SEC Form 10-Q filed by Armata Pharmaceuticals Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
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For the transition period from _________________ to _______________________
Commission file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer Identification Number) |
incorporation or organization) | |
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(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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, a smaller reporting company or an emerging growth company as defined in Rule 12b-2 of the Exchange Act. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The number of shares of the registrant’s Common Stock, par value $0.01 per share, outstanding as of November 8, 2024 was
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) and certain information incorporated herein by reference contain forward-looking statements, which are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. These statements relate to future events, results or to our future financial performance and involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or events to be materially different from any future results, performance, or events expressed or implied by the forward-looking statements. Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding:
● | our estimates regarding anticipated operating losses, capital requirements and needs for additional funds; |
● | our ability to raise additional capital when needed and to continue as a going concern; |
● | our ability to manufacture, or otherwise secure the manufacture of, sufficient amounts of our product candidates for our preclinical studies and clinical trials; |
● | our research and development plans, including our clinical development plans and planned clinical trials; |
● | our ability to select combinations of phages to formulate our product candidates; |
● | our development of bacteriophage-based therapies; |
● | the potential use of bacteriophages to treat bacterial infections; |
● | the potential future of antibiotic resistance; |
● | our ability for bacteriophage therapies to disrupt and destroy biofilms and restore sensitivity to antibiotics; |
● | our planned development strategy, presenting data to regulatory agencies and defining planned clinical studies; |
● | the expected timing of additional clinical trials, including Phase 1b/Phase 2 or registrational clinical trials; |
● | our ability to manufacture and secure sufficient quantities of our product candidates for clinical trials; |
● | the drug product candidates to be supplied by us for clinical trials; |
● | the potential for bacteriophage technology being uniquely positioned to address the global threat of antibiotic resistance; |
● | the safety and efficacy of our product candidates; |
● | our anticipated regulatory pathways for our product candidates; |
● | the activities to be performed by specific parties in connection with clinical trials; |
● | our ability to successfully complete preclinical and clinical development of, and obtain regulatory approval of our product candidates and commercialize any approved products on our expected timeframes or at all; |
● | our pursuit of additional indications; |
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● | the content and timing of submissions to and decisions made by the U.S. Food and Drug Administration and other regulatory agencies; |
● | our ability to leverage the experience of our management team and to attract and retain management and other key personnel; |
● | the capacities and performance of our suppliers, manufacturers, contract research organizations and other third parties over whom we have limited control; |
● | our ability to staff and maintain our production facility under fully compliant current Good Manufacturing Practices; |
● | the actions of our competitors and success of competing drugs or other therapies that are or may become available; |
● | our expectations with respect to future growth and investments in our infrastructure, and our ability to effectively manage any such growth; |
● | the size and potential growth of the markets for any of our product candidates, and our ability to capture share in or impact the size of those markets; |
● | the benefits of our product candidates; |
● | potential market growth and market and industry trends; |
● | maintaining collaborations with third parties including our partnership with the U.S. Department of Defense (the “DoD”); |
● | potential future collaborations with third parties and the potential markets and market opportunities for product candidates; |
● | our ability to achieve our vision, including improvements through engineering and success of clinical trials; |
● | our ability to meet anticipated milestones in the development and testing of the relevant product; |
● | our ability to be a leader in the development of phage-based therapeutics; |
● | the expected compliance with DoD grant requirements; |
● | the effects of government regulation and regulatory developments, and our ability and the ability of the third parties with whom we engage to comply with applicable regulatory requirements; |
● | the accuracy of our estimates regarding future expenses, revenues, capital requirements and need for additional financing; |
● | our expectations regarding future planned expenditures; |
● | our ability to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act; |
● | our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property protection of any of our products and product candidates; |
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● | our ability to protect our intellectual property, including pending and issued patents; |
● | our ability to operate our business without infringing the intellectual property rights of others; |
● | our ability to advance our clinical development programs; |
● | the effects of the ongoing conflict between Ukraine and Russia and the recent and potential future bank failures or other geopolitical events; and |
● | statements of belief and any statement of assumptions underlying any of the foregoing. |
In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of those terms, and similar expressions. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section hereof entitled “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2023. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain. Given these uncertainties, you should not place undue reliance on any of the forward-looking statements included in this Quarterly Report. In addition, this Quarterly Report also contains estimates, projections, and other information concerning our industry, our business, and the markets for our product candidates, as well as data regarding market research, estimates, and forecasts prepared by our management. 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. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events, or otherwise.
This Quarterly Report includes trademarks and registered trademarks of Armata Pharmaceuticals, Inc. Products or service names of other companies mentioned in this Quarterly Report may be trademarks or registered trademarks of their respective owners.
As used in this Quarterly Report, unless the context requires otherwise, the “Company,” “we,” “us,” and “our” refer to Armata Pharmaceuticals, Inc. and its wholly owned subsidiaries.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Armata Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share data)
| September 30, 2024 |
| December 31, 2023 | |||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses and other current assets |
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Other receivables | | | ||||
Total current assets |
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Restricted cash | | | ||||
Property and equipment, net |
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Operating lease right-of-use asset |
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In-process research and development | | | ||||
Goodwill | | | ||||
Other assets |
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Total assets | $ | | $ | | ||
Liabilities and stockholders’ deficit |
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Current liabilities |
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Accounts payable and accrued liabilities | $ | | $ | | ||
Accrued compensation | | | ||||
Convertible debt, current | | — | ||||
Term debt, current | | — | ||||
Current portion of operating lease liabilities | | | ||||
Other current liabilities | | | ||||
Total current liabilities |
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Operating lease liabilities, net of current portion | | | ||||
Convertible debt, non-current | — | | ||||
Term debt, non-current | — | | ||||
Deferred tax liability | | | ||||
Total liabilities |
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Commitments and contingencies (Note 12) |
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Stockholders’ deficit |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
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Total stockholders’ deficit |
| ( |
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Total liabilities and stockholders’ deficit | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
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Armata Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Grant revenue | $ | | $ | | $ | | $ | | ||||
Operating expenses | ||||||||||||
Research and development |
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General and administrative |
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Total operating expenses | | | | | ||||||||
Operating loss |
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| ( |
| ( |
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Other income (expense) |
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Interest income |
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Interest expense | ( | ( | ( | ( | ||||||||
Change in fair value of convertible debt | | ( | | ( | ||||||||
Loss on convertible debt extinguishment | — | ( | — | ( | ||||||||
Total other income (expense), net |
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| ( |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Per share information: | ||||||||||||
Net loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding, basic and diluted | | | | | ||||||||
See accompanying notes to condensed consolidated financial statements.
