SEC Form 10-Q filed by Aridis Pharmaceuticals Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| OTCQB |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Small
reporting company | ||
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares of the registrant’s common stock, $0.0001 par value per share, outstanding at September 30, 2023 was .
Table of Contents
| 2 |
PART I — FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Aridis Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Other receivables | ||||||||
| Contract costs | ||||||||
| Prepaid asset | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Restricted cash, non-current | ||||||||
| Contract costs, non-current | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Lease liabilities | ||||||||
| Contract liabilities | ||||||||
| Note payable | ||||||||
| Note payable (at fair value) | ||||||||
| Other liabilities | ||||||||
| Total current liabilities | ||||||||
| Contract liabilities, non-current | ||||||||
| Lease liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock (par value $; shares authorized; shares issued and outstanding as of September 30, 2023 and December 31, 2022) | ||||||||
| Common stock (par value $; shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 3 |
Aridis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Revenue: | ||||||||||||||||
| Grant revenue | $ | $ | $ | $ | ||||||||||||
| License revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Change in fair value of note payable | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Earnings (net loss) per share: | ||||||||||||||||
| Basic | $ | $ | ) | $ | $ | ) | ||||||||||
| Diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| Weighted-average common shares outstanding used in computing net loss per share available to common stockholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Other comprehensive (loss) income | ||||||||||||||||
| Total comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 4 |
Aridis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(In thousands, except share amounts)
| Three Months Ended September 30, 2023 (unaudited) | ||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Dollars | Capital | Deficit | Income | Deficit | |||||||||||||||||||
| Balances as of June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Issuance of common stock in registered direct offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock in exchange for note modification | ||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Change in fair value of notes payable | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Three Months Ended September 30, 2022 (unaudited) | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Dollars | Capital | Deficit | Income | Deficit | |||||||||||||||||||
| Balances as of June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balances as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Nine Months Ended September 30, 2023 (unaudited) | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Dollars | Capital | Deficit | Income | Deficit | |||||||||||||||||||
| Balances as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Issuance of common stock in registered direct offering, net of issuance costs | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock in exchange for note modification | ||||||||||||||||||||||||
| Issuance of common stock for restricted stock units | ||||||||||||||||||||||||
| Change in fair value of notes payable | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balances as of September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Nine Months Ended September 30, 2022 (unaudited) | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional Paid-In | Accumulated | Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Dollars | Capital | Deficit | Income | Deficit | |||||||||||||||||||
| Balances as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Issuance of common stock for consulting services | — | |||||||||||||||||||||||
| Stock options issued in exchange for accrued liability | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balances as of September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 5 |
Aridis Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Asset impairment | ||||||||
| Stock-based compensation expense | ||||||||
| Other comprehensive income, industry specific credit risk on notes payable | ||||||||
| Issuance of common stock in exchange for debt modification | ( | ) | ||||||
| Issuance of common stock in exchange for consulting services | ||||||||
| Change in fair value of note payable | ( | ) | ||||||
| Non-cash debt issuance expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts Receivable | ||||||||
| Other receivables | ( | ) | ||||||
| Prepaid asset | ( | ) | ( | ) | ||||
| Contract asset | ||||||||
| Other assets | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities and other liabilities | ( | ) | ||||||
| Contract liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||
| Net cash provided by (used) in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock and warrants, net | ||||||||
| Proceeds from note payable | ||||||||
| Payments on note payable | ( | ) | ( | ) | ||||
| Payment on financing of insurance premium | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash at: | ||||||||
| Beginning of period | ||||||||
| End of period | $ | $ | ||||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental noncash investing and financing activities: | ||||||||
| Right-of-use assets obtained with corresponding lease liability | $ | $ | ||||||
| Stock options issued in exchange for accrued liability | $ | $ | ||||||
| Issuance of common stock in exchange for debt modification | $ | $ | ||||||
| Insurance financing | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 6 |
Aridis Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business and Basis of Presentation
Organization
Aridis Pharmaceuticals, Inc. (the “Company” or “we” or “our” or “us”) was established as a California limited liability corporation in 2003. The Company converted to a Delaware C corporation on May 21, 2014. Our principal place of business is in Los Gatos, California. We are a late-stage biopharmaceutical company focused on developing new breakthrough therapies for infectious diseases and addressing the growing problem of antibiotic resistance. The Company has a deep, diversified portfolio of clinical and pre-clinical stage non-antibiotic anti-infective product candidates that are complemented by a fully human monoclonal antibody discovery platform technology. The Company’s suite of anti-infective monoclonal antibodies offers opportunities to profoundly alter the current trajectory of increasing antibiotic resistance and improve the health outcome of many of the most serious life-threatening infections particularly in hospital settings.
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements include the amounts of the Company and our wholly owned subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the preceding fiscal year included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (“SEC”) on May 22, 2023.
The
condensed consolidated financial statements include the accounts of the Company and its
Going Concern
The Company has had recurring losses from operations since inception and had negative cash flows from operating activities during the nine months ended September 30, 2023, and the year ended December 31, 2022. Management expects to incur operating losses and negative cash flows from operations in the foreseeable future as the Company continues its product development programs. The forecasted outflow of cash for at least a one-year period from the expected condensed consolidated financial statement issuance date is in excess of the cash available on-hand.
| 7 |
The Company’s research and development expenses and resulting cash burn during the nine months ended September 30, 2023, were largely due to costs associated with the Phase 1/2 study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis and the activities associated with the Phase 3 study of AR-320 for the prevention of S. aureus VAP. Until the clinical development activities for AR-301 and AR-320 resume, the current clinical development activities are focused primarily on AR-501.
The Company plans to fund its cash flow needs through future debt and/or equity financings, which we may obtain through one or more public or private equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts, which could adversely affect its future business prospects and its ability to continue as a going concern. The Company believes that its current available cash and cash equivalents, including cash received in August 2023 from equity raise proceeds, will not be sufficient to fund its planned expenditures and meet the Company’s obligations for at least the one-year period following its consolidated financial statement issuance date. In the absence of equity or debt financing, or other capital sources, including grant funding, potential collaborations or other strategic transactions, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs on or before November 30, 2023.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities in their normal course of business. There is substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Such estimates include those related to the evaluation of our ability to continue as a going concern, best estimate of standalone selling price of revenue deliverables, useful life of long-lived assets, classification of deferred revenue, income taxes, assumptions used in the Black-Scholes-Merton (“BSM”) model to calculate the fair value of stock-based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. Actual results could differ from those estimates.
| 8 |
Concentrations
Credit Risk
The Company’s cash and cash equivalents are maintained at financial institutions in the United States of America. Deposits held by these institutions may exceed the amount of insurance provided on such deposits.
Customer Risk
The
Company recognized $
The
Company recognized $
Accounts
receivable from one customer were $
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of checking account and money market fund account balances. Restricted cash consists of deposits for a letter of credit that the Company has provided to secure its obligations under its facility lease as well as grant funds identified for the specific grant project.
The following table provides a reconciliation of cash, cash equivalents and restricted cash within the condensed consolidated balance sheets which, in aggregate, represent the amount reported in the condensed consolidated statements of cash flows (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash – current | ||||||||
| Restricted cash – non-current | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
Accounts Receivable and Allowance for Doubtful Accounts
Accounts
receivables are recorded at the invoiced amount and do not bear interest. The Company considers the creditworthiness of its customers
but does not require collateral in advance of a sale. The Company evaluates collectability and maintains an allowance for doubtful accounts
for estimated losses inherent in its accounts receivable portfolio when necessary. The allowance is based on the Company’s best
estimate of the amount of losses in the Company’s existing accounts receivable, which is based on customer creditworthiness, facts
and circumstances specific to outstanding balances, and payment terms. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2023, and December 31,
2022, there were $
Operating Leases
The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and include any lease payments made prior to or on lease commencement and lease incentives and initial direct costs incurred, as applicable.
As
the implicit rate in the Company’s leases is generally unknown, the Company used its incremental borrowing rate of
| 9 |
Prior to adoption of ASC 842, Leases as of January 1, 2022, the Company evaluated leases at their inception as either operating or capital leases, and renewal or expansion options, rent holidays, leasehold improvement allowances and other incentives on such lease agreements. The Company recognized operating lease costs on a straight-line basis over the term of the agreement.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the assets, generally between and
Intangible Assets
Intangible assets are recorded at cost and amortized over the estimated useful life of the asset. Intangible assets consist of licenses with various institutions whereby the Company has rights to use intangible property obtained from such institutions.
Impairment of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash
flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured by the
excess of the carrying amount of the assets over fair value less the costs to sell the assets, generally determined using the
projected discounted future net cash flows arising from the asset. There have been
such impairments of long-lived assets during the period ended September 30, 2023 and approximately $
Revenue Recognition
The Company recognizes revenue based on Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. See Note 6 for details of the development and license agreements.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as the entity satisfies performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
As part of the accounting for customer arrangements, the Company must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price.
| 10 |
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. The Company receives grant and license payments from its customers based on payment schedules established in each contract. The Company records any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on its condensed consolidated balance sheets. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet. Amounts are recorded as other receivables on the condensed consolidated balance sheet when our right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.
Contract Assets
The
incremental costs of obtaining a contract under ASC 606 (i.e., costs that would not have been incurred if the contract had not been
obtained) are recognized as an asset in the Company’s condensed consolidated balance sheets if the Company expects to recover
them (see Note 6). Capitalized costs will be amortized to the respective expenses using a systematic basis that mirrors the pattern
in which the Company transfers control of the goods and service to the customer. At each reporting date, the Company determines
whether the capitalized costs to obtain a contract are impaired by comparing the carrying amount of the asset to the remaining
amount of consideration that the Company received and expects to receive less the costs that relate to providing services under the
relevant contract. Capitalized contract assets were $
Contract Liabilities
Amounts received prior to satisfying the above revenue recognition criteria, or in which the Company has an unconditional right to payment, are recorded as deferred revenue in the Company’s condensed consolidated balance sheets. The Company has estimated the classification between current and noncurrent deferred revenue related to the respective license agreement within its condensed consolidated balance sheets at September 30, 2023, and December 31, 2022 (see Note 6).
Research and Development
Research and development costs are expensed to operations as incurred. Our research and development expenses consist primarily of:
| ● | salaries and related overhead expenses, which include stock-based compensation and benefits for personnel in research and development functions; | |
| ● | fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial material management and statistical compilation and analyses; | |
| ● | costs related to acquiring and manufacturing clinical trial materials; | |
| ● | costs related to compliance with regulatory requirements; and | |
| ● | payments related to licensed products and technologies. |
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or when the services are performed.
| 11 |
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair values, which the Company determines using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. The Company accounts for forfeitures as they occur.
