SEC Form 10-Q filed by Avenue Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number
AVENUE THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of Class | Trading Symbol(s) | Exchange Name |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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. See definition 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
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class of Common Stock | Outstanding Shares as of May 13, 2024 | |
| Common Stock, $0.0001 par value | |
Form 10‑Q
For the Quarter Ended March 31, 2024
Table of Contents
| Page No. |
||
| Item 1. |
||
| Unaudited Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
||
| Notes to Unaudited Condensed Consolidated Financial Statements |
||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
| Item 3. |
||
| Item 4. |
||
| Item 1. |
||
| Item 1A. |
||
| Item 2. |
||
| Item 3. |
||
| Item 4. |
||
| Item 5. |
||
| Item 6. |
||
Unaudited Condensed Consolidated Balance Sheets
($ in thousands, except share and per share amounts)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Warrant liability | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock ($ par value), shares authorized | ||||||||
| Class A Preferred Stock, shares issued and outstanding as of March 31, 2024 and December 31, 2023 | ||||||||
| Common stock ($ par value), and shares authorized as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Common shares, and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity attributed to the Company | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Unaudited Condensed Consolidated Statements of Operations
($ in thousands, except share and per share amounts)
| For the Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Operating expenses: |
||||||||
| Research and development |
$ | $ | ||||||
| Research and development – licenses acquired |
||||||||
| General and administrative |
||||||||
| Loss from operations |
( |
) | ( |
) | ||||
| Other income (expense): |
||||||||
| Interest income |
||||||||
| Financing costs – warrant liabilities |
( |
) | ||||||
| Loss on settlement of common stock warrant liabilities |
( |
) | ||||||
| Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||
| Total other income (expense) |
( |
) | ( |
) | ||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Net loss attributable to non-controlling interests |
( |
) | ( |
) | ||||
| Net loss attributable to common stockholders |
$ | ( |
) | $ | ( |
) | ||
| Net loss per common share attributable to common stockholders, basic and diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average number of common shares outstanding, basic and diluted |
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
($ in thousands, except share amounts)
| Three months ended March 31, 2024 | ||||||||||||||||||||||||||||||||
| Class A Preferred | Additional | Non- | Total | |||||||||||||||||||||||||||||
| Shares | Common Shares | Paid-in | Accumulated | Controlling | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Share based compensation | ||||||||||||||||||||||||||||||||
| Common shares issuable - Founders Agreement | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock to Fortress | ||||||||||||||||||||||||||||||||
| Loss on settlement of common stock warrant liabilities | — | — | ||||||||||||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||
| Warrant inducement offering costs | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Reverse split (1-for-) | ( | ) | ||||||||||||||||||||||||||||||
| Non-controlling interest in subsidiaries | — | — | ( | ) | ||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Three months ended March 31, 2023 |
||||||||||||||||||||||||||||||||
| Class A Preferred |
Additional |
Non- |
Total |
|||||||||||||||||||||||||||||
| Shares |
Common Shares |
Paid-in |
Accumulated |
Controlling |
Stockholders’ |
|||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Interests |
Equity (Deficit) |
|||||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Share based compensation |
||||||||||||||||||||||||||||||||
| Issuance of common stock to Fortress |
||||||||||||||||||||||||||||||||
| Issuance of common stock and pre-funded warrants, net of offering costs - registered direct offering and private placement |
||||||||||||||||||||||||||||||||
| Issuance of common stock for license acquisition |
||||||||||||||||||||||||||||||||
| Exercise of warrants |
||||||||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss attributable to common stockholders |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in thousands)
| For the Three Months Ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Reconciliation of net loss to net cash used in operating activities: |
||||||||
| Share based compensation |
||||||||
| Loss on settlement of common stock warrant liabilities |
||||||||
| Change in fair value of warrant liabilities |
||||||||
| Issuance of common stock for licenses acquired |
||||||||
| Issuance of common stock to Fortress |
||||||||
| Common shares issuable - Founders Agreement |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Other receivables - related party |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Accounts payable and accrued expenses |
||||||||
| Accrued licenses acquired |
||||||||
| Accounts payable and accrued expenses - related party |
||||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock and pre-funded warrants, net of offering costs - registered direct offering and private placement |
||||||||
| Exercise of warrants |
||||||||
| Warrant transaction costs |
( |
) | ||||||
| Net cash provided by financing activities |
||||||||
| Net change in cash and cash equivalents |
||||||||
| Cash and cash equivalents, beginning of period |
||||||||
| Cash and cash equivalents, end of period |
$ | $ | ||||||
| Supplemental cash flow information: |
||||||||
| Unpaid research and development licenses acquired |
$ | $ | ||||||
| Issuance of common shares - Founders Agreement |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
AVENUE THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Plan of Business Operations
Avenue Therapeutics, Inc. (the “Company” or “Avenue”) was incorporated in Delaware on February 9, 2015, as a wholly-owned subsidiary of Fortress Biotech, Inc. (“Fortress”). Avenue is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Avenue's current product candidates include AJ201 for the treatment of spinal and bulbar muscular atrophy ("SBMA", also known as Kennedy's Disease), intravenous tramadol ("IV tramadol") for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders.
Authorized Share Increase
On January 9, 2024, stockholders holding a majority of the outstanding voting power of the Company executed and delivered to the Board of Directors of the Company a written consent approving, among other items, an increase in the number of shares of common stock, par value $
Reverse Stock Split
On April 25, 2024, the Company filed an amendment (the “Reverse Split Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the 1-for-
All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
Going Concern
These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as described below, substantial doubt about the Company’s ability to continue as a going concern exists.
