Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company does not expect to pay any significant federal, state, or foreign income taxes in 20202021 as a result of the losses recorded during the three months ended March 31, 20202021 and the additional losses expected for the remainder of 20202021 and cumulative net operating loss carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As a result, as of March 31, 2020,2021, the Company maintained a full valuation allowance for all deferred tax assets.
The Company recorded 0 income tax provision for the three months ended March 31, 2020 2021 and 2019,2020, respectively. The effective tax rate for the three months ended March 31, 2020 2021 and 20192020 is 0%. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants and valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no0 tax benefit can be recognized due to the valuation allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carry back periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on our condensed consolidated financial statements for the three months ended March 31, 2020. We continue to monitor any effects that may result from the CARES Act.
7. Commitments and Contingencies
In addition to the commitments and contingencies described elsewhere in these notes, see below for a discussion of ourthe Company's commitments and contingencies as of March 31, 2020.
2021.Lease Obligations Payable
DuringThe following summarizes quantitative information about the Company's operating leases for the three months ended March 31, 2020, the Company did not enter into any lease arrangements requiring any additional right-of-use assets or liabilities to be recorded.
During the three months ended March 31, 2020, the Company recognized $29,000 of lease costs, $4,000 of expenses related to short-term leases 2021 and
$7,000 of lease costs for variable lease payments. During the three months ended March 31, 2019, the Company recognized $8,000 of lease costs, $14,000 of expenses related to short-term leases and $5,000 of lease costs for variable lease payments. 2020, respectively (in thousands):| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Lease cost: | | | | | | | | |
Operating lease cost | | $ | 29 | | | $ | 29 | |
Variable lease cost | | | 7 | | | | 7 | |
Short-term lease cost | | | 0 | | | | 4 | |
Total | | $ | 36 | | | $ | 40 | |
The Company recorded approximately $10,000 in sublease income from a related party for the three months ended March 31, 2020.2021 and 2020, respectively. Sublease income is recorded as other income, net on the Company's condensed consolidated statement of operations and comprehensive loss.
At Operating cash flows from operating leases was $34,000 and $33,000 for the three months ended March 31, 2020, the cash paid for the Company's operating leases 2021 and right-of-use assets was as follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 33 | | | $ | 8 | |
| Right-of-use assets obtained in exchange for lease liabilities: | | | |
| Operating leases | $ | — | | | $ | 110 | |
2020, respectively. At March 31, 2020,2021, future minimum liabilities under ASC 842 for the Company's operating leases were as follows (in thousands):
| | | | | | | | |
| Maturity of lease liabilities | | As of March 31, 2020 |
| 2020 (remaining nine months) | | $ | 101 | |
| 2021 | | 138 | |
| 2022 | | 105 | |
| 2023 | | 56 | |
| 2024 | | 10 | |
| 2025 and thereafter | | — | |
| Total lease payments | | 410 | |
| Less: imputed interest | | (55) | |
| Present value of operating lease liabilities | | $ | 355 | |
Maturity of lease liabilities | | As of March 31, 2021 | |
2021 (remaining nine months) | | $ | 104 | |
2022 | | | 105 | |
2023 | | | 56 | |
2024 | | | 10 | |
2025 and thereafter | | | 0 | |
Total lease payments | | | 275 | |
Less: imputed interest | | | (26 | ) |
Present value of operating lease liabilities | | $ | 249 | |
As of March 31, 2021, the weighted average remaining lease term for operating leases is 2.2 years, and the weighted average discount rate is 9.6%. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses an incremental borrowing rate based on a peer analysis using information available at the commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
Licenses
MD Anderson -
Total expenses related to the Company's license agreements with MD Anderson were $61,000$38,000 and $60,000$61,000 for the three months ended March 31, 2020 2021 and 2019,2020, respectively.
HPI -
On March 16, 2020, the Company entered into 2two agreements with a related party, Houston Pharmaceuticals, Inc.(HPI). The first agreement, which has a term of two years, continues a prior consulting arrangement with HPI on the Company's licensed molecules and requires payments for $43,500 per quarter to HPI. The second agreement, which can be cancelled with sixty days' notice by either party, allows the Company's employees access to laboratory equipment owned by HPI for a payment of $15,000 per quarter to HPI. Total expenses related to the Company's agreements with HPI were $207,500$59,000 and $75,000$108,500 for the three months ended March 31, 2020 2021 and 2019,2020, respectively.
Sponsored Research Agreements with MD Anderson -
MBI entered intohas a Sponsored Laboratory Study Agreement with MD Anderson expiring in October 2021. In February 2021, the Company extended this Agreement until December 31, 2022. The expenses recognized under this MD Anderson agreement with regards to the Sponsored Laboratory Study AgreementAgreements were $179,000$94,000 and $95,000$179,000 for the three months ended March 31, 2020 2021 and 2019,2020, respectively.
In addition to the subsequent events discussed elsewhere in these notes, see below for a discussion of ourthe Company's subsequent events occurring after March 31, 2020.
ATM Issuances Under the Oppenheimer Agreement - As previously reported, in July 2019, the2021.The Company entered into an At Market Issuance Sales Agreement (Agreement) agreement, effective subsequent to March 31, 2021, with Oppenheimer & Co. Inc. (Oppenheimer). Pursuant toan investor relations consultant and as part of that agreement 5,000 shares of common stock will be issued in the terms of the Agreement,aggregate between April 1, 2021 and December 31, 2021. Additionally, the Company may offer and sell, from timeentered to time, Company common stock through Oppenheimer, acting as agent, through an "at the market offering" as defined in Rule 415(a)(4) (ATM Offering) promulgated under the Securities Act. On July 24, 2019, pursuant to the ATM Offering, the Company filedadvisory agreement on April 29, 2021 with a prospectus supplementconsultant, pursuant to which the Company may offer and sell, from timeissued a warrant to time, Company common stock having an aggregate offering price of up to $15.0 million through Oppenheimer (ATM Prospectus Supplement). From April 8, 2020 to April 16, 2020, the Company issued 7,170,964purchase 71,500 shares of common stock at an average pricewhich will vest equally and quarterly over five years, or earlier upon a change of $1.44 per share through the ATM Prospectus Supplement, resulting in net proceeds to the Company of $10.0 million. The Company paid a commission to Oppenheimer equal to 3.0% of the gross proceeds from the sale of its common stock under the ATM Prospectus Supplement. After the completion of the foregoing issuances, the Company will have 60,403,164 shares of common stock outstanding.
Warrant Exercises - Subsequent to March 31, 2020control, and through the date of filing of these financial statements 4,500 shares were issued due to the exercise of various liability warrants related to past public offerings. Gross proceeds received due to these exercises approximated $5,000.