The BSM option pricing model incorporates various highly sensitive assumptions, including the fair value of our common stock, expected volatility, expected term and risk-free interest rates. The weighted average expected life of options was calculated using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility also reflects the application of SAB Topic 14, incorporating the historical volatility of comparable companies whose stock prices are publicly available. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero, as we have never declared or paid dividends and have no plans to do so in the foreseeable future.
Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by the relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense.
Other Comprehensive Income
Other
comprehensive income is derived from the change in credit risk calculated by our fair value option valuation in connection with the Note
Purchase Agreements with Streeterville Capital, LLC. Accumulated other comprehensive income increased from $
Basic earnings (net loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net earnings (net loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares and potentially dilutive securities outstanding for the period.
| 12 |
For the three and nine months ended September 30, 2023 the number of shares used to compute basic earnings (net loss) per share were million shares and million shares, respectively. For the three and nine months ended September 30, 2023 the number of shares used to compute diluted earnings (net loss) per share were million shares and million shares, respectively. The following table presents the computation of the basic and diluted net loss per share to common stockholders (in thousands, except share and per share data):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income available to common stockholders (basic and diluted) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| Weighted-average common shares outstanding used in computing net loss per share available to common stockholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Earnings (net loss) per share to common stockholders, basic and diluted | ||||||||||||||||
| Basic | $ | $ | ) | $ | $ | ) | ||||||||||
| Diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| Stock options to purchase common stock | ||||
| Common stock warrants | ||||
All potentially dilutive securities were excluded from the computation of net loss per share for the nine month period ended September 30, 2022 because including them would have been antidilutive.
JOBS Act Accounting Election
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will adopt the extended transition period available under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.
New Accounting Pronouncements
ASU 2016-02 - Accounting for Lease Obligation (“ASU 2016-02”)
In
February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842). This guidance requires lessees
to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 establishes a right-of-use
model (ROU) that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer
than 12 months. The Company adopted this standard effective January 1, 2022, as required, retrospectively through a cumulative effect
adjustment. The new standard provides a number of optional practical expedients in transition. The Company elected the “package
of practical expedients,” which permits the Company not to reassess, under ASU 2016-02, prior conclusions about lease identification,
lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting.
The Company elected to utilize the short-term lease recognition exemption for all leases that qualify. This means, for those short-term
leases that qualify, the Company will not recognize ROU assets or lease liabilities. The Company also elected to separate lease and non-lease
components for facility leases. Adoption of this guidance resulted in the recognition of lease liabilities of $
3. Fair Value Disclosure
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
| Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; | |
| Level 2 | Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and | |
| Level 3 | Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. |
| 13 |
The following tables set forth the fair value of the Company’s consolidated financial instruments that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 (in thousands):
| September 30, 2023 | ||||||||||||||||
| Liabilities measured at fair value on a recurring basis | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Notes payable (fair value) | ||||||||||||||||
| Total liabilities measured at fair value | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Notes payable (fair value) | ||||||||||||||||
| Total liabilities measured at fair value | ||||||||||||||||
The change in the estimated fair value of the Level 3 liability is summarized below:
| Year ended December 31, 2022 | Streeterville Notes Payable | |||
| Beginning fair value of Level 3 liability | ||||
| Borrowings on notes payable | ||||
| Repayments | ( | ) | ||
| Change in fair value | ||||
| Gain on valuation | ( | ) | ||
| Change in instrument specific credit risk | ( | ) | ||
| Ending fair value of Level 3 liability | ||||
| Nine months ended September 30, 2023 | Streeterville Notes Payable | |||
| Beginning fair value of Level 3 liability | ||||
| Borrowings on notes payable | ||||
| Repayments | ( | ) | ||
| Change in fair value | ||||
| Change in instrument specific credit risk | ( | ) | ||
| Ending fair value of Level 3 liability | ||||
Streeterville Note
The
fair value of the Streeterville Note as of September 30, 2023 amounting to $
The Company determined and performed the valuations of the Streeterville Note with the assistance of an independent valuation service provider. On a quarterly basis, the Company considers the main Level 3 inputs used as follows:
| ● | Discount rate for the Streeterville notes was determined using a comparison of various effective yields on bonds as of the valuation date. | |
| ● | Weighted probability of cash outflows was estimated based on the entity’s knowledge of the business and how the current economic environment is likely to impact the timing of the cash outflows, attributed to the different repayment features of the notes. |
The following table summarizes the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement for the periods ended September 30, 2023 and December 31, 2022:
| Range of Inputs | ||||||||
| (risk free rate) | ||||||||
| Unobservable Inputs | 2023 | 2022 | ||||||
| Risk free rate | % | | % | |||||
| Option adjusted spread | % | % | ||||||
| Illiquidity discount | % | % | ||||||
| Concluded discount rate | % | | % | |||||
| 14 |
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company has elected the fair value option for calculating the value of its Notes Payable and are classified as Level 3. The carrying value of the Company’s cash and cash equivalents, restricted cash, prepaid assets and other current assets, other assets, accounts payable, accrued liabilities, and insurance financing note payable approximate fair value due to the short-term nature of these items.
4. Balance Sheet Components
Property and Equipment, net
Property and equipment, net consist of the following (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Lab equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense was approximately $
Intangible Assets, net
Intangible assets, net consist of the following (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Licenses | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense was approximately $
Licenses
Broad Institute of MIT and Harvard — Non-Exclusive Manufacturing License Agreement
In January 2021, we entered into a non-exclusive manufacturing licensing agreement with the Broad Institute of MIT and Harvard (the “Broad Institute”) to make and manufacture CRISPR Modified Cell Lines, CRISPR Modified Animals and CRISPR Modified Plants. These license rights permit the non-exclusive use of the CRISPR Technology for the creation of and improvement of yield from protein and mAb production cell lines, which is one of the core components of the APEXTM mAb discovery and manufacturing production technology.
| 15 |
Pursuant
to this agreement, the Company is obligated to pay to the Broad Institute an issue fee of $
MedImmune Limited — License Agreement
In
July 2021, the Company executed a license agreement effective July 12, 2021 and entered into an amendment to the license agreement
on August 9, 2021 (collectively the “MedImmune License Agreement”) with MedImmune Limited (“MedImmune”),
pursuant to which MedImmune granted the Company an exclusive worldwide license for the development and commercialization of
suvratoxumab, a Phase 3 ready fully human monoclonal antibody targeting the Staphylococcus aureus alpha toxin (the “Licensed
Product”). As consideration for the MedImmune License Agreement, the Company issued
shares of its common stock to MedImmune and a $
As
additional consideration, the Company will pay MedImmune milestone payments upon the achievement of certain regulatory approvals for
one licensed product, up to a total aggregate amount of $
On March 20th, 2023, the Company received a written notice from MedImmune that it has terminated that certain License Agreement by and between MedImmune and the Company dated as of July 12, 2021, and as amended by Amendment No. 1 to License Agreement, dated as of August 9, 2021 (the “License Agreement”), pursuant to Section 9.2.1 of the License Agreement for non-payment of the Upfront Cash Payment which was due on December 31, 2021. The notice states that such termination shall be effective on March 30, 2023. As a result of the termination, the on-going AR-320-003 Phase 3 clinical study has been put on hold. The Company does not agree that it is in material breach of the License Agreement. Based on the failure of MedImmune to assist in the necessary technology transfer pursuant to Section 3.5.2 of the License Agreement. The Company notified MedImmune on March 24, 2023 that it was in material breach of Section 3.5.2 and requested that the material breach be cured as soon as possible.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| Research and development services | $ | $ | ||||||
| Payroll related expenses | ||||||||
| Professional services and other | ||||||||
| Accrued liabilities | $ | $ | ||||||
5. Equity Method Investment
On
February 11, 2018, the Company entered into a joint venture agreement (the “JV Agreement”) with Shenzhen Hepalink Pharmaceutical
Group Co., Ltd., a related party, principal shareholder of the Company, and a Chinese entity (“Hepalink”), to develop and
commercialize products for infectious diseases. Under the terms of the JV Agreement, the Company contributed $
| 16 |
On
August 6, 2018, the Company entered into an amendment to the JV Agreement with Hepalink whereby the Company agreed to additionally contribute
an exclusive, revocable, and royalty-free right and license to its AR-105 product candidate in the Territory. Pursuant to the JV Agreement
and the amendment, Hepalink initially owns
The
Company evaluated the accounting for the JV Agreement entered into noting that it did not meet the accounting definition of a joint venture
and instead meets the definition of a variable interest entity. The Company concluded that it is not the primary beneficiary of the JV
Entity and therefore is not required to consolidate the entity. This conclusion was based on the fact that the equity-at-risk is insufficient
to support operations without additional investment and that the Company does not hold decision-making power over activities that significantly
impact the JV Entity’s operations. The Company accounted for its investment in the JV Entity as an equity method investment. The
Company recorded the equity method investment at $
The
Company recognized no losses from the operations of the JV Entity for the three and nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023 and December 31, 2022, the Company’s equity method investment in the JV Entity was $
On August 21, 2023, Aridis Pharmaceuticals, Inc. (the “Company”) sent written notice to Shenzhen Arimab Biopharmaceuticals Co., Ltd. (“Arimab”) stating that as of August 21, 2023, the Amended and Restated Technology License and Collaboration Agreement between Arimab, a joint venture of the Company and Shenzhen Hepalink Pharmaceutical Group Co., Ltd. dated as of August 6, 2018 (the “Agreement”) would terminate pursuant to Section 11.2 of the Agreement.
6. Development and License Agreements
Agreement with Innovative Medicines Initiative Joint Undertaking
In March 2021, the Company entered into an agreement (the IMI JU Agreement) with the Innovative Medicines Initiative (IMI) funded consortium COMBACTE-NET to collaborate with other participants in a joint undertaking (the IMI JU) to combat bacterial resistance in Europe. The IMI JU Agreement facilitates a pan-European clinical trial network to test antibiotics and other drugs to prevent and treat various infections. This project commenced on January 1, 2013 with an initial duration of seven years. It has since been extended to October 31, 2023. The project has 46 participants including European Federation of Pharmaceutical Industries and Associations (EFPIA) companies, universities, research organizations, public bodies, non-profit groups, subject matter experts, and third parties.