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Armata Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Deficit
Three and Nine Months Ended September 30, 2024 and 2023
(unaudited)
(in thousands, except share data)
Stockholders’ Deficit | ||||||||||||||
Common Stock | ||||||||||||||
Additional | Total | |||||||||||||
Paid-in | Accumulated | Stockholders’ | ||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |||||
Balances, June 30, 2023 |
| | $ | | $ | | $ | ( | $ | | ||||
Forfeiture of restricted stock awards |
| ( | — | — | — | — | ||||||||
Exercise of stock options | | — | | — | | |||||||||
Share-based compensation expense |
| — | — | ( | — | ( | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balances, September 30, 2023 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Stockholders’ Deficit | ||||||||||||||
Common Stock | ||||||||||||||
Additional | Total | |||||||||||||
Paid-in | Accumulated | Stockholders’ | ||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |||||
Balances, June 30, 2024 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Issuance of common stock upon release of restricted stock units, net of tax withholdings | | — | ( | — | ( | |||||||||
Share-based compensation expense |
| — | — | | — | | ||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balances, September 30, 2024 |
| | $ | | $ | | $ | ( | $ | ( | ||||
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Stockholders’ Deficit | ||||||||||||||
Common Stock | ||||||||||||||
Additional | Total | |||||||||||||
Paid-in | Accumulated | Stockholders’ | ||||||||||||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |||||
Balances, December 31, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Forfeiture of restricted stock awards | ( | — | — | — | — | |||||||||
Withholdings for taxes related to net share settlement of equity awards | ( | — | ( | — | ( | |||||||||
Exercise of stock options | | — | | — | | |||||||||
Stock-based compensation expense |
| — | — | | — |
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Net loss |
| — | — | — | ( |
| ( | |||||||
Balances, September 30, 2023 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Stockholders’ Deficit | ||||||||||||||
Common Stock | ||||||||||||||
Additional | Total | |||||||||||||
Paid-in | Accumulated | Stockholders’ | ||||||||||||
Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balances, December 31, 2023 |
| | $ | | $ | | $ | ( | $ | ( | ||||
Exercise of stock options | | | | — | | |||||||||
Withholdings for taxes related to net share settlement of equity awards | ( | — | — | — | — | |||||||||
Issuance of common stock upon release of restricted stock units, net of tax withholdings | | — | ( | ( | ||||||||||
Stock-based compensation expense | — | — | | — | | |||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balances, September 30, 2024 |
| | $ | | $ | | $ | ( | $ | ( | ||||
See accompanying notes to condensed consolidated financial statements.
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Armata Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended September 30, | ||||||
| 2024 |
| 2023 | |||
Operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization expense |
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Stock-based compensation expense | | | ||||
Change in fair value of convertible debt | ( | | ||||
Non-cash interest expense | | | ||||
Loss on convertible debt extinguishment | — | | ||||
Change in right-of-use asset | | | ||||
Changes in operating assets and liabilities: |
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Prepaid expenses and other assets |
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| ( | ||
Accounts payable and accrued liabilities |
| ( |
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Accrued compensation | | ( | ||||
Operating lease liability | ( | ( | ||||
Net cash used in operating activities |
| ( |
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Investing activities: |
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Purchases of property and equipment | ( | ( | ||||
Net cash used in investing activities |
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Financing activities: |
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Proceeds from issuance of convertible debt, net of issuance costs | — | | ||||
Proceeds from issuance of term debt, net of issuance costs | | | ||||
Payments for taxes related to net share settlement of equity awards | ( | — | ||||
Proceeds from exercise of stock options | | | ||||
Net cash provided by financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
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Right-of-use asset obtained in exchange for operating lease liability | $ | | $ | | ||
Property and equipment included in accounts payable and accrued liabilities | $ | | $ | | ||
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet:
Nine Months Ended September 30, | ||||||
2024 |
| 2023 | ||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Cash, cash equivalents and restricted cash | $ | | $ | | ||
See accompanying notes to condensed consolidated financial statements.
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Armata Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of the Business
Armata Pharmaceuticals, Inc. (“Armata”) together with its subsidiaries (the “Company”), is a clinical-stage biotechnology company focused on the development of pathogen-specific bacteriophage therapeutics for the treatment of antibiotic-resistant and difficult-to-treat bacterial infections using its proprietary bacteriophage-based technology.
Armata’s common stock, par value $
2. Liquidity and Going Concern
The Company has incurred significant operating losses since inception and has primarily relied on equity, debt financing and grants to fund its operations. As of September 30, 2024, the Company had an accumulated deficit of $
The Company has prepared its condensed consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.
Recent Financing:
2024 Credit Agreement
On March 4, 2024, the Company entered into a credit and security agreement (the “2024 Credit Agreement”) for a loan in an aggregate amount of $
The Company plans to raise additional capital through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. While the Company believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt about the Company’s ability to continue as a going concern, these plans are not entirely within its control and cannot be assessed as being probable of occurring. The Company’s ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide. The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all. Furthermore,
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if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products on terms that are not favorable to the Company. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs or other operations. If any of these events occur, the Company’s ability to achieve the development and commercialization goals would be adversely affected.
3. Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto as of and for the year ended December 31, 2023 included in the Company’s Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024. The information as of December 31, 2023 included in the condensed consolidated balance sheets was derived from the Company’s audited financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the SEC for interim reporting. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments that are of a normal and recurring nature and that are necessary for the fair presentation of the Company’s financial position and the results of its operations and cash flows for the periods presented. Interim results are not necessarily indicative of results for the full year or any future period.
Any reference in the condensed consolidated financial statements to applicable guidance is meant to refer to authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Significant Accounting Policies
The significant accounting policies used in preparation of the condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 are consistent with those discussed in Note 3 to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024, except as noted below and within the “Recently Adopted Accounting Pronouncements” section.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates estimates and assumptions, including but not limited to those related to convertible debt, stock-based compensation expense, accruals for research and development costs, the valuation of deferred tax assets, impairment of goodwill and intangible assets and impairment of long-lived assets. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.
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Segments
The Company operates and manages its business as
Concentration of Credit Risks and Certain Other Risks
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and restricted cash. As of September 30, 2024, cash equivalents and restricted cash was invested primarily in money market funds and U.S. treasury securities through highly rated financial institutions in accordance with the Company’s investment policy, to a concentration limit per issuer or sector. These are investment assets and are classified as cash equivalents in the condensed consolidated balance sheets as their original maturities are less than three months.
Other receivables represent amounts due from the Medical Technology Enterprise Consortium (“MTEC”) (Note 13) and reimbursement for tenant improvements (Note 12).
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted earnings (loss) per share (“EPS”) computation. The Company adopted this ASU as of January 1, 2024, which did not have an impact on its consolidated financial statements or related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU aligns the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC. The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. Early adoption is prohibited. The Company is currently evaluating the impact of adopting ASU 2023-06 on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements.
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4. Fair Value Measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following three levels:
The financial assets and liabilities measured and recognized at fair value were as follows as of September 30, 2024 and December 31, 2023 (in thousands):
September 30, 2024 | |||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||
Investments in money market fund – financial assets, included in cash and cash equivalents | $ | | $ | | $ | — | $ | — | |||
Convertible debt– financial liabilities | | — | — | | |||||||
December 31, 2023 | |||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||
Convertible debt– financial liabilities | $ | | $ | — | $ | — | $ | | |||
The Company’s convertible debt (Note 7) is measured at fair value and remeasured at each quarter end, with changes in fair value recorded as other income (expense) in the condensed consolidated statement of operations. The Company estimates the fair value of its convertible debt using a weighted probability model of various debt settlement scenarios during its term discounted to the reporting date. Conversion option scenarios are valued using option pricing models with assumptions and estimates such as volatility, expected term and risk-free interest rates. Level 3 fair value inputs include probability and timing of various settlement scenarios and selection of comparable companies.
The Company estimated the fair value of its convertible debt using the following inputs as of September 30, 2024 and December 31, 2023:
September 30, 2024 | December 31, 2023 | ||||
Discount rate | |||||
Probabilities of settlement scenarios | |||||
Volatility | |||||
Expected term (in years) | |||||
Risk-free rate |
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The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2024 (in thousands):
September 30, 2024 | ||
Convertible debt at December 31, 2023 | $ | |
Change in fair value |
| ( |
Convertible debt at September 30, 2024 | $ | |
The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2023 (in thousands):
Convertible Loan | Convertible Loan | ||||
Balance at December 31, 2022 | $ | — | $ | — | |
Net issuance of Convertible Loan (1) | | — | |||
Initial recognition of modified Convertible Loan (1) | — | | |||
Change in fair value |
| ( | | ||
Amount exchanged (2) | ( | — | |||
Loss on extinguishment | | — | |||
Balance at September 31, 2023 | $ | — | $ | | |
| (1) | The Convertible Loan is carried at fair value in the consolidated balance sheets. As such, the principal and accrued interest are included in the determination of fair value. |
| (2) | The Company concluded that the amendment to the Convertible Loan was an extinguishment for accounting purposes and the amount exchanged was the relative fair value allocated to the Convertible Loan at the extinguishment date (Note 7). |
5. Net Loss per Share
The computation of basic EPS is based on the weighted-average number of the Company’s Common Stock outstanding. The computation of diluted EPS is based on the weighted-average number of the Company’s Common Stock outstanding and potential dilutive common stock. Diluted EPS is computed using the more dilutive of the treasury stock method, which reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to the Company’s Common Stock. Common Stock options, warrants, convertible debt and unvested restricted stock units were not included in dilutive EPS as their impact would be antidilutive.