The Company is not yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable. As of March 31, 2024, the Company had an accumulated deficit of $
Note 2 - Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with U.S. GAAP, include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented and are stated in U.S. dollars. The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s subsidiary. All intercompany balances and transactions have been eliminated.
The accompanying unaudited interim condensed financial statements include the accounts of the Company's subsidiary, Baergic. Because the Company owns less than 100% of Baergic, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in Baergic by the respective non-controlling parties. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of its' subsidiary.
Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited interim condensed financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. Therefore, these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2023, which were included in the Company’s Annual Report on Form 10-K (the “2023 Form 10-K”) and filed with the U.S. Securities and Exchange Commission (“SEC”) on March 18, 2024.
Segments
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and assessing performance. The Company views its operations and manages its business in
Use of Estimates
The preparation of unaudited 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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.
Non-Controlling Interests
Non-controlling interests in consolidated entities represent the component of equity in consolidated entities held by third parties. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. Intercompany activity is eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on ownership interests.
Net Loss per Share
Net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Net loss attributable to common stockholders consisted of net loss, as adjusted for deemed dividends. The Company recorded a deemed dividend of $
The following table sets forth the potential common shares that could potentially dilute basic income per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the periods presented:
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Unvested restricted stock units/awards | ||||||||
| Warrants | ||||||||
| Options | ||||||||
| Class A Preferred shares | ||||||||
| Total potential dilutive effect | ||||||||
Summary of Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2023 Form 10-K.
Note 3 — Licenses/Supplier Agreements
IV Tramadol License
Effective as of February 17, 2015, Fortress transferred the Revogenex license and all other rights and obligations under the IV Tramadol License Agreement to the Company, pursuant to the terms of the Founders Agreement. In connection with the terms of the IV Tramadol License Agreement, Fortress purchased an exclusive license to IV tramadol for the U.S. market from Revogenex, a privately held company in Dublin, Ireland. Fortress made an upfront payment of $
On October 29, 2018, the Company and Zaklady Farmaceutyczne Polpharma (“Polpharma”) extended the term of their exclusive supply agreement for drug product of IV tramadol to eight years from the date of the launch of the product. In addition, under the terms of the amended agreement, Polpharma is eligible to receive a milestone payment totaling $
Baergic Licenses
In December 2019, Baergic entered into two license agreements: (i) a license agreement (the “AZ License”) with AstraZeneca AB (“AZ”) to acquire an exclusive license to patent and related intellectual property rights pertaining to their proprietary compound Gamma-aminobutyric acid receptor A alpha 2 & 3 (GABAA α2,3) positive allosteric modulators; and (ii) a license agreement (the “CCHMC License”) with Cincinnati Children’s Hospital Medical Center (“CCHMC”) to acquire patent and related intellectual property rights pertaining to a GABA inhibitor program for neurological disorders. Baergic paid an upfront fee of $
Development milestones totaling approximately $
AnnJi License Agreement
On February 28, 2023, the Company entered into a license agreement with AnnJi Pharmaceutical Co. Ltd. ("AnnJi"), whereby the Company obtained an exclusive license (the "AnnJi License Agreement") from AnnJi for certain intellectual property rights pertaining to AJ201. Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidates, the Company agreed to pay $
The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. The Company will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi. AnnJi retains the manufacturing rights for AJ201 and the Company has the option to acquire those rights from AnnJi as described in the AnnJi License Agreement.
In connection with the signing of the AnnJi License Agreement, the Company issued
In connection with execution of the AnnJi License Agreement, Avenue entered into a registration rights agreement with AnnJi, pursuant to which Avenue filed a registration statement to register the resale of the First Tranche Shares and Second Tranche Shares issued to AnnJi. The Company filed such registration statement on Form S-3 with the SEC on June 16, 2023, which was declared effective on June 27, 2023.
Note 4 — Related Party Agreements
Founders Agreement and Management Services Agreement with Fortress
In February 2015, Fortress entered into a Management Services Agreement (the "MSA") with the Company to provide services for the Company pursuant to the terms of the MSA. Expenses related to the MSA are recorded
In February 2015, Fortress entered into a Founders Agreement with the Company, under which the Company agreed to: (i) issue annually to Fortress, shares of common stock equal to two and one half percent (
Pursuant to the Third Amended and Restated Certificate of Incorporation, the Company issued
Founders Agreement and Management Services Agreement with Baergic
Pursuant to the Share Contribution Agreement between Avenue and Fortress, the Founders Agreement and Management Services Agreement that had previously been existing between Fortress and Baergic were assigned to Avenue, such that they now exist between Avenue and Baergic; those agreements are referred to herein as the Avenue-Baergic Founders Agreement and the Avenue-Baergic MSA, as applicable. The Annual Stock Dividend payable to the Company is
The Avenue-Baergic Founders Agreement has an effective date of March 9, 2017, and a term of 15 years, which upon expiration automatically renews for successive one-year periods unless terminated by Avenue and Baergic or a Change in Control (as defined in the Avenue-Baergic Founders Agreement) occurs.