The Company’s primary role in the project is to help lead a Phase 3, randomized, double-blind, placebo-controlled trial to evaluate efficacy of suvratoxumab in the prevention of S. aureus Ventilator Associated Pneumonia (VAP) in mechanically ventilated Intensive Care Unit (ICU) patients. We are acting as study sponsor for Phase 3 clinical study to be conducted and assume responsibility for ensuring that all studies are conducted according to International Conference on Harmonization (ICH) Good Clinical Practice (GCP) guidelines. This study will be conducted in approximately 200 sites distributed globally across European Union (EU) and non-EU sites (50% EU and 50% non-EU). To help facilitate these trials, we make in-kind contributions of materials and services to the project at non-EU sites.
Under the IMI JU Agreement, the Company will own all results, findings, and intellectual property generated by the project and is entitled to receive any benefits these items bring. As such, these costs are deemed research and development expenditures. Considering our obligation to repay a portion of costs incurred, we determined this agreement is under the scope of ASC Subtopic 730-20, Research and Development Arrangements. Further, as the parties in the IMI JU Agreement are active participants and are exposed to significant risks and rewards dependent on the commercial success of the research, this agreement is also under the scope of ASC Topic 808, Collaborative Arrangements.
Research
and development costs incurred at non-EU sites are recognized as incurred. The Company recognized research and development expenses of
$
| 17 |
Research
and development costs incurred at EU sites are recognized as incurred for
In-kind
contributions we make to the program will be expensed as R&D at their fair value when made. If the fair value of an in-kind contribution
we make to the IMI JU differs from its carrying amount, we will recognize a gain or loss on disposition.
Cystic Fibrosis Foundation Development Agreement
In
December 2016, the Company received an award from the Cystic Fibrosis Foundation (“CFF”), which was executed under the Development
Program Letter Agreement (the “CFF Agreement”), for approximately $
As of the adoption date of ASC 606 on January 1, 2019 (the “Adoption Date”), the Company identified the following promises with regards to the clinical research activities under the CFF Agreement that represent an initial contract of: a) Phase 1 single ascending dose (“SAD”) clinical trial, which consists of the satisfied development-based milestones and one development-based milestone in progress which was accounted for as a single performance obligation; and contingent promises of: b) Phase 1 multiple ascending dose (“MAD”) clinical trial, which consists of one development-based milestone that had not yet been started, and c) Phase 2a clinical trial, which consists of four development-based milestones that had not yet been started. Of these promises, the Phase 1 SAD clinical trial was determined to be a distinct performance obligation as of the Adoption Date. For the clinical research activities related to the Phase 1 MAD clinical trial and the Phase 2a clinical trial that had not yet been started, the Company was contingently obligated to perform these clinical research activities only after the previous milestones, which achievement was uncertain, had been met.
The
Company determined that the consideration for the Phase 1 SAD clinical trial contract included several development-based milestones,
which had been achieved as of the Adoption Date, totaling approximately $
The
Company determined the consideration for the Phase 2a clinical trial contract totals approximately $
| 18 |
The Company determined that the clinical research activities under the CFF Agreement should be recognized over time by calculating the amount of revenue to recognize in any given period by accumulating the total related costs incurred for the respective clinical research activities related to that distinct performance obligation using the input method (cost-to-cost) and applies that percentage of completion to the transaction price at each reporting period. The Company believes this method best depicts the transfer of control to the customer, which occurs as the costs related to the clinical research activities are incurred.
The
Company determined that as of September 30, 2023, the transaction price for the Phase 2a clinical trial contract was $
The
Company recognized grant revenue from the CFF Agreement of approximately $
Gates Foundation Grant Agreement
On
October 15, 2021, the Company entered into an agreement with the Bill and Melinda Gates Foundation (“Gates Foundation” or
“BMGF”) by executing a Grant Agreement identified as Investment ID INV-033376 (“Grant”). The goal of the Grant
Agreement is to develop durable approaches to block the infection and transmission of pathogens. For providing research and development
services under the Grant Agreement, the Gates Foundation has agreed to compensate the Company $
Under
the Grant Agreement, the Gates Foundation made an upfront payment of $
The Company will conduct research and development services up until the proof-of-concept study is completed, at which point the Gates Foundation will determine whether to approve further grant funding for transmission studies or end the study in which case the Company will no longer provide any significant goods or services. The Company will partner with three main subcontractors to deliver the scope of work described in the investment document.
The Grant Agreement is considered within the scope of ASC 606 as the parties have a customer/vendor relationship and are not exposed equally to the risks and rewards of the research and development services contemplated in the Grant Agreement. The Company identified the following promises under the Agreement: 1) research and development services, 2) global access commitment, 3) humanitarian license, 4) publication if requested by the Gates Foundation, and 5) intellectual property reporting upon request. The Company determined that these promises are not distinct from each other, and therefore represent one performance obligation.
Since the Company is required to update the Gates Foundation on technical progress during each stage of the Funded Development, the ability to access research and development results represents the Gates Foundation’s consumption of the benefits from the Company’s research and development activities. As such, research and development services revenue are recognized over time. At each reporting period, the amount of revenue to recognize is calculated using the input method (cost-to-cost), by comparing cumulative costs incurred to the total estimated costs to perform the research and development services and applying that percentage of completion to the transaction price. The Company believes this method best depicts the transfer of control to the customer, which occurs as the costs related to the research and development services are incurred.
| 19 |
The
Company recognized approximately $
Serum License Agreement
In
July 2019, the Company and Serum International B.V. (“SIBV”), an affiliate of Serum Institute of India Private Limited, entered
into an option agreement which granted SIBV the option to license multiple programs from the Company and access the Company’s MabIgX®
platform technology for asset identification and selection. The Company received an upfront cash payment of $
In September 2019, the Company and Serum AMR Products (“SAMR”), a party under common ownership of SIBV, entered into a License, Development and Commercialization Agreement (the “License Agreement”). Pursuant to the License Agreement, the Company granted to SAMR exclusive licenses, and rights to sublicense, certain patent rights and technology related know-how to the Company’s products AR-301, AR-105, AR-101 (i.e. exclusive rights to, among other things, develop, distribute, market, promote, sell, import and otherwise commercialize) in (a) the country of India, and (b) all other countries of the world except the USA, Canada, EU Territory, UK, China, Australia, South Korea, Brazil, New Zealand, and Japan (products AR-105 and AR-101 countries do not exclude South Korea and Brazil) (the “Limited Territory”); and AR-201 (i.e. exclusive rights to, among other things, develop, manufacture, make, distribute, market, promote, sell, import and otherwise commercialize) in all countries of the world except China, Hong Kong, Macau and Taiwan (the “Worldwide Territory”) (the “licenses and know-how”). Further, the License Agreement grants SAMR an option for the Company to provide research services using its MabIgX® platform technology for the identification of up to five (5) candidates including product development of these identified candidates and an exclusive license to develop, manufacture, make, distribute, market, promote, sell, import and otherwise commercialize these development products in the Worldwide Territory (the “research and development option”).
Pursuant to the License Agreement, the Company will provide development support related to the licensed products above in order to assist SAMR in its efforts to develop, receive regulatory approval, and manufacture and sell the licensed products in SAMR’s authorized territories which will be performed under the direction of a Joint Steering Committee (“JSC”) which the Company will participate in (collectively “development support services”).
In
addition, under the License Agreement, SAMR was granted an exclusive manufacturing license option as the initial license granted above
for AR-301, AR-105 and AR-101 does not allow for manufacturing. This manufacturing option provides incremental rights related to these
products beyond what is granted as part of the licensing discussed above (the “manufacturing rights option”). If this option
is exercised, after SAMR has met certain requirements to exercise the option as defined in the License Agreement, it would provide for
an exclusive license for use by SAMR to manufacture and supply the products for SAMR’s own use in the Limited Territory and to
manufacture and supply these products to the Company, or their affiliates, for the Company’s use outside the Limited Territory.
Should SAMR exercise the development and research option or the manufacturing rights option discussed above, SAMR and the Company shall
negotiate in good faith the economic terms around these arrangements. If a third-party sublicensee of AR-301, AR-105 and AR-101 wishes
to manufacture these products by itself for the territory for which it has a license from the Company, then the Company shall have the
right to buy back the manufacturing rights for all territories outside of the Limited Territory by paying to SAMR $
Under
the License Agreement, the Company received upfront payments totaling $
Given
the equity investment by SIBV was negotiated in conjunction with the option agreement, which resulted in the execution of the License
Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the arrangement based
on their fair value. The Company recorded approximately $
| 20 |
The License Agreement is determined to be within the scope of ASC 606, as the transaction represents a contract with a customer where the participants function in a customer/vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated under the License Agreement. Using the concepts of ASC 606, the Company identified the following performance obligations under the License Agreement: 1) the transfer of licenses of the intellectual property for AR-301, AR-101, AR-105 and AR-201, inclusive of the related technology know-how conveyance (referred to as the license and know-how above); and 2) the Company to deliver ongoing development support services related to the licensed products and the Company’s participation in the JSC (referred to as the development support services above); and identified the following material promises under the License Agreement: 3) SAMR was granted a research and development option of up to five identified product candidates for the Company to perform including specific development services (the research and development option referred to above); and 4) SAMR was granted an exclusive manufacturing license option which would provide for incremental manufacturing rights related to AR-301, AR-105 and AR-101 beyond what is granted in the License Agreement (the manufacturing rights option referred to above). The Company concluded that the performance obligations and material promises identified are separate and distinct from each other.
The
Company determined that the transaction price under the License Agreement was $
On May 3, 2023, the Company sent written notice to Serum AMR Products stating that as of May 8, 2023, the License Agreement would terminate pursuant to Section 13.3(a) of the License Agreement for nonfulfillment of development obligations under the License Agreement.
As
a result of termination of the License Agreement, the Company recognized $
| 21 |
Kermode Licensing and Product Discovery Agreement
In
February 2021, the Company entered into an out-licensing and product discovery agreement, and a statement of work, collectively (the
“Kermode Agreement”), with Kermode Biotechnologies, Inc. (“Kermode”). Under the terms of this agreement, Kermode
will fund for one year the discovery of product candidates for African Swine Fever Virus (“ASFV”) with an option to include
the discovery of product candidates for swine influenza virus (“SIV”). Kermode also received exclusive rights to all mAbs
and vaccines discovered for veterinary uses and rights to a non-exclusive license to use the Company’s ʎPEX technology platform
for further development activities. The Company retained exclusive rights to mAbs and vaccines discovered for human uses. In March 2021,
the Company received a nonrefundable upfront payment of $
The Kermode Agreement is within the scope of ASC 606 as the parties have a customer/vendor relationship and are not exposed equally to the risks and rewards of the activities contemplated in the Kermode Agreement. The Company identified the following promises under the Kermode Agreement: 1) research and development services, and 2) license rights of the ʎPEX Platform and mAbs and vaccines (“Program IP”). The Company determined that these promises are not distinct from each other, and therefore represent one performance obligation.