15
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except share and per share data):
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||
Numerator: |
|
|
|
|
|
|
|
|
| ||||
Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Denominator: | |||||||||||||
Weighted average common shares outstanding, basic and diluted |
| |
| |
| |
| | |||||
Net loss per share attributable to common stockholders, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
The following outstanding securities as of September 30, 2024 and December 31, 2023 have been excluded from the computation of dilutive weighted average shares outstanding, as they would have been anti-dilutive:
| September 30, 2024 |
| December 31, 2023 |
| |
Outstanding stock options |
| |
| | |
Unvested restricted stock units | | | |||
Shares issuable upon the conversion of convertible debt | | | |||
Outstanding warrants | | | |||
Total |
| |
| |
|
| (1) | The Company determined the number of shares issuable upon the conversion of convertible debt as of September 30, 2024 based on the convertible loan principal amount of $ |
6. Balance Sheet Details
Property and Equipment
Property and equipment as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
| September 30, 2024 |
| December 31, 2023 | |||
Laboratory equipment | $ | | $ | | ||
Furniture and fixtures | | | ||||
Office and computer equipment |
| |
| | ||
Leasehold improvements |
| |
| | ||
Total | | | ||||
Less: accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
Depreciation and amortization expense totaled $
16
Other receivables
Other receivables as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30, 2024 |
| December 31, 2023 | ||||
Tenant improvement allowance receivable (Note 12) | $ | | $ | | ||
Grant and award receivable (Note 13) | | | ||||
$ | | $ | | |||
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities as of September 30, 2024 and December 31, 2023 consisted of the following (in thousands):
September 30, 2024 |
| December 31, 2023 | ||||
Accounts payable | $ | | $ | | ||
Accrued clinical trial expenses | | | ||||
Other accrued expenses | | | ||||
$ | | $ | | |||
7. Convertible Debt
On January 10, 2023, the Company received the Convertible Loan in the aggregate amount of $
The Convertible Loan principal and accrued interest are payable at maturity. Repayment of the Convertible Loan is guaranteed by the Company’s domestic subsidiaries and foreign material subsidiaries, and the Convertible Loan is secured by substantially all of the assets of the Company and the subsidiary guarantors.
The Convertible Credit Agreement provides that if there is a financing from new investors of at least $
The Company evaluated authoritative guidance for accounting for the Convertible Loan and concluded that the Convertible Loan should be accounted for at fair value under ASC 480, Distinguish Liabilities from Equity, due to the fact that the Convertible Loan will predominately be settled with the Company’s Common Stock. Consequently, the Company recorded the Convertible Loan in its entirety at fair value on its condensed consolidated balance sheet, with changes in fair value recorded as other income (expenses) in the condensed consolidated statements of operations during each reporting period.
17
The Company recognized gains of $
8. Term Debt
On July 10, 2023, the Company entered into the 2023 Credit Agreement. The 2023 Credit Agreement provides for the 2023 Loan, a secured term loan facility in an aggregate amount of $
The 2023 Loan was initially recognized at fair value of $
On November 12, 2024, the Company executed an amendment to the 2023 Credit Agreement, which, among other things, extended the 2023 Loan maturity date to January 10, 2026.
On March 4, 2024, the Company entered into the 2024 Credit Agreement. The 2024 Credit Agreement provides for the 2024 Loan, a secured term loan facility in an aggregate amount of $
The 2024 Loan was initially recognized at cash proceeds of $
The 2023 Credit Agreement and the 2024 Credit Agreement contain customary affirmative and negative covenants and representations and warranties, including financial reporting obligations and certain limitations on indebtedness, liens, investments, distributions (including dividends), collateral, investments, mergers or acquisitions and fundamental corporate changes. The 2023 Credit Agreement and the 2024 Credit Agreement also include customary events of default, including payment defaults, breaches of provisions under the loan documents, certain losses or impairment of collateral and related security interests, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the 2023 Credit Agreement and the 2024 Credit Agreement, certain bankruptcy or insolvency events, and a material deviation from the Company’s operating budget.
18
9. Stockholders’ Deficit
Warrants
As of September 30, 2024, outstanding warrants to purchase shares of Common Stock were as follows:
Shares |
| Exercise Price |
| Expiration Date | |
| $ | | |||
| $ | | |||
| $ | | |||
| $ | | |||
| $ | | |||
| $ | | |||
| $ | | None | ||
|
|
|
| ||
Shares Reserved for Future Issuance
As of September 30, 2024, the Company had reserved shares of its Common Stock for future issuance as follows:
| September 30, 2024 | |
Stock options outstanding |
| |
Unvested restricted stock units | | |
Shares issuable under the Employee stock purchase plan |
| |
Shares available for future grants under the 2016 Plan |
| |
Warrants outstanding |
| |
Shares issuable upon the conversion of convertible debt | | |
Total shares reserved |
| |
10. Equity Incentive Plans
Stock Award Plans
The Company maintains a 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the issuance of incentive share awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards. As of September 30, 2024, there were
Stock option transactions during the nine months ended September 30, 2024 are presented below:
Options Outstanding | ||||||||||
Weighted | ||||||||||
Average | ||||||||||
Weighted | Remaining | |||||||||
Average | Contractual | Aggregate | ||||||||
Exercise | Term | Intrinsic | ||||||||
| Shares |
| Price |
| (Years) |
| Value (in thousands) | |||
Outstanding at December 31, 2023 |
| | $ | |
| $ | | |||
Granted |
| | $ | |
|
| — | |||
Exercised | ( | $ | | $ | | |||||
Forfeited/Cancelled/Expired |
| ( | $ | |
|
| ||||
Outstanding at September 30, 2024 |
| | $ | |
| $ | | |||
Vested and expected to vest at September 30, 2024 |
| | $ | |
| $ | | |||
Exercisable at September 30, 2024 |
| | $ | |
| $ | | |||
19
The aggregate intrinsic value of options at September 30, 2024 is based on the Company’s closing stock price on that date of $
Restricted stock unit awards transactions during the nine months ended September 30, 2024 are presented below:
Weighted Avg | |||||
Grant Date | |||||
| Shares |
| Fair Value | ||
Outstanding at December 31, 2023 | | $ | | ||
Granted | | $ | | ||
Vested | ( | $ | | ||
Cancelled | ( | $ | | ||
Outstanding at September 30, 2024 | | $ | | ||
Share-based Compensation
The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model (“Black-Scholes”). Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on the accelerated attribution method over the requisite service period.