As additional consideration under the Avenue-Baergic Founders Agreement, Baergic will also: (i) pay an equity fee in shares of common stock, payable within five (5) business days of the closing of any equity or debt financing for Baergic that occurs after the effective date of the Avenue-Baergic Founders Agreement and ending on the date when Avenue no longer has majority voting control in the Baergic’s voting equity, equal to two and one-half (
The Avenue-Baergic MSA has an effective date of March 9, 2017, pursuant to which Avenue renders management, advisory and consulting services to the Company. The Avenue-Baergic MSA has an initial term of years and is automatically renewed for successive -year terms unless terminated in accordance with its provisions. Services provided under the Avenue-Baergic MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of the Baergic’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of the Baergic with accountants, attorneys, financial advisors and other professionals (collectively, the “Avenue Services”). Baergic is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Avenue, provided those services are offered at market prices. However, Baergic is not obligated to take or act upon any advice rendered from Avenue and Avenue shall not be liable for any of its actions or inactions based upon their advice. Pursuant to the Avenue-Baergic MSA and Baergic’s Certificate of Incorporation, Avenue and its affiliates, including all members of Baergic’s Board of Directors, will have no fiduciary or other duty to communicate or present any corporate opportunities to Baergic or to refrain from engaging in business that is similar to that of Baergic. In consideration for the Avenue Services, Baergic will pay Avenue an annual consulting fee of $
Note 5 — Accounts Payable and Accrued Expenses
Accounts payable, accrued expenses, and other liabilities consisted of the following (in thousands):
| As of March 31, |
As of December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Accounts payable |
$ | $ | ||||||
| Accrued employee compensation |
||||||||
| Accrued contracted services and other |
||||||||
| Total accounts payable and accrued expenses |
$ | $ | ||||||
Note 6 - Commitments and Contingencies
Leases
The Company is not party to any leases for office space or equipment.
Litigation
The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company will accrue the most likely amount of such loss, and if such amount is not determinable, then the Company will accrue the minimum of the range of probable loss. As of March 31, 2024, there was no litigation against the Company.
Note 7 - Stockholder's Equity
Class A Preferred Stock
On September 13, 2016,
On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Class A Preferred Stock shall be entitled to cast for each share of Class A Preferred Stock held by such holder as of the record date for determining stockholders entitled to vote on such matter, the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the number of shares of outstanding Common Stock and (B) the whole shares of Common Stock in to which the shares of outstanding Class A Preferred Stock are convertible, and the denominator of which is number of shares of outstanding Class A Preferred Stock (the “Class A Preferred Stock Ratio”). Thus, the Class A Preferred Stock will at all times constitute a voting majority.
Each share of Class A Preferred Stock is convertible, at the option of the holder, into one fully paid and nonassessable share of Common Stock (the “Conversion Ratio”), subject to certain adjustments. If the Company, at any time effects a subdivision or combination of the outstanding Common Stock (by any stock split, stock dividend, recapitalization, reverse stock split or otherwise), the applicable Conversion Ratio in effect immediately before that subdivision is proportionately decreased or increased, as applicable, so that the number of shares of Common Stock issuable on conversion of each share of Class A Preferred Stock shall be increased or decreased, as applicable, in proportion to such increase or decrease in the aggregate number of shares of Common Stock outstanding. Additionally, if any reorganization, recapitalization, reclassification, consolidation or merger involving the Company occurs in which the Common Stock (but not the Class A Preferred Stock) is converted into or exchanged for securities, cash or other property, then each share of Class A Preferred Stock becomes convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Company issuable upon conversion of one share of the Class A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction. Pursuant to the reverse stock splits by the Company in September 2022 and April 2024, the Class A Preferred Stock has a Conversion Ratio of
Common Stock
On January 9, 2024, the stockholders holding a majority of the outstanding voting power of the Company executed and delivered to the Board of Directors of the Company a written consent approving, among other items, an increase in the number of shares of common stock authorized under the Certificate of Incorporation, from
Holders of the Company's common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by the stockholders is determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by the Company's Board of Directors, subject to any preferential dividend rights of outstanding preferred stock.
In the event of the Company's liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may designate and issue in the future.
Capital Raises
2021 Shelf
On December 7, 2021, the Company filed a shelf registration statement (File No. 333-261520) on Form S-3, which was declared effective on December 10, 2021 (the "Shelf"). Approximately $
January 2024 Warrant Inducement and Private Placement
On January 5, 2024, the Company entered into (i) an inducement offer letter agreement (the “January 2023 Investor Inducement Letter”) with a certain investor (the “January 2023 Investor”) in connection with certain outstanding warrants to purchase up to an aggregate of
Pursuant to the January 2024 Warrant Inducement, (i) the January 2023 Investor agreed to exercise for cash its January 2023 Warrants at a reduced exercise price of $
The January 2023 Warrants, which were liability classified, were revalued on January 5, 2024 using the Black-Scholes Model to calculate the difference in fair value as a result of the change in exercise price. The difference in fair value of $
The Company received aggregate net proceeds of approximately $
The Company filed a registration statement on Form S-3 (File No. 333-276671) with the SEC providing for the resale of the New Warrant Shares (the “Resale Registration Statement”) on January 24, 2024, which was declared effective on February 1, 2024.
