for asset and in-licensed technology commitments.
NOTE 13 – SHAREHOLDERS’ EQUITY
The Company held its Annual General Meeting on April 12, 2022, at which the Company’s shareholders approved an increase to the authorized share capital to
15
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
Holders of the Company’s ordinary shares have
Under Israeli law, the Company may declare and pay dividends only if, upon the determination of its board of directors, there is no reasonable concern that the distribution will prevent the Company from being able to meet the terms of its existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the
Each ADS will also represent any other securities, cash or other property which may be held by the depositary. ADSs may be held either (a) directly (1) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs or (2) by having uncertificated ADSs, or (b) indirectly by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC.
February 2023 Offering
On February 24, 2023 (the “February Closing Date”), the Company completed an offering (the “February Offering”) of
In connection with the February Offering, the Company entered into a Securities Purchase Agreement (the “February Purchase Agreement”) with certain institutional investors. Under the February Purchase Agreement, subject to certain exemptions, the Company agreed not to: (i) for a period of ninety (
16
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2023 and 2022
In connection with the February Offering, the Company entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both the Company’s public offering completed in August 2022 (the “August Offering”) and February Offering. The Warrant Amendments amended certain terms of the Common Warrants issued in the August Offering to such 2022 Purchasers. Specifically, the Warrant Amendments reduced the exercise price of Common Warrants to purchase
Warrants
The following table summarizes warrant activities during the nine months ended September 30, 2023:
|
| Weighted |
| |||
ADSs | Average |
| ||||
Underlying | Exercise Price |
| ||||
Warrants | Per ADS | |||||
Outstanding at December 31, 2022 |
| |
| $ | | * |
Granted Common Warrants |
| | | |||
Granted Pre-Funded Warrants | | — | ||||
Exercised Pre-Funded Warrants |
| ( |
| — | ||
Outstanding and exercisable at September 30, 2023 |
| | $ | | ||
| * | Includes the reduction of the exercise price from $ |
NOTE 14 – CONTINGENCIES
From time to time, the Company may become involved in various legal matters arising in the ordinary course of business. Management is unaware of any matters requiring accrual for related losses in the financial statements.
NOTE 15 – LICENSE AGREEMENTS
As of September 30, 2023, the Company has entered into
NOTE 16 - SUBSEQUENT EVENTS
On October 26, 2023, the Company held an Annual General Meeting of Shareholders, at which the shareholders approved, among other items, the following:
| ● | The reverse split of the Company’s ordinary shares at a ratio of |
| ● | The increase of authorized share capital to |
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included in Part I-Item 1 of this Form 10-Q, as well as our consolidated financial statements and notes thereto included in our Form 10-K. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q.
Overview
We are a clinical stage specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. Our initial focus is on the development of products, using our proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. Our first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary in-licensed Invisicare® technology, is under development as a potential treatment fort Netherton Syndrome (“NS”), a rare hereditary genetic disease. QRX003 is currently being tested in two clinical studies in the United States (“U.S.”) under an open Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). We are also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, we entered into Research Agreements with the Queensland University of Technology (“QUT”), under which we have obtained an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma.
Our objective is to develop and commercialize proprietary therapeutic drug products. To this effect, we intend to develop and seek marketing approvals from the FDA and other worldwide regulatory bodies for rare and orphan diseases. To achieve these objectives, we plan to:
| ● | complete the late-stage clinical testing of QRX003 and, if successful, file for marketing approval in the United States and other territories; |
| ● | prepare to commercialize QRX003 by establishing our own sales infrastructure in the U.S. and Europe and entering into distribution partnerships in other territories such as those currently established for Canada, Australia/New Zealand, the Middle East, China, Hong Kong, Taiwan, Latin America, Central and Eastern Europe, Turkey and Singapore; and |
| ● | pursue business development activities by seeking partnering, licensing, merger and acquisition opportunities or other transactions to further expand our pipeline and drug-development capabilities. |
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue our operations. See “Liquidity and Capital Resources”.
