10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

001-36577

ContraFect Corporation

(Exact name of registrant as specified in its charter)


Delaware		39-2072586
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


28 Wells Avenue, 3rd Floor, Yonkers, NY		10701
(Address of principal executive offices)		(Zip Code)

(914)

207-2300

(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
Common Stock, $0.0001 par value per share	CFRX	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock outstanding as of May 10, 2023 was 3,669,920.

CONTRAFECT CORPORATION

INDEX


		Page No.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
Item 4.	Controls and Procedures		29

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		62
Item 3.	Defaults Upon Senior Securities		62
Item 4.	Mine Safety Disclosures		62
Item 5.	Other Information		62
Item 6.	Exhibits		63
SIGNATURES			64

FORWARD LOOKING STATEMENTS

The information in this Quarterly Report on Form 10-Q contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, our ability to continue as a going concern, projected costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”, “targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements involve significant risks and uncertainties, including, but not limited to, statements regarding:

•

the success, cost, timing and potential indications of our product development activities and clinical trials;

•

our ability to advance into and through clinical development and ultimately obtain U.S. Food and Drug Administration (“FDA”) approval for our product candidates;

•

our research and development plans and ability to bring forward additional product candidates into preclinical and clinical development;

•

our expectations regarding the impact of COVID-19 on our business, operations and financial performance and position;

•

our contract with the Biomedical Advanced Research and Development Authority (“BARDA”) (the “BARDA Contract”) and any exercise of BARDA’s options to extend the BARDA Contract;

•

our grant award from the Military Infectious Diseases Research Program, United States Army Medical Research and Development Command (“USAMRDC”);

•

the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial markets for our product candidates;

•

our future marketing and sales programs;

•

the effect of competition and proprietary rights of third parties;

•

our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern;

•

anticipated reductions in operating expenses;

•

the availability of and our ability to obtain additional financing;

•

the effects of existing and future federal, state and foreign regulations;

•

the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and

•

the period of time for which our existing cash and cash equivalents will enable us to fund our operations.

As more fully described under the heading “Risk Factors” contained elsewhere in this Quarterly Report on Form 10-Q, many important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties set forth in our filings with the SEC. You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

RISK FACTOR SUMMARY

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

•

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never achieve or maintain profitability.

•

Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.

•

We currently have no source of product revenue and have not yet generated any revenues from product sales.

•

We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts, and we may be forced to sell or liquidate our business. Any financial or strategic alternative we pursue may not be successful.

•

If BARDA were to eliminate, reduce, or delay funding for our BARDA Contract, we would experience a negative impact on our programs associated with such funding.

•

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

•

The timing of the milestone and royalty payments we are required to make to The Rockefeller University (“Rockefeller”) under certain agreements is uncertain and could adversely affect our cash flows and results of operations.

•

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

•

The COVID-19 pandemic or another pandemic, epidemic or outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.

•

We are heavily dependent on the success of our leading product candidates. If we are ultimately unable to obtain regulatory approval for any of our product candidates, our business will be substantially harmed.

•

If clinical trials of any of our product candidates that we develop fail to demonstrate safety and efficacy, or the manufacturing for the commercial supply of drug substance or drug product fails to demonstrate robustness, stability, purity and potency to the satisfaction of the FDA or similar international regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete the development and commercialization of our product candidates.

•

We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of any of our product candidates.

•

Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize, delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.

•

We are significantly dependent on our license agreements with Rockefeller that relate to exebacase.

•

We rely on Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

•

We rely on contract manufacturing organizations (“CMOs”) to manufacture clinical and commercial supplies of our product candidates. In addition to the risks associated with the manufacture of our product candidates, which could include cost overruns, new impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely availability of raw materials, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for commercialization of any of our product candidates.

•

Even if the FDA approves any of our product candidates, adverse effects discovered after approval could adversely affect our markets.

•

Any Breakthrough Therapy designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

•

Developments by competitors may render our products or technologies obsolete or non-competitive.