Equity Warrants and Stock Options - Subsequent to March 31, 2020 and through the date of filing of these financial statements, 100,000 equity warrants were issued to a consultant with an exercise price of $1.08, with vesting contingent on certain conditions. In addition, 25,000 options were issued to a consultant with an exercise price of $1.26, a 5 year term and vesting over a one-year period in four equal quarterly installments under the 2015 Stock Plan. Lastly, 20,000 options were issued to a science advisory board member with a term of 10 years vesting in four equal quarterly installments and an exercise price of $1.47.
only while services are being rendered.ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.
Forward-looking statements include, but are not limited to, statements about:
•The impact the recent Coronavirus outbreak will have on our ability to continue our operations including our clinical trials, and our ability to raise future financing;
•Our ability to obtain additional funding to commence or continue our clinical trials, fund operations and develop our product candidates;
•Our ability to satisfy any requirements imposed by the FDA (or its foreign equivalents) as a condition of our clinical trials proceeding or beginning as planned;
•The success, including the ability to recruit patients, of our clinical trials through all phases of clinical development;
•The need to obtain and retain regulatory approval of our drug candidates, both in the United States, in Poland, and in countries deemed necessary for future trials;
•Our ability to complete our clinical trials in a timely fashion and within our expected budget and resources;
•Compliance with obligations under intellectual property licenses with third parties;
•Any delays in regulatory review and approval of drug candidates in clinical development;
•Our ability to commercialize our drug candidates;
•Market acceptance of our drug candidates;
•Competition from existing therapies or new therapies that may emerge;
•Potential product liability claims;
•Our dependency on third-party manufacturers to successfully, and timely, supply or manufacture our drug candidates for our preclinical work and our clinical trials;
•Our ability to establish or maintain collaborations, licensing or other arrangements;
•The ability of our sublicense partners to successfully develop our product candidates in accordance with our sublicense agreements;
•The effects of future government shutdowns on our ability to raise financing;
•Our ability and third parties’ abilities to protect intellectual property rights;
•Our ability to adequately support future growth; and
•Our ability to attract and retain key personnel to manage our business effectively.
| • | The success or the lack thereof, including the ability to recruit patients, of our clinical trials through all phases of clinical development; |
| • | Our ability to satisfy any requirements imposed by the FDA (or its foreign equivalents) as a condition of our clinical trials proceeding or beginning as planned; |
| • | The impact of COVID-19 our clinical trials, clinical drug candidate supplies, preclinical activities and our ability to raise future financing; |
| • | Our ability to continue our relationship with MD Anderson, including our ability to maintain current licenses and license future intellectual property resulting from our sponsored research agreements with MD Anderson; |
| • | Our ability to obtain additional funding to commence or continue our clinical trials, fund operations and develop our product candidates; |
| • | The need to obtain and retain regulatory approval of our drug candidates, both in the United States and in Poland, and in countries deemed necessary for future trials; |
| • | Our ability to complete our clinical trials in a timely fashion and within our expected budget and resources; |
| • | Compliance with obligations under intellectual property licenses with third parties; |
| • | Any delays in regulatory review and approval of drug candidates in clinical development; |
| • | Potential efficacy of our drug candidates; |
| • | Our ability to commercialize our drug candidates; |
| • | Market acceptance of our drug candidates; |
| • | Competition from existing therapies or new therapies that may emerge; |
| • | Potential product liability claims; |
| • | Our dependency on third-party manufacturers to successfully, and timely, supply or manufacture our drug candidates for our preclinical work and our clinical trials; |
| • | Our ability to establish or maintain collaborations, licensing or other arrangements; |
| • | The ability of our sublicense partners to successfully develop our product candidates in accordance with our sublicense agreements; |
| • | Our ability and third parties’ abilities to protect intellectual property rights; |
| • | Our ability to adequately support future growth; and |
| • | Our ability to attract and retain key personnel to manage our business effectively. |
We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
Moleculin Biotech, Inc., a Delaware corporation, isWe are a clinical stage pharmaceutical company focused on the treatment of highly resistant cancers and viruses. We have three core technologies, all of which are based substantially on discoveries made at M.D. Anderson Cancer Center (MD Anderson). We haveThese three core technologies are Annamycin, the WP1066 Portfolio, and the WP1122 Portfolio and include a total of six drug candidates, that are activethree of which have now shown human activity in clinical trials. In 2019, those three drug candidates were active in four clinical trials in the US and Europe with a fifth that began recruiting patients in April 2020. Of these five clinical trials, two are primarily externally funded. For two of our internally funded trials, we successfully concluded the Phase 1 portion recently and are preparing to potentially move into Phase 2 trials. We anticipate laying the groundwork in 2020 for two additional Phase 1 trials expected to begin in 2021 sponsored by us and two other Phase 1 trials we expect to be externally sponsored.
We recently announced a collaboration with a major Texas university institution to evaluate our drug candidate, WP1122, and now this has been followed by collaborations with additional entities who bring additional expertise in developing potential treatments for diseases like COVID-19. The preclinical work to evaluate WP1122's potential against the Coronavirus is similar to preclinical work originally planned for 2020 to develop against cancer indications, supporting a cancer-related Investigational New Drug (IND) application for clinical trials in 2021.
Based on our positive clinical activity thus far, we have narrowed our development focus to our nearest term opportunities, including Annamycin, WP1222 and WP1220, while relying on external funding for other projects. In addition, the opportunity related to COVID-19 has pushed the development of WP1122 to the forefront. Notwithstanding the emphasis on WP1122, we believe our overall narrowing of focus will allow us to reduce our cash needs until we reach a significant value inflection point, although we will continue to require additional external capital during this period. In addition, institutional support for our technologies has increased and we believe such support may provide outside funding to help reduce future cash needs. Such expectations assume some form of government funding for WP1122 if it is successful in bridging from preclinical to clinical activity in 2020, although we have no commitments at this time for such funding and can provide no assurances that such funding can be obtained.
Of our three clinical stage drug candidates, Annamycin is being studied for the treatment of relapsed or refractory acute myeloid leukemia (“AML”) and cancers metastasized to the lungs. WP1066, an Immune/Transcription Modulator (p-STAT3 inhibitor) is intended to target a wide range of tumors, including brain tumors and pancreatic cancer. We began and completed a "proof-of-concept" Phase 1 clinical trial in 2019 in Poland for a third drug, WP1220 (a molecule similar to WP1066), for the topical treatment of cutaneous T-cell lymphoma (CTCL) and we are planning to expand development of this drug into a Moleculin Phase 2 trial. We are also engaged in preclinical development of additional drug candidates, including additional Immune/Transcription Modulators, as well as Metabolism/Glycosylation Inhibitors.
