Anebulo
Pharmaceuticals, Inc.
Condensed
Balance Sheets
(unaudited)
The
accompanying notes are an integral part of these condensed financial statements.
Anebulo
Pharmaceuticals, Inc.
Condensed
Statements of Operations
(unaudited)
The
accompanying notes are an integral part of these condensed financial statements.
Anebulo
Pharmaceuticals, Inc.
Condensed
Statements of Stockholders’ Equity (Deficit)
For
the Three Months Ended September 30, 2021 and 2020
(unaudited)
The
accompanying notes are an integral part of these condensed financial statements.
Anebulo
Pharmaceuticals, Inc.
Condensed
Statements of Cash Flows
(unaudited)
The
accompanying notes are an integral part of these condensed financial statements.
Anebulo
Pharmaceuticals, Inc.
Notes
to Condensed Financial Statements
(unaudited)
Note
1. Nature of business and basis of presentation
Organization
Anebulo
Pharmaceuticals, Inc. (the “Company”) was founded on April 23, 2020, as a Delaware corporation. The Company is a clinical
stage biotechnology company focused on developing and commercializing new treatments for patients suffering from Acute Cannabis Intoxication
(ACI) and addiction. The Company’s principal operations are located in Lakeway, Texas.
Stock
split and Initial Public Offering
On
April 23, 2021, the Company effected a six-for-one stock split of its common stock to be consummated prior to the completion of the Company’s
Initial Public Offering (IPO). All shares, stock options, warrants and per share information presented in the accompanying condensed
financial statements and notes thereto have been adjusted to reflect the stock split on a retroactive basis for all periods presented.
There was no change in the par value of the Company’s common stock.
On
May 11, 2021, the Company completed an IPO of 3,078,224 shares of its common stock, including the exercise by the underwriter of their
option to purchase 78,224 additional shares of common stock, for aggregate gross proceeds of approximately $21,548,000 and its shares
started trading on The Nasdaq Capital Market under the ticker symbol “ANEB.” The Company received approximately $19,783,000
in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon the closing
of the IPO on May 11, 2021, a cashless exercise of warrants resulted in the issuance of 5,236,343 shares of Series A convertible preferred
stock and all of the outstanding shares of Series A convertible preferred stock automatically converted into 7,283,843 shares of common
stock.
Liquidity
and capital resources
Since
inception, the Company’s activities have consisted primarily of performing research and development to advance its product candidates.
The Company is still in the development phase and has not been marketing any developed products to-date. Since inception, the Company
has incurred recurring losses, including a net loss of $1,553,395
for the three months ended September 30,
2021. As of September 30, 2021, the Company had an accumulated deficit of $40,197,479.
The Company expects to continue to generate operating losses. As of November 12, 2021, the issuance date of the condensed financial
statements for the three months ended September 30, 2021, the Company expected that its cash and cash equivalents would be sufficient
to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of the condensed
financial statements.
The
Company may seek additional funding in order to reach its development and commercialization objectives. The Company may not be able to
obtain funding on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The
terms of any funding may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to
obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product
portfolio expansion or commercialization efforts, which could adversely affect its business prospects.
Risks
and uncertainties
The
Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s
future operating results and cause actual results to vary materially from expectations include uncertainty regarding results of clinical
trials and reaching milestones, uncertainty of regulatory approval of the Company’s current or future product candidates, uncertainty
of market acceptance of the Company’s product candidates, if approved, competition from substitute products and larger companies,
securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.
Product candidates currently under development will require significant additional research and development efforts, including extensive
preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional
capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities and may not ultimately lead to a marketing
approval and commercialization of a product.
The
Company’s product candidates require approvals from the U.S. Food and Drug Administration (FDA) and comparable foreign regulatory
agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive
the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for
any product candidate, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts
are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company will need
to generate significant revenue to achieve profitability, and it may never do so.
Basis
of presentation
The
accompanying condensed financial statements and accompanying notes have been prepared in accordance with generally accepted accounting
principles in the United States of America (U.S. GAAP).
The
unaudited interim condensed financial statements of the Company included herein have been prepared, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in condensed
financial statements prepared in accordance with U.S. GAAP have been omitted from this report, as is permitted by such rules and regulations.
Accordingly, these condensed financial statements should be read in conjunction with the financial statements as of and for the year
ended June 30, 2021 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K (File No. 001-40388).