The assumptions used in the Black-Scholes model during the three and nine months ended September 30, 2024 and 2023 are presented below.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |
Risk-free interest rate | ||||||||
Expected volatility | ||||||||
Expected term (in years) | ||||||||
Expected dividend yield | ||||||||
The table below summarizes the total share-based compensation expense included in the Company’s condensed consolidated statements of operations for the periods presented (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Research and development | $ | | $ | | $ | | $ | | ||||
General and administrative |
| |
| ( |
| |
| ( | ||||
Total stock-based compensation | $ | | $ | ( | $ | | $ | | ||||
As of September 30, 2024, there was $
11. Income Taxes
The Company did
12. Commitments and Contingencies
Operating Leases
The Company leases office and research and development space under a non-cancelable operating lease in Marina del Rey, CA. The lease commenced on January 1, 2012 and was amended in April 2020 to, among other things, extend the lease term through December 31, 2031 (the “2020 Lease Amendment”). Annual base rent is from $
20
Concurrent with the Company’s execution of the 2020 Lease Amendment, an irrevocable letter of credit in the amount of $
On October 28, 2021, the Company entered into a lease for office and research and development space under a non-cancellable lease in Los Angeles, CA (the “2021 Lease”). The 2021 Lease payment start date was May 1, 2022 and the total lease term is for
In connection with the execution of the 2021 Lease, the Company delivered an irrevocable standby letter of credit in the amount of $
Future minimum annual lease payments under the Company’s noncancelable operating leases as of September 30, 2024 are as follows (in thousands):
| Operating | ||
Leases | |||
2024 (remaining three months) |
| $ | |
2025 | | ||
2026 | | ||
2027 | | ||
2028 | | ||
Thereafter | | ||
Total minimum lease payments | | ||
Less: amount representing interest | ( | ||
Present value of operating lease obligations | | ||
Less: current portion | ( | ||
Noncurrent operating lease obligations | $ | | |
Operating lease expenses were $
The following table summarizes supplemental cash flow information related to the Company’s operating leases for the nine months ended September 30, 2024 and 2023 (in thousands):
Nine Months Ended September 30, | ||||||
2024 |
| 2023 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||
Operating cash flows from operating leases | $ | | $ | | ||
The following table summarizes the weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating leases as of September 30, 2024 and December 31, 2023:
September 30, 2024 | December 31, 2023 | |||||
Weighted-average remaining lease term, years | ||||||
Weighted-average discount rate, % |
21
Legal Proceedings
From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business. Any of these claims could subject the Company to costly legal expenses and, while management generally believes that there is adequate insurance to cover many different types of liabilities, the Company’s insurance carriers may deny coverage or policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company’s consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company’s reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial position.
13. Grant and Awards
MTEC Grant
On June 15, 2020, the Company entered into a Research Project Award agreement (the “MTEC Agreement”) with MTEC, pursuant to which the Company received a $
Upon license or commercialization of intellectual property developed with the funding from the MTEC Agreement, additional fees will be due to MTEC. The Company will elect whether to (a) pay a fixed royalty amount, which is subject to a cap based upon total funding received, or (b) pay an additional assessment fee, which would also be subject to a cap based upon a percentage of total funding received.
The MTEC Agreement is effective through August 15, 2025. The MTEC Agreement may be terminated in whole or in part 30 calendar days following written notice from the Company to MTEC. In addition, MTEC has the right to terminate the MTEC Agreement upon material breach by the Company.
The Company determined that the MTEC Agreement is not in the scope of ASC 808 or ASC 606. Applying ASC 606 by analogy, the Company recognizes proceeds received under the MTEC Agreement as grant revenue in the statement of operations when related costs are incurred. The Company recognized $
CFF Therapeutics Development Award
On March 13, 2020, the Company entered into an award agreement (the “Award Agreement”) with the Cystic Fibrosis Foundation (the “CFF”), pursuant to which the Company received a Therapeutics Development Award of up to $
22
The first payment under the Award Agreement, in the amount of $
If the Company ceases to use commercially reasonable efforts directed to the development of AP-PA02, or any other Product (as defined in the Award Agreement), for a period of
Upon commercialization by the Company of any Product, the Company will owe a fixed royalty amount to CFF, which is to be paid in installments determined, in part, based on commercial sales volumes of the Product. The Company will be obligated to make an additional fixed royalty payment upon achieving specified sales milestones. The Company may also be obligated to make a payment to CFF if the Company transfers, sells or licenses the Product in the CF Field, or if the Company enters into a change of control transaction.
The term of the Award Agreement commenced on March 10, 2020 and expires on the earlier of the date on which the Company has paid CFF all of the fixed royalty payments set forth therein, the effective date of any license granted to CFF following an Interruption, or upon earlier termination of the Award Agreement. Either CFF or the Company may terminate the Award Agreement for cause, which includes the Company’s material failure to achieve certain development milestones. The Company’s payment obligations survive the termination of the Award Agreement.
The Company concluded that the CFF Award is in the scope of ASC 808. Accordingly, as discussed in Note 3, the Company recognizes the award upon achievement of certain milestones as credits to research and development expenses.
23
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report, and our audited financial statements and notes thereto as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed on March 21, 2024 with the U.S. Securities and Exchange Commission (the “SEC”).
Our common stock, par value $0.01 per share (the “Common Stock”) is traded on the NYSE American exchange under the symbol “ARMP.” We are currently headquartered in Los Angeles, CA, and we have a research and development facility for product development to support advancing phage products from the bench to the clinic. In addition to microbiology, synthetic biology, formulation, chemistry and analytical laboratories, the facility is equipped with two licensed current good manufacturing practice (“cGMP”) drug manufacturing suites enabling the production, testing and release of clinical trial material.
Statements contained in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements concerning product development plans, commercialization of our products, the expected market opportunity for our products, the use of bacteriophages and synthetic phages to kill bacterial pathogens, having resources sufficient to fund our operations into the first quarter of 2025, future funding sources, general and administrative expenses, clinical trial and other research and development expenses, costs of manufacturing, costs relating to our intellectual property, capital expenditures, the expected benefits of our targeted phage therapies strategy, the potential market for our products, tax credits and carry-forwards, and litigation-related matters. Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “will,” “goal,” “potential” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements necessarily contain these identifying words. These statements are subject to risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 21, 2024 with the SEC, and under Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. These forward-looking statements speak only as of the date on which they were made, and we undertake no obligation to update any forward-looking statements.
Overview
We are a clinical-stage biotechnology company focused on the development of high purity, pathogen-specific bacteriophage therapeutics for the treatment of chronic pulmonary diseases exacerbated by concurrent bacterial infection with antibiotic-resistant and difficult-to-treat bacteria using our proprietary bacteriophage-based technology. We see bacteriophages as a potentially safer and effective alternative to antibiotics and an essential response to the growing bacterial resistance to current classes of antibiotics. Bacteriophages or “phages” have a powerful and highly differentiated mechanism of action that enables binding to and killing of specific targeted bacteria while uniquely preserving the normal human microbiome or “healthy bacteria”. This is in direct contrast to traditional broad-spectrum antibiotics which can alter the human microbiome increasing susceptibility to opportunistic pathogens, such as C. difficile. We believe that phages represent a promising means to effectively treat bacterial infections as an alternative to broad-spectrum antibiotics, especially for patients with bacterial infections resistant to current standard of care therapies, including the multidrug-resistant or “superbug” strains of bacteria. We are a leading developer of clinical-stage phage therapeutics of high purity, and believe we are uniquely positioned to address the growing worldwide threat of antibiotic-resistant bacterial infections. We have completed three critical Phase 2 trials, two of which were completed this year, utilizing two distinct phage cocktails against two different pathogens with the potential to treat chronic pulmonary disease complicated by bacterial infection, as well as acute systemic bacterial infections. We believe we are on a critical pathway towards pivotal Phase 3 clinical studies.
We are combining our proprietary approach and expertise in identifying, characterizing and developing both naturally occurring and engineered (synthetic) bacteriophages with our proprietary phage-specific host-engineered
24
cGMP manufacturing capabilities to advance a target pipeline of high-quality bacteriophage product candidates for late-stage clinical development. We have improved our manufacturing processes by significantly increasing phage titers and improving production efficiency with the goal of ensuring commercial viability. We believe that we are uniquely advancing two lead candidates to address both chronic and acute bacterial infections.