The key inputs for the Black-Scholes Model calculations on January 5, 2024 were as follows:
| January 2023 | New Series A | New Series B | ||||||||||
| Warrants | Warrants | Warrants | ||||||||||
| Stock price | $ | $ | $ | |||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Expected dividend yield | ||||||||||||
| Expected term in years | ||||||||||||
| Expected volatility | % | % | % | |||||||||
Equity Incentive Plan
The Company has in effect the Avenue Therapeutics, Inc. 2015 Incentive Plan (as amended, the “2015 Incentive Plan"). The 2015 Incentive Plan was adopted in January 2015 by the Company's stockholders and an amendment to the plan to increase the number of authorized shares issuable to
Total shares available for the issuance of stock-based awards under the Company’s 2015 Incentive Plan was
Restricted Stock Units and Restricted Stock Awards
The following table summarizes the restricted stock unit and award activity during the three months ended March 31, 2024:
| Number of | Weighted | |||||||
| Units and | Average Grant | |||||||
| Awards | Date Fair Value | |||||||
| (in thousands) | ||||||||
| Unvested balance at December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ( | ) | ||||||
| Unvested balance at March 31, 2024 | $ | |||||||
At March 31, 2024, the Company had unrecognized stock-based compensation expense related to restricted stock units and restricted stock awards of $
Stock Options
The following table summarizes stock option activity during the three months ended March 31, 2024:
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Number | Weighted | Remaining | Aggregate | |||||||||||||
| of Options | Average | Contractual | Intrinsic Value | |||||||||||||
| (in thousands) | Exercise Price | Term (years) | (in thousands) | |||||||||||||
| Outstanding at December 31, 2023 | $ | 9.5 | $ | |||||||||||||
| Granted | $ | $ | — | |||||||||||||
| Exercised | $ | $ | — | |||||||||||||
| Cancelled/forfeited | $ | $ | — | |||||||||||||
| Expired | $ | $ | — | |||||||||||||
| Outstanding at Balance at March 31, 2024 | $ | $ | — | |||||||||||||
| Expected to vest | $ | $ | ||||||||||||||
| Exercisable | $ | $ | ||||||||||||||
There were
The Company did grant any stock options in the three months ended March 31, 2024 and 2023.
Stock-based compensation expense has been reported in the Company's condensed consolidated statements of operations as follows:
| For the three months ended | ||||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
Stock Warrants
The following table summarizes the warrant activity for the three months ended March 31, 2024 and 2023:
| Weighted | ||||||||||||
| Average | Aggregate | |||||||||||
| Exercise | Intrinsic Value | |||||||||||
| Warrants | Price | (in thousands) | ||||||||||
| Outstanding, December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Outstanding, March 31, 2024 | $ | $ | ||||||||||
Upon the exercise of warrants, the Company will issue new shares of its common stock.
InvaGen Share Repurchase
Under the Share Repurchase Agreement, the Company agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent (
Note 8 - Common Stock Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each consolidated balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the condensed consolidated statements of operations.
Warrant Liability
The Company has previously issued freestanding warrants to purchase shares of its common stock in connection with financing activities. The outstanding October 2022 Warrants and the fully exercised January 2023 Warrants are classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside the Company's control. The Black-Scholes Model is used to value the warrants classified as liabilities and the approach required management to estimate inputs including expected volatility and expected term and is most significantly impacted by the volatility of the Company's common stock price. These inputs are inherently subjective and require significant analysis and judgment to develop.
The fair value of the warrants was measured at the time of issuance and is re-measured at each financial reporting date with any changes in fair value being recognized in change in fair value of warrant liabilities, a component of other income (expense), in the consolidated statements of operations and comprehensive income (loss). The Company will continue to re-measure the fair value of the October 2022 Warrant liabilities until exercise or expiration of the warrants on October 10, 2027.
In January 2024, the Company entered into an inducement letter with the investor from the January 2023 Registered Direct Offering which provided for the immediate exercise of certain of its existing outstanding warrants to exercise for cash an aggregate of
Fair Value of Warrant Liabilities
Warrant liabilities are categorized within Level 3 of the fair value hierarchy and are measured at fair value on a recurring basis as follows (in thousands):
| October 2022 |
January 2023 |
|||||||||||
| Warrants |
Warrants |
Total |
||||||||||
| Fair value of warrants outstanding as of December 31, 2023 |
$ | $ | $ | |||||||||
| Change in fair value of warrants |
( |
) | ||||||||||
| Exercise of warrants |
( |
) | ( |
) | ||||||||
| Fair value of warrants outstanding as of March 31, 2024 |
$ | $ | $ | |||||||||
The key inputs for the October 2022 Warrants using the Black-Scholes model were as follows:
| March 31, |
December 31, |
|||||||
| 2024 |
2023 |
|||||||
| Stock price |
$ | $ | ||||||
| Risk-free interest rate |
% | % | ||||||
| Expected dividend yield |
||||||||
| Expected term in years |
||||||||
| Expected volatility |
% | % | ||||||
Note 9 - Subsequent Events
Reverse Stock Split
On April 25, 2024, the Company filed the Reverse Split Amendment to effect the Reverse Stock Split. As a result of the Reverse Stock Split, every
May 2024 Warrant Inducement
On April 28, 2024, the Company entered into inducement offer letter agreements (the “May 2024 Warrant Inducement”) with (i) certain investors (the “October 2022 Investors”) that held certain outstanding October 2022 Warrants to purchase up to an aggregate of
At-the-Market Facility
In May 2024, the Company entered into an At-the-Market Offering Agreement (the "Offering Agreement") with H.C. Wainwright & Co. LLC ("Wainwright") under which the Company may offer and sell, from time to time at its sole discretion, up to $
Under current SEC regulations and General Instruction I.B.6 of Form S-3, if on or after specified measurement periods the Company's public float is less than $75.0 million, and for so long as the Company's public float remains less than $75.0 million, the amount the Company can raise through primary public offerings of securities in any 12-month period using offerings registered under shelf registration statements is limited to an aggregate of one-third of the Company's public float, which is referred to as the baby shelf rules. As of March 31, 2024, the Company's calculated public float was less than $75.0 million.
As a result of the warrant inducement transaction, and as of the date of this filing, the Company believes it has stockholders’ equity of at least $2.5 million as required by Nasdaq Listing Rule 5550(b)(1).