18
ADS Ratio Change and Ordinary Share Reverse Split
Effective July 18, 2023, the ratio of American Depositary Shares (“ADSs”) evidencing ordinary shares changed from 1 ADS representing five thousand (5,000) ordinary shares to 1 ADS representing sixty thousand (60,000) ordinary shares, which resulted in a 1 for 12 reverse split of the issued and outstanding ADSs. Effective November 8, 2023, the Company completed a 1 for 60,000 reverse split of the ordinary shares which resulted in the ratio ADSs evidencing ordinary shares to be changed from 1 ADS representing sixty thousand (60,000) ordinary shares to 1 ADS representing one (1) ordinary share. All ordinary share, ADSs and related option and warrant information presented in this section, as well as our financial statements and accompanying footnotes, has been retroactively adjusted to reflect the number of ordinary shares and ADSs resulting from the aforementioned ordinary share reverse split and ADS ratio changes.
Key Events
Clinical Development
Quoin’s lead asset, QRX003, is currently in late-stage clinical development in the U.S. under an open IND application with the FDA. Five clinical sites in the U.S. have been opened for this study, patients are actively being screened and recruited into the study and dosing commenced in December 2022. This study is a randomized, double blinded assessment of two different doses of QRX003 versus a placebo vehicle in NS patients. The test materials are applied once daily, over a twelve-week period, to pre-selected areas of the patient’s body. Based on discussions with the FDA, a number of different clinical endpoints are being assessed in the study, including but not limited to, an Investigators Global Assessment (IGA), Patient’s Global Assessment (PaGA) and Pruritis.
In November 2022, we submitted a protocol for our second clinical study in NS patients to the FDA under our currently open IND (the “Open Label Study”) . This study was cleared by the FDA to initiate in December 2022. Dosing commenced in March 2023, patients are actively being screened and recruited into the study,. This study is being conducted in ten NS patients who are currently receiving off-label systemic therapy, primarily systemic biologic therapy. This is an open-label study with no placebo control. While there is no assurance regarding the final results of the Open Label Study, we have received the initial positive clinical data based on the available data from six evaluable subjects completing the Open Label Study. Both of our NS clinical studies are running concurrently and utilize the same clinical trial sites and investigators.
Public Offering
On February 24, 2023 (the “February Closing Date”), we completed an offering (the “February Offering”) of 412,500 ordinary shares represented by 412,500 ADSs at a purchase price of $12.00 per ADS and a pre-funded warrant (the “February Pre-Funded Warrant”) to purchase 170,833 ordinary shares represented by 170,833 ADSs at a per pre-funded warrant price of $11.9988, with each ADS and February Pre-Funded Warrant accompanied by an ordinary warrant (the “February Common Warrant”) for aggregate gross proceeds of $7.0 million, resulting in net proceeds of approximately $5.8 million, after deducting the placement agent’s fees and offering expenses paid by us, and excluding the proceeds, if any, from the subsequent exercise of the February Common Warrants. Each February Common Warrant has an exercise price of $12.00 per ADS and expires on the fifth anniversary of the February Closing Date. On the February Closing Date, the holder of the February Pre-Funded Warrant exercised its Pre-Funded Warrant in full.
In connection with the February Offering, we entered into a Securities Purchase Agreement (the “February Purchase Agreement”) with certain institutional investors. Under the February Purchase Agreement, subject to certain exemptions, we agreed not to: (i) for a period of ninety (90) days after the closing date of the February Offering, issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ADSs, ordinary shares or ordinary share equivalents or (ii) file any registration statement or amendment or supplement thereto, other than a registration statement on Form S-8 in connection with any employee benefit plan or any post-effective amendment to a registration statement declared effective by the Securities and Exchange Commission (the “SEC”) and (ii) for a period of 180 days after the closing date of the February Offering, enter into an agreement to effect a “variable rate transaction” as defined in the February Purchase Agreement.
In connection with the February Offering, we entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both our offering completed in August 2022 (the “August Offering”) and the February Offering. The Warrant Amendments amended certain terms of the Common Warrants issued to such 2022 Purchasers in the August Offering.
