The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help facilitate an understanding
of our financial condition and its historical results of operations for the
periods presented. This MD&A should be read in conjunction with the audited
consolidated financial statements and notes thereto included in this annual
report on Form 10-K. This MD&A may contain forward-looking statements that
involve risks and uncertainties. For a discussion on forward-looking statements,
see the information set forth above under the caption "Special Note Regarding
Forward-Looking Statements", which information is incorporated herein by
reference.
-72-
Overview
Sonnet BioTherapeutics Holdings, Inc. ("Sonnet Holdings ," "we," "us," "our" or the "Company"), is a clinical stage, oncology-focused biotechnology company with a proprietary platform for innovating biologic medicines of single- or bi-specific action. Known as FHAB™ (Fully Human Albumin Binding), the technology utilizes a fully human single chain antibody fragment that binds to and "hitch-hikes" on human serum albumin for transport to target tissues. We designed the construct to improve drug accumulation in specific tissues, as well as to extend the duration of activity in the body. FHAB development candidates are produced in a mammalian cell culture, which enables glycosylation, thereby reducing the risk of immunogenicity. We believe our FHAB technology, for which we received aU.S. patent inJune 2021 , is a distinguishing feature of our biopharmaceutical platform that is well suited for future drug development across a range of human disease areas, including in oncology, autoimmune, pathogenic, inflammatory, and hematological conditions. Our current internal pipeline development activities are focused on cytokines, a class of cell signaling peptides that, among other important functions, serve as potent immunomodulatory agents. Working both independently and synergistically, specific cytokines have shown the ability to modulate the activation and maturation of immune cells that fight cancer and pathogens. However, because they do not preferentially accumulate in specific tissues and are quickly eliminated from the body, the conventional approach to achieving a treatment effect with cytokine therapy typically requires the administration of high and frequent doses. This can result in a reduced treatment effect accompanied by the potential for systemic toxicity, which poses challenges to the therapeutic application of this class of drugs. Sonnet's lead proprietary asset, SON-1010, is a fully human version of Interleukin 12 ("IL-12"), covalently linked to the FHAB construct, for which Sonnet intends to pursue clinical development in solid tumor indications, including non-small cell lung cancer and head and neck cancer. Sonnet has completed a nonhuman primate ("NHP") GLP toxicity study and has successfully manufactured drug product for clinical use. Sonnet has submitted an Investigational New Drug ("IND") application to the FDA and intends to submit additional product stability data in the first quarter of 2022. Subject to FDA approval, Sonnet is preparing to initiate aU.S. clinical trial in oncology patients with solid tumors during the first half of 2022. Sonnet is also preparing to initiate an Australian clinical study in healthy volunteers during the first half of 2022. The Company acquired the global development rights to its most advanced compound, SON-080, a fully human version of Interleukin 6 ("IL-6"), inApril 2020 . Sonnet is advancing SON-080 in target indications of Chemotherapy-Induced Peripheral Neuropathy ("CIPN") and Diabetic Peripheral Neuropathy ("DPN"). Sonnet intends to file for an ex-US Phase 1b/2a pilot-scale efficacy study with SON-080 in CIPN during the first half of 2022. This study could yield initial top line clinical safety data during the second half of 2022. Pursuant to a license agreement the Company entered withNew Life Therapeutics Pte., Ltd ("New Life") ofSingapore inMay 2021 , Sonnet and New Life will be jointly responsible for developing SON-080 in DPN with the objective of initiating an ex-US pilot-scale efficacy study in the second half of 2022. SON-1210 (IL12-FHAB-IL15), Sonnet's lead bispecific construct, combines FHAB with fully human IL-12 and fully human Interleukin 15 (IL-15). This compound is being developed for solid tumor indications, including colorectal cancer, and Sonnet expects to initiate the regulatory authorization process in the second half of 2022. InSeptember 2021 , the Company created a wholly-owned Australian subsidiary,SonnetBio Pty Ltd , for the purpose of conducting certain clinical trials. -73- We have incurred recurring operating losses and negative cash flows since inception. Our ability to generate product or licensing revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were$25.0 million and$24.3 million for the years endedSeptember 31, 2021 and 2020, respectively. As ofSeptember 30, 2021 , the we had cash of$27.6 million . We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: ? conduct additional clinical trials for product candidates; ? continue to discover and develop additional product candidates; ? acquire or in-license other product candidates and technologies; ? maintain, expand and protect our intellectual property portfolio; ? hire additional clinical, scientific and commercial personnel;
? establish a source of commercial manufacturing and secure supply chain capacity