Three Core Technologies
We consider Annamycin to be a "next generation" anthracycline, unlike any currently approved anthracyclines, as it is designed to avoid multidrug resistance mechanisms with little to no cardiotoxicity (two problems common to(the efficacy of all currently approved anthracyclines)anthracyclines is limited by both multidrug resistance and cardiotoxicity). We recently received an independent expert cardiology assessment confirming the absence of cardiotoxicity in the first 14 patients treated with Annamycin in both our US and European Phase 1 clinical trials, validating Annamycin's lack of cardiotoxicity. Annamycin is currently in one Phase 1/2 clinical trial in Europe with the Phase 1 portion of another Phase 1/2 AML trial recently concluding in the US. Upon receipt of further data from the European Phase 1 trial, we plan to seek agreement with the FDA for accelerated approval of Annamycin based on a pivotal Phase 2 AML trial sponsored by us, although there is no assurance that the FDA will agree with our proposal.
In 2019, preclinical work on Annamycin demonstrated activity against certain cancers metastasized to the lungs. With this new data, we are planning to start a Moleculin-sponsored US Phase 1 trial at MD Anderson for the treatment of cancer metastasized to the lungs with Annamycin, although no assurances can be given that such trial will begin.
WP1066 is one of several Immune/Transcription Modulators, designed to stimulate the immune response to tumors by inhibiting the errant activity of Regulatory
TCellsT-Cells (TRegs) while also inhibiting key oncogenic transcription factors, including p-STAT3
(phosphorylated signal transducer and activator of transcription 3), c-Myc
(a cellular signal transducer named after a homologous avian virus called Myelocytomatosis) and HIF-1α
(hypoxia inducible factor 1α). These transcription factors are widely sought targets that
are believed to contribute to an increase in cell survival and proliferation, and the angiogenesis (coopting vasculature for blood supply), invasion, metastasis and inflammation associated with tumors. They may also play a role in the inability of immune checkpoint inhibitors to affect more resistant tumors.
WP1220 is a close analog to WP1066
that we have developed as a potential topical therapy for skin-related diseases.Our third core technology is currently in a US physician-sponsored Phase 1 trial for the treatment of glioblastoma ("GBM") and another institutionally sponsored Phase 1 trial has begun recruiting for the treatment of pediatric brain tumors. Another physician-sponsored Phase 1 trial is being considered for the treatment of GBM with WP1066 in combination with radiation, although no assurances can be given that such trial will begin.
We are also developingcentered on new compounds designed to exploittarget the potential uses of inhibitorsroles of glycolysis such as 2-Deoxy-D-glucoseand glycosylation in both cancer and viral diseases. As an example, 2-deoxy-D-glucose (2-DG), which we believe may provide an opportunity to limit is a glucose decoy that is capable of inhibiting glycolysis, thereby cutting off the energy available to tumorsprimary fuel supply for both cancer cells and virus host-cellsviral host cells by taking advantage of their high level of dependence on glucose in comparison to healthy cells. A key drawback toIn addition, 2-DG is capable of altering glycosylation, a process by which, when coopted by tumors, cancer cells are believed to evade the body’s immune response. In the case of viruses like SARS-CoV-2 (the virus responsible for COVID-19), glycosylation forms the glycoprotein spikes surrounding the coronavirus that give it its lackname and enable both evasion of drug-like properties, includingthe immune response and the ability to infect new host cells. One of the limitations of 2-DG, however, is how rapidly it is metabolized, resulting in a short circulation time and poorlimited tissue/organ distribution characteristics. Our lead Metabolism/Glycosylation Inhibitor, WP1122, is a prodrug of 2-DG that appears to improve the drug-like properties of 2-DG by increasing its circulation time and improving tissue/organ distribution. Recent published research has identified that 2-DG has antiviral potential against SARS-CoV-2 in vitro and, based on publicly available information, a recently completed Phase 2 clinical trial by an unrelated company in India has reported efficacy in COVID-19 patients, resulting in the Emergency Use Authorization of 2-DG by the Drugs Controller General of India. New research also points to the potential for 2-DG to be capable of enhancing the usefulness of checkpoint inhibitors and also its potential against viruses like the Coronavirus.inhibitors. Considering that WP1122 generally outperforms 2-DG lacks sufficient drug-like properties to be practicalalone in a clinical setting,both in vitro and in vivo tumor models and in viral in vitro models, we believe WP1122 has the potentialopportunity to become an important drug either as a single agent or to potentiate existing therapies, including checkpoint inhibitorsinhibitors. We are also engaged in preclinical development of additional antimetabolites (WP1096 and antiviral treatments. In March 2020, we entered into agreements with several outside research laboratories that will conduct research on WP1122 for antiviral properties against a range of viruses, including Coronavirus. We have also added experts to our Science Advisory Board to support our anti-viral efforts.
The FDA has created a special emergency program for possible therapies, the Coronavirus Treatment Acceleration Program (CTAP). FDA comments that it uses every available method to move new treatments to patients as quickly as possible, while at the same time finding out whether they are helpful or harmful. As cited by the FDA on their CTAP website:
•“Immediately upon receipt, triaged requests from developersWP1097) targeting glycolysis and scientists seeking to develop or evaluate new drug and biologic therapies …..FDA will generally respond within a day.
glycosylation.
•Provided ultra-rapid, interactive input on most development plans. Interactions have generally been prioritized based on a product’s scientific merits, stage
Clinical Trials
During 2020, three of development,our drug candidates accounted for five clinical trials in the US and identification as a possible priority productEurope. Two of those trials are ongoing externally funded studies of WP1066 in consensus USG documents.
•Provided ultra-rapid protocol review – within 24 hoursbrain tumors. Two of submission, in some cases.
•Completed review of single patient expanded access requests around-the-clock – and generally within 3 hours.
•Worked closely with applicants and other regulatory agencies to expedite quality assessments for products to treat COVID-19 patients and to transfer manufacturing to alternative or new sites to avoid supply disruption.”
Comparing the intended turnaround times of the FDA above to its normal 60 day turnaround time for a pre-IND meeting request and 30 days for an IND review, these are expedited timelines. We plan on utilizing these aspects, which may shorten the various FDA review periods in connection with a potential IND for WP1122, although we can provide no assurance that the FDA will shorten its review period or eventually approve any IND application.
Recent Business Developments
Below are recent business developments.
Annamycin
Approved to Accelerate European Clinical Trial
We announced on April 28, 2020, that we are now authorized by the Polish Department of Registration of Medicinal Products known as URPL to accelerate theour internally funded Phase 1
dose escalation portionclinical trials have concluded. The US trial for Annamycin in acute myeloid leukemia (AML) successfully met its safety endpoint, and the trial for WP1220 in cutaneous T-cell lymphoma (CTCL) demonstrated an objective response rate of
our45% and a clinical benefit rate of 100%. An additional Phase 1/2 clinical trial of Annamycin
in AML is also internally funded and is currently ongoing. In 2021, we anticipate the initiation of four or more new clinical trials in addition to the three trials continuing from 2020.Below we use certain terms to describe our clinical trials. By "internally funded” we mean that the primary costs of the preclinical activity and clinical trials are funded by us. “Externally funded” drug candidates include those for which preclinical work is funded and performed by external collaborators and for which clinical trials are physician sponsored. For externally funded research, any grant funds that support such preclinical work or clinical trials and most of the associated expenses are not reflected in our financial statements. However, the costs of drug product and other minor supporting activities that we provide for externally funded preclinical activities and clinical trials are included in our financial statements.