•

The level of commercial success of any of our product candidates that we develop will depend upon significant market acceptance of these products among physicians and payors.

•

Coverage and reimbursement may not be available for any of our product candidates that we develop, including as a result of healthcare reform measures.

•

We may not successfully execute or achieve the expected benefits of our restructuring program and other cost saving measures we may take in the future, and our efforts may result in further actions and may adversely affect our business, financial condition and results of operations.

•

If we are unable to establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after they are approved, we may not be able to generate revenues.

•

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

•

Risks related to regulatory approval of our product candidates and other legal and compliance matters.

•

Risks related to employee matters and our operations.

•

Risks related to our intellectual property.

•

Risks related to our securities and organizational documents.

•

We currently do not meet certain of Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules. If we are unable to regain compliance by June 30, 2023, we will be delisted. Delisting could negatively affect the price of our common stock and could make it more difficult for us to sell securities in a future financing or for you to sell our common stock.

•

Security breaches, cybersecurity attacks, failure of our data and personal information protections and other disruptions could compromise our information and technology systems and expose us to liability, which would cause our business and reputation to suffer.

•

Our collection, control, processing, sharing, disclosure and otherwise use of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, and evolving laws concerning data privacy in the European Union (“EU”) and European Economic Area (“E.E.A.”).

CONTRAFECT CORPORATION

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONTRAFECT CORPORATION

Consolidated Balance Sheets

(in thousands, except share data)


	March 31, 2023			December 31, 2022
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	11,866		$	8,907
Marketable securities		2,025			4,775
Prepaid expenses		2,060			1,382
Other current assets		1,747			2,642

Total current assets		17,698			17,706
Property and equipment, net		587			627
Operating lease right-of-use assets		2,162			2,241
Other assets		105			105

Total assets	$	20,552		$	20,679

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	10,828		$	13,671
Accrued and other current liabilities		8,150			6,498
Current portion of lease liabilities		674			671

Total current liabilities		19,652			20,840
Warrant liabilities		1,899			9,299
Long-term portion of lease liabilities		2,100			2,210
Other liabilities		38			182

Total liabilities		23,689			32,531
Commitments and contingencies		—			—
Stockholders’ deficit:
Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none issued and outstanding at March 31, 2023 and December 31, 2022		—			—
Common stock, $0.0001 par value, 125,000,000 shares authorized, 1,565,920 and 594,983 shares issued and outstanding at March 31, 2023 and December 31, 2022		1			1
Additional paid-in capital		323,938			313,884
Accumulated other comprehensive loss		—			(32	)
Accumulated deficit		(327,076	)		(325,705	)

Total stockholders’ deficit		(3,137	)		(11,852	)

Total liabilities and stockholders’ deficit	$	20,552		$	20,679

See accompanying notes.

Table of Contents

CONTRAFECT CORPORATION

Consolidated Statements of Operations

(unaudited)

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2023			2022
Operating expenses:
Research and development	$	5,295		$	12,725
General and administrative		3,563			3,254

Total operating expenses		8,858			15,979

Loss from operations		(8,858	)		(15,979	)
Other income (expense):
Interest income, net		87			34
Change in fair value of warrant liabilities		7,400			(4,212	)

Total other income (expense)		7,487			(4,178	)

Net loss	$	(1,371	)	$	(20,157	)

Per share information:
Net loss per share of common stock, basic and diluted	$	(0.69	)	$	(41.00	)

Basic and diluted weighted average shares outstanding		1,975,476			491,626

See accompanying notes.

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CONTRAFECT CORPORATION

Consolidated Statements of Comprehensive Loss

(unaudited)

(in thousands)


	Three Months Ended March 31,
	2023			2022
Net loss	$	(1,371	)	$	(20,157	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities		32			(140	)

Comprehensive loss	$	(1,339	)	$	(20,297	)

See accompanying notes.