sufficient to provide commercial quantities of any candidate product for
that we can obtain regulatory approval;
? seek regulatory approval for successful product candidates
clinical tests;
? establish a sales, marketing and distribution infrastructure to market
any product for which we can obtain regulatory approval; and
? add operational, financial and management information systems and personnel,
including staff to support the development of our products and the planned future
marketing efforts, as well as to support our activities as a public enterprise
reporting company. We will not generate revenue from product sales, if any, unless and until we receive licensing revenue and/or successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. We will continue to incur significant costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate operations. -74- Since our inception in 2015, we have devoted substantially all of our efforts and financial resources to organizing and staffing the Company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for product candidates. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from sales of common stock, warrants and proceeds from the issuance of convertible debt. Recent Events
New Life Therapy License Agreement
InMay 2021 , we entered into a License Agreement (the "New Life Agreement") withNew Life Therapeutics PTE, LTD. , a company organized under the laws ofSingapore ("New Life"). Pursuant to the New Life Agreement, we granted New Life an exclusive license (with the right to sublicense) to develop and commercialize pharmaceutical preparations containing a specific recombinant human interleukin-6, SON-080 (or any derivatives, fragments or conjugates thereof) (the "Compound") (such preparations, the "Products") for the prevention, treatment or palliation of diabetic peripheral neuropathy in humans (the "DPN Field") inMalaysia ,Singapore ,Indonesia ,Thailand ,Philippines ,Vietnam ,Brunei ,Myanmar , Lao PDR andCambodia (the "Exclusive Territory"). New Life may exercise the option to expand (1) the field of the exclusive license to include the prevention, treatment or palliation of chemotherapy-induced peripheral neuropathy in humans (the "CIPN Field"), which option is non-exclusive and will expire onDecember 31, 2021 ; and/or (2) the territorial scope of the license to includethe People's Republic of China ,Hong Kong and/orIndia , which option is exclusive and will also expire onDecember 31, 2021 . We are excluded from developing, using, selling or otherwise commercializing any Compounds or Products for use in the DPN Field in the Exclusive Territory during the term of the New Life Agreement.
We retain all rights to manufacture Compounds and Products anywhere in the
world. The Company and New Life shall enter into a follow-on supply agreement
pursuant to which we shall supply to New Life Products for development and
commercialization thereof in the DPN Field (and the CIPN Field, if applicable)
in the Exclusive Territory on terms to be negotiated by the parties.
Pursuant to the terms of the New Life Agreement, New Life will bear the cost of,
and be responsible for, among other things, conducting clinical studies and
additional non-clinical studies (if any, subject to both parties' approval),
preparing and filing applications for regulatory approval and undertaking other
developmental and regulatory activities for and commercializing Products in the
DPN Field (and the CIPN Field, if applicable) in the Exclusive Territory. New
Life will own and maintain all regulatory filings and approvals for Products in
the Exclusive Territory.
-75-
The Company's obligations under the New Life Agreement include the following:
(i) License to develop, market, import, use and commercialize the Product in the
Field in the Exclusive Territory (the "License") and (ii) transfer of know-how
and clinical development and regulatory activities ("R&D Activities").
New Life paid the Company a $500,000 non-refundable upfront cash payment in
August 2020 upon executing a letter of intent to negotiate this license
agreement and a $500,000 non-refundable upfront cash payment in June 2021 in
connection with the execution of the New Life Agreement, and is obligated to pay
a deferred license fee of an additional $1,000,000 at the time of the
satisfaction of certain milestones as well as potential additional milestone
payments to us totaling up to $19,000,000 subject to the achievement of certain
development and commercialization milestones. In addition, during the Royalty
Term (as defined below), New Life is obligated to pay us tiered double digit
royalties ranging from 12% to 30% based on annual net sales of Products in the
Territory. The "Royalty Term" means, on a Product-by-Product and a
country-by-country basis in the Exclusive Territory, the period commencing on
the date of the first commercial sale (subject to certain conditions) of such
Product in such country in the Exclusive Territory and continuing until New Life
ceases commercialization of such Product in the DPN Field (or CIPN Field, if
applicable). In the event New Life (i) files for an initial public offering or
(ii) is subject to a Change of Control, the royalty obligations may be converted
to equity subject to mutual agreement of the parties.
In addition, New Life will pay us a double-digit percentage of all revenue received through the sublicensing of each Product, subject to certain exclusions.