Item 2. Financial Information.
Management’s Discussion and Analysis of the Results of Operations
Forward-Looking Statements
Certain matters discussed in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of current or historical fact contained in this report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “should,” “project,” “will,” “would,” and similar expressions are generally intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:
| ● |
the fact that we currently have no drug products for sale and that our success is dependent on our product candidates receiving regulatory approval and being successfully commercialized; |
| ● |
the possibility that serious adverse or unacceptable side effects are identified during the development of our current or future product candidates, such that we would need to abandon or limit development of some of our product candidates; |
| ● |
our ability to successfully develop, partner, or commercialize any of our current or future product candidates including AJ201, IV tramadol, and BAER-101; |
| ● |
the substantial doubt raised about our ability to continue as a going concern, which may hinder our ability to obtain future financing; |
| ● |
the significant losses we have incurred since inception and our expectation that we will continue to incur losses for the foreseeable future; |
| ● |
our need for substantial additional funding, which may not be available to us on acceptable terms, or at all, which unavailability could force us to delay, reduce or eliminate our product development programs or commercialization efforts; |
| ● |
our reliance on third parties for several aspects of our operations; |
| ● |
our reliance on clinical data and results obtained by third parties that could ultimately prove to be inaccurate, unreliable, or unacceptable to regulatory authorities; |
| ● |
the possibility that we may not receive regulatory approval for any or all of our product candidates, or that such approval may be significantly delayed due to scientific or regulatory reasons; |
| ● |
the fact that even if one or more of our product candidates receives regulatory approval, they will remain subject to substantial regulatory scrutiny; |
| ● |
the effects of current and future laws and regulations relating to fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations; |
| ● |
the effects of competition for our product candidates and the potential for new products to emerge that provide different or better therapeutic alternatives for our targeted indications; |
| ● |
the possibility that the government or third-party payors fail to provide adequate coverage and payment rates for our product candidates or any future products; |
| ● |
our ability to establish sales and marketing capabilities or to enter into agreements with third parties to market and sell our product candidates; |
| ● |
our exposure to potential product liability claims; |
| ● |
related to the protection of our intellectual property and our potential inability to maintain sufficient patent protection for our technology and products; |
| ● |
our ability to maintain compliance with the obligations under our intellectual property licenses and funding arrangements with third parties, without which licenses and arrangements we could lose rights that are important to our business; |
| ● |
the fact that Fortress Biotech, Inc. ("Fortress") controls a majority of the voting power of our outstanding capital stock and has rights to receive significant share grants annually; and |
| ● |
and the risks described under the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”). |
The forward-looking statements contained in this report reflect our views and assumptions as of the effective date of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Except as required by law, we assume no responsibility for updating any forward-looking statements to reflect events or circumstances that may arise after the date of this report, except as required by applicable law.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Overview
Avenue Therapeutics, Inc. (“Avenue” or the “Company”) is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Our product candidates include AJ201 for the treatment of spinal and bulbar muscular atrophy ("SBMA", also known as Kennedy's Disease), an intravenous formulation of tramadol ("IV tramadol"), a schedule IV opioid for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders. We may in the future acquire additional product candidates.
Our net loss for the three months ended March 31, 2024 and 2023 was approximately $4.3 million and $7.6 million, respectively. As of March 31, 2024, we had an accumulated deficit of approximately $95.3 million. Substantially all our net losses resulted from costs incurred for research and development, and general and administrative purposes.
We expect to continue to incur research and development costs and general and administrative costs and incur operating losses for at least the next several years as we continue the development of our product candidates.
We intend to obtain additional capital through the sale of debt or equity securities or other arrangements to fund our operations, research and development activity or regulatory approval activity; however, there can be no assurance that we will be able to raise the necessary capital under acceptable terms, if at all. The sale of additional equity or securities convertible into or exercisable for equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of our common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. We may also seek financing through strategic partnerships for some or all of our portfolio assets. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
We are a majority-controlled subsidiary of Fortress. For related party transactions, see Note 4 to our financial statements included in this Quarterly Report on Form 10-Q.
Avenue Therapeutics, Inc. was incorporated in Delaware on February 9, 2015. Our executive offices are located at 1111 Kane Concourse, Suite 301, Bay Harbor Islands, FL 33154. Our telephone number is (781) 652-4500, and our email address is [email protected].
AJ201
In February 2023, we announced that we entered into a license agreement (the “AnnJi License Agreement”) with AnnJi Pharmaceutical Co., Ltd. (“AnnJi”) whereby the Company obtained an exclusive license from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the United States (“U.S.”) for the treatment of SBMA, also known as Kennedy’s Disease.
Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidate, the Company paid an initial cash license fee of $3.0 million. The Company issued shares of its common stock, par value $0.0001 per share (the "common stock") under the Subscription Agreement (described below) and is obligated to make additional payments over the course of the AnnJi License Agreement including reimbursement payments of up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial.
The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. The Company will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi.
The 12-week, multicenter, randomized, double-blind trial enrolled 25 patients, randomly assigned to AJ201 (600mg/day) or placebo. The primary endpoint of the study is to assess safety and tolerability of AJ201 in subjects with clinically and genetically defined SBMA. Secondary endpoints include pharmacodynamic data measuring change from baseline in mutant androgen receptor protein levels in skeletal muscle and changes in the fat and muscle composition as seen on MRI scans. Further details on the study can be found using the ClinicalTrials.gov identifier NCT05517603. Information on clinicaltrials.gov does not constitute part of this Quarterly Report on Form 10-Q.