Our first lead phage candidate, inhaled AP-PA02, is focused primarily on the treatment of chronic pulmonary infections with P. aeruginosa. On October 14, 2020, we received the approval to proceed from the U.S. Food and Drug Administration (the “FDA”) for our Investigational New Drug (“IND”) application for AP-PA02. In the first quarter of 2023, we announced positive topline results from the completed “SWARM-P.a.” study – a Phase 1b/2a, multicenter, double-blind, randomized, placebo-controlled, single ascending dose and multiple ascending dose clinical trial to evaluate the safety and tolerability of inhaled AP-PA02 in subjects with cystic fibrosis and chronic pulmonary P. aeruginosa infection. Data indicate that AP-PA02 was well-tolerated with a treatment emergent adverse event profile similar to placebo. Pharmacokinetics findings confirm that AP-PA02 can be effectively delivered to the lungs through nebulization with minimal systemic exposure, with single ascending doses and multiple ascending doses resulting in a proportional increase in exposure as measured in induced sputum. AP-PA02 exposures were generally consistent across subjects. Additionally, bacterial levels of P. aeruginosa in the sputum measured at several timepoints suggest improvement in bacterial load reduction for subjects treated with AP-PA02 at the end of treatment as compared to placebo after ten days of dosing. In addition, a correlation was seen between increasing phage dose (higher AP-PA02 exposures) and reduction in the bacterial load, supporting the biologic plausibility of a bacterial specific mechanism of action and creating the opportunity for phage as a therapeutic alternative to inhaled antibiotics. This study was supported by the CFF, which granted us a Therapeutics Development Award of $5.0 million. As of September 30, 2024, we received the full award’s amount, including the final payment of $0.3 million in January 2024. Following the promising Phase 1b/2a results of favorable safety and tolerability profile and plausible mechanism of action, an additional confirmatory Phase 2 trial was initiated in non-cystic fibrosis Bronchiectasis (“NCFB”) patients with similar chronic pulmonary disease with infections due to P. aeruginosa.
On February 22, 2022, we announced FDA approval to proceed with our IND application for inhaled AP-PA02, in a second indication, NCFB. We initiated a Phase 2 trial (“Tailwind”) in NCFB in 2022 and reported first patient dosing in the first quarter of 2023. The “Tailwind” study is a Phase 2, multicenter, double-blind, randomized, placebo-controlled study to evaluate the safety, phage kinetics, and efficacy of inhaled AP-PA02 phage therapeutic in subjects with NCFB and chronic pulmonary P. aeruginosa infection. The trial design included two cohorts in order to analyze AP-PA02 as monotherapy as well as AP-PA02 in combination with inhaled antibiotics. One cohort enrolled subjects not on chronic inhaled antibiotics, randomized to receive either inhaled AP-PA02 or placebo. The other cohort enrolled subjects on chronic inhaled antibiotics, randomized to receive either inhaled AP-PA02 plus their chronic inhaled antibiotic or placebo plus their chronic inhaled antibiotic. The aim of the study is to define a safe dose and dosing duration with promising biologic correlation in anticipation for a definitive Phase 3 trial in 2025. On July 11, 2024, we announced completion of enrollment of the Phase 2 Tailwind Study. The last patient final follow-up visit took place on August 7, 2024. We anticipate topline data from the Tailwind study by the end of 2024, followed by potential initiation of a pivotal bronchiectasis trial in 2025 in which we plan to evaluate inhaled AP-PA02 as an alternative to inhaled antibiotics in chronic pulmonary P. aeruginosa infections in subjects with NCFB. As there are no FDA approved anti-infective treatments for NCFB, a definitive pivotal placebo-controlled trial is plausible, providing a pathway to commercialization for chronic pulmonary diseases with concurrent chronic bacterial infection, pending positive clinical trial results.
In parallel, we have an acute bacterial infection clinical development plan focused on Staphylococcus aureus (“S. aureus”) bacteremia, a difficult-to-treat and often life-threatening human infection that can result in high morbidity and mortality and for which bacterial resistance to antibiotics is growing.
A key advantage of our phage manufacturing expertise is the purity profiles of our phage products, including AP-SA02, our phage product candidate for S. aureus; this has enabled us to pursue treatment of complicated S. aureus bacteremia, where repetitive intravenous dosing is required. On June 15, 2020, we entered into an agreement (the “MTEC Agreement”) with the Medical Technology Enterprise Consortium (“MTEC”), pursuant to which we received a $15.0 million grant and entered into a multi-year program administered by the U.S Department of Defense through MTEC and managed by the Naval Medical Research Command (NMRC) – Naval Advanced Medical Development (NAMD) with funding from the Defense Health Agency and Joint Warfighter Medical Research Program. On September
25
29, 2022, the MTEC Agreement was modified to increase the total award by $1.3 million to $16.3 million and extend the term into the second half of 2024. In July 2024, the MTEC Agreement was modified to increase the total award by $5.3 million to $21.6 million and extend the term into the third quarter of 2025. The grant is being used to partially fund a Phase 1b/2a, multi center, randomized, double-blind, placebo-controlled dose escalation study that will assess the safety, tolerability and efficacy of our phage-based candidate, AP-SA02, for the treatment of adults with S. aureus (“diSArm” study).
On November 17, 2021, we announced that we had received approval from the FDA to proceed with our IND application for AP-SA02. Since dosing the first patient in the Phase 2a portion of the study on September 26, 2023, we have focused on accelerating enrollment of the diSArm study, evaluating safety with higher intravenous doses, which is possible due to the high purity of our phage product candidates. The high purity of our phages has allowed us to dose escalate to 5E10 PFU every six hours (2E11 PFU every 24 hours) for five days without clinically significant adverse events. In parallel with dose escalation, the evolution of two distinct blinded subsets of subjects receiving phage has been observed. One subset, comprising approximately half of the treated group, has evidence of persistence of detectable phage in the blood providing early evidence of in vivo phage amplification and resultant release of phage progeny. On November 12, 2024, we announced the completion of enrollment of the Phase 1b/2a diSArm study. We anticipate topline data from the diSArm study in the first quarter of 2025 where we can explore the two aforementioned subsets in an unblinded manner. We are committed to developing a pivotal S. aureus bacteremia trial in 2025 to evaluate the intravenous phage product candidate, AP-SA02, as an adjunct to standard of care broad-spectrum antibiotics and/or potentially as an alternative to broad-spectrum antibiotics, which would decrease the utilization of broad-spectrum antibiotics and their detrimental impact on the healthy human microbiome.
On August 1, 2022, we announced FDA approval to proceed with our IND application for AP-SA02 in a second indication, prosthetic joint infections (“PJI”) with S. aureus. We had planned to initiate a Phase 1b/2a trial in 2023; however, in light of the growing concerns of both PJI and wound infection, we are planning to revise the protocol to include both indications. Driven by data from the bacteremia study, and with sufficient funding, we may in the future initiate a Phase 1b/2a trial to assess the safety and tolerability of intravenous and intra-articular AP-SA02 as an adjunct to standard of care antibiotics in adults undergoing treatment of periprosthetic joint infections and/or wound infections caused by S. aureus.
We remain committed to conducting randomized controlled clinical trials required for FDA approval in order to move towards the commercialization of our phage products as alternatives and/or reinforcements to traditional antibiotics, providing a potential safe and effective method of treating patients suffering from drug-resistant and difficult-to-treat bacterial infections.
The following chart summarizes the status of our phage product candidate development programs and partners.
We have incurred net losses since our inception and our operations to date have been primarily limited to research and development and raising capital. As of September 30, 2024, we had an accumulated deficit of $330.3 million. We currently expect to use our existing cash and cash equivalents for the focused research and development of our current product candidates and for working capital and other general corporate purposes. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development of and
26
seeking to obtain regulatory approval for our product candidates. We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates. We may also use a portion of our existing cash and cash equivalents for the potential acquisition of, or investment in, product candidates, technologies, formulations or companies that complement our business, although we have no current understandings, commitments or agreements to do so.