As
of March 31, 2022, the transaction price of the Kermode Agreement was $
The Company determined that the one performance obligation under the Kermode Agreement should be recognized over time. At each reporting period, the amount of revenue to recognize will be calculated using the input method (cost-to-cost), by comparing cumulative costs incurred to the total estimated costs to perform all four phases of the research and development activities and applying that percentage of completion to the transaction price. The Company believes this method best depicts the transfer of control to the customer, which occurs as the costs related to the research and development activities are incurred.
The
Company recognized approximately $
National Institutes of Health / National Institute of Allergy and Infectious Diseases Grants
In June 2023, the Company received a grant award from the National Institute of Allergy and Infectious Diseases division of the National Institutes of Health, in collaboration with researchers at Eitr Biosciences in San Diego, California, to develop pan-coronavirus human monoclonal antibody. The Company expects to commence work and receive funding under the collaboration in the fourth quarter of 2023.
In August 2023, the Company received a grant award from the National Institute of Allergy and Infectious Diseases division of the National Institutes of Health, in collaboration with researchers at Emory University in Atlanta, Georgia, to apply the company’s APEXTM human monoclonal antibody (“mAb’) discovery and production platform technology to discover and develop antibacterial mAbs from patients. The Company expects to commence work and receive funding under the collaboration in the fourth quarter of 2023.
7. Notes Payable
Note Purchase Agreement
On
November 23, 2021, the Company entered into an agreement (“Note Purchase Agreement”) with Streeterville Capital, LLC (Lender),
pursuant to which we issued to the Lender a secured promissory note (Note) in the aggregate principal amount of $
| 22 |
Payments
of each redemption amount must be made in cash. Pursuant to the Note, the Company can defer all redemption payments that the Lender could
otherwise elect to make during any calendar month on three (3) separate occasions by providing written notice to Lender at least three
(3) trading days prior to the first day of each such calendar month for which it wishes to defer redemptions for that month. In the event
the Company elects to defer, the aggregate principal amount plus accrued but unpaid interest (Outstanding Amount) shall automatically
be increased by (a)
On
September 30, 2022, the Company signed an amendment to promissory note #2. Subject to certain provisions and so long as no Event of Default
has occurred, then in addition to the three (3) deferral rights previously available, the Company shall have the right to exercise additional
monthly deferrals until March 31, 2023 (each, an “Additional Deferral”). Each time Borrower exercises an Additional Deferral
the Outstanding Balance will automatically be increased by
In
April 2023, the Company entered into a Note Purchase and Loan Restructuring Agreement with Streeterville Capital, LLC modifying the principal
amount of Note #2 from approximately $
Pursuant to the Note Purchase Agreement, we are subject to certain covenants, including the obligations to: (i) timely file all reports required to be filed under Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and not terminate its status as an issuer required to file reports under the Exchange Act; (ii) maintain listing of our common stock on a securities exchange; and (iii) avoid trading in our common stock from being suspended, halted, chilled, frozen or otherwise ceased. The Company was in compliance with all covenants as of March 31, 2023. On April 17, 2023, the Company was no longer in compliance as it didn’t meet the timely filing of the annual report on 10-K. The Company has received a waiver from the lender for this covenant which also included waiving compliance for timely filing of the May 15, 2023 10Q filing for the period ended March 31, 2023. The Note is secured by the Company’s MabIgX assets and Note #2 is secured by all of the Company’s assets.
On July 20, 2023, Streeterville provided a waiver with respect to the breach of Section 4(ii) of that certain Note Purchase Agreement dated November 23, 2021, in connection with the recent delisting of the Company’s common stock from Nasdaq to OTC Markets Pink Sheets. This in turn means that no such Event of Default has occurred pursuant to Section 4.1(l) of Secured Promissory Note #1 dated November 23, 2021, with respect to the recent delisting. Additionally, Streeterville provided a waiver with respect to the breach of Section 4(ii) and 4(iii) of that certain Note Purchase and Loan Restructuring Agreement dated April 26, 2023, in connection with the recent delisting of the Company’s common stock from Nasdaq to OTC Markets Pink Sheets. This in turn means that no such Triggering Event has occurred pursuant to Section 4.1(h) of Secured Promissory Note dated April 26, 2023, with respect to the recent delisting.
| 23 |
On August 31, 2023, Streeterville provided a waiver with respect to the breach of Section 4(i) of that certain Note Purchase and Loan Restructuring Agreement dated April 26, 2023, in connection with the delinquent filing of the Company’s Quarterly Report for the period ended June 30, 2023 on Form 10-Q with the SEC. This in turn means that no such Triggering Event has occurred pursuant to Section 4.1(h) of Secured Promissory Note dated April 26, 2023, with respect to the delinquent filing.
On
September 22, 2023, the Company entered into an Exchange Agreement (the “September 2023 Exchange Agreement”) with
Streeterville, pursuant to which we agreed to (i) partition from the Note a new Promissory Note (the “September 2023
Partitioned Note”) in the original principal amount of $
The September 2023 Exchange was effected pursuant to one or more exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). There are no gross proceeds to the Company in respect of the September 2023 Exchange, provided that all of the September 2023 Exchange Amount will be applied to settle the September 2023 Partitioned Note.
The
fair value measurement includes interest, at the stated rate, and this separate amount is not reflected in the consolidated statement
of operations. The Company has recorded a liability of approximately $
Insurance Financing
The Company obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assigns First Insurance Funding (Lender) a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies including (a) all returned or unearned premiums, (b) all additional cash contributions or collateral amounts assessed by the insurance companies in relation to the financed policies and financed by Lender, (c) any credits generated by the financed policies, (d) dividend payments, and (e) loss payments which reduce unearned premiums. If any circumstances exist in which premiums related to any Financed Policy could become fully earned in the event of loss, Lender shall be named a loss-payee with respect to such policy.
The
total premiums, taxes and fees financed was approximately $
8. Warrants
In
August 2021, the Company entered into a Securities Purchase Agreement (the “August 2021 Securities Purchase Agreement”) with
an institutional investor, pursuant to which the Company agreed to offer, issue and sell to this investor, in a registered direct offering,
shares of its Common Stock, pre-funded warrants to purchase up to an aggregate of
| 24 |
Each
Warrant is exercisable for
The Company measured the fair value of the Common Stock and Pre-Funded Warrants based on the Company’s closing stock price on the date the August 2021 Purchase Agreement was entered into and the fair value of the Warrants was based upon a BSM valuation model. The BSM valuation model used the following assumptions: expected term of , expected volatility of approximately %, risk-free interest rate of %, and dividend yield of %. The Company used the relative fair value method to allocate the net proceeds received from the sale of the Common Stock, the Pre-Funded Warrants and the Warrants of approximately $ million. The Company recorded approximately $ million, $ million and $ million, which represented the relative fair value of the Common Stock, Pre-Funded Warrants and Warrants, respectively, to stockholders’ deficit within the Company’s condensed consolidated balance sheet.
In
December 2021, all August 2021 Pre-Funded Warrants were exercised. A total of
In
October 2022, the Company entered into a Securities Purchase Agreement (the “October 2022 Securities Purchase Agreement”)
with a certain institutional and accredited investor, pursuant to which the Company agreed to offer, issue and sell to this investor,
in a registered direct offering, shares of common stock, pre-funded warrants to purchase an aggregate of
In August 2023, the Company entered into a Securities Purchase Agreement
(the “August 2023 Securities Purchase Agreement”) with a certain institutional and accredited investor, in which the Company
agreed to offer, issue and sell to this investor, pursuant to a registration statement on Form S-1, shares of common stock,
pre-funded warrants to purchase an aggregate of
The
2021 Pre-Funded Warrants, 2022 Pre-Funded Warrants and the 2023 Pre-Funded Warrants (collectively, “the Pre-Funded
Warrants”) were offered in lieu of shares of Common Stock to the Purchaser whose purchase of shares of Common Stock in the
offerings would otherwise result in the Purchaser, together with its affiliates and certain related parties, beneficially owning
more than
| 25 |
In
connection with the October 2022 Securities Purchase Agreement, the Company entered into a Warrant Amendment (the “Warrant
Amendment”) with the investor to amend the 2021 Warrants. Pursuant to the Warrant Amendment, the 2021 Warrants were amended,
effective upon the closing of the October 2022 Securities Purchase Agreement, so that the amended warrants have a reduced exercise
price from $
In
January 2023, the investor exercised of the October 2022 pre-funded warrants to purchase
common stock and
9. Common Stock
As of September 30, 2023 the Company had reserved the following common stock for future issuance:
| Shares reserved for exercise of outstanding options to purchase common stock | ||||
| Shares reserved for vesting of restricted stock units | ||||
| Shares reserved for exercise of outstanding warrants to purchase common stock | ||||
| Shares reserved for issuance of future options | ||||
| Total |
Securities Purchase Agreement
In August 2023, the Company entered
into a Securities Purchase Agreement (the “August 2023 Securities Purchase Agreement”) with a certain institutional and accredited
investor, in which the Company agreed to offer, issue and sell to this investor, pursuant to a registration statement on Form S-1,
shares of common stock, pre-funded warrants to purchase an aggregate of
In
March 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional
and accredited investors (the “Purchasers”), pursuant to which the Company agreed to issue and sell, in a registered direct
offering (the “Offering”), shares of its common stock, par value $ per share (the “Common Stock”).