In January 2024, we announced the completion of enrollment for the Phase 1b/2a trial and we currently expect topline data midyear 2024.
IV Tramadol
We participated in a Type C meeting with the FDA in March 2023 to discuss a proposed study protocol to assess the risk of respiratory depression related to opioid stacking on IV tramadol relative to an approved opioid analgesic. We announced in April 2023 that we received official meeting minutes from the Type C meeting with the FDA. The Type C meeting minutes indicate that we are in agreement with the FDA on a majority of the proposed protocol items and are in active discussion about remaining open items. The minutes indicate that the FDA also agrees that a successful study will support the submission of a complete response to the second Complete Response Letter for IV tramadol pending final agreement on a statistical analysis plan and a full review of the submitted data in the complete response as well as concurrence from the DAAAP.
In January 2024, we announced that we reached final agreement with the FDA on the Phase 3 safety study protocol and statistical analysis approach, including the primary endpoint. The final non-inferiority study is designed to assess the risk of opioid-induced respiratory depression related to opioid stacking on IV tramadol compared to IV morphine. The study will randomize approximately 300 post bunionectomy patients to IV tramadol or IV morphine for pain relief administered during a 48-hour post-operative period. Of note, this study design was used in the first of two Phase 3 trials. In a Phase 3 safety study to be conducted, patients will have access to IV hydromorphone, a Schedule II opioid, for rescue of breakthrough pain. The primary endpoint is a composite of elements indicative of respiratory depression.
We plan to initiate the study as soon as possible, subject to having the necessary financing.
BAER-101 (novel α2/3–subtype-selective GABA A PAM)
Baergic is a clinical-stage pharmaceutical company founded in December 2019 that focuses on the development of pharmaceutical products for the treatment of neurologic disorders. Baergic was acquired by the Company pursuant to a stock contribution agreement (the “Contribution Agreement”) with Fortress, in order to strategically align with Avenue’s goals of building a rare and neurologic pipeline. Baergic’s pipeline currently consists of a single compound, BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator. BAER-101 (formally known as AZD7325) was originally developed by AstraZeneca and has an established safety profile in early clinical trials including over 700 patients.
In August 2023, we reported preclinical data for BAER-101 from an in vivo evaluation in SynapCell’s Genetic Absence Epilepsy Rate from the Strasbourg (“GAERS”) model of absence epilepsy. The GAERS model mimics behavioral, electrophysiological and pharmacological features of human absence seizures and has shown to be an early informative indicator of efficacy in anti-seizure drug development. In the model, BAER-101 demonstrated full suppression of seizure activity with a minimal effective dose of 0.3 mg/kg administered orally. The data were subsequently presented at the American Epilepsy Society (“AES”) 2023 Annual Meeting in December 2023 and at the American Society for Experimental Neurotherapeutics (“ASENT”) 2024 Annual Meeting in March 2024. The data were also published in Drug Development Research in February 2024.
Under the Contribution Agreement, Fortress also agreed to assign to us certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement.
Reverse Stock Split
On April 26, 2024, the Company effected a 1-for-75 reverse stock split of its common stock (the “Reverse Stock Split”) without any change in the par value per share of the common stock. All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
Nasdaq Deficiency Letter
On May 19, 2023, we received a deficiency letter (the “First Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (the “Nasdaq”) notifying us that we were not in compliance with Nasdaq Listing Rule 5550(b)(1), the minimum stockholders’ equity requirement for continued listing on The Nasdaq Capital Market (the “Stockholders’ Equity Requirement”). In accordance with Nasdaq rules, we were provided 45 calendar days, or until July 3, 2023, to submit a plan to regain compliance (the “Compliance Plan”). We submitted our Compliance Plan and, on July 17, 2023, the Staff granted our request for an extension through November 15, 2023 to regain compliance with the Stockholders’ Equity Requirement. We were unable to demonstrate compliance with the Stockholders’ Equity Requirement by that date, and, on November 20, 2023, the Staff formally notified us that it would move to delist our securities from Nasdaq unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). We submitted the request for a hearing before the Panel (the “Hearing”), which request stayed any further action by Nasdaq pending completion of the Hearing and the expiration of any extension that may be granted by the Panel to the Company.
Also as previously disclosed, on September 27, 2023, we received a second deficiency letter (the “Second Letter”) from the Staff stating that the bid price of our common stock had closed below $1.00 per share for 30 consecutive business days and, as such, we were not in compliance with Nasdaq Listing Rule 5550(a)(2), the minimum bid price requirement for continued listing on The Nasdaq Capital Market (the “Bid Price Requirement”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were afforded a 180-calendar day grace period, through March 25, 2024, to regain compliance with the Bid Price Requirement.
The Hearing before the Panel was held on February 15, 2024 and, by decision dated March 11, 2024, the Panel granted the Company's request for an extension through May 20, 2024 to demonstrate compliance with the Stockholders' Equity Requirement and Bid Price Requirement. In order to timely evidence compliance with the Bid Price Requirement in particular, we must evidence a closing bid price of at least $1.00 per share for a minimum of 10, though generally not more than 20, consecutive business days by May 20, 2024. The Company is considering all options available to it to regain compliance with the Stockholders’ Equity Requirement and the Bid Price Requirement; however, there can be no assurance that we will be able to do so.