19
Specifically, the Warrant Amendments reduced the exercise price of such warrants to $13.20 and extended the term during which those warrants could remain exercisable until February 24, 2028.
Nasdaq Listing
On April 5, 2023, we received a letter from Listing Qualifications staff of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that the closing bid price per ADS was below the required minimum of $1.00 for a period of 30 consecutive business days and that the we did not meet the minimum bid price requirements set forth in Nasdaq Rule 5550(a)(2). Pursuant to Nasdaq Rule 5810(c)(3)(A), we had a period of one hundred eighty (180) calendar days, or until October 2, 2023 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. On August 1, 2023, we received a letter from Nasdaq stating that the closing bid price per ADS was at $1.00 or greater for the last 10 consecutive business days. Accordingly, we regained compliance with Listing Rule 5550(a)(2) and the matter was closed.
There can be no assurance that we will be able to maintain compliance with Nasdaq’s minimum bid-price requirement for continued listing. If our ADSs are delisted from Nasdaq, it will have a material negative impact on the actual and potential liquidity our securities, as well as a material negative impact on our ability to raise future capital.
Components of Our Results of Operations
Operating Expenses
Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We utilize outside consultants and third parties to conduct the majority of our research and development, under the supervision of our management team.
Future research and development expenses may include:
| ● | employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses, share-based compensation, overhead related expenses and travel related expenses for our research and development personnel; |
| ● | expenses incurred under agreements with CROs, as well as consultants that support the implementation of the clinical studies described above; |
| ● | manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch; |
| ● | formulation, research and development expenses related to QRX003; and other products we may choose to develop; and |
| ● | costs for sponsored research. |
Research and development activities will continue to be central to our business plan. Products in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to be significant over the next several years as personnel and compensation costs increase and we conduct late-stage clinical studies and prepare to seek regulatory approval for QRX003 and any other future product.
20
The duration, costs and timing of clinical trials of QRX003 and any other future product will depend on a variety of factors that include, but are not limited to:
| ● | the number of trials required for approval; |
| ● | the per patient trial costs; |
| ● | the number of patients that participate in the trials; |
| ● | the number of sites included in the trials; |
| ● | the countries in which the trial is conducted; |
| ● | the length of time required to enroll eligible patients; |
| ● | the number of doses that patients receive; |
| ● | the drop-out or discontinuation rates of patients; |
| ● | the potential additional safety monitoring or other studies requested by regulatory agencies; |
| ● | the duration of patient follow-up; |
| ● | the timing and receipt of regulatory approvals; and |
| ● | the efficacy and safety profile of our product candidates. |
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and employee related expenses including non-cash stock-based compensation, professional fees and other corporate expenses.
We anticipate that our general and administrative expenses may increase during the remainder of 2023 to support our continued research and development activities. These increases will include compensation and employee-related expenses including stock-based compensation, increased costs related to the potential hiring of personnel, travel costs and fees to outside consultants, lawyers and accountants.
Other Expenses (income)
Other expenses (income) consist primarily of non cash fair value adjustments of warrants, forgiveness of trade payable, interest income and unrealized loss on investments.
21
Results of Operations – Three months ended September 30, 2023 compared to the three months ended September 30, 2022
The following table sets forth our results of operations for the three months ended September 30, 2023, compared to the three months ended September 30, 2022:
Three months ended September 30, | |||||||||
2023 | 2022 | Change | |||||||
Operating expenses |
|
|
|
|
|
| |||
General and administrative | $ | 1,366,464 | $ | 1,582,059 |
| $ | (215,595) | ||
Research and development |
| 758,759 |
| 745,506 |
|
| 13,253 | ||
Total operating expenses |
| 2,125,223 |
| 2,327,565 |
|
| (202,342) | ||
Other (income) and expenses |
|
|
|
|
|
|
| ||
Unrealized loss and (gain) |
| (2,119) |
| 3,053 |
|
| (5,172) | ||
Interest income |
| (196,425) |
| (15,132) |
|
| (181,293) | ||
Interest expense | — | 714,081 | (714,081) | ||||||
Total other (income) expense |
| (198,544) |
| 702,002 |
|
| (900,546) | ||
Net loss | $ | (1,926,679) | $ | (3,029,567) |
| $ | 1,102,888 | ||
General and Administrative Expenses
General and administrative expenses were approximately $1,366,000 and $1,582,000, in the three months ended September 30, 2023 and 2022, respectively, representing a decrease of approximately $216,000, or approximately 14%. The decrease was primarily due to a decrease in public company costs of $73,000, decreased travel costs for $41,000 and a decrease in insurance costs of $53,000.