Our existing cash and cash equivalents of $17.1 million as of September 30, 2024 will not be sufficient to enable us to complete all necessary development of any potential product candidates. Accordingly, we will be required to obtain further funding through one or more other public or private equity offerings, debt financings, collaboration, strategic financing, grants or government contract awards, licensing arrangements or other sources. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and potential disruptions to, and volatility in, financial markets in the United States and worldwide. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of assets, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations and result in a loss of investment by our stockholders.
Recent Events
MTEC Agreement Modification
In July 2024, we amended the MTEC Agreement and increased the amount of the award by $5.3 million to a total of $21.6 million. We will recognize an increase in grant revenue from the third quarter of 2024 until the full amount of the amended award is utilized.
Debt
On November 12, 2024, we amended the Convertible Credit Agreement and the 2023 Credit Agreement, among other things, to extend the maturity dates of the Convertible debt and 2023 Loan from January 10, 2025 to January 10, 2026.
27
Results of Operations
Comparison of three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended | Change | |||||||||||
| September 30, 2024 |
| September 30, 2023 |
| Amount |
| % | |||||
Grant revenue | $ | 2,973 | $ | 1,225 | $ | 1,748 | 142.7% | |||||
Operating expenses | ||||||||||||
Research and development |
| 9,485 | 7,978 |
| 1,507 | 18.9% | ||||||
General and administrative |
| 3,244 | 3,583 |
| (339) | (9.5%) | ||||||
Total operating expenses | 12,729 | 11,561 | 1,168 | 10.1% | ||||||||
Loss from operations |
| (9,756) |
| (10,336) |
| 580 |
| (5.6%) | ||||
Other income (expense) |
|
|
|
|
|
|
|
| ||||
Interest income | 294 | 47 |
| 247 |
| 525.5% | ||||||
Interest expense | (2,923) | (1,176) | (1,747) | 148.6% | ||||||||
Change in fair value of convertible debt | 6,904 | (15,833) | 22,737 | (143.6%) | ||||||||
Loss on convertible debt extinguishment | — | (3,863) | 3,863 | (100.0%) | ||||||||
Total other income (expense), net |
| 4,275 |
| (20,825) |
| 25,100 |
| * | ||||
Net loss | $ | (5,481) | $ | (31,161) | $ | 25,680 |
| (82.4%) | ||||
*Not meaningful
Nine Months Ended September 30, | Change | |||||||||||
| 2024 |
| 2023 |
| Amount |
| % | |||||
Grant revenue | $ | 3,939 | $ | 3,001 | $ | 938 | 31.3% | |||||
Operating expenses | ||||||||||||
Research and development |
| 25,975 | 25,842 |
| 133 | 0.5% | ||||||
General and administrative |
| 9,861 | 8,470 |
| 1,391 | 16.4% | ||||||
Total operating expenses | 35,836 | 34,312 | 1,524 | 4.4% | ||||||||
Loss from operations |
| (31,897) |
| (31,311) |
| (586) |
| 1.9% | ||||
Other income (expense) |
|
|
|
|
|
|
|
| ||||
Interest income | 567 | 111 |
| 456 |
| * | ||||||
Interest expense | (7,462) | (1,176) | (6,286) | 534.5% | ||||||||
Change in fair value of convertible debt | 17,276 | (12,959) | 30,235 | (233.3%) | ||||||||
Loss on convertible debt extinguishment | — | (3,863) | 3,863 | (100.0%) | ||||||||
Total other income (expense), net |
| 10,381 |
| (17,887) |
| 28,268 |
| * | ||||
Net loss | $ | (21,516) | $ | (49,198) | $ | 27,682 |
| (56.3%) | ||||
*Not meaningful
Grant Revenue
Our grant revenue represents MTEC’s share of the costs incurred for our AP-SA02 program for the treatment of S. aureus. The full amount of the MTEC award of $16.3 million was utilized as of March 31, 2024. In July 2024, we amended the MTEC agreement and increased the amount of the award by $5.3 million to a total of $21.6 million. We recognized $3.0 and $1.2 million of grant revenue during the three months ended September 30, 2024 and 2023, respectively, and $3.9 million and $3.0 million during the nine months ended September 30, 2024 and 2023, respectively, related to the MTEC award.
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Research and Development
The following table summarizes our research and development expenses for the three and nine months ended September 30, 2024 and 2023 (in thousands):
Three Months Ended | Change | |||||||||||
| September 30, 2024 |
| September 30, 2023 |
| Amount |
| % | |||||
External costs: | ||||||||||||
Clinical trials | $ | 3,244 | $ | 2,518 | $ | 726 | 28.8% | |||||
Other research and development costs, including laboratory materials and supplies | 958 | 1,144 | (186) | (16.3%) | ||||||||
Total external costs |
| 4,202 | 3,662 |
| 540 | 14.7% | ||||||
Internal costs: |
|
| ||||||||||
Personnel-related costs | 2,874 | 2,145 | 729 | 34.0% | ||||||||
Facilities and overhead costs |
| 2,409 |
| 2,171 |
| 238 |
| 11.0% | ||||
Total research and development expense: | $ | 9,485 | $ | 7,978 | $ | 1,507 |
| 18.9% | ||||
Nine Months Ended September 30, | Change | |||||||||||
| 2024 |
| 2023 |
| Amount |
| % | |||||
External costs: | ||||||||||||
Clinical trial expenses | $ | 7,623 | $ | 7,060 | $ | 563 | 8.0% | |||||
Other research and development costs, including consulting, laboratory supplies and other | 2,734 | 3,466 | (732) | (21.1%) | ||||||||
Total external costs |
| 10,357 | 10,526 |
| (169) | (1.6%) | ||||||
Internal costs: |
|
| ||||||||||
Personnel-related costs | 8,296 | 8,164 | 132 | 1.6% | ||||||||
Facilities and overhead costs |
| 7,322 |
| 7,152 |
| 170 |
| 2.4% | ||||
Total research and development expense: | $ | 25,975 | $ | 25,842 | $ | 133 |
| 0.5% | ||||
Research and development expenses increased by $1.5 million, from $8.0 million for the three months ended September 30, 2023 to $9.5 million for the three months ended September 30, 2024.
Research and development expenses totaled $25.8 million for the nine months ended September 30, 2024, remaining virtually unchanged compared with the same period in 2023 despite an increase in research and development activities due to increasing efficiencies.
Clinical trial costs increased by $0.7 million, from $2.5 million for the three months ended September 30, 2023, to $3.2 million for the three months ended September 30, 2024. The increase is primarily attributable to a $1.0 million increase in AP-PA02 NCFB trial costs and an additional $0.2 million increase in Bacteremia trial costs due to the increase in the number of enrolled patients, patient visits, and active sites increase in both trials since the second half of 2023. Also, the increase is due in part to achieving clinical contract research organization (“CRO”) milestones ahead of schedule, resulting increase in associated CRO expenses. The increase was partially offset by a decrease of $0.3 million in AP-PA02 CF study costs, as most activities under the trials were completed in 2023.
Clinical trial costs increased by $0.5 million, from $7.1 million for the nine months ended September 30, 2023, to $7.6 million for the nine months ended September 30, 2024. The increase is primarily due to an increase of $2.5 million in the AP-PA02 NCFB trial costs, offset by a decrease of $1.2 million in AP-PA02 CF trial costs, $0.4 million in Bacteremia trial costs and $0.2 million in AP-SA02 PJI trial costs. The AP-PA02 CF trial is substantially completed and study reconciliation is in process. The PJI trial is currently on hold, and we may in the future initiate a Phase 1b/2a trial to assess the safety and tolerability of combined intravenous and intra-articular AP-SA02. Bacteremia trial costs decreased due to a credit of $0.8 million received from a clinical research organization, offset by an increase of $0.4
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million during the nine months ended September 30, 2024 compared to the same period in 2023. The AP-PA02 NCFB trial costs increased as the number of enrolled patients, patient visits, and active sites increased from the second half of 2023 through July 2024, when we completed patients’ enrollment for NCFB study.