January 2024 Warrant Inducement and Private Placement
On January 5, 2024, we entered into (i) an inducement offer letter agreement (the “January 2023 Investor Inducement Letter”) with a certain investor (the “January 2023 Investor”) in connection with certain outstanding warrants to purchase up to an aggregate of 25,871 shares of common stock, originally issued to the January 2023 Investor on January 31, 2023 (the “January 2023 Warrants”) and (ii) an inducement offer letter agreement (the “November 2023 Investor Inducement Letter Agreement” and, together with the January 2023 Investor Inducement Letter, the “January 2024 Warrant Inducement”) with certain investors (the “November 2023 Investors” and, together with the January 2023 Investor, the “Holders”) in connection with certain outstanding warrants to purchase up to an aggregate of 194,667 shares of common stock, originally issued to the November 2023 Investors on November 2, 2023 (the “November 2023 Warrants” and, together with the January 2023 Warrants, the “Existing Warrants”). The January 2023 Warrants had an exercise price of $116.25 per share, and the November 2023 Warrants had an exercise price of $22.545 per share. Pursuant to the January 2024 Warrant Inducement, (i) the January 2023 Investor agreed to exercise its January 2023 Warrants for cash at a reduced exercise price of $22.545 per share and (ii) the November 2023 Investors agreed to exercise their November 2023 Warrants for cash at the existing exercise price of $22.545, in each case in consideration for the Company’s agreement to issue in a private placement (x) Series A Warrants to purchase up to 220,538 shares of common stock ("Series A Warrants") and (y) Series B Warrants to purchase up to 220,538 shares of common stock ("Series B Warrants"). The net proceeds to Avenue from the exercise of the warrants was approximately $4.5 million, after deducting placement agent fees and offering costs.
As a result of the January 2024 Warrant Inducement, the Company presents a deemed dividend for the issuance of the Series A Warrants and Series B Warrants of $4.3 million for the 3 months ending March 31, 2024. The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed consolidated statements of operations.
Critical Accounting Policies and Use of Estimates
Our discussion and analysis of our financial condition and results of operations are based on our 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 the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors 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.
For a discussion of our critical accounting estimates, see the Management’s Discussion and Analysis of the Results of Operations in the 2023 Form 10-K.
There were no material changes in our critical accounting estimates or accounting policies from December 31, 2023.
Results of Operations
General
At March 31, 2024, we had an accumulated deficit of $95.3 million, primarily as a result of expenditures for licenses acquired, for research and development and for general and administrative purposes. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our product candidate are still in development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenues.
Comparison of the Three Months Ended March 31, 2024 and 2023
| For The Three Months Ended |
||||||||||||||||
| March 31, |
Change |
|||||||||||||||
| ($ in thousands) |
2024 |
2023 |
$ |
% |
||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
$ | 2,392 | $ | 1,215 | $ | 1,177 | 97 | % | ||||||||
| Research and development – licenses acquired |
— | 4,230 | (4,230 | ) | (100 | )% | ||||||||||
| General and administrative |
1,316 | 984 | 332 | 34 | % | |||||||||||
| Loss from operations |
(3,708 | ) | (6,429 | ) | 2,721 | (42 | )% | |||||||||
| Other income (expense): |
||||||||||||||||
| Interest income |
49 | 37 | 12 | 32 | % | |||||||||||
| Financing costs – warrant liabilities |
— | (332 | ) | 332 | (100 | )% | ||||||||||
| Loss on settlement of common stock warrant liabilities |
(574 | ) | — | (574 | ) | — | % | |||||||||
| Change in fair value of warrant liabilities |
(116 | ) | (878 | ) | 762 | (87 | )% | |||||||||
| Total other income (expense) |
(641 | ) | (1,173 | ) | 532 | (45 | )% | |||||||||
| Net loss |
$ | (4,349 | ) | $ | (7,602 | ) | $ | 3,253 | (43 | )% | ||||||
| Net loss attributable to non-controlling interests |
(9 | ) | (66 | ) | 57 | (86 | )% | |||||||||
| Net income (loss) attributable to common stockholders |
(4,340 | ) | (7,536 | ) | 3,196 | (42 | )% | |||||||||
Research and Development Expenses
Research and development expenses primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with pre-commercialization validation manufacturing, costs associated with regulatory filings, laboratory costs and other supplies.
For the three months ended March 31, 2024 and 2023, research and development expenses were $2.4 million and $1.2 million, respectively. The increase of $1.2 million is primarily associated with a $1.1 million increase in AJ201 clinical study expenses, and $0.1 million in non-cash stock compensation costs.
For the three months ended March 31, 2024 and 2023, research and development - licenses acquired expenses were $0 and $4.2 million, respectively. The decrease of $4.2 million is related to the AJ201 license acquisition in 2023.
We expect our research and development activities to continue as we attempt to gain regulatory approval for our existing product candidate, reflecting costs associated with the following:
| ● |
employee-related expenses; |
| ● |
license fees and milestone payments related to in-licensed product and technology; |
| ● |
expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials; |
| ● |
the cost of acquiring and manufacturing clinical trial materials; and |
| ● |
costs associated with non-clinical activities, and regulatory interactions, submissions, and approvals. |
General and Administrative Expenses
General and administrative expenses consist principally of professional fees for legal and consulting services, market research, personnel-related costs, public reporting company related costs and other general operating expenses not otherwise included in research and development expenses. We expect our general and administrative costs to continue as we seek potential regulatory approval and commercialization of our product candidates.
For the three months ended March 31, 2024 and 2023, general and administrative expenses were $1.3 million and $1.0 million, respectively. The increase of $0.3 million is primarily related to an increase of $0.2 million in professional fees and $0.1 million in non-cash stock compensation costs.