Research and Development Expenses
Our research and development expenses during the three months ended September 30, 2023 and 2022 were approximately $759,000 and $746,000, respectively, representing an increase of approximately $13,000, or approximately 2%. The increase was primarily due to an increase of $303,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology, offset by an approximately $278,000 credit for prior expenses incurred during the period of March 2023 to July 2023. We expect to increase our research and development efforts during the remainder of 2023 as we continue to conducting the studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above.
We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set forth above. The license from Skinvisible was obtained in October 2019. Amortization of intangible assets was approximately $26,000 in each of the three month periods ended September 30, 2023 and 2022.
Other (Income) and Expenses:
Interest income and unrealized loss
We earned approximately $196,000 in interest income and approximately $2,000 in unrealized gain, and earned approximately $15,000 in interest income and incurred approximately $3,000 in unrealized loss in the three months ended September 30, 2023 and September 30, 2022, respectively, from our cash and cash equivalents and investments in marketable debt securities.
Interest expense on promissory notes we issued in 2020 “the 2020 Notes” was $714,000 in the three months ended September 30, 2022.
22
Results of Operations – Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
The following table sets forth our results of operations for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:
Nine months ended September 30, | |||||||||
2023 | 2022 | Change | |||||||
Operating expenses |
|
|
|
|
|
| |||
General and administrative | $ | 4,685,241 | $ | 5,112,002 |
| $ | (426,761) | ||
Research and development |
| 2,475,596 |
| 2,059,769 |
|
| 415,827 | ||
Total operating expenses |
| 7,160,837 |
| 7,171,771 |
|
| (10,934) | ||
Other (income) and expenses |
|
|
|
|
|
|
| ||
Forgiveness of trade payable | — | (416,000) | 416,000 | ||||||
Warrant liability (income) expense |
| — |
| (77,237) |
|
| 77,237 | ||
Unrealized loss |
| 11,926 | 3,053 | 8,873 | |||||
Interest income |
| (536,068) |
| (15,132) |
|
| (520,936) | ||
Interest expense | — |
| 714,081 |
|
| (714,081) | |||
Total other (income) expense |
| (524,142) |
| 208,765 |
| (732,907) | |||
Net loss | $ | (6,636,695) | $ | (7,380,536) | $ | 743,841 | |||
General and Administrative Expenses
General and administrative expenses were approximately $4,685,000 and $5,112,000, in the nine months ended September 30, 2023 and 2022, respectively, representing a decrease of approximately $427,000, or approximately 8%. The decrease was primarily due to a decrease in legal fees and other public company expenses of $528,000, a decrease in insurance of $156,000, offset by an increase of $259,000 in non-cash stock-based compensation expense.
Research and Development Expenses
Our research and development expenses during the nine months ended September 30, 2023 and 2022 were approximately $2,476,000 and $2,060,000, respectively, representing an increase of approximately $416,000, or approximately 20%. The increase was primarily due to an increase of $668,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology, offset by an approximately $278,000 credit for prior expenses incurred during the period of March 2023 to July 2023. We expect to increase our research and development efforts during the remainder of 2023 as we continue to conduct the studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above.
We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set out above. The license from Skinvisible was obtained in October 2019. Amortization of intangible assets was approximately $78,000 in each of the nine month periods ended September 30, 2023 and 2022.
Other (Income) and Expenses:
Interest and unrealized loss
We earned approximately $536,000 in interest income and incurred approximately $12,000 in unrealized loss, and earned approximately $15,000 in interest income and incurred approximately $3,000 in unrealized loss, in the nine months ended September 30, 2023 and September 30 2022, respectively, from our cash and cash equivalents and investments in marketable debt securities.
