SEC Form 10-Q filed by NeuroBo Pharmaceuticals Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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NEUROBO PHARMACEUTICALS, INC.
Table of Contents
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Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 (this “Report”) to “we,” “us,” “the Company,” “NeuroBo” and “our” refer to NeuroBo Pharmaceuticals, Inc. (the “Company”) and its subsidiaries.
Special Note Regarding Forward-Looking Statements
This Report contains “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements that address future operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation, our expectations regarding our ability to execute on our commercial strategy; the timeline for regulatory submissions, regulatory steps and potential regulatory approval of our current and future product candidates; the ability to realize the benefits of the license agreement with Dong-A ST Co., Ltd., a related party (“Dong-A”), including the impact on our future financial and operating results; the ability to integrate the product candidates into our business in a timely and cost-efficient manner; the cooperation of our contract manufacturers, clinical study partners and others involved in the development of our current and future product candidates; our ability to initiate clinical trials on a timely basis; our ability to recruit subjects for our clinical trials; the costs related to the license agreement, known and unknown, including costs of any litigation or regulatory actions relating to the license agreement; changes in applicable laws or regulations; the effects of changes to our stock price on the terms of the license agreement and any future fundraising and other risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”), and in our other filings with the Securities and Exchange Commission (the “SEC”).
Forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. In addition, statements that “we believe,” “we expect,” “we anticipate” 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 Report and management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or expectations, except as required by law.
We operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events could differ materially from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including without limitation, the possibility that regulatory authorities do not accept our application or approve the marketing of our products, the possibility we may be unable to raise the funds necessary for the development and commercialization of our products, and those described in this and our other filings with the SEC.
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Part I - Financial Information
Item 1.Financial Statements
NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
As of | ||||||
June 30, 2024 | December 31, 2023 | |||||
(Unaudited) | ||||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Prepaid expenses and other current assets | | | ||||
Total current assets |
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Property and equipment, net |
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Right-of-use asset | | | ||||
Other assets | | | ||||
Total assets | $ | | $ | | ||
Liabilities and stockholders’ equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Clinical trial accrued liabilities | | | ||||
Accrued expenses and other current liabilities |
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Warrant liabilities | | | ||||
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Lease liability, short-term | | | ||||
Total current liabilities |
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Lease liability, long-term | | | ||||
Total liabilities |
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Commitments and contingencies (Note 7) | ||||||
Stockholders’ equity | ||||||
Preferred stock, $ | ||||||
Common stock, $ |
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Additional paid–in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
(Unaudited - In thousands, except share and per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
Operating expenses: |
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Research and development | $ | | $ | | $ | | $ | | ||||
General and administrative | | | | | ||||||||
Total operating expenses |
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Loss from operations |
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Other income (expense): | ||||||||||||
Change in fair value of warrant liabilities | ( | | ( | | ||||||||
Interest income | | — | | — | ||||||||
Total other income | | | | | ||||||||
Loss before income taxes | ( | ( | ( | ( | ||||||||
Provision for income taxes | |
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Net loss and comprehensive net loss |
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Loss per share of common stock, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares of common stock, basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited - In thousands)
Additional | |||||||||||||
Common Stock | Paid–In | Accumulated | Total | ||||||||||
Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||
As of January 1, 2023 | | $ | | $ | | $ | ( | $ | | ||||
Issuance of stock from exercise of warrants | | — | | — | | ||||||||
Stock–based compensation | — | — | ( | — | ( | ||||||||
Net loss | — | — | — | ( | ( | ||||||||
As of March 31, 2023 | | | | ( | | ||||||||
Issuance of stock from exercise of warrants | | | | — | | ||||||||
Stock–based compensation | — | — | | — | | ||||||||
Net loss | — | — | — | ( | ( | ||||||||
As of June 30, 2023 | | $ | | $ | | $ | ( | $ | | ||||
As of January 1, 2024 | | $ | | $ | | $ | ( | $ | | ||||
Stock–based compensation | — | — | | — | | ||||||||
Net loss | — | — | — | ( | ( | ||||||||
As of March 31, 2024 | | | | ( | | ||||||||
Issuance of common stock and warrants (Pre-funded, Series A and Series B), net of issuance costs of $ | | | | — | | ||||||||
Issuance of Placement Agent warrants | — | — | | — | | ||||||||
Issuance of stock for vested restricted stock units | | — | — | — | — | ||||||||
Stock–based compensation | — | — | | — | | ||||||||
Net loss | — | — | — | ( | ( | ||||||||
As of June 30, 2024 | | $ | | $ | | $ | ( | $ | | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NeuroBo Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited - In thousands)
Six Months Ended June 30, | ||||||
2024 | 2023 | |||||
Operating activities | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation |
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Non-cash lease expense | | — | ||||
Depreciation |
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Change in fair value of warrant liabilities | | ( | ||||
Change in operating assets and liabilities: | ||||||
Prepaid expenses and other assets |
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Accounts payable |
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Accrued and other liabilities |
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Net cash used in operating activities |
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Investing activities | ||||||
Purchases of property and equipment |
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Net cash used in investing activities |
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Financing activities | ||||||
Proceeds from issuance of common stock and pre-funded warrants | | — | ||||
Payments of issuance costs | ( | ( | ||||
Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash |
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Cash at beginning of period |
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Cash at end of period | $ | | $ | | ||
Supplemental non-cash investing and financing transactions: | ||||||
Unpaid issuance costs | $ | | $ | — | ||
Reclassification of warrant liabilities upon exercise of warrants | $ | — | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.Business, basis of presentation, new accounting standards and summary of significant accounting policies
General
NeuroBo Pharmaceuticals, Inc. (the “Company”), a Delaware corporation, and its subsidiaries are referred to collectively in these notes to the condensed consolidated financial statements of the Company as “NeuroBo,” “we,” “our” and “us.” We are a clinical-stage biotechnology company focused primarily on developing and commercializing novel pharmaceuticals to treat cardiometabolic diseases. NeuroBo has two programs currently focused on treatment of metabolic dysfunction-associated steatohepatitis (“MASH”) and obesity. MASH was formerly known as non-alcoholic steatohepatitis. The American Association for the Study of Liver Diseases and its European and Latin American counterparts changed the name to metabolic dysfunction-associated steatohepatitis to reflect the complexity of the disease.