The purchase price of each share of Common Stock is $ per share. The Purchase Agreement contains customary representations, warranties,
covenants and indemnification rights and obligations of the Company and the Purchasers. The Offering closed in March 2023, and the Company
received gross proceeds of approximately $
In
December 2022, the Company entered into a Securities Purchase Agreement with the Cystic Fibrosis Foundation (CFF) in which we agreed
to offer, issue and sell shares of Common Stock, par value $. The per share offering price of the shares was $. Additionally,
CFF agreed to increase the amount of grant award to provide additional $
On
October 5, 2022, the Company entered into a securities purchase agreement (the “October 2022 Purchase Agreement”) with a
certain institutional and accredited investor (the “Purchaser”), relating to the issuance and sale of shares (the
“Shares”) of common stock, par value $ per share (the “Common Stock”) and pre-funded warrants to purchase
an aggregate of
In
March 2021, the Company entered into a Securities Purchase Agreement (the “March 2021 Securities Purchase Agreement”) with
certain institutional and individual investors (the “Purchasers”), pursuant to which the Company agreed to offer, issue and
sell to the Purchasers, in a registered direct offering, an aggregate of shares (the “Shares”) of the Company’s
common stock, par value $per share (“Common Stock”) for aggregate
gross proceeds to the Company of approximately $
MedImmune Limited License Agreement
Effective
July 12, 2021, the Company entered into the MedImmune License Agreement, pursuant to which MedImmune granted the Company an exclusive
worldwide license for the development and commercialization of suvratoxumab, a Phase 3 ready fully human monoclonal antibody targeting
Staphylococcus aureus alpha toxin (see Note 4). As part of the consideration for the MedImmune License Agreement, the Company
issued shares of its common stock to MedImmune. The fair value of the shares of the Company’s common stock issued
in connection with the MedImmune License agreement is approximately $
| 26 |
On March 20, 2023, we received written notice from MedImmune Limited that it has terminated that certain License Agreement by and between MedImmune and us dated as of July 12, 2021, and as amended by Amendment No. 1 to License Agreement, dated as of August 9, 2021 (the “License Agreement”), pursuant to Section 9.2.1 of the License Agreement for non-payment of the Upfront Cash Payment which was due on December 31, 2021. The notice states that such termination shall be effective on March 30, 2023. As a result of the termination notice, the on-going AR-320-003 Phase 3 clinical study has been put on hold. We do not agree that we are in material breach of the License Agreement.
Based on the failure of MedImmune to assist in the necessary technology transfer pursuant to Section 3.5.2 of the License Agreement, we notified MedImmune on March 24, 2023 that it was in material breach of Section 3.5.2 and requested that the material breach be cured as soon as possible.
Nasdaq Stock Market
On July 17, 2023, Aridis Pharmaceuticals, Inc. (the “Company”) received written notice (the “Notice”) from the Nasdaq Stock Market, LLC (“Nasdaq”) that it would delist the Company’s shares of common stock from the Nasdaq Capital Market upon the opening of trading on July 19, 2023. As of September 30, 2023, the Company’s common stock was traded on the OTC Pink Sheets.
Equity Incentive Plan
In
May 2014, the Company adopted and the shareholders approved the 2014 Equity Incentive Plan (the 2014 Plan). Under the 2014 Plan,
shares of the Company’s common stock were initially reserved for the issuance of stock options to employees, directors, and consultants,
under terms and provisions established by the Board of Directors. Under the terms of the 2014 Plan, options may be granted at an exercise
price not less than fair market value. For employees holding more than
In June 2020, the adoption of an amendment to the 2014 Plan to eliminate the evergreen provision and set the number of shares of common stock reserved for issuance thereunder to shares was approved by the Company’s stockholders.
In June 2022, the shareholder approved an additional shares to be reserved for the issuance of stock options to employees, directors, and consultants, under terms and provisions established by the Board of Directors.
| 27 |
Stock Options
The number of shares, terms, and vesting periods are determined by the Company’s Board of Directors or a committee thereof on an option by option basis. Options generally vest ratably over service periods of up to and expire from the date of grant.
| Options Outstanding | ||||||||||||
| Shares | Weighted- Average | |||||||||||
| Available | Number of | Exercise | ||||||||||
| for Grant | Shares | Price | ||||||||||
| Balances at December 31, 2022 | $ | |||||||||||
| Options granted | ( | ) | $ | |||||||||
| Options cancelled | ( | ) | $ | |||||||||
| Balances at March 31, 2023 | $ | |||||||||||
| Options granted | ( | ) | $ | |||||||||
| Options cancelled | ( | ) | $ | |||||||||
| Balances at June 30, 2023 | $ | |||||||||||
| Options granted | ( | ) | $ | |||||||||
| Options cancelled | ( | ) | $ | |||||||||
| Balances at September 30, 2023 | $ | |||||||||||
The Company estimated the fair value of options using the BSM option valuation model. The fair value of options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of the options granted during the three and nine month periods ended September 30, 2023 and 2022 were estimated using the following assumptions:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Expected term (in years) | ||||||||||||||||
| Expected volatility | %- | % | %- | % | %- | % | %- | % | ||||||||
| Risk-free interest-rate | % | % - | % | % - | % | % - | % | |||||||||
| Dividend yield | % | % | % | % | ||||||||||||
During the three and nine month periods ended September 30, 2023, the Company granted options to purchase and shares, respectively, with a weighted-average grant date fair value of $ and $ per share, respectively. During the three and nine month periods ended September 30, 2022, the Company granted options to purchase and shares with a weighted-average grant date fair value of $ and $ per share, respectively.
There were options exercised during the three and nine month periods ended September 30, 2023 and 2022.
Stock-Based Compensation
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As of September 30, 2023, total unrecognized stock-based compensation expenses related to unvested stock options and RSUs was approximately $ million, which is expected to be recognized on a straight-line basis over a weighted-average period of approximately years.
| 28 |
11. Related Parties
Joint Venture
On
February 11, 2018, the Company entered into a Joint Venture (“JV”) Agreement with Hepalink which is a related party and principal
shareholder in the Company, pursuant to which the Company formed a JV Entity for developing and commercializing products for infectious
diseases in the greater China territories. It was agreed by the parties that the Company shall be reimbursed for certain legal and contract
manufacturing expenses related to the clinical drug supply for a Phase 3 clinical study of AR-301 and the clinical drug supply for a
clinical study of AR-105. For both the three and nine month periods ended September 30, 2023, and 2022, the Company recorded $
On August 21, 2023, Aridis Pharmaceuticals, Inc. (the “Company”) sent written notice to Shenzhen Arimab Biopharmaceuticals Co., Ltd. (“Arimab”) stating that as of August 21, 2023, the Amended and Restated Technology License and Collaboration Agreement between Arimab, a joint venture of the Company and Shenzhen Hepalink Pharmaceutical Group Co., Ltd. dated as of August 6, 2018 (the “Agreement”) would terminate pursuant to Section 11.2 of the Agreement.
Serum International B.V.
In
July 2019, the Company issued shares of its restricted common stock in a private placement to Serum International B.V. (“SIBV”),
an affiliate of Serum Institute of India Private Limited, for total gross proceeds of $
On May 3, 2023, the Company sent written notice to SAMR stating that as of May 8, 2023, the License Agreement would terminate pursuant to Section 13.3(a) of the License Agreement for nonfulfillment of development obligations under the License Agreement.
As
a result of termination of the License Agreement, the Company recognized approximately $
The
Company recorded an impairment loss of approximately $
Cystic Fibrosis Foundation
On
December 7, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the Cystic Fibrosis
Foundation ( “CFF”), pursuant to which the Company agreed to offer, issue and sell to CFF in a private placement (the “PIPE”)
shares (the “Common Shares”) of common stock, par value $ (the “Common Stock”) for a purchase
price of $ per share for aggregate gross proceeds of approximately $
12. Commitments and Contingencies
Facility Lease
The
Company determines if an arrangement is a finance lease, operating lease or short-term lease at inception, or as applicable, and accounts
for the arrangement under the relevant accounting literature. Currently, the Company is only party to a non-cancelable office space operating
lease. Under the relevant guidance, the Company recognizes operating lease ROU assets and liabilities based on the present value of the
future minimum lease payments over the lease term at the commencement date, using the Company’s assumed incremental borrowing rate
of
In
October 2020, the Company entered into a new lease agreement (the “Lease Agreement”) with Boccardo Corporation (the “Landlord”)
pursuant to which the Company leased approximately
| 29 |
As
of January 1, 2022, the Company adopted ASC 842, Leases. The Company recognizes ROU assets and lease liabilities at the adoption
date based on the present value of future minimum lease payments over the lease term. The discount rate used was the incremental borrowing
rate of
| ROU assets, net | $ | |||
| Current portion of lease liabilities (included in current liabilities) | ||||
| Lease liabilities, less current portion | ||||
| Total lease liabilities | $ |
The future minimum lease payments for the new facility as of September 30, 2023 are as follows (in thousands):
| Period ending: | ||||
| Year ending December 31, 2023 | ||||
| Year ending December 31, 2024 | ||||
| Year ending December 31, 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may incur charges in the future as a result of these indemnification obligations.
License Agreements
The Company has entered into various collaboration and licensing agreements that provide it with access to certain technology and patent rights. Under the terms of the agreements, the Company may be required to make milestone payments upon achievement of certain development and regulatory activities. None of these events occurred as of September 30, 2023. See “Development and License Agreements” in Note 6 of our Notes to the Condensed Consolidated Financial Statements.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that a potential loss will be incurred and such amount can be reasonably estimated. As of September 30, 2023, and December 31, 2022, no accruals have been made related to commitments and contingencies.
From time to time, the Company may be involved in various legal proceedings, claims and litigation arising in the ordinary course of business. See below Legal Proceedings ongoing at September 30, 2023.
Legal Proceedings
A
complaint was filed in February 2020 in the New York State Supreme Court against the Company by an investor who invested in the Company’s
preferred stock in July 2017 prior to the Company’s IPO in August 2018. The complaint alleges, among other things, that the Company
breached its contract and fiduciary duty, by not issuing additional securities to the investor as a result of the Company’s IPO.
The plaintiff is asking for approximately $
| 30 |
The Company submitted a complaint in Superior Court of the State of California, County of Santa Clara, against our former landlord on October 22, 2021, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, wrongful eviction/constructive eviction and unjust enrichment and violation of the unfair competition law. The claims arise from rent increases and the termination of the tenancy that we allege were not permitted by the agreement with the landlord. We seek to recover rent paid under protest, our deposit, moving and relocation expenses and consequential damages arising from disruption to our operations. The Company filed a first amended complaint on July 18, 2022 asserting the same claims. The landlord has filed a cross-complaint for damage to property and attorneys’ fees. The court has set a trial setting conference for February 20, 2024. The parties have agreed to mediate the dispute and mediation is on-going.
The
Company accrues a liability for such matters when it is probable that potential loss will be incurred and such amount can be reasonably
estimated. As of September 30, 2023, and December 31, 2022,
Grant Income
The Company receives various grants that are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement for expenditures disallowed under the terms of the grant. As of September 30, 2023, management has complied with all of the required grant terms. There are no grant audits currently in process.