The New Life Agreement will remain in effect on a Product-by-Product, country-by-country basis and will expire upon the expiration of the Royalty Term for the last-to-expire Product in the last-to-expire country, subject to (i) each party's early termination rights including for material breach or insolvency or bankruptcy of the other party and (ii) the Company's Buy Back Right and New Life's Give Back Right (as defined below). In addition, New Life granted to the Company an exclusive option to buy back the rights granted by the Company to New Life and the Company granted New Life the right to give back the rights with respect to Products in the DPN Field and/or the CIPN Field (if applicable) in one or more countries in the Exclusive Territory on terms to be agreed upon, which options will expire upon the initiation of a Phase III Trial for the applicable Product. COVID-19 Pandemic
InDecember 2019 , a novel strain of coronavirus, COVID-19, was reported to have surfaced inWuhan, China and onMarch 11, 2020 was declared a pandemic by theWorld Health Organization . Many countries around the world imposed quarantines and restrictions on travel and mass gatherings to slow the spread of COVID-19 and closed non-essential businesses. As countries and state and local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. This pandemic or outbreak could result in difficulty securing clinical trial site locations, CROs, and/or trial monitors and other critical vendors and consultants supporting the trial. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact our ability to enroll patients. These situations, or others associated with COVID-19, could cause delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse effect on our business and its financial condition. -76-
In particular, manufacturing of our pipeline products (other than SON-1010) has been delayed by COVID-19 related supply chain issues, specifically supply of raw materials, including media, resins, and analytical kits, compounded by international shipping delays. Although we do not have perfect visibility into a resolution of the supply chain issues, we anticipate delays of approximately one quarter to our programs for these products. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common shares. The COVID-19 outbreak may also affect the ability of our staff and the parties we work with to carry out our non-clinical, clinical, and drug manufacturing activities. We rely or may in the future rely on clinical sites, investigators and other study staff, consultants, independent contractors, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our nonclinical studies and clinical trials. We also rely or may in the future rely on consultants, independent contractors, contract manufacturing organizations, and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our API production, formulation, and drug manufacturing activities. COVID-19 may affect the ability of any of these external people, organizations, or companies to devote sufficient time and resources to our programs or to travel to perform work for us. Potential negative impacts of the COVID-19 outbreak on the conduct of current or future clinical studies include delays in gaining feedback from regulatory agencies, starting new clinical studies, and recruiting subjects to studies that are enrolling. The potential negative impacts also include inability to have study visits at study sites, incomplete collection of safety and efficacy data, and higher rates of drop-out of subjects from ongoing studies, delays in site entry of study data into the data base, delays in monitoring of study data because of restricted physical access to study sites, delays in site responses to queries, delays in data-base lock, delays in data analyses, delays in time to top-line data, and delays in completing study reports. New or worsening COVID-19 disruptions or restrictions could have the potential to further negatively impact our non-clinical studies, clinical trials, and drug manufacturing activities. At the current time, we are unable to quantify the potential effects of this pandemic on future operations. -77-
Components of the results of operations
Collaboration Revenue Collaboration revenue is currently earned from the license arrangement entered into with New Life inMay 2021 , which granted New Life rights to an exclusive license (with the right to sublicense) to develop and commercialize pharmaceutical preparations containing a specific recombinant human interleukin-6, SON-080 (the "Compound") (such preparations, the "Products") for the prevention, treatment or palliation of diabetic peripheral neuropathy in humans (the "DPN Field") in the Exclusive Territory. The Company identified the following obligations under the arrangement: (i) License to develop, market, import, use and commercialize the Product in the Field in the Exclusive Territory (the "License"); and (ii) transfer of know-how and clinical development and regulatory activities ("R&D Activities"). The Company determined that the License and the R&D Activities are not distinct from each other and, therefore, combined these material promises into a single performance obligation. Under this agreement, we received upfront cash payments totaling$1.0 million , which were fully allocated to the single performance obligation and are being recognized over the estimated performance period of R&D services. Operating Expenses
Research and development costs
Research and development costs consist primarily of costs incurred in the discovery and development of the Company’s product candidates. The Company charges research and development costs as they are incurred and these costs include:
? personnel costs, including salaries, stock compensation and
related benefits, for employees performing research and development functions;