| ● | DA-1241 is a novel G-Protein-Coupled Receptor 119 (“GPR119”) agonist with development optionality as a standalone and/or combination therapy for both MASH and type 2 diabetes. Agonism of GPR119 in the gut promotes the release of key gut peptides, glucagon-like peptide 1 (“GLP-1”), glucagon-dependent insulinotropic polypeptide receptor, and peptide YY. These peptides play a further role in glucose metabolism, lipid metabolism and weight loss. DA-1241 has beneficial effects on glucose, lipid profile and liver inflammation, supported by potential efficacy demonstrated during in vivo preclinical studies. |
| ● | DA-1726 is a novel oxyntomodulin analogue functioning as a GLP-1 receptor (“GLP1R”) and glucagon receptor (“GCGR”) dual agonist for the treatment of obesity that is to be administered once weekly subcutaneously. DA-1726 acts as a dual agonist of GLP1R and GCGR. |
While we primarily focus our financial resources and management’s attention on the development of DA-1241 and DA-1726, we also have four legacy therapeutic programs designed to impact a range of indications in viral, neurodegenerative and cardiometabolic diseases which we continue to consider for out-licensing and divestiture opportunities.
Our operations have consisted principally of performing research and development (“R&D”) activities, which includes preclinical developments and clinical trials, and raising capital. Our activities are subject to significant risks and uncertainties, including failing to secure additional funding before sustainable revenues and profit from operations are achieved.
Common stock reverse stock splits
In December 2023, we completed a one-for-eight reverse stock split of our common stock (the “2023 Reverse Stock Split”). As a result, every eight shares of our issued and outstanding common stock were combined, converted and changed into one share of our common stock. Any fraction of a share of our common stock that was created as a result of the 2023 Reverse Stock Split was rounded down to the next whole share and our stockholders received cash equal to the market value of the fractional share, determined by multiplying such fraction by the closing sales price of our common stock as reported on the Nasdaq Capital Market LLC (“Nasdaq”) on the last trading day before the 2023 Reverse Stock Split. The 2023 Reverse Stock Split was initially approved by our stockholders at the annual meeting of stockholders in June 2023. At the annual meeting, the stockholders approved a proposal to amend our certificate of incorporation to affect a reverse split of our outstanding common stock at a ratio in the range of one-for-five to one-for-eight to be determined at the discretion of our Board of Directors (“Board”). Following the annual meeting, our Board approved a one-for-eight reverse stock split of our issued and outstanding shares of common stock.
The 2023 Reverse Stock Split did not impact the number of authorized shares of common stock of 100,000,000 shares. For the 2023 Reverse Stock Split, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, and warrants to purchase shares of our common stock, the number of shares issuable upon vesting of restricted stock units (“RSUs”) and the number of shares reserved for issuance pursuant to our equity incentive compensation plans. Specifically, for the Series A Warrants and Series B
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Warrants issued in November 2022 that were outstanding on the effective date of the 2023 Reverse Stock Split, the number of outstanding warrants did not change; instead, the warrants have an exchange ratio of eight warrants for one share of our common stock.
In the accompanying condensed consolidated financial statements and these notes to the condensed consolidated financial statements, all historical numbers of shares of common stock and per share data have been adjusted to give effect to the 2023 Reverse Stock Split. Additionally, since the common stock par value was unchanged, historical amounts for common stock and additional paid-in capital have been adjusted to give effect to the 2023 Reverse Stock Split.
Going concern
The determination as to whether we can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.
As reflected in the condensed consolidated financial statements, we had $27.9 million in cash as of June 30, 2024. We have experienced net losses and negative cash flows from operating activities since our inception and had an accumulated deficit of $125.0 million as of June 30, 2024. We have incurred a net loss of $16.8 million and net cash used of $13.7 million for operating activities for the six months ended June 30, 2024. Due in large part to the ongoing Phase 2a clinical trial for DA-1241 and Phase 1 clinical trial for DA-1726, we expect to continue to incur net losses and negative cash flows from operating activities for the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern.
We believe that our existing cash will be sufficient to fund our operations into the second quarter of 2025. Our existing cash includes gross proceeds of $20.0 million, of which $10.0 million was received from Dong-A ST Co., Ltd., a related party (“Dong-A”), in connection with the closing of the Offering (as defined below) in June 2024. We plan to continue to fund our operations through a combination of proceeds of (i) up to $20.0 million from the potential future exercise of Series A Warrants issued in the Offering before deducting for certain issuance costs, such as placement agent fees and expenses and (ii) from equity offerings, debt financings, or other sources, potentially including collaborations, out-licensing and other similar arrangements. If the Series A Warrants issued in the June 2024 Offering are exercised, we believe that the additional gross proceeds to us from such exercises would be sufficient to fund our operations into 2026. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all, or that the Series A Warrants will be exercised. To the extent that we can raise additional funds by issuing equity securities or in the event our existing warrants are exercised, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital, we may slow down or stop our ongoing and planned clinical trials until such time as additional capital is raised and this may have a material adverse effect on us.
A.Basis of presentation
We prepared the condensed consolidated financial statements following the requirements of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the U.S. (“GAAP”) for complete financial statements can be condensed or omitted. However, except as disclosed herein, there has been no material change in the information disclosed in the notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”).
Revenues, expenses, assets, liabilities, and equities can vary during each quarter of the year. Therefore, the results and trends in these condensed consolidated financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the condensed consolidated financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in the condensed
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our 2023 Form 10-K. Certain amounts in the condensed consolidated financial statements and accompanying notes may not add due to rounding, and all percentages have been calculated using unrounded amounts.
B.New accounting standards
Adoption of new accounting standards
New accounting standards or accounting standards updates were assessed and determined to be either not applicable or did not have a material impact on our condensed consolidated financial statements or processes.
Accounting standards issued but not yet adopted
In December 2023, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU amends the guidance in Accounting Standards Codification (“ASC”) 740, Income Taxes, to improve the transparency of income tax disclosures by amending the required rate reconciliation disclosures as well as requiring disclosure of income taxes paid disaggregated by jurisdiction. As amended, the rate reconciliation disclosure will be required to be presented in both percentages and reporting currency amounts, with consistent categories and greater disaggregation of information. This ASU also includes amendments intended to improve the effectiveness of income tax disclosures and eliminate certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. The amendments are effective for fiscal years beginning after December 15, 2024 and should be applied prospectively. Early adoption is permitted. We are currently evaluating the amendments to identify potential impacts to our notes to the consolidated financial statements and processes.