Cystic Fibrosis Foundation Agreement
In
December 2016, the Company received an award for up to $
| 31 |
Kermode Agreement
In
February 2021, the Company entered into the Kermode Agreement, in which the Company received an upfront payment of $
13. Subsequent Events
On October 5, 2023, the Company received approval for its shares of common stock to trade on the OTCQB. The Company’s shares of common stock began trading on the OTCQB on October 6, 2023.
On October 18, 2023, the Company entered into an agreement (the “Lease
Amendment”) with Boccardo Corporation (the “Landlord”) to amend its facility lease. Pursuant to the Lease Amendment,
effective October 1, 2023, the Landlord agreed to reduce the base monthly rent in exchange for an extension of the lease term by
| 32 |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”), contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.
Our operations and business prospects are always subject to risks and uncertainties including, among others:
| ● | the timing of regulatory submissions; | |
| ● | our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain; | |
| ● | approvals for clinical trials may be delayed or withheld by regulatory agencies; | |
| ● | preclinical and clinical studies will not be successful or confirm earlier results, meet expectations, meet regulatory requirements, or meet performance thresholds for commercial success; | |
| ● | risks relating to the timing and costs of clinical trials, the timing and costs of other expenses; | |
| ● | risks associated with obtaining third-party funding; | |
| ● | risks associated with delays, increased costs and funding shortages caused by or resulting from the COVID-19 pandemic; | |
| ● | risks associated with delays, increased costs and funding shortages caused by or resulting from geopolitical disruptions, such as the conflict between Ukraine and Russia; | |
| ● | management and employee operations and execution risks; | |
| ● | loss of key personnel; | |
| ● | competition; | |
| ● | risks related to market acceptance of products; | |
| ● | intellectual property risks; | |
| ● | assumptions regarding the size of the available market, benefits of our products, product pricing, and timing of product launches; | |
| ● | risks associated with the uncertainty of obtaining additional timely funding; | |
| ● | risks associated with the uncertainty of future financial results; | |
| ● | our ability to attract collaborators and partners; and | |
| ● | risks associated with our reliance on third-party organizations. |
Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This Quarterly Report also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.
| 33 |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements (unaudited) included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-K filed with the SEC on May 22, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
We are a late-stage biopharmaceutical company focused on the discovery and development of targeted immunotherapy using fully human monoclonal antibodies, or mAbs, to treat life-threatening infections. mAbs represent a fundamentally new treatment approach in the infectious disease market and are designed to overcome key issues associated with current therapies, including drug resistance, short duration of response, tolerability, negative impact on the human microbiome, and lack of differentiation between treatment alternatives. Our proprietary product pipeline is comprised of fully human mAbs targeting specific pathogens associated with life-threatening bacterial and viral infections, primarily hospital-acquired pneumonia, or HAP, ventilator-associated pneumonia, or VAP and cystic fibrosis. Our clinical stage product candidates have exhibited promising preclinical data and clinical data. Our lead product candidates, AR-301 and AR-320, target the alpha toxin produced by gram-positive bacteria Staphylococcus aureus, or S. aureus, a common pathogen associated with HAP and VAP. AR-501 is a broad spectrum small molecule anti-infective we are developing in addition to our targeted mAb product candidates.
The majority of candidates from our product pipeline are derived by employing our differentiated antibody discovery platform called MabIgXTM and λPEXTM. This platform is designed to comprehensively screen the B-cell repertoire and isolate human antibody-producing B-cells from individuals who have either successfully overcome an infection by a particular pathogen or have been vaccinated against a particular pathogen. We believe that B-cells from these patients are the ideal source of highly protective and efficacious mAbs which can been administered safely to other patients. λPEXTM complements and further extends the capabilities of MabIgX to quickly screen large number of antibody producing B-cells from patients and generation of high mAb producing mammalian production cell line at a speed not previously attainable. As a result, we can significantly reduce time for antibody discovery and manufacturing compared to conventional approaches.
Two of our mAbs in advanced clinical development are being developed for treatment of HAP and VAP in intensive care units or ICUs. Our initial clinical indication for AR-301 is for adjunctive therapeutic treatment with standard of care, or SOC, antibiotics for HAP and VAP. AR-320 is being developed as a pre-emptive treatment of mortality and morbidity associated with HAP and VAP. Current SOC antibiotics used to treat HAP and VAP typically involve a combination of several broad-spectrum antibiotics that are prescribed empirically at the start of treatment. The specific empirical antibiotic regimens that are prescribed vary widely among physicians, and generally result in modest clinical benefits due to a number of reasons, which can include an infection by an antibiotic resistant strain, immune deficiency, or potential mismatch of the antibiotics regimen to the etiologic agent. Recently, rapid diagnostic tests have been introduced that allow the identification of infection-causing agents within hours. These increasingly common rapid tests allow physicians to prescribe a more appropriate antibiotics regimen, and eventually more targeted anti-infectives such as AR-301 and AR-320 earlier in the course of infection. This evidenced-based treatment approach is designed to remove issues associated with empirical broad-spectrum antibiotics such as inappropriate antibiotic selection and promotion of antibiotic resistance. In contrast to the lack of differentiation among SOC antibiotics, mAbs are highly differentiated from SOC antibiotics in mechanism of action, pharmacokinetic and pharmacodynamic profile, and thus are well suited to complement antibiotics when used together. As an adjunctive treatment, AR-301 has the potential to improve the effectiveness of SOC antibiotics and cover antibiotic resistant S. aureus strains, while not competing directly with antibiotics. To emphasize the benefits of our product candidates as an adjunctive therapy, we design clinical trials based on superiority endpoints.
| 34 |
AR-301 and AR-320 neutralize alpha-toxin from Staphylococcus aureus bacteria, leading to protection from alpha-toxin mediated destruction of host cells, including cells from the immune system. This mode of action is independent of the antibiotic resistance profile of S. aureus, and as such AR-301 and AR-320 are active against infections caused by both MRSA (methicillin-resistant Staphylococcus aureus) and MSSA (methicillin-sensitive Staphylococcus aureus). AR-320 and AR-301 are complementary products. AR-320 treatment focuses on preventive treatment of S. aureus pneumonia, which complements Aridis’ AR-301 Phase 3 mAb program that is being developed as a therapeutic treatment of S. aureus pneumonia. We believe that AR-301 will be first-line treatment, first to market, first-in-class pre-emptive treatment of S. aureus colonized patients. The same first-line, first to market and first-in-class strategy applies to the acute treatment with the monoclonal antibody AR-320.
AR-320 is being developed for pre-emptive treatment of high-risk patients under 65 years old for prevention of nosocomial pneumonia caused by S. aureus, which is associated with significant morbidity and mortality despite current standard of care, including antibiotics and infection control practices like ventilator-associated pneumonia (VAP) bundles. Currently, there are no treatments available for prevention or early preemptive management of patients at high-risk of developing S. aureus pneumonia. AR-320 has the potential to address this unmet medical need by reducing the incidence of S. aureus pneumonia in patients at high-risk of developing the disease, e.g., mechanically ventilated patients in the intensive care unit (ICU) who are colonized with S. aureus in their respiratory tract.
HAP and VAP pose serious challenges in the hospital setting, as SOC antibiotics are becoming inadequate in treating infected patients. There are approximately 3,000,000 cases of pneumonia reported in the U.S. per year and approximately 628,000 annual cases of HAP and VAP caused by gram negative bacteria and MRSA (DRG, 2016). These patients are typically at high risk of mortality, which is compounded by other life-threatening co-morbidities and the rise in antibiotic resistance. Epidemiology studies estimate that the probability of death attributed to S. aureus ranges from 29% to 55%. In addition, pneumonia infections can prolong patient stays in ICUs and the use of mechanical ventilation, creating a major economic burden on patients, hospital systems and payors. For example, ICU cost of care for a ventilated pneumonia patient is approximately $10,000 per day in the U.S., and the duration of ICU stays are typically twice that of a non-ventilated patient (Infection Control and Hospital Epidemiology. 2010, vol. 31, pp. 509-515). The average cost of care per pneumonia patient is approximately $41,250 which increases 86% for HAP/VAP patients to approximately $76,730. We estimate that our two clinical mAb candidates have an addressable market of $25 billion and the potential to address approximately 325,000 HAP and VAP patients in the U.S.
To date, we have devoted substantially all of our resources to research and development efforts relating to our therapeutic candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, protecting our intellectual property and providing general and administrative support for these operations. We have generated revenue from our payments under our collaboration strategic research and development contracts and federal awards and grants, as well as awards and grants from not-for-profit entities and fee for service to third-party entities. Since our inception, we have funded our operations primarily through these sources and the issuance of common stock, convertible preferred stock, and debt securities. Our expenses and resulting cash burn during the nine months ended September 30, 2023 and year ended December 31, 2022, were largely due to costs associated with study close-out activities on the first Phase 3 study of AR-301 for the treatment of VAP caused by the S. aureus bacteria, the Phase 3 study of AR-320 for prevention of nosocomial pneumonia, and the Phase 1/2a study of AR-501 for the treatment of chronic lung infections associated with cystic fibrosis. Until the clinical development activities for AR-301 and AR-320 resume, the current clinical development activities are focused primarily on AR-501.
Financial Overview
We have incurred losses since our inception. Due to termination of the SAMR License Agreement we recognized upfront payments of approximately $19.6 million as license revenue which resulted in net income during the nine month period ended September 30, 2023 of $5.2 million. Our results for the year ended December 31, 2022 were a net loss of approximately $30.4 million. As of September 30, 2023 we had approximately $535 thousand of cash and cash equivalents, of which $500 thousand is restricted in connection with our facility lease, and had an accumulated deficit of approximately $190.4 million. Substantially, all of our net losses have resulted from costs incurred in connection with our research and development programs, clinical trials, intellectual property matters, strengthening our manufacturing capabilities, and from general and administrative costs associated with our operations.
| 35 |
We have not yet achieved commercialization of our products and have a cumulative net loss from our operations. We will continue to incur net losses for the foreseeable future. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through the sale of equity and/or debt securities. Historically, our principal sources of cash have included proceeds from grant funding, license agreements, fees for services performed, issuances of convertible debt and the sale of our common and preferred stock. Our principal uses of cash have included cash used in operations. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development including our clinical trials and general working capital requirements.