Other external research and development costs decreased by $0.1 million from $1.1 million for the three months ended September 30, 2023, to $1.0 million for the three months ended September 30, 2024. The decrease was primarily due to a decrease of $0.1 million in consulting expenses.
Other external research and development costs decreased by $0.8 million from $3.5 million for the nine months ended September 30, 2023, to $2.7 million for the nine months ended September 30, 2024. The decrease was primarily due to a decrease of $0.5 million in consulting expenses and $0.3 million decrease in outsourced service costs.
Our expenses by product and by project for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands):
Three Months Ended | |||||||
September 30, 2024 |
| September 30, 2023 | |||||
Product | Project name | ||||||
AP-PA02 | Non-Cystic Fibrosis Bronchiectasis | $ | 1,858 | $ | 954 | ||
AP-PA02 | Cystic Fibrosis | — | 520 | ||||
AP-SA02 | Bacteremia | 1,618 | 1,468 | ||||
AP-SA02 | Prosthetic Joint Infection | — | (217) | ||||
Expenses not allocated by projects* | 726 | 937 | |||||
Total external costs | $ | 4,202 | $ | 3,662 | |||
Nine Months Ended September 30, | |||||||
2024 |
| 2023 | |||||
Product | Project name | ||||||
AP-PA02 | Non-Cystic Fibrosis Bronchiectasis | $ | 5,459 | $ | 3,016 | ||
AP-PA02 | Cystic Fibrosis | 235 | 1,879 | ||||
AP-SA02 | Bacteremia | 2,752 | 3,006 | ||||
AP-SA02 | Prosthetic Joint Infection | 8 | 243 | ||||
Expenses not allocated by projects* | 1,903 | 2,382 | |||||
Total external costs | $ | 10,357 | $ | 10,526 | |||
* Expenses not allocated by projects include consultants, lab supplies and outsourced services expenses.
Personnel-related costs, including employee payroll and related expenses, increased by $0.8 million, from $2.1 million for the three months ended September 30, 2023 to $2.9 million for the three months ended September 30, 2024. This increase was mainly driven by a $0.3 million increase in stock-based compensation expense, which was primarily due to options granted in March 2024, 2024 a mid-year bonus payments of $0.2 million, and an increase of $0.3 million in other personnel-related costs, offset by a $0.1 million decrease in severance costs.
Personnel-related costs, including employee payroll and related expenses, increased by $0.1 million, from $8.2 million for the nine months ended September 30, 2023 to $8.3 million for the nine months ended September 30, 2024. This increase was mainly driven by 2024 mid-year bonus payments of $0.2 million, severance payments of $0.2 million, and an increase of $0.2 million in other personnel-related costs offset by $0.3 million lower stock-based compensation expense (as there were no expenses related to the equity awards that fully vested after September 30, 2023) and $0.2 million payroll related costs reduction.
Facilities and overheads costs increased by $0.2 million, from $2.2 million for the three months ended September 30,2023 to $2.4 million for the three months ended September 30, 2024 mainly due to an increase in facilities maintenance costs.
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Facilities and overheads costs increased by $0.1 million, from $7.2 million for the nine months ended September 30,2023 to $7.3 million for the nine months ended September 30, 2024 mainly due to an increase in facilities maintenance costs.
General and Administrative
General and administrative expenses were $3.2 million and $3.6 million for the three months ended September 30, 2024 and 2023, respectively. The decrease of $0.4 million is primarily related to a decrease of $1.0 million in professional services during the third quarter of 2024 as we continue to achieve efficiencies with in-house hires, offset by a $0.6 million increase in personnel expenses, including stock-based compensation.
General and administrative expenses were $9.9 million and $8.5 million for the nine months ended September 30, 2024 and 2023, respectively. The increase of $1.4 million is primarily related to an increase of $2.0 million in stock-based compensation expenses due to stock-based awards granted during the first quarter of 2024, increase in lease expenses of $0.3 million and an increase of $0.3 million in other facilities and overhead expenses, offset by a decrease of $1.1 million in professional and legal, accounting and other consulting expenses, and a decrease of $0.2 million in payroll and related costs.
Interest Income
Interest income for the three months ended September 30, 2024 and 2023 was $0.3 million and less than $0.1 million, respectively, and related to interest income on our money market fund investments.
Interest income for the nine months ended September 30, 2024 and 2023 was $0.6 million and $0.1 million, respectively, and related to interest income on our money market fund investments.
Interest Expense
We recognized interest expense of $2.9 million and $1.2 million for the three months ended September 30, 2024 and 2023, related to the interest expenses and the amortization of debt discount and issuance costs for the 2023 Loan and 2024 Loan received from Innoviva in July 2023 and March 2024, respectively. Stated interest is accrued and is payable at the maturity of the 2023 Loan and the 2024 Loan in 2025.
We recognized interest expense of $7.5 million and $1.2 million for the nine months ended September 30, 2024 and 2023, related to the interest expenses and the amortization of debt discount and issuance costs for the 2023 Loan and 2024 Loan received from Innoviva in July 2023 and March 2024, respectively. Stated interest is accrued and is payable at the maturity of the 2023 Loan and the 2024 Loan in 2025.
Change in Fair Value of Convertible Debt
We recognized a gain on change in the fair value of the Convertible Loan for the three months ended September 30, 2024 of $6.9 million. The gain of $6.9 million is primarily attributable to the decrease in our Common Stock price in the three months ended September 30, 2024. We recognized a loss of $15.8 million for three months ended September 30, 2023, which is primarily due to the increase in our Common Stock price in the three months ended September 30, 2023.
We recognized a gain on change in the fair value of the Convertible Loan for the nine months ended September 30, 2024 of $17.3 million and a loss of $13.0 million for the nine months ended September 30, 2023. Such fluctuations in fair values are primarily attributable to the changes in our estimated probabilities of various settlement scenarios, changes in our Common Stock price, remaining loan term and changes in volatilities. The Convertible Loan received from Innoviva in January 2023 and amended in July 2023 is accounted for at fair value using a weighted probability of various settlement scenarios of the Convertible Loan during its term discounted to each reporting date. Conversion option scenarios are valued using an option pricing model with significant assumptions and estimates such as volatility, expected term and risk-free interest rates.
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Loss on Convertible Debt Extinguishment
We recognized a loss on convertible debt extinguishment for both three and nine months ended September 30, 2023 of $3.9 million which relates to the amendment to the Convertible Loan on July 10, 2023. The amendment was accounted for as an extinguishment in the third quarter of 2023.
Liquidity, Capital Resources and Financial Condition
We have incurred net losses since our inception and have negative operating cash flows. Our cash and cash equivalents of $17.1 million as of September 30, 2024 will not be sufficient to fund our operations for the next 12 months from the date of issuance of our condensed consolidated financial statements for the nine months ended September 30, 2024. We plan to control our expenses and to raise additional capital through a combination of public and private equity, debt financings, strategic alliances, and grant arrangements. These circumstances raise substantial doubt about our ability to continue as a going concern. While management believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within its control and cannot be assessed as being probable of occurring. We may not be able to secure additional financing in a timely manner or on favorable terms, if at all.
During the year ended December 31, 2023, we received the Convertible Loan in the aggregate amount of $30.0 million and the 2023 Loan in the aggregate amount of $25.0 million from Innoviva. The Convertible Loan and the 2023 Loan mature in January 2025, and principal and accrued interest are payable at maturity. The Convertible Loan provides for various conversion and repayment options, including the conversion of principal and accrued interest into shares of our Common Stock upon a Qualified Financing and the Company’s option to repay the Convertible Loan prior to maturity.