Interest Income
Interest income was $49,000 and $37,000 for the three months ended March 31, 2024 and 2023, respectively. The increase was due to a larger cash and cash equivalent balance.
Loss on Settlement of Common Stock Warrant Liabilities
The loss on common stock warrant liabilities was $0.6 million and $0 for the three months ended March 31, 2024 and 2023, respectively. The Series A Warrants and Series B Warrants had a fair value of $0.6 million allocated to the January 2023 warrants at the time of issuance as a cost of inducement, which was recorded as a loss on settlement of common stock warrant liabilities.
Change in Fair Value of Warrant Liabilities
The change in fair value of warrant liabilities was a loss of $0.1 million and $0.9 for the three months ended March 31, 2024 and 2023, respectively. Warrants to purchase common stock that are required to be classified as a liability are valued at fair market value at each reporting period. The change in the fair value of warrant liabilities was primarily due to the modification of the exercise price as part of a warrant inducement, the exercise of warrants classified as liabilities, and fluctuation in our stock price.
Liquidity and Capital Resources
At March 31, 2024, we had $3.2 million in cash and cash equivalents. To date, we have funded our operations primarily with proceeds from various public and private offerings of our common and preferred stock. We expect that our expenses will increase substantially for the foreseeable future as we continue to execute on our product development plan and seek opportunities to license or acquire additional products. We will require additional financing to carry out our business plan and implement our strategy, and continue to analyze various alternatives, including potentially obtaining lines of credit, debt or equity financings, including through at-the-market program ("ATM") offerings, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to our product candidates or marketing territories. Without additional capital, we do not expect our cash will be sufficient to fund our projected operating requirements or allow us to fund our operating plan past the third quarter of 2024. We regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure.
Recently Adopted and Issued Accounting Pronouncements
As of March 31, 2024, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2023 Form 10-K that would materially affect the Company's present or future results of operations, overall financial condition, liquidity, or disclosures upon adoption.
Cash Flows for the Three Months Ended March 31, 2024 and 2023
| For the Three Months Ended |
||||||||
| March 31, |
||||||||
| ($ in thousands) |
2024 |
2023 |
||||||
| Total cash and cash equivalents provided by (used in): |
||||||||
| Operating activities |
$ | (3,120 | ) | $ | (1,573 | ) | ||
| Financing activities |
4,531 | 3,101 | ||||||
| Net increase in cash and cash equivalents |
$ | 1,411 | $ | 1,528 | ||||
Operating Activities
Net cash and cash equivalents used in operating activities was $3.1 million for the three months ended March 31, 2024, primarily comprised of our $4.3 million net loss and $0.4 million reduction in common share issuable to Fortress, partially offset by a $0.6 million loss on settlement of common stock warrant liabilities, an increase of $0.3 million in operating assets and liabilities, $0.4 million for shares issued to Fortress, $0.1 million change in fair value of warrant liabilities and $0.2 million in share-based compensation.
Net cash and cash equivalents used in operating activities was $1.6 million for the three months ended March 31, 2023, primarily comprised of our $7.6 million net loss partially offset by an increase in operating assets and liabilities of $3.8 million, $1.2 million in stock issuance for licenses acquired, $0.9 million change in fair value of warrant liability and $0.1 million in common share issuance to Fortress.
Financing Activities
Net cash and cash equivalents provided by financing activities was $4.5 million for the three months ended March 31, 2024, primarily comprised of $4.5 million in net proceeds from the January 2024 Warrant Inducement.
Net cash and cash equivalents provided by financing activities was $3.1 million for the three months ended March 31, 2023, primarily comprised of the $3.1 million Registered Direct and Private Placement on January 31, 2023.
Subsequent to end of the first quarter, we received net proceeds of $3.9 million, after deducting placement agent fees and offering costs, pursuant to the May 2024 Warrant Inducement. See Note 9 - Subsequent Events to our unaudited condensed consolidated financial statements included herein.
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
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and interim Chief Financial Officer, to allow timely decisions regarding required disclosure.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the quarter ended March 31, 2024, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, the Company’s Chief Executive Officer and interim Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.
Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2024 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
To our knowledge, there are no legal proceedings pending against us, other than routine actions and administrative proceedings, and other actions not deemed material are not expected to have a material adverse effect on our financial condition, results of operations, or cash flows. In the ordinary course of business, however, the Company may be subject to both insured and uninsured litigation. Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.
We have disclosed under the heading “Risk Factors” in the 2023 Form 10-K a number of risks which may materially affect our business, financial condition or results of operations. You should carefully consider the “Risk Factors” set forth in the 2023 Form 10-K, the information below, and the other information set forth elsewhere in this Quarterly Report on Form 10-Q, including under "Forward-looking Statements." You should be aware that these risk factors and other information may not describe every risk facing our Company. Additional risks and uncertainties not currently known to us may also materially adversely affect our business, financial condition and/or results of operations.
Item 2. Recent Sales of Unregistered Securities.
N/A.
Item 3. Defaults Upon Senior Securities.
N/A.
Item 4. Mine Safety Disclosures.
N/A.
During the three months ended March 31, 2024, of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
Item 6. Financial Statements and Exhibits
* Filed herewith.
** Furnished herewith.
Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Avenue Therapeutics, Inc. |
|
| (Registrant) |
|
| Date: May 15, 2024 | By: /s/ Alexandra MacLean, M.D. |
| Alexandra MacLean, M.D. | |
| Chief Executive Officer and Director | |
| Date: May 15, 2024 |
By: /s/ David Jin |
| David Jin |
|
| Interim Chief Financial Officer and Chief Operating Officer |