Other recently issued accounting standards not yet adopted by us are not expected, upon adoption, to have a material impact on our condensed consolidated financial statements.
C.Estimates and assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in our consolidated financial statements relate to accrued expenses and the fair value of stock-based compensation and warrants. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
D.Significant accounting policies
Our significant accounting policies are described in “Note 1. Business, basis of presentation, new accounting standards and summary of significant accounting policies” in the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which is included in our 2023 Form 10-K.
E.Reclassification of prior year presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. Adjustments have been made to the condensed consolidated balance sheets to reclassify the presentation of certain current liabilities related to clinical trial accrued liabilities of $
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2. Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following (in thousands):
As of | ||||||
June 30, 2024 | December 31, 2023 | |||||
Insurance | $ | | $ | — | ||
Deposits | | | ||||
Other prepaid expenses |
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Total | $ | | $ | | ||
3. Property and equipment, net
Property and equipment, net consist of the following (in thousands):
As of | ||||||
June 30, 2024 | December 31, 2023 | |||||
Office equipment | $ | | $ | | ||
Less accumulated depreciation |
| ( |
| ( | ||
Property and equipment, net | $ | | $ | | ||
4. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
As of | ||||||
June 30, 2024 | December 31, 2023 | |||||
Employee related costs | $ | | $ | | ||
Professional service fees | | | ||||
Other |
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Total | $ | | $ | | ||
5. Warrant liabilities
Changes to our warrant liabilities are summarized as follows (in thousands):
Total | |||
As of January 1, 2024 | $ | | |
Fair value changes | | ||
As of June 30, 2024 | $ | | |
Our warrant liabilities relate to the 2022 Series A Warrants and 2022 Series B Warrants, which were issued in November 2022. These warrants are considered to be derivative instruments; accordingly, we recorded their estimated fair value as warrant liabilities. We estimated the fair value of these warrants using the trading market price of our common stock due to a cashless exercise provision of these warrants whereby
6.Related party
We entered into a license agreement with Dong-A pursuant to which we received an exclusive global license (except for the territory of the Republic of Korea) for two proprietary compounds for specified indications (the “2022 License
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Agreement”) upon meeting certain financing milestones. The 2022 License Agreement covers the rights to DA-1241 for treatment of MASH and DA-1726 for treatment of obesity and MASH. The 2022 License Agreement also provides that we may develop DA-1241 for the treatment of type 2 diabetes mellitus.
In connection with the 2022 License Agreement, we entered into a shared services agreement with Dong-A (the “Shared Services Agreement”), relating to DA-1241 and DA-1726, pursuant to which Dong-A may provide technical support, preclinical development, and clinical trial support services on terms and conditions acceptable to both parties. In addition, the Shared Services Agreement provides that Dong-A will manufacture all of our clinical requirements of DA-1241 and DA-1726 under the terms provided in the Shared Services Agreement.
We incurred R&D expenses of $
For additional information on the 2022 License Agreement, the Shared Service Agreement and other agreements with Dong-A, refer to “Note 5. Related party” in the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, which is included in our 2023 Form 10-K.
7. Commitments and contingencies
Operating lease
In August 2023, we entered into a non-cancelable operating lease for our new corporate headquarters in Cambridge, Massachusetts. The initial lease term is for
Our lease liability, which represents the net present value of future lease payments, was calculated utilizing a discount rate of
Additionally, we had short-term operating leases for our former corporate headquarters located in Boston, Massachusetts and such lease was terminated in January 2024. For our former corporate headquarters,
8.Stockholders’ equity
June 2024 offering
Securities purchase agreements
In June 2024, we entered into and closed on
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
effective shelf registration statement on Form S-3 (Registration No. 333-278646), initially filed with and declared effective by the SEC in April 2024, and a prospectus supplement filed with the SEC in June 2024.
The Pre-Funded Warrant has an exercise price of $
The Series A Warrants will expire on the earlier of the
Under the terms of the Pre-Funded Warrants and the PIPE Common Warrants issued to the institutional accredited investor, we may not affect the exercise of any such Pre-Funded Warrant or PIPE Common Warrants, and the holder will not be entitled to exercise any portion of any Pre-Funded Warrant or PIPE Common Warrants, if, upon giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates, other persons acting or who could be deemed to be acting as a group together with the holder or any of the holder’s affiliates, and any other persons whose beneficial ownership of common stock would or could be aggregated with the holder’s or any of the holder’s affiliates) would exceed
Placement agent
We paid to the placement agent a cash fee equal to
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Upon the exercise for cash of any PIPE Common Warrants issued to a certain institutional investor, we shall pay the placement agent (i) a cash fee of
Warrants
The following tables summarize our outstanding warrants:
Shares of Common Stock Issuable | ||||||||
for Outstanding Warrants | ||||||||
As of | Exercise | Expiration | ||||||
Warrant Issuance | June 30, 2024 | December 31, 2023 | Price | Date | ||||
July 2018 (1) | | $ | July 2028 | |||||
April 2020 (1) | | | $ | April 2025 | ||||
January 2021 (1) | | | $ | July 2026 | ||||
October 2021 (1) | | | $ | April 2025 | ||||
November 2022 Series B (2) | | | $ | December 2027 | ||||
June 2024 Placement Agent (3) | | — | $ | July 2026 | ||||
June 2024 Pre-Funded (4) | | — | $ | no expiration date | ||||
June 2024 Series A (5) | | — | $ | September 2025 (latest date) | ||||
June 2024 Series B (6) | | — | $ | September 2029 (latest date) | ||||
Total | | | ||||||
| (1) | The number of outstanding and exercisable warrants was adjusted for the impact of each of the common stock reverse stock splits completed in 2023 and 2022. Accordingly, the number of outstanding warrants is equal to the number of shares of common stock issuable for outstanding warrants. |
| (2) | The number of outstanding and exercisable warrants was not impacted by the 2023 Reverse Stock Split. Accordingly, the number of outstanding warrants is equal to |
| (3) | These warrants are exercisable at any time on or after the Stockholder Approval, which is currently planned to be in September 2024, and expire |
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NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| with the SEC. In July 2024, a resale registration statement was filed with the SEC and became effective. |