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CONTRAFECT CORPORATION

Consolidated Statements of Stockholders’ (Deficit) Equity

(unaudited)

(in thousands, except share data)


	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Deficit
	Shares		Amount
Balance, December 31, 2022		594,983	$	1	$	313,884		$	(32	)	$	(325,705	)	$	(11,852	)
Issuance of securities in registered offering		128,000		—		10,000			—			—			10,000
Financing cost of sale of securities		—		—		(883	)		—			—			(883	)
Issuance of common stock for exercise of pre-funded warrants		842,937		—		5			—			—			5
Stock-based compensation		—		—		932			—			—			932
Unrealized gain on marketable securities		—		—		—			32			—			32
Net loss		—		—		—			—			(1,371	)		(1,371	)

Balance, March 31, 2023		1,565,920	$	1	$	323,938		$	—		$	(327,076	)	$	(3,137	)


	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity
	Shares		Amount
Balance, December 31, 2021		491,626	$	1	$	310,011	$	(84	)	$	(260,552	)	$	49,376
Stock-based compensation		—		—		919		—			—			919
Unrealized loss on marketable securities		—		—		—		(140	)		—			(140	)
Net loss		—		—		—		—			(20,157	)		(20,157	)

Balance, March 31, 2022		491,626	$	1	$	310,930	$	(224	)	$	(280,709	)	$	29,998

See accompanying notes.

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CONTRAFECT CORPORATION

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net loss	$	(1,371	)	$	(20,157	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		40			38
Stock-based compensation expense		932			919
Change in fair value of warrant liabilities		(7,400	)		4,212
Net amortization of premium on marketable securities		32			97
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other current and non-current assets		1,094			(1,412	)
(Decrease) increase in accounts payable, accrued and other current liabilities		(2,125	)		4,536

Net cash used in operating activities		(8,798	)		(11,767	)
Cash flows from investing activities
Proceeds from maturities of marketable securities		2,750			4,750
Purchases of property and equipment		(5	)		—

Net cash provided by investing activities		2,745			4,750
Cash flows from financing activities
Proceeds from issuance of securities		10,000			—
Payment of financing costs of securities sold		(883	)		—
Repayments of insurance premium financing		(110	)		—
Proceeds from the exercise of pre-funded warrants		5			—

Net cash provided by financing activities		9,012			—

Net increase (decrease) in cash and cash equivalents		2,959			(7,017	)
Cash and cash equivalents at beginning of period		8,907			16,654

Cash and cash equivalents at end of period	$	11,866		$	9,637

Supplemental schedule of cash flow information
Cash paid for interest	$	5		$	—

Supplemental schedule of non-cash financing activities
Insurance premium financing	$	900		$	—

See accompanying notes.

Table of Contents

CONTRAFECT CORPORATION

Notes to Unaudited Consolidated Financial Statements

March 31, 2023

1. Organization and Description of Business

Organization and Bu

ness

ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on the discovery and development of direct lytic agents (“DLAs”), including lysins and amurin peptides, as new medical modalities for the treatment of life-threatening, antibiotic-resistant infections. The Company intends to address antibiotic-resistant infections using product candidates from our lysin and amurin peptide platforms. DLAs are fundamentally different than antibiotics and offer a potential paradigm shift in the treatment of antibiotic-resistant infections. The Company’s most advanced product candidate is exebacase, a lysin which targets

S. aureus

, including methicillin-resistant strains, which causes serious infections such as bacteremia, pneumonia and osteomyelitis.

S. aureus

is also a frequent source of biofilm-dependent infections of heart valves (endocarditis), prosthetic joints, indwelling devices and catheters. These infections result in significant morbidity and mortality despite current antibiotic therapy.