Recently reported data from our sponsored research demonstrates that in AML mouse models, the combination of Annamycin with Ara-C (a chemotherapy drug commonly used in AML patients) has a synergistic effect, suggesting that this combination may be more beneficial for AML patients than Annamycin as a single agent. Accordingly, we plan to begin a Phase 1/2 clinical trial of Annamycin in combination with Ara-C for the treatment of AML. The URPL has allowed an amendment to the AnnamycinAML in Europe, by seeking approval for our own internally funded clinical trial protocol, which among other things, includes an increase in the dose escalation increment between cohorts from 30 mg/m2Europe and a second, similar trial through our sublicensee, WPD Pharmaceuticals, in Poland. Furthermore, we received U.S. Food and Drug Administration (FDA) clearance in late 2020 to 60 mg/m2. The clinical trial is currently recruiting for the 240 mg/m2 cohort, so this amendment allows the next cohort to increase to 300 mg/m2, assuming all requirements for safety are metproceed with the 240 mg/m2 cohort.
Positive Safety Data in EU AML Trial
On April 2, 2020, we announced that we completed the latest (210 mg/m2) cohort in our European open label, single arma Phase
1/1b/2 clinical trial of Annamycin for the treatment of
relapsedsoft tissue sarcoma (STS) lung metastases and we are preparing to begin this internally funded trial in the US in the third quarter of 2021. Additionally, we expect in 2021 a second Phase 1b/2 clinical trial of Annamycin in sarcoma lung metastases to be primarily investigator-funded in Europe.WP1066 is currently in two US physician-sponsored Phase 1 trials, one at MD Anderson for the treatment of glioblastoma (GBM) in adults and another at Emory University for the treatment of pediatric brain tumors (including DIPG and medulloblastoma). We began and completed a "proof-of-concept" Phase 1 clinical trial in 2020 in Poland for a third drug, WP1220 (a molecule in the WP1066 portfolio), for the topical treatment of cutaneous T-cell lymphoma (CTCL). We are actively seeking collaboration with a strategic partner in the near term for external funding for the continued development of WP1220 in a Phase 2 clinical trial as a topical therapy for CTCL, and based on the pace of current discussions, we do not anticipate this trial to begin this year. If we are not successful in this outreach, we may choose to use internal funds to generate additional human data to facilitate such outreach efforts.
Finally, we are also in discussions with regulatory authorities in the United Kingdom (UK) to initiate a Phase 1 clinical trial of WP1122 in healthy volunteers with the intent to progress to COVID-19 patients either there or refractory AML. Ain locations where the prevalence of COVID-19 will adequately support recruitment. We intend to internally fund the initial trials of WP1122 but may seek external funding opportunities. Additionally, we are planning to file an IND in the US for the treatment of certain cancers with WP1122.
In summary, we had five clinical trials underway or concluded in 2020 and we now expect up to seven or more clinical trials to be underway or approved in 2021, including externally funded trials.
Update on Clinical Trials and Licensing
Annamycin
Annamycin is currently in one Phase 1/2 clinical trial in Europe, and the Phase 1 portion of another Phase 1/2 AML trial in the US has been concluded, subject to final database lock and closure, which should occur in the third quarter of 2021.
The trial in Poland is in its fifth cohort, where patients are being treated at 240 mg/m2. Patient 2 in this cohort experienced certain elevated liver enzymes (AST and ALT), which under the current protocol, are considered a dose limiting toxicity (DLT). In this instance, the DLT was secondarily related to concomitant medication not being withheld. Although that DLT resolved, in accordance with the trial protocol, the cohort was expanded and has now enrolled a total of 19five patients. In March 2021, patient 4 in this cohort experienced a similar DLT, which also resolved. Although treatment was discontinued for Patients 2 and 4, a total of three patients in this cohort received the full dose of Annamycin without any DLTs and, based on preliminary data, all three responded to treatment, with one relapsed patient experiencing a complete response (CR), a refractory patient experiencing a partial response (PR) and another relapsed patient completely clearing circulating blasts. With this preliminary data, 40% of the patients being treated at 240 mg/m2 experienced clinical benefit. Combining these results with prior cohorts in Poland and with the cohorts in the US trial, six of seventeen relapsed AML patients or 35% experienced clinical benefit (CR, CRi, PR, or Bridge-To-Transplant). One refractory patient in the Poland trial experienced a PR.
Although the elevated liver enzymes described above meet the test of a “Dose Limiting Toxicity” per the clinical trial protocol, our medical advisors have determined that these instances were transient and self-limited with no evidence of serious sequalae (related longer-term negative effects) and, therefore, should not be considered DLTs in future patients unless these elevated enzyme levels do not return to near baseline (baseline or less than or equal to grade 1) within a reasonable time or if there is other evidence of serious sequalae. Based on this new data, we are planning to amend the protocol for this trial in Poland to change the DLT criteria as it relates to transient grade 3 elevations to allow us to dose three additional patients in the 240 mg/m2 cohort. If no DLT is experienced with these next three patients, we will escalate dosing in new cohorts by 30 mg/m2 instead of the 60 mg/m2 previously planned, and with a de-escalation of 15 mg/m2 at the DLT dose if future patients experience a DLT. We cannot provide any assurance that such an amendment will be approved.
Additionally, our sublicense partner, WPD Pharmaceuticals Sp.z o.o. (WPD), recently announced that it was conditionally awarded a reimbursement grant of approximately $6.7 million (20.4 million PLN) from the Polish National Center for Research and Development (“NCRD”), for the development of Annamycin. The funds will be used for the continued development of Annamycin, including a clinical trial of Annamycin in combination with Ara-C for which this grant is expected to cover the reimbursement of about 60% of planned costs. WPD is a sub-licensee of certain technologies from us in 29 countries in Europe and Asia. We expect that this trial will begin in 2021 but since this is an externally funded trial, we cannot provide any assurance regarding actual timing.
Regarding our planned US clinical trial of Annamycin for the treatment of STS lung metastases, we executed a clinical trial agreement with with Sarcoma Oncology Research Center, an institution in Santa Monica, CA to be the first clinical site. We expect this trial to begin in the third quarter of 2021.