| (4) | These warrants are exercisable immediately upon their issuance in June 2024 and are considered to be perpetual warrants without any expiration date. |
| (5) | These warrants are exercisable at any time on or after the Stockholder Approval, which is currently planned to be in September 2024, and expire on the earlier of (i) the |
| (6) | These warrants are exercisable at any time on or after the Stockholder Approval, which is currently planned to be in September 2024, and expire on the earlier of (i) the |
Additionally, during the six months ended June 30, 2023,
9. Stock-based compensation
Stock-based compensation expense was included in general and administrative and research and development as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
General and administrative | $ | | $ | | $ | | $ | ( | ||||
Research and development | | — | | | ||||||||
Total stock-based compensation | $ | | $ | | $ | | $ | ( | ||||
For stock options and RSUs granted under the 2019 Equity Incentive Plan (the “2019 Plan”), the 2021 Inducement Plan and (the “Inducement Plan”) the 2022 Equity Incentive Plan, as amended (the “2022 Plan”), as of June 30, 2024, unrecognized stock-based compensation cost totaled $
Stock-based award plans
In June 2024, in connection with the 2024 Annual Meeting of Stockholders, our stockholders approved an amendment to our 2022 Plan (the “Amendment”). Pursuant to the terms and conditions of the Amendment, the 2022 Plan was amended to:
| ● | automatically increase on January 1st of each year for a period of |
| ● | increase the aggregate maximum number of shares of common stock that may be issued pursuant to the exercise of Incentive Stock Options (as defined in the 2022 Plan) to |
15
NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
| described above, but in no event more than |
As of June 30, 2024, there were (i)
Stock options
The following table summarizes the status of our outstanding and exercisable options and related transactions for the period presented (in thousands, except share and per share amounts):
Outstanding | Exercisable | |||||||||||||||||||
Shares of | Weighted | Shares of | Weighted | |||||||||||||||||
Common | Weighted | Average | Common | Weighted | Average | |||||||||||||||
Stock | Average | Aggregate | Remaining | Stock | Average | Aggregate | Remaining | |||||||||||||
Issuable | Exercise | Intrinsic | Contractual | Issuable | Exercise | Intrinsic | Contractual | |||||||||||||
for Options | Price | Value | Term (years) | for Options | Price | Value | Term (years) | |||||||||||||
As of January 1, 2024 | | $ | | $ | — | | $ | | $ | — | ||||||||||
Vested | | | ||||||||||||||||||
As of June 30, 2024 | | $ | | $ | — | | $ | | $ | — | ||||||||||
During the six months ended June 30 2023, we granted
Restricted Stock Units
The following table summarizes the status of our RSUs and related transactions for the period presented (in thousands, except share and per share amounts):
Outstanding | Vested and Deferred Release | |||||||||||||||
Shares of | Average | Shares of | Average | |||||||||||||
Common Stock | Grant Date | Aggregate | Common Stock | Grant Date | Aggregate | |||||||||||
Issuable | Fair Value | Intrinsic | Issuable | Fair Value | Intrinsic | |||||||||||
for RSUs | Price | Value | for RSUs | Price | Value | |||||||||||
As of January 1, 2024 | | $ | | $ | | | $ | | $ | | ||||||
Granted | | | ||||||||||||||
Vested and Deferred Release | | | ||||||||||||||
Vested and Released | ( | | | |||||||||||||
As of June 30, 2024 | | $ | | $ | | | $ | | $ | | ||||||
We estimated the grant date fair value of restricted stock units granted to employees, consultants and directors based on the closing sales price of our common stock as reported on Nasdaq on the date of grant.
16
NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
10.Income taxes
We do not expect to pay any significant federal or state income taxes as a result of (i) the losses recorded during the three and six months ended June 30, 2024 and 2023, (ii) additional losses expected for the remainder of 2024 or losses recorded in 2023, or (iii) net operating loss carry forwards from prior years.
We recorded a full valuation allowance of the net operating losses for the three and six months ended June 30, 2024 and 2023. Accordingly, there were
11.Loss per share of common stock
The following table sets forth the computation of basic and diluted loss per share of common stock (in thousands, except share and per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||
Numerator: | ||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Denominator: | ||||||||||||
Weighted average shares of common stock, basic | ||||||||||||
Effect of dilutive securities | — | — | — | — | ||||||||
Weighted average shares of common stock, diluted | ||||||||||||
Loss per share of common stock, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
For each of the periods presented in the above table, our basic weighted average shares of common stock include any outstanding (i) November 2022 Series A warrants and Series B warrants, (ii) June 2024 Pre-Funded Warrants and (iii) vested RSUs in which their release was deferred in accordance with the respective award agreement during the respective period.
Since we reported a net loss for the three and six months ended June 30, 2024 and 2023, our potentially dilutive securities are deemed to be anti-dilutive, accordingly, there was no effect of dilutive securities. Therefore, our basic and diluted loss per share of common stock and our basic and diluted weighted average shares of common stock are the same for three and six months ended June 30, 2024 and 2023. The following table sets forth the potentially dilutive securities which were not included in the calculation of diluted earnings per share of common stock for three and six months ended June 30, 2024 and 2023:
As of June 30, | ||||
| 2024 | 2023 | ||
Stock options | | | ||
RSUs | | — | ||
Warrants | | | ||
12.Fair value of financial instruments
Fair value is a market-based measurement, not an entity specific measurement and is defined as “the price 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.” Fair value measurements are defined on a three-level hierarchy:
Level 1: | Unadjusted quoted prices for identical assets or liabilities in active markets; |
17
NeuroBo Pharmaceuticals, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Level 2: | Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, whether directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3: Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
The following table sets forth our financial assets and liabilities, subject to fair value measurements on a recurring basis, by level within the fair value hierarchy (in thousands):
As of June 30, 2024 | As of December 31, 2023 | |||||||||||||||||||||||
Description |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
Liabilities: | ||||||||||||||||||||||||
Warrant liabilities | $ | | $ | — | $ | | $ | — | $ | | $ | — | $ | | $ | — | ||||||||
Total | $ | | $ | — | $ | | $ | — | $ | | $ | — | $ | | $ | — | ||||||||
13.Subsequent events
Management has evaluated subsequent events to determine if events or transactions occurring through the filing date of this report require adjustment to or disclosure in the condensed consolidated financial statements. Except for the following events, there were no other events that require adjustment to or disclosure in the condensed consolidated financial statements.