Interest expense on the 2020 Notes was approximately $714,000 in the nine months ended September 30, 2022.
23
Warrant liability income
We determined our warrants issued to investors in our 2020 Notes (the “2020 Noteholder Warrants”) required liability treatment at fair value, which was remeasured at each reporting period up to March 2022. The 2020 Noteholder Warrants were exchanged for new warrants and reclassified as an equity instrument in March 2022. In the nine months ended September 30, 2022, we incurred a fair value gain of ($77,000) related to the 2020 Noteholder Warrants.
Forgiveness of trade payable
In our balance sheet as of December 31, 2021 we had a liability of $584,000 representing amounts due to an investor relations firm for services commencing in 2017. Effective March 31, 2022, we entered into a settlement with such firm to decrease the liability to $168,000 which resulted in approximately $416,000 of income recognized in the nine months ended September 30, 2022.
Liquidity and Capital Resources
We have incurred net losses every year since inception and had an accumulated deficit of approximately $44.2 million at September 30, 2023. We have a limited operating history and have historically funded our operations through debt and equity financings. We incurred net losses of approximately $6.6 million and negative cash flows from operations of $4.6 million for the nine months ended September 30, 2023. At September 30, 2023, we had cash and cash equivalent balances totaling $3.2 million and investments of $10.8 million. We have determined that we have sufficient resources to effect our business plan for at least one year from the issuance of the unaudited consolidated financial statements included in this report. However, we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Additional financing will be required to complete the research and development of our therapeutic targets and our other operating requirements, which may not be available at acceptable terms, if at all. If we are unable to obtain additional funding when it becomes necessary, the development of our product candidates will be impacted and we would likely be forced to delay, reduce, or terminate some or all of our development programs, all of which could have a material adverse effect on our business, results of operations and financial condition.
Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will continue to increase in 2023 as we advance the clinical development of QRX003.
Future Funding Requirements
We will need to obtain further funding through public or private offerings of our capital stock, debt financing, collaboration and licensing arrangements or other sources, the requirements for which will depend on many factors, including:
| ● | the scope, timing, rate of progress and costs of our drug development efforts, preclinical development activities, the timing of laboratory testing and clinical trials for our product candidates; |
| ● | the number and scope of clinical programs we decide to pursue; |
| ● | the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates; |
| ● | the scope and costs of development and commercial manufacturing activities; |
| ● | the cost and timing associated with commercializing our product candidates, if they receive marketing approval; |
| ● | the extent to which we acquire or in-license other product candidates and technologies; |
| ● | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; |
24
| ● | our ability to establish and maintain collaborations on favorable terms, if at all; |
| ● | our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval; |
| ● | our implementation of operational, financial and management systems; and |
| ● | the costs associated with being a public company. |
Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of QRX003, any future product, or potentially discontinue operations.
To the extent that we raise additional capital through the sale of our equity or convertible debt securities, and pursuant to the exercise of warrants issued to our investors in the August Offering and February Offering, the ownership interest of our equity holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or proposed products, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market any future product that we would otherwise prefer to develop and market ourselves.
Summary Statement of Cash Flows
As of September 30, 2023, we had approximately $3,163,000 in cash and cash equivalents and $10,818,000 in investments in marketable securities. The table below presents our cash flows for the nine month periods ended September 30, 2023 and 2022:
Nine months ended September 30, | ||||||
| 2023 |
| 2022 | |||
Net cash used in operating activities | $ | (4,640,784) | $ | (6,538,390) | ||
Net cash used in investing activities |
| (455,684) |
| (10,149,121) | ||
Net cash provided by financing activities |
| 5,399,266 |
| 14,454,570 | ||
Net increase (decrease) in cash and cash equivalents | $ | 302,798 | $ | (2,232,941) | ||
Operating Activities
Net cash used in operating activities was approximately $4,641,000 and $6,538,000 in the nine months ended September 30, 2023 and 2022, respectively. The decrease in 2023 was primarily due to a decrease in prepaid expenses and increase in accrued expenses, offset by a decrease in accounts payable.