On March 4, 2024, we entered into the 2024 Credit Agreement for the 2024 Loan in an aggregate amount of $35.0 million with Innoviva. Concurrently with the execution of the 2024 Loan, we amended certain provisions of the Convertible Credit Agreement and the 2023 Credit Agreement to, among other things, conform certain terms relating to permitted indebtedness and permitted liens. The 2024 Loan bears interest at an annual rate of 14% and matures in June 2025. Principal and accrued interest are payable at maturity.
In July 2024, we amended the MTEC Agreement and increased the amount of the award by $5.3 million to a total of $21.6 million. We will recognize grant revenue from the third quarter of 2024 until the full amount of the amended award is utilized.
On November 12, 2024, we amended the Convertible Credit Agreement and the 2023 Credit Agreement, among other things, to extend the maturity dates of the Convertible debt and 2023 Loan from January 10, 2025 to January 10, 2026.
Future Capital Requirements
We will need to raise additional capital in the future to continue to fund our operations. Our future funding requirements will depend on many factors, including:
| ● | the costs and timing of our research and development activities; |
| ● | the progress and cost of our clinical trials and other research and development activities; |
| ● | manufacturing costs associated with our targeted phage therapies strategy and other research and development activities; |
| ● | the costs and timing of seeking regulatory approvals; |
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| ● | the costs of filing, prosecuting and enforcing any patent applications, claims, patents and other intellectual property rights; and |
| ● | the costs of potential lawsuits involving us or our product candidates. |
We may seek to raise capital through a variety of sources, including:
| ● | the public equity market; |
| ● | private equity financings; |
| ● | collaborative arrangements; |
| ● | government grants; or |
| ● | strategic financing. |
Any additional fundraising efforts may divert our management team from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Our ability to raise additional funds will depend, in part, on the success of our product development activities, including our targeted phage therapies strategy and any clinical trials we initiate, regulatory events, our ability to identify and enter into in-licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. We cannot be certain that sufficient funds will be available to us when required or on acceptable terms. If we are unable to secure additional funds on a timely basis or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our stockholders, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations, increase the risk of insolvency and loss of investment by our stockholders. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our existing stockholders. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide.
Cash Flows
The following table summarizes our sources and uses of cash for the periods presented (in thousands):
Nine Months Ended September 30, | ||||||
2024 |
| 2023 | ||||
Net cash used in operating activities | $ | (29,624) | $ | (39,317) | ||
Net cash used in investing activities | (1,956) | (5,744) | ||||
Net cash provided by financing activities | 34,958 | 54,031 | ||||
Net increase in cash, cash equivalents and restricted cash | $ | 3,378 | $ | 8,970 | ||
Cash Flows Used in Operating Activities
Net cash used in operating activities was $29.6 million and $39.3 million for the nine months ended September 30, 2024 and 2023, respectively.
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Cash used in operating activities in the nine months ended September 30, 2024 was primarily due to our net loss for the period of $21.5 million, adjusted by non-cash items of $4.8 million and a decrease of $3.3 million in our net operating assets and liabilities. The non-cash items consist of $17.3 million related to a gain from change in fair value of convertible debt, $7.5 million of non-cash interest expense on the 2023 Loan and the 2024 Loan, $2.5 million related to stock-based compensation expense, $1.5 million related to change in right-of-use asset and $0.9 million related to depreciation and amortization expense. The decrease in our net operating assets and liabilities was primarily due to a decrease of $4.2 million in operating lease liability related to lease payments and payments for the construction of office and laboratory and manufacturing space at our new leased facility in Los Angeles, CA, a decrease of $2.0 million in accounts payable and accrued liabilities, an increase of $0.8 million in accrued compensation, and a decrease of $2.1 million in prepaid expenses and other current assets.
Cash used in operating activities in the nine months ended September 30, 2023 was primarily due to our net loss for the period of $49.2 million, adjusted by non-cash items of $20.1 million and a decrease of $10.2 million in our net operating assets and liabilities. The non-cash items consist of $13.0 million related to a loss from change in fair value of convertible debt, $3.9 million related to a loss on convertible debt extinguishment, $1.2 million of non-cash interest expense on the 2023 Loan, $0.7 million related to stock-based compensation expense, $0.7 million related to depreciation and amortization expense and $0.7 million related to a change in right-of-use assets. The decrease in our net operating assets and liabilities was primarily due to a decrease of $9.7 million in operating lease liability, which primarily relates to payments to the construction of office and laboratory and manufacturing space at our new leased facility in Los Angeles, CA, a decrease of $0.3 million in accounts payable and accrued liabilities, a decrease of $0.1 million in accrued compensation, partially offset by an increase of $0.1 million in prepaid expenses and other current assets.
Cash Flows Used in Investing Activities
Net cash used in investing activities was $2.0 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively, which is attributable to purchases of laboratory and manufacturing equipment in connection with the construction of a new office, laboratory and manufacturing space at our leased facility in Los Angeles, CA.
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2024 was $34.9 million, which consisted primarily of proceeds from issuance of term debt, net of issuance costs of less than $0.1 million, and proceeds from exercise of stock options of $0.1 million.
Cash provided by financing activities for the nine months ended September 30, 2023 was $54.0 million, which consisted primarily of proceeds from issuance of convertible debt, net of issuance costs of $29.1 million, proceeds from issuance of term debt, net of issuance costs of $24.9 million, and proceeds from exercise of stock options of less than $0.1 million, partially offset by less than $0.1 million of the payments for taxes related to net share settlement of equity awards.
Off-Balance Sheet Arrangements
As of September 30, 2024, we did not have off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate estimates and assumptions, including but not limited to those related to convertible debt, stock-based compensation expense, accruals for research and development costs, lease assets and liabilities, the valuation of deferred tax assets, valuation of uncertain income tax positions, impairment of goodwill and intangible assets and impairment of
34
long-lived assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Refer to Note 3 to the consolidated financial statements and critical accounting policies and estimated included in our Form 10-K filed with the SEC on March 21, 2024. There were no material changes to our critical accounting policies from December 31, 2023.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not required to provide the information required under this item.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision of our Chief Executive Officer (“CEO”) and Senior Vice President, Finance and Principal Financial Officer (“PFO”), we evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act (the “Exchange Act”) as of September 30, 2024. Based on that evaluation, our CEO and PFO have concluded that our disclosure controls and procedures were effective as of September 30, 2024 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and PFO, as appropriate to allow timely discussion regarding required disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined by Rules 13a-15(d) and 15d-15(d) of the Exchange Act) that occurred during the nine months ended September 30, 2024 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
From time to time, we are a party to certain litigation that is either judged to be not material or that arises in the ordinary course of business. We intend to vigorously defend our interests in these matters. We expect that the resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings.
Item 1A. RISK FACTORS
Our business is subject to a number of risks, including those identified in Item 1A of Part I of our 2023 Form 10-K. There have been no material changes to the risk factors described in our 2023 Form 10-K.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
Item 6. EXHIBITS
Number |
| Description |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
3.7 | ||
3.8 | ||
3.9 | ||
3.10 | ||
4.1 | Reference is made to Exhibits 3.1 through 3.10. | |
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10.1 | ||
10.2 | ||
10.3 | ||
10.4 | Confidential Separation and Release Agreement by and between Armata Pharmaceuticals, Inc. and Richard Rychlik dated as of September 30, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 3, 2024). | |
31.1 | Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). | |
31.2 |
| Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
32.1† |
| |
32.2† |
| |
101.INS |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
104 | Cover Page Interactive Data File Cover Page Interactive Data File (embedded within the Inline XBRL document) |
† | The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
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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.
ARMATA PHARMACEUTICALS, INC. | |||
Date: November 13, 2024 | By | /s/ Deborah L. Birx | |
Name: Deborah L. Birx, M.D. | |||
Title: Chief Executive Officer | |||
(Principal Executive Officer) | |||
By | /s/ David House | ||
Name: David House | |||
Title: Senior Vice President, Finance and Principal Financial Officer | |||
(Principal Financial Officer) | |||
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