In August 2024, we issued
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Report and the audited financial statements and related notes for the fiscal year ended December 31, 2023 included in our 2023 Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including, but not limited to, the risks and uncertainties described under Part II, Item 1A. Risk Factors, elsewhere in this Report.
Certain amounts in the following discussion and analysis may not add due to rounding, and all percentages have been calculated using unrounded amounts.
Overview
We are a clinical-stage biotechnology company focused primarily on developing and commercializing novel pharmaceuticals to treat cardiometabolic diseases. We have two programs currently focused on treatment of metabolic dysfunction-associated steatohepatitis (“MASH”) and obesity. MASH was formerly known as non-alcoholic steatohepatitis. The American Association for the Study of Liver Diseases and its European and Latin American counterparts changed the name to metabolic dysfunction-associated steatohepatitis to reflect the complexity of the disease.
| ● | DA-1241 is a novel G-Protein-Coupled Receptor 119 (“GPR119”) agonist with development optionality as a standalone and/or combination therapy for both MASH and type 2 diabetes. Agonism of GPR119 in the gut promotes the release of key gut peptides, glucagon-like peptide 1 (“GLP-1”), glucagon-dependent insulinotropic polypeptide receptor, and peptide YY. These peptides play a further role in glucose metabolism, lipid metabolism and weight loss. DA-1241 has beneficial effects on glucose, lipid profile and liver inflammation, supported by potential efficacy demonstrated during in vivo preclinical studies. |
| ● | DA-1726 is a novel oxyntomodulin analogue functioning as a GLP-1 receptor (“GLP1R”) and glucagon receptor (“GCGR”) dual agonist for the treatment of obesity that is to be administered once weekly subcutaneously. DA-1726 acts as a dual agonist of GLP1R and GCGR. |
While we primarily focus our financial resources and management’s attention on the development of DA-1241 and DA-1726, we also have four legacy therapeutic programs designed to impact a range of indications in viral, neurodegenerative and cardiometabolic diseases, which we continue to consider for out-licensing and divestiture opportunities. In July 2024, we entered into an exclusive out-license agreement with MThera Pharma Co., LTD. (“MThera”) to provide MThera with the rights to NB-01 for the treatment of painful diabetic neuropathy.
Our operations have consisted principally of performing research and development (“R&D”) activities, which includes preclinical developments and clinical trials, and raising capital. Our activities are subject to significant risks and uncertainties, such as failing to secure additional funding before sustainable revenues and profit from operations are achieved. For more information on our business and product candidates, see “Part I, Item 1. Business” in our 2023 Form 10-K.
DA-1241
We are currently conducting a Phase 2a trial of DA-1241 for the treatment of MASH in the United States. The Phase 2a trial has two parts and each of the parts is designed to be a 16-week, multicenter, randomized, double-blind, placebo-controlled, parallel clinical study to evaluate the efficacy and safety of DA-1241 in subjects with presumed MASH while we follow the trend for type 2 diabetes mellitus. Part 2 of the Phase 2a trial will also explore the efficacy of DA-1241 in combination with sitagliptin versus placebo. Phase 2a trial enrollment began in August 2023 and we have completed enrollment of Part 1 of the Phase 2a trial in which patients with presumed MASH were randomized with a 1:2:1 ratio into 3 treatment groups: DA-1241 50 mg, DA-1241 100 mg, or placebo. Additionally, we also completed enrollment of Part 2
19
of the Phase 2a trial in which patients with presumed MASH were randomized with a 2:1 ratio into 2 treatment groups: DA-1241 100 mg/sitagliptin 100 mg or placebo. Currently, we are expecting to have top line result in the fourth quarter of 2024.
For additional information on DA-1241, see “Part I, Item 1. Business, Our Pipeline, DA-1241 Treatment of MASH” in our 2023 Form 10-K.
DA-1726
We are currently conducting a Phase 1 trial of DA-1726 for the treatment of obesity in the United States. The Phase 1 trial is a randomized, placebo-controlled, double-blind, two-part study to investigate the safety, tolerability, pharmacokinetics (“PK”), and pharmacodynamics (“PD”) of single and multiple ascending doses of DA-1726 in obese, otherwise healthy subjects. Part 1 of the Phase 1 trial is a single ascending dose (“SAD”) study and enrollment began in March 2024. In August 2024, we completed enrollment with a total of 45 participants, randomized into one of five cohorts, with each cohort having been randomized in a 6:3 ratio of DA-1726 to placebo. Part 2 of Phase 1 is a multiple ascending dose (“MAD”) study, enrollment began in June 2024, and is expected to enroll approximately 36 participants, who will be randomized at the same 6:3 ratio into four planned cohorts, each to receive four weekly administrations of DA-1726 or placebo. Currently, we are expecting to report top-line data from the SAD Part 1 study in the third quarter of 2024 and the MAD Part 2 study in the first quarter of 2025.
For additional information on DA-1726, see “Part I, Item 1. Business, Our Pipeline, DA-1726 Treatment of Obesity” in our 2023 Form 10-K.