? expenses incurred in the context of preclinical and clinical development
of the Company’s product candidates, including under agreements with third parties
parties, such as consultants and clinical research organizations;
? the cost of manufacturing pharmaceutical products intended for use in the Company’s preclinical trials
clinical studies and trials, including under agreements with third parties,
such as consultants and contract manufacturing organizations;
? installations, depreciation and other expenses, which include direct or earmarked expenses
expenses for rent and maintenance of facilities and insurance; ? costs related to compliance with regulatory requirements; and ? payments made under third-party licensing agreements. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided by our service providers. This process involves reviewing open contracts and purchase orders, communicating with their personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed. -78-
Our direct research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses also include fees incurred under third-party license agreements. We do not allocate employee costs and costs associated with discovery efforts, laboratory supplies and facilities, including depreciation or other indirect costs, to specific product candidates because these costs are deployed across multiple programs and as such, are not separately classified. We use internal resources primarily to conduct research and discovery as well as for managing preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and therefore, we do not track costs by product candidate. We expect our research and development expense will increase for the foreseeable future as we attempt to advance development of our product candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our current pipeline or any future product candidates we may develop due to the numerous risks and uncertainties associated with clinical development, including risk and uncertainties related to:
? the timing and progress of preclinical and clinical development activities;
? the number and scope of preclinical and clinical programs that we decide to
to chase;
? our ability to maintain our current research and development programs and to
establish new ones;
? establishing an appropriate safety profile with investigational new
drug-enabling studies;
? successful patient enrollment in, and the initiation and completion of,
clinical trials;
? successful clinical trials with safety, tolerability and
efficacy profiles satisfactory to the FDA or other comparable foreign
regulatory authority;
? receipt of regulatory approvals from applicable regulatory authorities;
? the timing, receipt and conditions of any marketing approval of
regulatory authorities; ? our ability to establish new licensing or collaboration arrangements;
? establish agreements with third party manufacturers for clinical supply
our clinical trials and commercial manufacture, where applicable, of our products
candidates are approved;
? timely development and delivery of clinical and commercial grade drugs
formulations that can be used in our clinical trials and for commercial
launch;
? obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights;
-79-
? initiate commercial sales of product candidates, if approved, alone
or in collaboration with others;
? maintain an ongoing and acceptable safety profile of product candidates
after approval; and
? the potential impact of COVID-19 on operations that may affect, among others
things, the schedule of clinical trials, the availability of raw materials and the
the ability to access and secure test facilities.
A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation, in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting, and audit services. Our general and administrative expenses will increase in the future as we increase our headcount to support continued research activities and development of product candidates. We will continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Interest Income
Interest income consists primarily of amounts earned on a previously unpaid note receivable from Chanticleer.
Foreign Exchange Loss
The exchange loss consists of changes in exchange rates on transactions denominated in currencies other than the
Other Income
In 2021, we recorded other income related to the cancellation of the Company’s PPP loan.
-80- Results of Operations
Comparison of completed years
The following table summarizes the results of operations of the Company for the years ended.
Year Ended September 30,
2021 2020 Change
Collaboration revenue $ 483,626 $ - $ 483,626
Operating expenses
Research and development 16,634,553 9,877,555 6,756,998
Acquired in-process research and
development - 6,826,495 (6,826,495 )
General and administrative 8,936,509 7,533,722 1,402,787
Total operating expenses 25,571,062 24,237,772 1,333,290
Loss from operations (25,087,436 ) (24,237,772 ) 1,816,916
Interest income 15 20,677 (20,662 )
Foreign exchange loss (22,041 ) (48,020 ) 25,979
Other income 125,501 - 125,501
Net loss $ (24,983,961 ) $ (24,265,115 ) $ (718,846 )
Collaboration Revenue
The Company has recognized
Research and development costs
Research and development expenses were$16.6 million for the year endedSeptember 30, 2021 , compared to$9.9 million for the year endedSeptember 30, 2020 . The increase of$6.8 million was primarily due to the development of the cell lines for IL12-FHAB, IL12-FHAB-IL15 and SON-080, and an increase in payroll and share-based compensation expense as we continue to expand our operations.
In connection with the acquisition of Relief, the intellectual property acquired related to atexakin alfa was immediately expensed since future development and regulatory approval is required.