Earlier in 2021, we announced that the Agencja Badań Medycznych (The Medical Research Agency) a Polish state agency responsible for development of scientific research in the field of medical and health sciences, awarded a grant equivalent to $1.5 million to the Maria Sklodowska-Curie National Research Institute to fund a Phase 1b/2 clinical trial of Annamycin for the treatment of STS lung metastases. The grant-funded clinical trial will be led by Prof. Piotr Rutkowski, MD, PhD, Head of Department of Soft Tissue/Bone Sarcoma and Melanoma at the Maria Sklodowska-Curie National Research Institute of Oncology in Warsaw, Poland. Prof. Piotr Rutkowski will be assisted, in part, by WPD who will provide support in preparation for and conduct of the clinical trial, which is expected to begin this year. As a part of the collaboration between Moleculin and Prof. Rutkowski, Moleculin will be supplying the drug product and other ancillary services necessary for the clinical trial, but Moleculin will not participate in conducting the clinical trial. This trial is independent from and will be in addition to the US clinical trial Moleculin is planning to conduct with Annamycin in STS lung metastases.
WP1066
The clinical trial of WP1066 for the treatment of adult brain tumors at MD Anderson has completed the fourth cohort at 8mg/kg in the dose escalation phase. In the first quarter of 2021, we were notified that the physician sponsoring this trial is leaving MD Anderson. As a result, MD Anderson has notified us that they will be closing this trial. Several additional institutions have expressed an interest in sponsoring similar research on WP1066 in brain tumors, so to help ensure the potential continuation of this important research, regardless of the sponsoring institution, we have requested the IND for this trial to be transferred into our name with the FDA, although we can provide no assurance as to when, or if, this transfer will be completed. While we are working to continue this research in additional physician-sponsored trials, we expect that continued research on WP1066 in adult GBM will be temporarily delayed in 2021.
Three patients have now been treated in the USsecond cohort of the Phase 1 dose escalation portion of physician-sponsored clinical trial at Emory University for the treatment of pediatric brain tumors with WP1066 at the dose level of 6mg/kg and Europe, and all results continue to show Annamycinthis dose has been deemed to be safe, and, especially, all have shown Annamycinsafe. Recruitment will now begin for the third cohort with dosing at 12 mg/kg.
WP1122
Based on previously announced data demonstrating the antiviral potential of our lead antimetabolite molecule, WP1122, we intend to be free of cardiotoxicity. Of those, 10 have been treated at or abovetest the FDA lifetime maximum anthracycline exposure.
WP1122
Head of NIAID Antiviral Drug Discovery and Development Center Joins COVID-19 Drug Development Team
On April 22, 2020, we announced that we have retained Dr. Richard Whitley to our Science Advisory Board to guide our development strategy for WP1122drug candidate for the potential treatment of COVID-19. Although we have previously disclosed that antiviral clinical trials in the US will be dependent upon demonstrating efficacy in an appropriate COVID-19 animal model, we recently engaged in discussions with the Medicines and other viral diseases. Richard Whitley, M.D., is a Distinguished Professor of Pediatrics, Professor of Microbiology, Medicine and Neurosurgery; Loeb Eminent Scholar ChairHealthcare Products Regulatory Agency (MHRA) in Pediatrics; Co-Director, Division of Pediatric Infectious Diseases; Vice-Chair, Department of Pediatrics; Senior Scientist, Department of Gene Therapy; Scientist, Cancer Research and Training Center; Faculty, Gene Therapy Center; Associate Directorthe United Kingdom (UK) regarding the potential for Drug Discovery and Development and Senior Leader, Pediatric Oncology Program, O'Neal Comprehensive Cancer Center at the University of Alabama at Birmingham (UAB); and Co-Founder and Co-Director, Alabama Drug Discovery Alliance.
Dr. Whitley is responsible for the National Institute of Allergy and Infectious Diseases Collaborative Antiviral Study Group whose role is to performbeginning clinical trials of antiviral therapies directed against medically important viral diseasesWP1122 without the need for additional preclinical animal efficacy models. Based on our initial discussions with the MHRA, we believe that a COVID-19 animal model will not be required in order to submit a clinical trial application (CTA) for a Phase 1 clinical trial beginning with healthy volunteers in that country, although no final determination has been made by the MHRA. Based on this feedback, we intend to proceed with the submission of children and adults including viruses considered as threats to human health. He participates in numerous Data Safety and Monitoring Boardsa CTA for ongoinga Phase 1 clinical studies. He is a past President of the Infectious Diseases Society of America and received the UAB President's Medal in 2007. In 2013, he was named as the inaugural recipient of the Distinguished Clinical Research Scholar and Educator in Residence at the NIH Clinical Center.
Agreement with ImQuest Biosciences to Expand Coronavirus Testing
We announced on April 20, 2020, that we entered into an agreement with ImQuest Biosciences to expand in vitro and in vivo testingtrial of WP1122
in the UK.The preclinical work to evaluate molecules within the WP1122 portfolio of antimetabolites (which include molecules capable of inhibiting glycolysis and altering glycosylation) for viral indications is mostly similar to the preclinical work we originally planned as part of developing WP1122 for cancer indications. Accordingly, we believe the preclinical work we have completed for WP1122 will also support an IND application or its equivalent in other countries for cancer-related clinical trials. We continue to plan to submit such an IND in the US in 2021.
COVID-19 Impact on Clinical Trials
The spread of COVID-19 has caused significant volatility in US and international markets, including Poland, where we conduct some of our leadclinical trials, and Italy, where our drug candidatesupply is produced. There has been limited interruption of our drug supply, and most Polish clinics where we are conducting trials are limiting access for monitoring activities, which could delay our ability to collect data and authorize new patient recruitment. Additionally, we believe COVID-19 has materially slowed the ability of approved sites to recruit patients for our trials. This could worsen or be alleviated at any time. Furthermore, there is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the US and international economies and, as such, we are unable to determine if it will have a material impact to our operations. Recently, we continue to experience a limited increase in activity with regard to recruitment of new patients in Poland. Additionally, we believe that the potential for impact to our supply chain due to COVID-19 has been reduced as vaccine production normalizes throughout the industry. Considering current worldwide trends with respect to COVID-19, we cannot determine whether COVID-19 will materially impact recruitment for current or future trials.
Licensing
We are currently in discussions with MD Anderson regarding amendments to existing licenses and new licenses related to Annamycin and WP1122.
Recent Business Developments
Below are recent business developments.
Annamycin
FDA Approval of Fast Track Designation for Annamycin in the Treatment of Sarcoma Lung Metastases
On March 30, 2021, we announced that the FDA had approved our request for Fast Track Designation for our drug, Annamycin, for the treatment of COVID-19. ImQuest BioSciences is a preclinical CROSTS lung metastases.