Recent developments
| ● | August 2024: Completed enrollment in the SAD Part 1 of our Phase 1 clinical trial evaluating DA-1726 for the treatment of obesity. |
| ● | August 2024: Signed a joint research agreement, along with Dong-A, with ImmunoForge to develop a long-acting, once-monthly, formulation of DA-1726 utilizing ImmunoForge’s long-lasting half-life extension Elastin-Like Polypeptide (“ELP”) platform technology. |
| ● | July 2024: Signed an exclusive out-license agreement, providing MTHERA with the rights to develop and commercialize NB-01, one of four legacy assets, for the treatment of painful diabetic neuropathy, allowing MTHERA to conduct research and clinical trials, including, but not limited to, a potential Phase 3 clinical trial in the United States and South Korea, for the future commercialization of NB-01. |
| ● | July 2024: Engaged veteran biotech and pharmaceutical professional, Chris Fang, MD, as Advisor/Consulting Chief Medical Officer, effective July 2, 2024. |
| ● | June 2024: Completed enrollment of Part 2 of our two-part Phase 2a trial evaluating the efficacy and safety of DA-1241 in MASH. |
| ● | June 2024: Dosed the first patient in the MAD Part 2 of our two-part Phase 1 clinical trial of DA-1726 a novel, dual oxyntomodulin (“OXM”) analog agonist that functions as a GLP1R and GCGR, for the treatment of obesity. |
| ● | June 2024: Closed a concurrent placement and registered direct offering priced at-the-market under the Nasdaq Capital Market’s rules, with aggregate gross proceeds of $20.0 million up front with up to an additional $50.0 million of aggregate gross proceeds upon the exercise in full of clinical milestone-linked Series A Warrants and Series B Warrants. |
| ● | June 2024: Presented preclinical data at the American Diabetes Association 84th Scientific Sessions, showing that DA-1726 demonstrated superiority in weight loss, retention of lean body mass, and lipid-lowering effects compared to survodutide. |
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| ● | June 2024: Presented preclinical data that suggests DA-1241, a novel GPR119 agonist, in combination with semaglutide (Wegovy®), a GLP1R agonist, improves liver fibrosis and demonstrates additive hepatoprotective effects in preclinical MASH models compared to either treatment alone. The new data, presented at the European Association for the Study of Liver Congress, suggests, for the first time, a beneficial combination effect of DA-1241 and semaglutide in the treatment of liver fibrosis, which may be attributed to augmented inhibition of fibrogenesis and inflammation in the liver. The data also demonstrated more than additive effects on metabolic, biochemical, and histological endpoints in GAN DIO-MASH mice, highlighting the therapeutic potential of dual targeting GPR119 and GLP1R function in MASH with liver fibrosis. |
| ● | April 2024: Dosed the first patient in the SAD Part 1 of our Phase 1 clinical trial of DA-1726 for the treatment of obesity. |
| ● | April 2024: Completed enrollment of Part 1 of our two-part Phase 2a trial evaluating the efficacy and safety of DA-1241 in MASH. |
Key operating information
Except for the financial amounts for the presented periods in this Report (see financial amounts in the below results of operations and the condensed consolidated balance sheets included elsewhere in this Report), there have been no material changes to our key operating information since December 31, 2023. Refer to our 2023 Form 10-K for a complete discussion of our key operating information.
Results of operations
Three months ended June 30, 2024 compared to three months ended June 30, 2023
The following table summarizes our results of operations (in thousands, except share and per share amounts):
Three Months Ended June 30, | ||||||
| 2024 | 2023 | ||||
Operating expenses: | ||||||
Research and development | $ | 8,074 | $ | 2,364 | ||
General and administrative | 2,010 | 1,442 | ||||
Total operating expenses |
| 10,084 |
| 3,806 | ||
Loss from operations |
| (10,084) |
| (3,806) | ||
Other income (expense): | ||||||
Change in fair value of warrant liabilities | (133) | 3,072 | ||||
Interest income | 164 | — | ||||
Total other income | 31 | 3,072 | ||||
Loss before income taxes | (10,053) | (734) | ||||
Provision for income taxes | — | — | ||||
Net loss | $ | (10,053) | $ | (734) | ||
Loss per share of common stock, basic and diluted | $ | (1.85) | $ | (0.15) | ||
Weighted average shares of common stock, basic and diluted |
| 5,428,906 |
| 5,059,003 | ||
Operating expenses and loss from operations
Our total operating expenses and loss from operations for the three months ended June 30, 2024 were $10.0 million, an increase of $6.3 million, or 165.0%, compared to the three months ended June 30, 2023. This increase was attributable to $5.7 million in higher R&D expenses and $0.6 million in higher general and administrative expenses.
Our R&D expenses were $8.1 million for the three months ended June 30, 2024, an increase of $5.7 million, or 241.5%, compared to the three months ended June 30, 2023. This increase was primarily related to increased R&D activities for DA-1241 and DA-1726 for the three months ended June 30, 2024 following commencement of the Phase 2a clinical trial
21
for DA-1241 and Phase 1 trial for DA-1726 compared to the three months ended June 30, 2023 when R&D activities were starting to ramp up following the acquisition of DA-1241 and DA-1726 in the fourth quarter of 2022. Specifically, the $5.7 million increase in R&D expenses was primarily attributable to (i) $5.4 million in higher expenditures for investigational drug manufacturing costs, non-clinical and preclinical services, clinical trials and consulting and (ii) $0.3 million in higher employee compensation and benefits. Included in R&D expenses for the three months ended June 30, 2024 was $3.4 million of investigational drug manufacturing costs and non-clinical and preclinical expenses incurred under the Shared Services Agreement with Dong-A as compared to $1.5 million for the three months ended June 30, 2023.
Our general and administrative expenses for the three months ended June 30, 2024 were $2.0 million, an increase of $0.6 million, or 39.4%, compared to the three months ended June 30, 2023. This increase was primarily attributable to $0.4 million in higher employee compensation and benefits and $0.1 million in higher non-cash stock-based compensation.
Other income
Our other income for the three months ended June 30, 2024 was $31 thousand, a decrease of $3.0 million, or 99.0%, compared to the three months ended June 30, 2023. This decrease was attributable to the recording of a loss of $0.1 million related to the change in fair value of warrant liabilities for the three months ended June 30, 2024 compared to a gain of $3.1 million for three months ended June 30, 2023, partially offset by $0.2 million of interest income earned on our cash balance for the three months ended June 30, 2024, of which there was none for the three months ended June 30, 2023.
Provision for income taxes
Our effective tax rate for the three months ended June 30, 2024 and 2023 was zero percent as we have recorded a full valuation allowance for the income tax benefits attributable to our pre-tax losses.
Net loss
For the three months ended June 30, 2024, we had a net loss of $10.1 million, or $1.85 per share of basic and diluted common stock, compared to a net loss of $0.7 million, or $0.15 per share of basic and diluted common stock for the three months ended June 30, 2023.