Exebacase was being studied in a pivotal Phase 3 superiority study (the “DISRUPT study”) to evaluate the safety, tolerability, efficacy and pharmacokinetics of intravenous (“IV”) exebacase when used in addition to background standard of care antibiotic therapy for the treatment of

S. aureus

bacteremia, including right-sided endocarditis in adolescent and adult patients. On July 7, 2022, the Data Safety Monitoring Board (“DSMB”) conducted an interim futility analysis and recommended that the DISRUPT study be stopped because the conditional power of the study was below the

pre-specified

threshold for futility. Based on the DSMB’s recommendation, patient enrollment in the Phase 3 trial was stopped (“Trial Closure”). The Company continued to monitor all already enrolled patients and all patients completed their

follow-up

visits. The Company expects to complete all clinical study reports as required by the U.S. Food and Drug Administration (“FDA”).

On July 29, 2022, the Company initiated a restructuring plan resulting in a reduction in workforce. The restructuring plan was designed to reduce costs and align resources with the Company’s anticipated product development milestones for exebacase and

CF-370

and to help preserve the value of the Company’s drug discovery operations. The restructuring reduced the Company’s workforce from 43 full-time employees as of June 30, 2022 to 27 full-time employees as of August 15, 2022, when the reduction was completed. The Company recognized a restructuring charge of $7.7 million, including $1.6 million related to employee termination costs and other related expenses from the workforce reduction and $6.1 million from the

write-off

of prepaid manufacturing costs following the suspension of IV exebacase related activities.

The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $327.1 million as of March 31, 2023. For the quarter ended March 31, 2023, the Company used $8.8 million of cash in operations. The Company has relied on its ability to fund its operations through public and private debt and equity financings, and, to a lesser extent, grant funding and government contracts. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues to advance its programs. As of March 31, 2023, the Company had $13.9 million in cash, cash equivalents and marketable securities, which, without additional funding, the Company believes will not be sufficient to meet its obligations within the next twelve months from the date of issuance of these consolidated financial statements. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all, particularly in light of the Trial Closure. As such, management has not considered the potential for future capital raises in its assessment of the Company’s ability to meet its obligations for the next twelve months, and substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date the financial statements were issued. If the Company is unable to obtain funding, the Company would be forced to delay, further reduce its workforce or reduce or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations or continue as a going concern and may be forced to sell or liquidate the business.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

On March 22, 2021, the Company completed an underwritten public offering under the Company’s registration statement on Form

S-3

(Reg.

No. 333-246359)

(the

“Form-S-3”).

The Form

S-3

was declared effective by the SEC on August 31, 2020 and allows the Company to offer and sell from

time-to-time

up to $150.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities. The Company issued 143,750 shares of its common stock, including shares sold pursuant to the fully exercised overallotment option granted to the underwriters in connection with the offering, at a public offering price of $400.00 per share, resulting in net proceeds to the Company of $53.8 million after underwriting discounts and commissions and offering expenses payable by the Company.

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On December 15, 2022, the Company completed (i) a registered direct offering under the Form

S-3

of 54,375 shares of its common stock and a

pre-funded

warrant to purchase 623,919 shares of common stock

(the “2022 pre-funded warrant”)

and (ii) a concurrent private placement in which the Company issued a Class A warrant to purchase up to an aggregate of 1,356,589 shares of common stock (the “Class A Warrant”) and a Class B warrant to purchase up to an aggregate of 678,294 shares of common stock (the “Class B Warrant”) (collectively, the “2022 Offering”). All shares of common stock, the

2022

pre-funded

warrant, the Class A Warrant and the Class B Warrant were issued together to a single accredited investor purchaser for consideration equating to $10.32

per

share of common stock (or

2022

pre-funded

warrant to purchase one share of common stock, less a nominal exercise price), together with a Class A Warrant to purchase two shares of common stock and a Class B warrant to purchase one share of common stock, in the case of each of the Class A Warrant and Class B Warrant, for no additional consideration but each with an exercise price per share of $10.32, for aggregate net proceeds to the Company of $6.1 million after placement agent fees and offering expenses payable by the Company.