General and administrative expenses
General and administrative expenses were$8.9 million for the year endedSeptember 30, 2021 , compared to$7.5 million for the year endedSeptember 30, 2020 . The increase of$1.4 million was primarily due to an increase in payroll and share-based compensation expense and insurance expenses related to directors and officer's insurance as we continue to expand our operations to support our research and development efforts, partially offset by a$1.4 million decrease in professional fees and transaction related fees associated with the closing
of the Merger. -81- Other Income
Other income from
Liquidity and capital resources
We have accumulated a$61.7 million deficit since inception. We have funded operations to date primarily with proceeds from sales of common stock, warrants and proceeds from the issuance of convertible debt. We will likely offer additional securities for sale during our fiscal year 2022 or thereafter in response to market conditions or other circumstances if we believe such a plan of financing is required to advance the Company's business plans and is in the best interests of our stockholders. There is no certainty that equity or debt financing will be available in the future or that it will be at acceptable terms and at this time, it is not possible to predict the outcome of these matters. We have incurred significant net losses of approximately$25.0 million and$24.3 million for the years endedSeptember 30, 2021 and 2020, respectively. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and related expenditures, the receipt of additional payments on the licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into. The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern. The Company believes its cash of$27.6 million atSeptember 30, 2021 will fund the Company's projected operations intoAugust 2022 . Substantial additional financing will be needed by the Company to fund its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. The following table summarizes the Company's sources and uses of cash for each of the years presented: Year EndedSeptember 30, 2021 2020
Net cash used in operating activities
Net cash used in investing activities
(3,623 ) (76,183 ) Net cash provided by financing activities 42,828,032 23,005,212 Net increase in cash$ 20,272,164 $ 7,314,250 -82- Operating Activities
During the year ended
During the year endedSeptember 30, 2020 , we used$15.6 million of cash in operating activities which was primarily attributable to our net loss of$24.3 million . This amount was offset by a$6.8 million charge for in-process research and development related to the Relief Acquisition, a$1.4 million net increase in operating assets and liabilities and$0.4 million in share-based compensation expense. Investing Activities
In the past years
Financing Activities
During the year ended
During the year ended
Funding Requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance preclinical activities and clinical trials of product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
? scope, number, launch, progress, schedule, costs, design, duration, everything
the potential delays and the results of clinical trials and non-clinical studies for
our current or future product candidates;
? the clinical development plans that we establish for these product candidates;
? the number and characteristics of the product candidates and programs that we
develop or may license;
? the outcome, timing and cost of regulatory reviews, approvals or other actions
to meet regulatory requirements established by the FDA and comparable foreign
regulatory authorities, including potential FDA or comparable
foreign regulatory authorities to require that we conduct more studies for our
product candidates than those that we currently expect; -83- ? our ability to obtain marketing approval for product candidates;
? the cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights covering our product candidates;
? our ability to maintain, extend and defend the reach of our
real estate portfolio, including intellectual property defense costs
litigation, including patent infringement actions brought by third parties
against us or our product candidates;
? the cost and timing of completion of commercial scale outsourced manufacturing
product candidate activities;
? our ability to establish and maintain licenses, collaborations or the like
agreements on favorable terms and whether and to what extent we withhold
development or marketing responsibilities under any new license,
collaboration or similar arrangement;
? the cost of establishing sales, marketing and distribution capacities for
any product candidate for which we may receive regulatory approval in the regions
where we choose to market our products on our own;
? the success of any other business, product or technology we acquire
or in which we invest;
? the costs of acquiring, licensing or investing in businesses, product
candidates and technologies;
? our need and ability to hire additional and scientific and medical staff
staff;
? the costs of operating as a public enterprise in
need to implement additional financial and reporting systems and other
the internal systems and infrastructure of our business;
? market acceptance of our product candidates, to the extent that they are approved
for commercial sale; ? the effect of competing technological and market developments; and
? the potential impact of the COVID-19 pandemic on our clinical trials and
operations. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of the Company may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate product development or future commercialization efforts, sell off assets, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market. -84-
Obligations and contractual commitments
The following table summarizes the Company’s contractual obligations as of
Less than More than 5
1 Year 1 to 3 Years 4 to 5 Years Years Total
Operating Lease (1) $ 103,440 $ 34,695 $ - $ - $ 138,135
Debt Obligations (2) 748 -
- - 748 Total$ 104,188 $ 34,695 $ - $ -$ 138,883
(1) Reflects the obligations under the Company’s office lease in
(2) Reflects unsecured notes payable issued to certain related parties.
In addition to the contracts with payment commitments that we have reflected in the table above, we have entered into other contracts in the normal course of business with certain CROs, CMOs and other third-parties for preclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable upon prior notice and as a result, are not included in the table of contractual obligations and commitments above. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations to our service providers, up to the date of cancellation.
Critical accounting policies
Our management's discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to the accrual for research and development expenses. 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. While the Company's significant accounting policies are described in more detail in the notes to the consolidated financial statements included elsewhere in this Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of the consolidated financial statements. -85-
Research and development costs
Research and development costs consist primarily of costs incurred in the development of our product candidates. We charge research and development costs as they are incurred.
At the end of each reporting period, we compare payments made to third-party service providers to the estimated progress toward completion of the applicable research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that we estimate has been made as a result of the service provided, we may record net prepaid or accrued expense relating to these costs. As ofSeptember 30, 2021 , we did not make any material adjustments to our prior estimates of accrued research and development expenses.
Off-balance sheet provisions
We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Recently published accounting position papers
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to the consolidated financial statements included elsewhere in this Form 10-K.
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