Six months ended June 30, 2024 compared to six months ended June 30, 2023
The following table summarizes our results of operations (in thousands, except share and per share amounts):
Six Months Ended June 30, | ||||||
| 2024 | 2023 | ||||
Operating expenses: | ||||||
Research and development | $ | 12,978 | $ | 3,001 | ||
General and administrative | 3,987 | 3,325 | ||||
Total operating expenses |
| 16,965 |
| 6,326 | ||
Loss from operations |
| (16,965) |
| (6,326) | ||
Other income (expense): | ||||||
Change in fair value of warrant liabilities | (203) | 2,988 | ||||
Interest income | 401 | — | ||||
Total other income | 198 | 2,988 | ||||
Loss before income taxes | (16,767) | (3,338) | ||||
Provision for income taxes | — | — | ||||
Net loss | $ | (16,767) | $ | (3,338) | ||
Loss per share of common stock, basic and diluted | $ | (3.19) | $ | (0.66) | ||
Weighted average shares of common stock, basic and diluted |
| 5,259,939 |
| 5,059,003 | ||
22
Operating expenses and loss from operations
Our total operating expenses and loss from operations for the six months ended June 30, 2024 were $17.0 million, an increase of $10.6 million, or 168.2%, compared to the six months ended June 30, 2023. This increase was attributable to (i) $10.0 million in higher R&D expenses and (ii) $0.7 million in higher general and administrative expenses.
Our R&D expenses were $13.0 million for the six months ended June 30, 2024, an increase of $10.0 million, or 332.5%, compared to the six months ended June 30, 2023. This increase was primarily related to increased R&D activities for DA-1241 and DA-1726 for the six months ended June 30, 2024 following commencement of the Phase 2a clinical trial for DA-1241 and Phase 1 trial for DA-1726 compared to the six months ended June 30, 2023 when R&D activities were starting to ramp up following the acquisition of DA-1241 and DA-1726 in the fourth quarter of 2022. Specifically, the $10.0 million increase in R&D expenses was primarily attributable to (i) $9.3 million in higher expenditures for investigational drug manufacturing costs, non-clinical and preclinical services, clinical trials and consulting and (ii) $0.7 million in higher employee compensation and benefits. Included in R&D expenses for the six months ended June 30, 2024 was $3.6 million of investigational drug manufacturing costs and non-clinical and preclinical expenses incurred under the Shared Services Agreement with Dong-A as compared to $1.8 million for the six months ended June 30, 2023.
Our general and administrative expenses for the six months ended June 30, 2024 were $4.0 million, an increase of $0.7 million, or 19.9%, compared to the six months ended June 30, 2023. This increase was primarily attributable to $0.4 million in higher employee compensation and benefits and $0.2 million in higher non-cash stock-based compensation.
Other income
Our other income for the six months ended June 30, 2024 was $0.2 million, a decrease of $2.8 million, or 93.4%, compared to the six months ended June 30, 2023. This decrease was attributable to the recording of a loss of $0.2 million related to the change in fair value of warrant liabilities for the six months ended June 30, 2024 compared to a gain of $3.0 million for six months ended June 30, 2023, partially offset by $0.4 million of interest income earned on our cash balance for the six months ended June 30, 2024, of which there was none for the six months ended June 30, 2023.
Provision for income taxes
Our effective tax rate for the six months ended June 30, 2024 and 2023 was zero percent as we have recorded a full valuation allowance for the income tax benefits attributable to our pre-tax losses.
Net loss
For the six months ended June 30, 2024, we had a net loss of $16.8 million, or $3.19 per share of basic and diluted common stock, compared to a net loss of $3.3 million, or $0.66 per share of basic and diluted common stock for the six months ended June 30, 2023.
Going concern
The determination as to whether we can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of our assets and the satisfaction of our liabilities in the normal course of business.
As reflected in the condensed consolidated financial statements, we had $27.9 million in cash as of June 30, 2024. We have experienced net losses and negative cash flows from operating activities since our inception and had an accumulated deficit of $125.0 million as of June 30, 2024. We have incurred a net loss of $16.8 million and net cash used of $13.7 million for operating activities for the six months ended June 30, 2024. Due in large part to the ongoing Phase 2a clinical trial for DA-1241 and Phase 1 clinical trial for DA-1726, we expect to continue to incur net losses and negative cash flows from operating activities for the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern.
23
We believe that our existing cash will be sufficient to fund our operations into the second quarter of 2025. Our existing cash includes gross proceeds of $20.0 million, of which $10.0 million was received from Dong-A, in connection with the closing of the Offering (as defined below) in June 2024. We plan to continue to fund our operations through a combination of proceeds of (i) up to $20.0 million from the potential future exercise of Series A Warrants issued in the Offering (as defined below) before deducting for certain issuance costs, such as placement agent fees and expenses and (ii) from equity offerings, debt financings, or other sources, potentially including collaborations, out-licensing and other similar arrangements. If the Series A Warrants issued in the June 2024 Offering are exercised, we believe that the additional gross proceeds to us from such exercises would be sufficient to fund our operations into 2026. There can be no assurance that we will be able to obtain any sources of financing on acceptable terms, or at all, or that the Series A Warrants will be exercised. To the extent that we can raise additional funds by issuing equity securities or in the event our existing warrants are exercised, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital, we may slow down or stop our ongoing and planned clinical trials until such time as additional capital is raised and this may have a material adverse effect on us.
Liquidity and capital resources
Our primary use of cash is to fund our R&D activities. We have funded our operations primarily through public offerings of our common stock and private placements of equity. As of June 30, 2024, we had cash totaling $27.9 million. We maintain cash at financial institutions that at times may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limits of $250 thousand per bank. Our cash balance includes liquid insured deposits, which are obligations of the program banks in which the deposits are held and qualify for FDIC insurance protection per depositor in each recognized legal category of account ownership in accordance with the rules of the FDIC. To date, we have not experienced any losses related to these funds.
Registered direct offering and private placement
In June 2024, we closed on a registered direct offering of 763,359 shares of common stock at a purchase price of $3.93 per share for gross proceeds of $3.0 million (the “Registered Direct Offering”) with an institutional investor. The offering of the shares was made pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-278646), initially filed with and declared effective by the SEC in April 2024, and a prospectus supplement filed with the SEC in June 2024.