We anticipate that our expenses will increase substantially if and as we:
| ● | continue enrollment in our ongoing clinical trials; | |
| ● | initiate new clinical trials; | |
| ● | seek to identify, assess, acquire and develop other products, therapeutic candidates and technologies; | |
| ● | seek regulatory and marketing approvals in multiple jurisdictions for our therapeutic candidates that successfully complete clinical studies; | |
| ● | establish collaborations with third parties for the development and commercialization of our products and therapeutic candidates; | |
| ● | make milestone or other payments under our agreements, pursuant to which we have licensed or acquired rights to intellectual property and technology; | |
| ● | seek to maintain, protect, and expand our intellectual property portfolio; | |
| ● | seek to attract and retain skilled personnel; | |
| ● | incur the administrative costs associated with being a public company and related costs of compliance; | |
| ● | create additional infrastructure to support our operations as a commercial stage public company and our planned future commercialization efforts; | |
| ● | create additional interest-bearing debt; | |
| ● | experience any delays or encounter issues with any of the above; | |
| ● | incur risks associated with delays, increased costs and funding shortages caused by or resulting from the COVID-19 pandemic; and | |
| ● | experience continued global disruptions associated with the conflict between Russian and Ukraine. |
We expect to continue to incur significant expenses and increasing losses for at least the next several years. Accordingly, we anticipate that we will need to raise additional capital in order to obtain regulatory approval for, and the commercialization of, our therapeutic candidates. Until such time that we can generate meaningful revenue from product sales, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could adversely affect our business, financial condition and results of operations.
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP.
The preparation of our condensed consolidated financial statements requires management 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 during the reported periods. We evaluate these estimates and judgments on an ongoing basis. Such estimates include those related to the evaluation of our ability to continue as a going concern, our best estimate of standalone selling price of revenue deliverables, useful life of long-lived assets, classification of deferred revenue, income taxes, assumptions used in the Black-Scholes-Merton (“BSM”) model to calculate the fair value of stock-based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. We base our estimates on 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. Our actual results may differ from these estimates under different assumptions or conditions.
| 36 |
We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Our critical accounting policies are primarily revenue recognition and accrued research and development costs. We believe the significant accounting policies used in the preparation of our consolidated financial statements are as follows:
Revenue Recognition
We recognize revenue based on Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as the entity satisfies performance obligations. We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
As part of the accounting for customer arrangements, we must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. We use judgment to determine whether milestones or other variable consideration should be included in the transaction price.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We recognize revenue as or when the performance obligations under the contract are satisfied. We receive payments from our customers based on payment schedules established in each contract. We record any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on the condensed consolidated balance sheet. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the condensed consolidated balance sheet. Amounts are recorded as other receivables on the condensed consolidated balance sheet when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.
Research and Development Expenses
We recognize research and development expenses to operations as they are incurred. Our research and development expenses consist primarily of:
| ● | salaries and related overhead expenses, which include stock-based compensation and benefits for personnel in research and development functions; | |
| ● | fees paid to consultants and contract research organizations, or CROs, including in connection with our preclinical studies and clinical trials and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial material management and statistical compilation and analyses; | |
| ● | costs related to acquiring and manufacturing clinical trial materials; | |
| ● | costs related to compliance with regulatory requirements; and | |
| ● | payments related to licensed products and technologies. |
| 37 |
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or when the services are performed.
We plan to increase our research and development expenses for the foreseeable future as we continue to develop our therapeutic programs, and subject to the availability of additional funding, further advance the development of our therapeutic candidates for additional indications and begin to conduct clinical trials.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our therapeutic candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our therapeutic candidates.
The significant accounting policies used in the preparation of our condensed consolidated financial statements are as follows:
General and Administrative Expenses
General and administrative expenses consist primarily of costs related to executive, finance, corporate development and administrative support functions, including stock-based compensation expenses and benefits for personnel in general and administrative functions. Other significant, general and administrative expenses include rent, accounting and legal services, obtaining and maintaining patents or other intellectual property rights, the cost of various consultants, occupancy costs, insurance premiums and information systems costs.
We expect that our general and administrative expenses will increase as we continue to operate as a public company, continue to conduct our clinical trials and prepare for commercialization. We believe that these increases will likely include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel to support product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures, and similar requirements applicable to public companies.
Stock-Based Compensation
We recognize compensation expense for all stock-based awards based on the grant-date estimated fair values, which we determine using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. We account for forfeitures as they occur.
The BSM option pricing model incorporates various highly sensitive assumptions, including the fair value of our common stock, expected volatility, expected term and risk-free interest rates. The weighted average expected life of options was calculated using the simplified method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14 (“SAB Topic 14”). This decision was based on the lack of relevant historical data due to our limited historical experience. In addition, due to our limited historical data, the estimated volatility also reflects the application of SAB Topic 14, incorporating the historical volatility of comparable companies whose stock prices are publicly available. The risk-free interest rate for the periods within the expected term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero, as we have never declared or paid dividends and have no plans to do so in the foreseeable future.
| 38 |
Results of Operations
Comparison of the Three Months Ended September 30, 2023, and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023, and 2022 (in thousands):
| Three Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2023 | 2022 | Change $ | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Revenue: | ||||||||||||
| Grant revenue | $ | 417 | $ | 399 | $ | 18 | ||||||
| License revenue | — | — | — | |||||||||
| Total revenue | 417 | 399 | 18 | |||||||||
| Operating expenses: | ||||||||||||
| Research and development | 175 | 6,118 | (5,943 | ) | ||||||||
| General and administrative | 1,111 | 1,693 | (582 | ) | ||||||||
| Total operating expenses | 1,286 | 7,811 | (6,525 | ) | ||||||||
| Income (loss) from operations | (869 | ) | (7,412 | ) | 6,543 | |||||||
| Other income (expense): | ||||||||||||
| Interest income, net | 1 | (27 | ) | 28 | ||||||||
| Other income | 26 | 23 | 3 | |||||||||
| Change in fair value of note payable | 759 | (823 | ) | 1,582 | ||||||||
| Net income (loss) | $ | (83 | ) | $ | (8,239 | ) | $ | 8,156 | ||||
Grant Revenue. Grant revenue was approximately $0.4 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively. The three months ended September 30, 2023 and 2022 included revenue from CFF, Kermode and Gates.
Research and Development Expenses. Research and development expenses decreased by approximately $5.9 million from approximately $6.1 million for the three months ended September 30, 2022 to approximately $0.2 million for the three months ended September 30, 2023 due primarily to:
| ● | A decrease in spending on our Phase 2a clinical trial evaluating AR-501 for the treatment of cystic fibrosis due to clinical trial study closures | |
| ● | a decrease in spending on completion and normal wind down costs for our Phase 3 clinical trial evaluating AR-301 for the treatment of VAP | |
| ● | a decrease in spending on our clinical trial evaluating AR-320 for the prevention of VAP due to clinical trial study closures |
General and Administrative Expenses. General and administrative expenses decreased by approximately $0.6 million from approximately $1.7 million for the three months ended September 30, 2022 to approximately $1.1 million for the three months ended September 30, 2023. The decrease was due primarily to decreases in personnel related costs, stock compensation expense, and liability insurance, partially offset by an increase in professional fees.
Interest income (expense), net increased by approximately $28 thousand from approximately $27 thousand of interest expense, net for the three months ended September 30, 2022 to approximately $1 thousand of interest income, net for the three months ended September 30, 2023. The expense decrease was primarily due to interest waivers on the Note Payable to Streeterville Capital, LLC.
| 39 |
Change in fair value of note payable. Change in fair value of notes payable increased by approximately $1.6 million from a loss of approximately $0.8 million for the three months ended September 30, 2022 to a gain of approximately $0.8 million for three months ended September 30, 2023 due to changes in default probability as determined by a third party valuation expert.
Comparison of the Nine Months Ended September 30, 2023, and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023, and 2022 (in thousands):
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2023 | 2022 | Change $ | ||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Revenue: | ||||||||||||
| Grant revenue | $ | 1,544 | $ | 1,878 | $ | (334 | ) | |||||
| License revenue | 19,602 | — | 19,602 | |||||||||
| Total revenue | 21,146 | 1,878 | 19,268 | |||||||||
| Operating expenses: | ||||||||||||
| Research and development | 10,374 | 18,916 | (8,542 | ) | ||||||||
| General and administrative | 4,235 | 5,535 | (1,300 | ) | ||||||||
| Total operating expenses | 14,609 | 24,451 | (9,842 | ) | ||||||||
| Income (loss) from operations | 6,537 | (22,573 | ) | 29,110 | ||||||||
| Other income (expense): | ||||||||||||
| Interest income, net | 31 | (267 | ) | 298 | ||||||||
| Other income | 77 | 68 | 9 | |||||||||
| Change in fair value of note payable | (1,400 | ) | (1,212 | ) | (188 | ) | ||||||
| Net income (loss) | $ | 5,245 | $ | (23,984 | ) | $ | 29,229 | |||||
Grant Revenue. Grant revenue was approximately $1.5 million and $1.9 million for the nine months ended September 30, 2023 and 2022, respectively. The nine months ended September 30, 2023 and 2022 included revenue from CFF, Kermode and Gates.
License Revenue. License revenue was approximately $19.6 million and $0 for the nine months ended September 30, 2023 and 2022, respectively. The nine months ended September 30, 2023 included recognition of revenue from upfront payments in connection with termination of the SAMR License Agreement.
Research and Development Expenses. Research and development expenses decreased by approximately $8.5 million from approximately $18.9 million for the nine months ended September 30, 2022 to approximately $10.3 million for the nine months ended September 30, 2023 due primarily to:
| ● | A decrease in spending on our Phase 2a clinical trial evaluating AR-501 for the treatment of cystic fibrosis due to clinical trial study closures | |
| ● | a decrease in spending on completion and normal wind down costs for our Phase 3 clinical trial evaluating AR-301 for the treatment of VAP | |
| ● | a decrease in spending on our clinical trial evaluating AR-320 for the prevention of VAP due to clinical trial study closures |
General and Administrative Expenses. General and administrative expenses decreased by approximately $1.3 million from approximately $5.5 million for the nine months ended September 30, 2022 to approximately $4.2 million for the nine months ended September 30, 2023. The decrease was due primarily to decreases in personnel related costs, stock compensation expense, and liability insurance, partially offset by an increase in professional fees.
Interest Income, Net. Interest income (expense), net increased by approximately $298 thousand from approximately $267 thousand of interest expense, net for the nine months ended September 30, 2022 to approximately $31 thousand of interest income, net for the nine months ended September 30, 2023. The expense decrease was primarily due to interest waivers on the Note Payable to Streeterville Capital, LLC.
Change in fair value of note payable. Change in fair value of notes payable decreased by approximately $0.2 million from a loss of approximately $1.2 million for the nine months ended September 30, 2022 to a loss of approximately $1.4 million for the nine months ended September 30, 2023 due to changes in in default probability as determined by a third party valuation expert.