WP1066
Awarded New Rare Pediatric Disease Designation from U.S. FDA for WP1066 for the Treatment of Ependymoma
On April 14, 2021, we announced that provides expert servicesthe FDA has granted Rare Pediatric Disease Designation (RPD) to evaluate the potential of new and novel pharmaceutical productsour p-STAT3 inhibitor, WP1066, for the treatment and prevention of viruses, bacteria, cancer and inflammatory diseases.
Leading Virologist Joins Development Team
ependymoma.WP1122
IQVIA to Manage Potential COVID-19 Clinical Trial
On April 15, 2020,6, 2021, we announced that Dr. Dominique Scholsthe engagement of the Rega Institute has joined the Moleculin development team asIQVIA Biotech, a consultant. The Rega Institute of Medical Research, Belgium, is one of the premier medicalcontract research institutes in Europe. Dr. Dominique Schols is Professor and Head of the Laboratory of Virology and Chemotherapy, Department of Microbiology and Immunology and Transplantation of the University of Leuven, Belgium.
Independent Research Finds Active Compound in WP1122 Reduces Coronavirus Replication in Vitro by 100%
On April 8, 2020, we announced that independent research found 2-DGorganization (CRO) to reduce replication of SARS-CoV-2, the virus that causes COVID-19, by 100% in in vitro testing. This cited research is a preprint, which is a preliminary report that has not undergone peer review. Moleculin's drug candidate, WP1122, is referredmanage our efforts to as a "prodrug" of 2-DG whereby chemical elements are added to 2-DG to improve its delivery in vivo. Once administered, these added elements are removed by normal metabolic processes and what remains is 2-DG. As a result, 2-DG is the active compound in WP1122. In chemical terms, it is referred to as the active "moiety" (subpart) of WP1122.
Patent Filing to Cover New Coronavirus Drug Candidate
We announced on March 20, 2020, that a new patent application has been filed covering the usebegin potential clinical trials of WP1122 and its analogs as therapies to limitfor the abilitytreatment of Coronavirus and other viruses to replicate. The patent application covers joint discoveries which came as a result of an ongoing sponsored research agreement.
SEC matters
On May 1, 2020, the SEC pursuant to Section 12(k) of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of Moleculin because of questions regarding the accuracy and adequacy of information in the marketplace about Moleculin and its securities. Pursuant to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petition to terminate the suspension, but there is no assurance that we will be successful. We believe we will be able to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about us and our securities is accurate and adequate.
COVID-19.
The following table sets forth, for the periods indicated, data derived from our statement of operations (in thousands) and such changes in the periods are discussed below in approximate amounts:
Condensed Consolidated Statements of Operations
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2020 | | 2019 |
| Revenues | $ | — | | | $ | — | |
| | | |
| Operating expenses: | | | |
| Research and development | 3,206 | | | 2,932 | |
| General and administrative | 1,810 | | | 1,591 | |
| Depreciation and amortization | 46 | | | 48 | |
| Total operating expenses | 5,062 | | | 4,571 | |
| Loss from operations | (5,062) | | | (4,571) | |
| Other income (expense): | | | |
| Gain from change in fair value of warrant liability | 3,845 | | | 529 | |
| Other income | 5 | | | — | |
| Interest income, net | 3 | | | 1 | |
| Net loss | $ | (1,209) | | | $ | (4,041) | |
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Revenues | | $ | — | | | $ | — | |
| | | | | | | | | |
Operating expenses: | | | | | | | | |
Research and development | | | 4,105 | | | | 3,206 | |
General and administrative | | | 1,939 | | | | 1,810 | |
Depreciation and amortization | | | 44 | | | | 46 | |
Total operating expenses | | | 6,088 | | | | 5,062 | |
Loss from operations | | | (6,088 | ) | | | (5,062 | ) |
Other income: | | | | | | | | |
Gain from change in fair value of warrant liability | | | 1,577 | | | | 3,845 | |
Other income, net | | | 9 | | | | 5 | |
Interest income, net | | | 57 | | | | 3 | |
Net loss | | $ | (4,445 | ) | | $ | (1,209 | ) |
Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, 2019
2020Research and Development Expense.
Research and development (R&D) expense was $3.2$4.1 million and $2.9$3.2 million for the three months ended March 31, 20202021 and 2019,2020, respectively. The increase of $0.3$0.9 million is mainly related to increased clinical trial activity as described above, increased license fees andcosts related to sponsored research agreements and costs related to manufacturing of additional drug product and two additional employees in research and development headcount.
product.General and Administrative Expense.
General and administrative expense was $1.8$1.9 million and $1.6$1.8 million for the three months ended March 31, 20202021 and 2019,2020, respectively. The increase of $0.2$0.1 million is mainly related to an increase in our insurance, which was mainly attributable to increased payroll costs for an additional finance employee, increased stock-based compensation expense for annual employee stock options, and increased costs for directors and officer's liability insurance.
offset by a similar decrease in travel expenses.Gain from Change in Fair Value of Warrant Liability.
We recorded a net gain of $1.6 million in the first quarter of 2021 as compared to a net gain of $3.8 million in the first quarter of 2020, as compared to a net gain of $0.5 million in the first quarter of 2019, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with our stock offerings. We are required to revalue our liability-classified warrants at the time of each warrant exercise, if applicable, and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We calculated the fair value of the warrants outstanding using the Black-Scholes model. A gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price.
Liquidity and Capital Resources
The following table sets forth our primary sources and uses of cash for the period indicated (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2020 | | 2019 |
| Net cash used in operating activities | | $ | (4,342) | | | $ | (3,847) | |
| Net cash used in investing activities | | (2) | | | (15) | |
| Net cash provided by financing activities | | 5,291 | | | 5,521 | |
| Effect of exchange rate changes on cash and cash equivalents | | (33) | | | (11) | |
| Net increase in cash and cash equivalents | | $ | 914 | | | $ | 1,648 | |
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Net cash used in operating activities | | $ | (3,624 | ) | | $ | (4,342 | ) |
Net cash used in investing activities | | | — | | | | (2 | ) |
Net cash provided by financing activities | | | 74,748 | | | | 5,291 | |
Effect of exchange rate changes on cash and cash equivalents | | | (4 | ) | | | (33 | ) |
Net increase in cash and cash equivalents | | $ | 71,120 | | | $ | 914 | |
As of March 31, 2020,2021, there was $0.3$0.4 million of cash on hand in Australia. We maintain a bank account in Australia and we know of no related limitations impacting our liquidity there.in Australia.
Cash used in operating activities
Cash used in operations was $4.3$3.6 million f
orfor the three months ended March 31, 2020.2021. This $0.5$0.7 million increasedecrease over the prior year period of $3.8of $4.3 million was primarily due to:to an increase in accounts payable, which was slightly offset by: 1) payments for developing, manufacturing and testing drug product as we prepared for clinical trials; 2) an increase in R&D employee and contractor headcount and associated payroll costs; 3) an increase in paid sponsored research and related expenses; and 4) an increase in license fees. These are all a reflection of the ongoing clinical and pre-clinical activity and the associated increase in general and administrative support for our three core drug technologies.