In June 2024, we closed on a private placement offering (the “Private Placement,” and together with the Registered Direct Offering, the “Offering”) with an institutional accredited investor and Dong-A, and received aggregate gross proceeds of $17.0 million, of which $10.0 million was received from Dong-A. The Private Placement was comprised of (i) 2,544,530 shares of common stock, (ii) pre-funded warrants to purchase up to 1,781,171 shares of common (the “Pre-Funded Warrants”), (iii) Series A warrants to purchase 5,089,060 shares of common stock (the “Series A Warrants”), and (iv) Series B warrants to purchase up to 7,633,591 shares of common stock (the “Series B Warrants”). For additional information, see “Note 8. Stockholders’ equity” to the condensed consolidated financial statements included elsewhere in this Report.
Cash flows
The principal use of cash in operating activities is to fund our current expenditures in support of our R&D activities. Financing activities currently represent the principal source of our cash flow.
24
The following table reflects the major categories of cash flows (in thousands).
Six Months Ended June 30, | ||||||
| 2024 | 2023 | ||||
Net cash used in operating activities | $ | (13,693) | $ | (4,592) | ||
Net cash used in investing activities |
| (8) | (4) | |||
Net cash provided by (used in) financing activities |
| 19,200 | (80) | |||
Net increase (decrease) in cash | $ | 5,499 | $ | (4,676) | ||
Net cash used in operating activities was $13.7 million for the six months ended June 30, 2024 and consisted of net loss of $16.8 million, partially offset by net cash provided by change in operating assets and liabilities of $2.6 million and non-cash charges totaling $0.5 million, which was primarily related to stock-based compensation and change in fair value of warrant liabilities. Net cash used in operating activities was $4.6 million for the six months ended June 30, 2023 and consisted of net loss of $3.3 million and non-cash credits totaling $3.0 million, which was primarily related to change in fair value of warrant liabilities, partially offset by net cash provided by changes in operating assets and liabilities of $1.8 million.
Net cash used in investing activities, related to the purchases of property equipment, was less than $0.1 million for the six months ended June 30, 2024 and 2023.
Net cash provided by financing activities was $19.2 million for the six months ended June 30, 2024 compared to net cash used in financing activities of $0.1 million for the six months ended June 30, 2023. Net cash provided by financing activities for the six months ended June 30, 2024 consisted of gross proceeds from the Offering of $20.0 million, net of payment of issuance cost of $0.8 million. Net cash used in financing activities of $0.1 million for the six months ended June 30, 2023 was attributable to payment of financing costs related to a prior financing transaction.
For additional details, see the condensed consolidated statements of cash flows in the condensed consolidated financial statements included elsewhere in this Report.
Critical accounting estimates
Our condensed consolidated financial statements included in this Report have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in our consolidated financial statements relate to accrued expenses and the fair value of stock-based compensation and warrants. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.
There have been no material changes to our critical accounting estimates and judgments since December 31, 2023. Refer to our 2023 Form 10-K for a complete discussion of our critical accounting estimates and judgments.
Recent accounting pronouncements
Information regarding (i) adoption of new accounting standards and (ii) accounting standards issued but not yet adopted is included in “Note 1. Business, basis of presentation, new accounting standards and summary of significant accounting policies” to the condensed consolidated financial statements included in this Report.
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Item 3.Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, with the participation of our principal executive officer (“PEO”) and principal financial officer (“PFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, our PEO and PFO concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Report, as a result of material weaknesses in our internal control over financial reporting, which are discussed further below.
Previously identified material weaknesses in internal control over financial reporting
In connection with the preparation of the financial statements included in our 2023 Form 10-K, management identified the following material weaknesses: (i) lack of segregation of duties over cash disbursements and financial reporting, (ii) logical access over computer applications, and (iii) lack of supervision and review over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, there was a lack of segregation of duties involved in the execution of wire transfers, preparing journal entries, and review over clinical trial accruals, and certain individuals in the accounting department have administrative access to the financial reporting systems. See “Remediation efforts to address the material weaknesses” below for steps we are taking to correct these material weaknesses.
Remediation efforts to address the material weaknesses
Under the oversight of the audit committee, management has developed a detailed plan and timetable for the implementation of appropriate remedial measures to address the material weaknesses, as described above. We have taken the following actions to address the material weaknesses:
| ● | we have added additional personnel to the accounting department to allow for increased segregation of duties; |
| ● | we have implemented a change management review process for access to systems used for financial reporting systems; |
| ● | we have enhanced the controls over disbursements, separating the functions of initiating and approving to two separate individuals; and |
| ● | we have implemented enhanced controls relating to the review and oversight of financial reporting, including the preparation of journal entries, and clinical trial accruals. |
As of the date of this Report, we have remediated the material weaknesses related to logical access over certain computer applications. We are in the process of remediating, but have not yet remediated, the material weaknesses related to (i) lack of segregation of duties over cash disbursements and financial reporting, (ii) logical access over one computer application, and (iii) lack of supervision and review over financial reporting.
Management believes that we have made considerable progress toward remediation of the remaining material weaknesses and anticipates a full remediation during 2024.
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Inherent limitations of disclosure controls and procedures
Our management, including our PEO and PFO, does not expect that our disclosure controls and procedures will prevent 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 system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in internal control Over financial reporting
Other than the remediation activities listed above, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1.Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings arising out of our ordinary course of business. We are not currently a party to any claims or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business and condensed consolidated financial statements. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A.Risk Factors
Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. There have been no material changes to our risk factors since the 2023 Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2024, we did not issue or sell any unregistered securities that were not otherwise previously disclosed in a Current Report on Form 8-K.
Item 3.Defaults upon Senior Securities
None.
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Item 4.Mine Safety Disclosures
None.
Item 5.Other Information
Item 6.Exhibits
Exhibit Number |
| Description of Document |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
10.1˄ | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | Inline XBRL Instance Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
* | Filed herewith | |
** | Furnished herewith. The certifications attached as Exhibit 32.1 and 32.2 that accompany this Report are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of NeuroBo Pharmaceuticals, Inc. under the Securities Act or the Exchange Act, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing. | |
˄ | Indicates management contract or compensatory plan. |
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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, on August 14, 2024.
NEUROBO PHARMACEUTICALS, INC. | |||
/s/ Hyung Heon Kim | |||
Hyung Heon Kim | |||
President and Chief Executive Officer | |||
/s/ Marshall H. Woodworth | |||
Marshall H. Woodworth | |||
Chief Financial Officer | |||
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