25
Investing Activities
Net cash used in investing activities was approximately $456,000 and $10,149,000 in the nine months ended September 30, 2023 and 2022, respectively. The cash used in investing activities for the nine months ended September 30, 2023 consisted of net purchases of short maturity US Treasury Bills from the proceeds of the February Offering, and the cash used in investing activities in the nine months ended September 30, 2022 consisted consisted of net purchases of short maturity US Treasury Bills from the proceeds of the August Offering and payments of remaining amounts due under our license agreement with Skinvisible, see “Research and Development Commitments” below.
Financing Activities
Net cash provided by financing activities was approximately $5,399,000 for the nine months ended September 30, 2023. The net cash provided increased due to the receipt of approximately $5,849,000 in net proceeds from the February Offering partially offset by repayments of amounts due to officers of $450,000. Net cash provided by financing activities in the nine months ended September 30, 2022 was $14,545,000, representing net proceeds of $14.9 million from the August 2022 Offering, offset by repayments of amounts due to officers of $450,000.
Research and Development Commitments
In October 2019, Quoin Inc. entered into the Exclusive Licensing Agreement (as amended from time to time, the “License Agreement”) with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted us an exclusive royalty-bearing license relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including those related to QRX003 and QRX004. We made Skinvisible a one-time non-refundable, non-creditable license fee of $1 million (the “License Fee”). In addition, we agreed to pay Skinvisible a single digit royalty percentage of our net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. We also agreed to pay Skinvisible 25% of any revenues we receive as royalties in the event that we sublicense any licensed products to a third party. The License Agreement also requires that we make a $5 million payment to Skinvisible upon receiving approval in the U.S. or European Union, whichever occurs first, for the first drug product developed using intellectual property licensed thereunder.
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of three years with Therapeutics Inc. for managing preclinical and clinical development for new products in the field of dermatology. The agreement required the execution of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. A work order was entered into in June 2022 for the first QRX003 clinical study at an expected estimated cost of approximately $4.4 million through 2024. A further work order was entered into in December 2022 for the second QRX003 clinical study at an expected estimated cost of approximately $830,000 through 2024. For the three and nine months ended September 30, 2023 and 2022, we incurred a research and development expense under these agreements of approximately $155,000 and $1,113,000, and $423,000 and $904,000, respectively. During the three months ended September 30, 2023, we received a credit of approximately $278,000 applied to prior expenses incurred during the period of March 2023 to July 2023.
In November 2021, we entered into a commitment with Queensland University of Technology for research related services associated with Netherton Syndrome of approximately $250,000 for an initial expected period of eighteen months. In May 2022, we entered into a commitment with Queensland University of Technology for research related services associated with Scleroderma of approximately $610,000 for an initial expected period of eighteen months. For the three and nine months ended September 30, 2023 and 2022, we incurred research and development costs related to these agreements of approximately $85,000 and $361,000, and $173,000 and $250,000, respectively.
Critical Accounting Policies and Use of Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2022.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information otherwise required under this Item 3.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2023, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2023. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal or administrative proceedings or be subject to claims arising in the ordinary course of our business. We are currently not a party to any material legal or administrative proceedings, and we are not aware of any pending or threatened material legal or administrative proceedings against us.
Item 1A. Risk Factors.
There have been no material changes in our risk factors from the risks previously reported in Part 1, Item 1A, “Risk Factors” of our Form 10-K. You should carefully consider the factors discussed in Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Repurchases of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
28
Item 6. Exhibits.
The following exhibits are included in this Form 10-Q or incorporated herein by reference:
Exhibit No. |
| Exhibit Description |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
10.1 | ||
31.1* | ||
31.2* | ||
32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
101* | Information formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements. | |
104* | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
*Filed herewith
29
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 thereunto duly authorized.
Quoin Pharmaceuticals Ltd. | ||
November 9, 2023 | By: | /s/ Gordon Dunn |
Name: Gordon Dunn | ||
Title: Chief Financial Officer | ||
30