Cash used in investing activities
Net cash used in investing activities was $2,000 for the three months ended March 31, 2020 compared to $15,000 for the three months ended March 31, 2019. The decrease relates to purchases in 2019 related to furniture and fixtures for our corporate apartment, as well as additional electronic equipment for employees and our corporate office.
Cash provided in financing activities
In February 2021, we completed an underwritten public offering of an aggregate of 14,273,684 shares of common stock at a public offering price of $4.75 per share. We granted the underwriters a 30-day option to purchase up to an additional 2,141,052 shares of common stock offered in the public offering. The offering closed on February 5, 2021 and gross proceeds of the offering were approximately $67.8 million, prior to deducting the underwriting discount and other offering expenses. On February 10, 2021, the underwriters of the public offering exercised in full their option to purchase an additional 2,141,052 shares of common stock at the public offering price of $4.75 per share, bringing total gross proceeds to approximately $78.0 million before underwriting discount.
In January 2021 we issued 468,684 shares for gross proceeds of $2.9 million using our At The Market Agreement with Oppenheimer & Co., Inc. We terminated the ATM Agreement on February 2, 2021. Additionally, during the first quarter of 2021, 10,000 shares were issued due to the exercise of warrants related to past public offerings. Gross proceeds received due to these exercises approximated $63,000.
In February 2020, we entered into subscription agreements with institutional investors to purchase of 7,500,0001,250,000 shares of our common stock and warrants to purchase 5,625,000937,501 shares of common stock at a combined public offering price of $0.80$4.80 per share and related warrant resulting in gross proceeds of $6.0 million. Each warrant has an exercise price of $1.05$6.30 per share and will bewere exercisable six months from the date of issuance and will expire five years from the date they arewere first exercisable.
During the three months ended March 2019, we completed an underwritten offering of 5,250,000 shares of our common stock and warrants to purchase 2,650,000 shares of common stock for net proceeds of $4.7 million after deducting the underwriting discount and estimated offering expenses and we sold 605,367 shares of our common stock to Lincoln Park Capital Fund, LLC for $0.9 million.
We believe that our existing cash and cash equivalents as of March 31, 2020 combined with the shares we sold in April 2020 through the At Market Issuance Sales Agreement2021 will be sufficient to fundmeet our planned operations intoprojected operating requirements, which include a forecasted increase over our current R&D rate of expenditures, through at least the first quarter of 2021, without the issuance of additional equity for cash. Any such issuances should extend the funding of our planned operations beyond the first quarter of 2021.year 2023. Such plansprojections are subject to our stock price, market conditions, changes in planned expenses depending onour internally funded preclinical and clinical enrollment progress,activities, including unplanned preclinical and clinical activity. We anticipate incurring operating losses for the use ofnext several years as we support the preclinical and clinical activities necessary to prepare our drug product or a combination thereof. Based on the Company's current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity duecandidates for successful out licensing, including our efforts to the worldwide spread of the COVID-19 virus.
We will not generate revenue from product sales unless and untilexpand our technologies. These factors raise uncertainties about our ability to fund operations in future years. If we successfully complete development of, obtain regulatory approval for and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital in order to fundcontinue to execute our future operations. Until such timebusiness plan, there is no assurance that additional financing will be available when needed or that we can generate substantial revenue from product sales, if ever, we expectwill be able to finance our operating activities through a combination of equity offerings and debt financings, and we may seekobtain financing on terms acceptable to us. A failure to raise additionalsufficient capital through strategic collaborations. However, we may be unablecould adversely impact our ability to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact onachieve our intended business objectives and meet our financial conditionobligations as they become due and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our
current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations, which may cause dilution to our existing stockholders.
payable.Critical Accounting Policies and Significant Judgments and Estimates
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Research and Development Costs
We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of pre-clinical and clinical studies and preparation for clinical trials and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, thereThere have been no material differenceschanges to our critical accounting policies and use of estimates from those disclosed in our accrued expenses to actual expenses.
Impairment of Long-Lived Assets
Management evaluatesForm 10-K for the recoverability of its property and equipment and amortizable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable or atyear ended December 31, 2020. For a minimum annually during the fourth quarter of the year. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and amortizable intangible assets is not recoverable, the carrying amount of such asset is reduced to fair value.
Acquired in-process research and development (IPR&D) assets are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Management evaluates the recoverability of its IPR&D assets for possible impairment annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of IPR&D assets is measured by a comparison of the carrying amounts to its fair value. If such review indicates that the carrying amount of IPR&D assets is not recoverable, the carrying amount of such asset is reduced to fair value.
Accounting for warrants
We have issued warrants to purchase shares of common stock related to equity transactions in 2017, 2018, 2019 and 2020. We account for our warrants issued in accordance with Accounting Standards Codification (ASC) Topic 480, Distinguishing Liabilities from Equity, ASC Topic 505, Equity, ASC Topic 815, Derivatives and Hedging, and ASC Topic 718, Compensation—Stock Compensation. Warrants are classified as liabilities when the Company may be required to settle a
warrant exercise in cash and classified as equity when the Company settles a warrant exercise in shares of its common stock. Based on this guidance, we determined that certaindiscussion of our warrantscritical accounting policies and use of estimates, refer to purchase sharesManagement’s Discussion and Analysis of common stock related to equity transactions meet the criteria for classification as a liability. Accordingly, the warrants were classified as a warrant liabilityFinancial Condition and are subject to fair value remeasurement at exerciseResults of Operations – Critical Accounting Policies and balance sheet date with the changesSignificant Estimates in fair value recognized in earnings.
Our financial instruments consist primarilyPart II, Item 7 of non-trade receivables, account payables, accrued expenses, and a warrant liability. The carrying amount of non-trade receivables, accounts payables, and accrued expenses approximates their fair value because of the short-term maturity of such.
We have categorized our assets and liabilities that are valued at fair valueAnnual Report on a recurring basis into three-level fair value hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous marketForm 10-K for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).
Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:
Level 1 - Unadjusted quoted prices in active markets of identical assets or liabilities.
Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 - Unobservable inputs for the asset or liability.
Our financial assets and liabilities recorded at fair value on a recurring basis include the fair value of our warrant liability discussed above. The fair value of our liability classified warrants associated with the February 2017, February 2018, June 2018, March 2019, April 2019 and February 2020 Offerings (Offerings) are included in long-term liabilities on the accompanying financial statements as of March 31, 2020 andyear ended December 31, 2019.
We estimated the fair value of the warrant liability of a liability classified warrants pursuant to ASC Topic 820 as of their issuance date for financial reporting purposes, when exercised and balance sheet date. We used the Black-Scholes option pricing model (BSM) to determine the fair value of the warrants which is an acceptable method in accordance with GAAP. The BSM requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds whose maturity period is appropriate for the term of the warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.
Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the warrants. Beginning in 2020, we use the volatility of our stock in the BSM as we now have sufficient historic data in our stock price. Prior to 2020, we used the historical volatility of peer entities combined with our own due to the lack of sufficient historical data of our stock price
Changes in the fair value of our liability classified warrants during the reporting period are reflected as a gain (loss) from change in fair value of warrant liability in other income (expense) in our condensed consolidated statement of operations and comprehensive loss.
2020.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable to us, as we are a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
ProceduresWe maintain disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our
management, including our Chief Executive Officer (CEO), who is our principal executive officer, and Chief Financial Officer (CFO), who is our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures. Our CEO and CFO have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures were not effective as disclosed below.
In light of
the material weakness described below, we performed additional procedures during the quarter and additional analysis and procedures post-closing to ensure our unaudited condensed consolidated financial statements were preparedMarch 31, 2021.Changes in accordance with generally accepted accounting principles. Accordingly, we believe that the condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board Auditing Standard 1305) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected.
During the last quarter of fiscal 2016, and as our operational activities increased, management determined that it does not have sufficient segregation of duties within its accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to maintain effective segregation of duties on our assessment of our internal control over financial reporting and has concluded that the control deficiency represents a material weakness. A number of the issues related to segregation of duties were remediated with new information technology systems and policies and procedures during 2019. Management added additional accounting and IT personnel in 2019 and implemented a new accounting software system, accounting policies, and banking controls. Management intends to further enhance its accounting staff and enhance the controls surrounding its system of financial accounting and reporting, as soon as economically feasible and sustainable, to further remediate this material weakness. During 2020, we implemented the ERP system for electronic payments and further updated roles, policies and procedures within those systems.
We continuously seek to improve the efficiency and effectiveness of our internal controls. Internal Control Over Financial ReportingThere has been no changes, except for items described above,change in our internal control over financial reporting that occurred(as defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) during the three months ended March 31, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Specifically, ourOur employees are working remotely due to the COVID-19 pandemic, but we do not believe that our adjustments to how we work have materially impacted our internal controls over financial reporting. We continue to monitor and accessassess the potential impact of the COVID-19 pandemic and the related shelter-in-place requirements, on our internal controls and strive to minimize the impact on our internal control design and operating effectiveness.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our annual report on Form 10-K for the year ended December 31, 2019.2020. Except as updated below, there have been no material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 20192020 as filed with the SEC.
Changes to the patent law in the U.S. and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our future drugs and our drug candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents that we license or hold directly. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity and is therefore costly, time-consuming and inherently uncertain. Recent patent reform legislation in the U.S. and other countries, including the Leahy-Smith America Invents Act, or Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs. The SEC issued an order suspendingLeahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the tradingway patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. In addition, the Leahy-Smith Act has transformed the U.S. patent system into a first-to-file system. The first-to-file provisions, however, only become effective on March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of our common stock.
On May 1, 2020,business. However, the SEC pursuantLeahy-Smith Act and its implementation could make it more difficult to Section 12(k)obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition, there have been recent proposals for additional changes to the patent laws of the Securities Exchange Act of 1934, as amended, orderedU.S. and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary technology. Depending on future actions by the temporary suspension of tradingU.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the securities of Moleculin because of questions regarding the accuracyfuture.We may be subject to adverse legislative or regulatory tax changes that could negatively impact our financial condition.
The rules dealing with U.S. federal, state and adequacy of informationlocal income taxation are constantly under review by persons involved in the marketplace about Moleculinlegislative process and its securities. Pursuantby the IRS and the U.S. Treasury Department. Changes to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020tax laws (which changes may have retroactive application) could adversely affect our stockholders or us. In recent years, many such changes have been made and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petitionchanges are likely to terminate the suspension, but there is no assurance that we will be successful. We believe we will be ablecontinue to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the informationoccur in the marketplace about usfuture. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and our securities is accurate and adequate.
With respect to the COVID-19 outbreak specifically, such outbreak could also potentially affect the business of the FDA, EMArulings may be enacted, promulgated or other health authorities,decided, which could result in delaysan increase in meetings relatedour, or our stockholders’, tax liability or require changes in the manner in which we operate in order to planned clinical trialsminimize increases in our tax liability. The impact of these and ultimately of reviewsother future changes in tax laws is uncertain and approvals of our product candidates.
The spread of COVID-19 may also slow potential enrollment of clinical trials and reduce the number of eligible patients for our clinical trials. The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business, andcash flow, financial condition including impairing our ability to raise capital when needed. The extent to which the COVID-19 outbreak impacts our business and operations will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severityor results of the virus and the actions to contain its impact. We have relationships with contract research organizations to conduct certain pre-clinical programs and testing and other services in Europe and those business operations are subject to potential business interruptions arising from protective measures that may be taken by the governmental or other agencies or governing bodies. In addition, certain of our collaborative relationships with academic research institutions in the United States, Europe and in Australia may be materially and adversely impacted by protective measures taken by those institutions or federal and state agencies and governing bodies to restrict access to, or suspend operations at, such facilities. Such protective measures, including quarantines, travel restrictions and business shutdowns, may also negatively affect our core operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURE
ITEM 5. OTHER INFORMATION.
None.
On May 1, 2020, the SEC pursuant to Section 12(k)Table of the Securities Exchange Act of 1934, as amended, ordered the temporary suspension of trading in the securities of Moleculin because of questions regarding the accuracy and adequacy of information in the marketplace about Moleculin and its securities. Pursuant to the suspension order, the suspension commenced at 9:30 a.m. EDT on May 4, 2020 and terminates at 11:59 p.m. EDT on May 15, 2020. As of the date of this report, we have submitted a petition to terminate the suspension, but there is no assurance that we will be successful. We believe we will be able to demonstrate the accuracy and adequacy of our public disclosures, but the SEC may determine to extend the trading suspension until such time that it believes the information in the marketplace about us and our securities is accurate and adequate.
Exhibit No. | | | | | | | | Description |
Exhibit No. | | Description |
3.1 | | |
4.1 | | |
4.2 | | |
10.131.1* | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1* | | |
| | |
32.2* | | |
| | |
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) |
| | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
| | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of Section 13 or 15(d) 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.
| | | | | | | | |
| MOLECULIN BIOTECH, INC. | |
| | |
Date: May 11, 2020 12, 2021 | By: | /s/ Walter V. Klemp |
| | Walter V. Klemp, |
| | Chief Executive Officer and Chairman (Principal Executive Officer) |
| | |
Date: May 11, 2020 12, 2021 | By: | /s/ Jonathan P. Foster |
| | Jonathan P. Foster, |
| | Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) |