On March 2, 2023, the Company completed (i) a registered direct offering under the Form

S-3

of 128,000 shares of its common stock and a

pre-funded

warrant to purchase 2,372,000 shares of common stock

(the “2023 pre-funded warrant”)

and (ii) a concurrent private placement in which the Company issued a warrant to purchase up to an aggregate of 5,000,000 shares of common stock (the “2023 Warrant”) (collectively, the “2023 Offering”). All securities in the 2023 Offering were issued to the same single accredited investor purchaser as in the 2022 Offering for consideration equating to $4.00 per share of common stock (or

2023

pre-funded

warrant to purchase one share of common stock, less a nominal exercise price), together with a 2023 Warrant to purchase two shares of common stock for no additional consideration but with an exercise price per share of $4.00, for aggregate net proceeds to the Company of $9.1 million after placement agent fees and offering expenses payable by the Company.

The significant changes in common stock outstanding have impacted and are expected to continue to impact the year-over-year comparability of the Company’s net loss per share calculations. All share and per share amounts have been adjusted for all periods presented to reflect a

one-for-eighty

reverse stock split effected on February 14, 2023.

2. Summary of Significant Accounting Policies

Basis of Pre

ntation

The accompanying financial information as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 has been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2022 was derived from the Company’s audited consolidated financial statements, including all related disclosures, included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 31, 2023. There have been no material changes to the complete listing of significant accounting policies as described in Note 2 thereof.

In the opinion of management, the unaudited financial information as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 reflects all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Prin

cip

les of Consolidation

The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for interactions with the European Economic Area. This subsidiary is dormant or is otherwise

non-operative.

Any inter-company accounts have been eliminated in consolidation.

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to, the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, the Company’s ability to raise capital and the effects of

COVID-19

and the recent failure of certain financial institutions, on the Company’s business, operations and financial performance and position.

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The Company currently relies on a single manufacturer of drug substance for each of its product candidates and two manufacturers of drug product, one located in the United States and one in Western Europe, and there are no long-term supply agreements in place. A sustained disruption in the operations of any of these manufacturers, or in the even

t the

Company would need to change to a new supplier, could result in a significant delay in the ability of the Company to complete any associated activities.

Use of Est

imat

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to stock-based compensation, warrant valuation, research and development accruals and prepaid expenses and realization of net deferred income tax assets. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Concentrations of Credi

t R

isk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company’s accounts at Silicon Valley Bank have not experienced any credit losses and the Company does not believe it has material exposure to any significant credit risk on these funds. The Company maintains the majority of its cash, cash equivalents and marketable securities at other financial institutions. The Company has no

off-balance

sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Cash and Cash Equ

ivalen

The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Marketable Securities

Marketable securities consist of investments in corporate debt securities. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The Company classifies its marketable securities as

available-for-sale

pursuant to ASC 320,

Investments – Debt and Equity Securities

. The Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets. Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Marketable securities, together with accrued interest receivable, net of any allowance for credit losses, are recorded at fair value on the consolidated balance sheet, with unrealized gains and losses included as a component of accumulated other comprehensive loss in stockholders’ (deficit) equity and a component of total comprehensive loss in the consolidated statements of comprehensive loss, until realized. The fair value of these securities is based on quoted prices for identical or similar assets. Realized gains and losses are included in interest income in the consolidated statement of operations on a specific-identification basis.

There were no realized gains or losses on sales of marketable securities for the three months ended March 31, 2023 or 2022. There were no marketable securities that had been in an unrealized loss position for more than 12 months as of March 31, 2023 or December 31, 2022.

The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

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Fair Va

lue

of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. The fair value of the Company’s warrant liabilities is based upon unobservable inputs, as described further below.

The Company discloses information on all assets and liabilities reported at fair value using a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company had no liabilities classified as Level 1 or Level 2. The carrying amounts reported in the accompanying financial statements for accounts payable and accrued expenses approximate their respective fair values due to their short-term maturities. The fair value of the warrant liabilities is discussed in Note 4, “Fair Value Measurements.”