Liquidity, Capital Resources and Going Concern
As of September 30, 2023, we had approximately $35 thousand of cash and cash equivalents, $500 thousand of restricted cash and had an accumulated deficit of approximately $190.4 million. As of December 31, 2022, we had approximately $4.9 million of cash, cash equivalents, $0.7 million of restricted cash and had an accumulated deficit of approximately $195.7 million.
We entered into a Note Purchase Agreement with Streeterville Capital, LLC (the “Lender”), pursuant to which we issued to the Lender a secured promissory note (the “Note”) in the aggregate principal amount of $5,250,000. Closing occurred on November 23, 2021 (the “Issuance Date”). The Note carries an original issue discount of $250,000. The Note bears interest at the rate of 6% per annum and matures on November 23, 2023. Net proceeds after deducting the discount fee were $5,000,000. Pursuant to the terms agreed in the Note Purchase Agreement with Streeterville Capital, LLC, we issued a second Note to the Lender on February 21, 2022 in the aggregate principal amount of $5,250,000 which are substantially similar to the first Note except the maturity date is February 21, 2024.
| 40 |
On September 30, 2022, we signed an amendment to promissory note #2. Subject to certain provisions and so long as no Event of Default has occurred, then in addition to the three (3) deferral rights previously available, we shall have the right to exercise additional monthly deferrals until March 31, 2023 (each, an “Additional Deferral”). Each time Borrower exercises an Additional Deferral the Outstanding Balance will automatically be increased by 1.5%. As of June 30, 2023, no payments have been made on note #2.
On April 26, 2023, the Company entered into a Note Purchase and Loan Restructuring Agreement with Streeterville Capital, LLC modifying the principal amount of Note #2 from approximately $5,250,000 to approximately $9,287,000 in exchange for an additional investment amount of up to $2,500,000.
On September 22, 2023, the Company entered into an Exchange Agreement (the “September 2023 Exchange Agreement”) with Streeterville, pursuant to which we agreed to (i) partition from the Note a new Promissory Note (the “September 2023 Partitioned Note”) in the original principal amount of $50,000 (the “September 2023 Exchange Amount”), (ii) cause the outstanding balance of the Note to be reduced by an amount equal to the September 2023 Exchange Amount, and (iii) exchange (the “September 2023 Exchange”) the September 2023 Partitioned Note for 898,069 shares of the Company’s common stock. On September 22, 2023 the fair value of the shares issued was approximately $99 thousand and we immediately recorded $49 thousand as stock issuance costs through a reduction to additional paid-in-capital.
We obtained financing for certain Director & Officer liability insurance policy premiums from First Insurance Funding. The total premiums, taxes and fees financed is approximately $915,000 with an annual percentage interest rate of 5.13%. At September 30, 2023, the balance of the insurance financing note had been paid in full.
We have had recurring negative cash flows from operations since inception and we anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future. Management plans to finance operations through equity or debt financings or other capital sources, including potential collaborations or other strategic transactions. There can be no assurances that, in the event that we require additional financing, such financing will be available on terms which are favorable to us, or at all. If we are unable to raise additional funding to meet our working capital needs in the future, we will be forced to delay or reduce the scope of our research programs and/or limit or cease our operations. As described above under “Going Concern,” in the absence of equity or debt financing, or other capital sources, including grant funding, potential collaborations or other strategic transactions, management anticipates that existing cash resources will not be sufficient to meet operating and liquidity needs on or before November 30, 2023. Management is currently evaluating various cost reduction actions, including possible reductions in our workforce and suspending research and development expenditures on one or more product candidates, in order to reduce our expenditures and preserve cash. We are limited in our ability to reduce expenditures for known contractual obligations. As a result, we are not able to predict whether any cost reduction actions will be successful or how much longer any such actions will allow us to continue to operate without financing.
| 41 |
Cash Flows
Our net cash flow from operating, investing and financing activities for the periods below were as follows (in thousands):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (9,278 | ) | $ | (20,570 | ) | ||
| Investing activities | 14 | (33 | ) | |||||
| Financing activities | 4,240 | 3,750 | ||||||
| Net (decrease) in cash, cash equivalents and restricted cash | $ | (5,024 | ) | $ | (16,853 | ) | ||
Cash Flows from Operating Activities.
Net cash used in operating activities was approximately $9.3 million for the nine months ended September 30, 2023, which was primarily due to our net income of approximately $5.2 million, an increase in accounts payable of approximately $3.1 million, a decrease in contract costs of approximately $2.0 million, a decrease in accounts receivable of approximately $0.6 million and stock-based compensation expense of approximately $0.7 million, offset by a decrease in deferred revenue of approximately $20.5 million, a decrease of approximately $1.9 million in accrued liabilities and an increase in change in fair value of note payable of $1.4 million.
Net cash used in operating activities was approximately $20.6 million for the nine months ended September 30, 2022, which was primarily due to our net loss of approximately $24.0 million, a decrease of approximately $1.0 million in accounts payable, a decrease of approximately $0.1 million in prepaid assets, and a decrease of approximately $0.6 in deferred revenue, partially offset by an increase of approximately $2.1 million in accrued liabilities and other, non-cash charges of approximately $1.2 million related to stock-based compensation and an increase in change in fair value of note payable of $1.2 million..
Cash Flows from Investing Activities.
Net cash provided by investing activities of approximately $14 thousand during the nine months ended September 30, 2023, was due to proceeds received from disposal of equipment.
Net cash used in investing activities of approximately $33 thousand during the nine months ended September 30, 2022, was due to the purchase of equipment, primarily for diagnostic use in clinical trials.
Cash Flows from Financing Activities.
Net cash provided by financing activities of approximately $4.2 million during the nine months ended September 30, 2023 was from $3.8 million in proceeds received from issuance of common stock, net of issuance costs and approximately $2.5 million in proceeds from notes payable, net of issuance costs, partially offset by approximately $1.5 million for payments on notes payable and $0.5 million for payment on financing of insurance premium.
Net cash provided by financing activities of approximately $3.8 million during the nine months ended September 30, 2022 was from $5.0 million in proceeds from notes payable, net of issuance costs, partially offset by approximately $0.5 million in payments on notes payable and $0.8 million for payment on financing of insurance premium.
Future Funding Requirements
To date, we have generated revenue from grants and contract services performed and funding from the issuance of convertible preferred stock and common stock sales. We do not know when, or if, we will generate any revenue from our development stage therapeutic programs. We do not expect to generate any revenue from sales of our therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our therapeutic candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.
| 42 |
Our future funding requirements will depend on many factors, including:
| ● | the progress, costs, results and timing of our clinical trials; | |
| ● | FDA acceptance, if any, of our therapies for infectious diseases and for other potential indications; | |
| ● | the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals; | |
| ● | the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development; | |
| ● | the ability of our product candidates to progress through clinical development successfully; | |
| ● | our need to expand our research and development activities; | |
| ● | the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies; | |
| ● | our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights; | |
| ● | the effect of the COVID-19 pandemic on our business and operations; | |
| ● | our need and ability to hire additional management and scientific, medical and administrative personnel; | |
| ● | the effect of administrative costs associated with being a public company and related costs of compliance including director and officers’ liability insurance required to attract and retain Board members; | |
| ● | the effect of competing technological and market developments; and | |
| ● | our need to implement additional internal systems and infrastructure, including financial and reporting systems. |
Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules of the SEC.
JOBS Act Accounting Election
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will adopt the extended transition period available under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.
New Accounting Pronouncements
Please refer to section “New Accounting Pronouncements” in Note 2 of our Notes to the Condensed Consolidated Financial Statements.
| 43 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (our principal executive officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (the “SEC’s”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, the Chief Executive Officer concluded that our disclosure controls and procedures were ineffective due to a material weakness in our internal controls resulting from our finance department not being able to process and account for complex, non-routine transactions in a timely manner. While we have designed and implemented, or expect to implement, measures that we believe address or will address this control weakness, we continue to develop our internal controls, processes and reporting systems by, among other things, hiring qualified personnel with expertise to perform specific functions, and designing and implementing improved processes and internal controls, including ongoing senior management review and audit committee oversight. We have begun to remediate the identified material weakness by hiring additional senior accounting staff and financial consultants in our efforts to remediate the identified material weakness.
We will continue to augment our team with third-party professionals with whom we consult regarding complex accounting applications. Utilizing these financial consultants will help us identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
The conclusion of the Company’s Chief Executive Officer is based on the recognition that there are inherent limitations in all systems of internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, errors or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the six months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
A complaint was filed in February 2020 in the New York State Supreme Court against the Company by an investor who invested in our company’s preferred stock in July 2017 which was prior to our initial public offering (IPO) in August 2018. The complaint alleges, among other things, that we breached our contract and fiduciary duty, by not issuing additional securities to the investor as a result of the Company’s IPO . The plaintiff is asking for approximately $277,000 in compensatory damages, although in a recent motion practice the plaintiff indicated that it wants the stock purchase agreement between the parties, entered into prior to the IPO, to be rescinded and a return of the original purchase price of $531,686.85. Discovery has been completed and the parties filed competing motions for summary judgment on all claims. The Court heard oral argument on those motions on January 12, 2023. The parties now await the Court’s decision. We believe that all of the claims in the complaint are without merit and intend to defend vigorously against them.
| 44 |
The Company submitted a complaint in Superior Court of the State of California, County of Santa Clara, against our former landlord on October 22, 2021, asserting claims for breach of contract, breach of the covenant of good faith and fair dealing, wrongful eviction/constructive eviction and unjust enrichment and violation of the unfair competition law. The claims arise from rent increases and the termination of the tenancy that we allege were not permitted by the agreement with the landlord. We seek to recover rent paid under protest, our deposit, moving and relocation expenses and consequential damages arising from disruption to our operations. The Company filed a first amended complaint on July 18, 2022 asserting the same claims. The landlord has filed a cross-complaint for damage to property and attorneys’ fees. The court has set a trial setting conference for February 20, 2024. The parties have agreed to mediate the dispute and mediation is on-going.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There are no transactions that have not been previously included in a Current Report on Form 8-K.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
| 45 |
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance 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 (embedded within the Inline XBRL document and included in Exhibit 101). |
| 46 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Aridis Pharmaceuticals, Inc. | ||
| Dated: November 6, 2023 | By: | /s/ Vu Truong |
| Vu Truong | ||
| Chief Executive Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
| 47 |