Stock-based Co

pensation

Stock-based compensation is measured and recognized as compensation expense for all stock-based payment awards made to employees, directors, and

non-employees,

including employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service period of the award on a straight-line basis.

The fair value of options is calculated using the Black-Scholes option pricing model on the date of grant based on key assumptions such as stock price, risk free interest rates, expected volatility, expected term, and expected dividend yield. The Company’s estimates of these assumptions are based on historical data and judgment regarding future trends and factors.

Government Contracts and Grant Agreements

On March 10, 2021, the Company entered into a cost-share contract (the “BARDA Contract”) with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The base period for the BARDA Contract included government funding of up to $9.8 million to reimburse expenses to support the conduct of the Phase 3 DISRUPT study and futility analysis. In connection with the Trial Closure, the BARDA Contract was modified to provide for up to $6.6 million in funding to support a futility outcome root-cause analysis and the

close-out

of the Phase 3 DISRUPT study of exebacase.

The Company recognizes a receivable in other current assets with a related reduction in its research and development expenses when the actual reimbursable costs have been incurred and the Company has complied with the conditions of the applicable government contract or grant agreement and the amounts will be received. The Company recognized a reduction to its research and development expense in the amount of $2.7 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively. The receivable for government contracts and grant agreements as of March 31, 2023 and December 31, 2022 was $1.7 million and $2.6 million, respectively. The Company has $2.6 million of committed government contract and grant agreement funding remaining as of March 31, 2023.

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estr

cturing

The Company has made estimates and judgments regarding the amount and timing of its restructuring expense and liability, including current and future period termination

benefits and other costs to be incurred when related actions take place. Actual results

may differ from these estimates. Restructuring charges are reflected in the Company’s consolidated statements of operations.

Net Loss

Per S

hare

Basic net loss per share applicable to common stockholders is calculated by dividing net loss applicable to common stockholders by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share applicable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the dilutive net loss per share applicable to common stockholders’ calculation, stock options and warrants are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.

Recently A

dopt

ed Accounting Pro

noun

cements

Credit Losses

On January 1, 2023, the Company adopted Accounting Standards Update

No. 2016-13,

Financial Instruments-Credit Losses (ASU

2016-13).

ASU

2016-13

amended the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to

available-for-sale

debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the current, other-than-temporary-impairment model. The adoption of the new guidance did not affect the Company’s consolidated financial statements.

3. Marketable Securities

Marketable securities at March 31, 2023 consisted of the following (in thousands):


Marketable Securities	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Current:
Corporate debt	$	2,025	$	—	$	—	$	2,025

Marketable securities at December 31, 2022 consisted of the following (in thousands):


Marketable Securities	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Current:
Corporate debt	$	4,807	$	—	$	(32	)	$	4,775

Corporate debt includes obligations issued by investment-grade corporations. At March 31, 2023 and December 31, 2022, the Company held only investments that have maturities of less than one year.

At March 31, 2023, the Company held one debt security

that

was in an immaterial unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized loss posi

tion at M

arch 31, 2023 was $2.0 million.

Based on the Company’s evaluation, a credit loss allowance is not required, and the Company also evaluated its security for other-than-temporary impairment and considered the decline in market value for the security to be primarily attributable to current economic and market conditions. It was not more likely than not that the Company would have been required to sell the security prior to the recovery of the amortized cost basis. Based on this analysis, these marketable securities were

not

considered to be other-than-temporarily impaired as of March 31, 2023, and the decline in fair value below the amortized cost basis was recorded as an unrealized loss, net of tax, in other comprehensive loss in the consolidated statements of comprehensive loss.

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4. Fair Value Measurements

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):


	Fair Value Measurement as of March 31, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	10,186	$	—	$	—
Marketable securities		2,025		—		—
Warrant liabilities		—		—		1,899

Total	$	12,211	$	—	$	1,899


	Fair Value Measurement as of December 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	7,596	$	—	$	—

SEC Form 10-Q filed by ContraFect Corporation