In
the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary
for a fair presentation of the results for the reported interim periods. The Company considers events or transactions that occur after
the balance sheet date but before the condensed financial statements are issued to provide additional evidence relative to certain estimates
or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative
of results to be expected for the full year or any other interim period.
Note
2. Summary of Significant Accounting Policies
The
Company’s significant accounting policies are disclosed in the audited financial statements as of and for the year ended June 30,
2021, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the Securities and
Exchange Commission on September 22, 2021. Since the date of those financial statements, there have been no material changes to significant
accounting policies except as noted below.
Use
of estimates
The
preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed
financial statements and reported amounts of revenues and expenses during the reporting period. Among the more significant estimates
included in these condensed financial statements are those used to determine the fair value of common stock and stock-based awards, prepaid/accruals
for research and development costs and uncertain tax positions. Actual results could differ materially from those estimates.
Recently
issued and adopted accounting pronouncements
The
Company considers the applicability and impact of all ASUs. ASUs not discussed below were assessed and determined to be either not applicable
or are expected to have minimal impact on the condensed financial statements.
In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies
the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance for income taxes and
making other minor improvements. The amendments are effective for annual reporting periods beginning after December 15, 2020 with early
adoption permitted. The Company is currently evaluating the impact of adopting this new accounting guidance.
Note
3. Prepaid Expenses and Other Current Assets
Prepaid
expenses and other current assets consisted of the following:
Schedule of Prepaid Expenses and Other Current Assets
|
|
September
30, 2021
|
|
|
June
30, 2021
|
|
Prepaid
research and development
|
|
$
|
518,103
|
|
|
$
|
544,435
|
|
Prepaid
insurance
|
|
|
766,456
|
|
|
|
1,093,101
|
|
Prepaid
other
|
|
|
8,040
|
|
|
|
30,310
|
|
Total
prepaid expenses and other current assets
|
|
$
|
1,292,599
|
|
|
$
|
1,667,846
|
|
Note
4. Accrued Expenses
Accrued
expenses consisted of the following:
Schedule of Accrued Expenses
|
|
September
30, 2021
|
|
|
June
30, 2021
|
|
Accrued
research and development
|
|
$
|
-
|
|
|
$
|
121,662
|
|
Accrued
professional fees
|
|
|
113,887
|
|
|
|
9,923
|
|
Total
accrued expenses
|
|
$
|
113,887
|
|
|
$
|
131,585
|
|
Note
5. License Agreement
In
May 2020, the Company licensed certain intellectual property, know-how and clinical trial data from Vernalis Development Limited (“Vernalis”).
The initial consideration in exchange for the license was $150,000 and was recorded as research and development expense in the statement
of operations for the period from April 23, 2020 (inception) to June 30, 2020. The license term shall continue unless and until terminated
for cause or insolvency, sixty day written notice, or until such time as all royalties and other sums cease to be payable in accordance
with the terms of the agreement. The Company is required to pay development milestone payments related to clinical trials and granting
of marketing authorization ranging from $350,000 to $3,000,000, up to a total development milestone payment of $29,900,000, and sales
milestone payments of $10,000,000 and $25,000,000, in the first year when cumulative annual net sales of licensed product exceeds $500,000,000
and $1,000,000,000, respectively. The Company is also required to pay single-digit royalties on product sales over the term of the contract.
As
part of the IPO in May 2021, the Company issued 192,857 shares of common stock to Vernalis in lieu of future milestone payments by the
Company of $1,350,000, whether or not the Company achieves those milestones. The Company has determined that no further milestone payments
are considered probable as of September 30, 2021 and therefore no liability has been recorded.
Note
6. Stockholders’ Equity (Deficit)
On
April 23, 2021, the Company effected a six-for-one stock split of its common stock to be consummated prior to the completion of the Company’s
IPO. All shares, stock options, warrants and per share information presented in the accompanying condensed financial statements and notes
thereto have been adjusted to reflect the stock split on a retroactive basis for all periods presented. There was no change in the par
value of the Company’s common stock.
On
May 11, 2021, the Company completed an IPO of 3,078,224 shares of its common stock, including the exercise by the underwriter of their
option to purchase 78,224 additional shares of common stock, for aggregate gross proceeds of approximately $21,548,000 and its shares
started trading on The Nasdaq Capital Market under the ticker symbol “ANEB.” The Company received approximately $19,783,000
in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon the closing
of the IPO on May 11, 2021, a cashless exercise of warrants resulted in the issuance of 5,236,343 shares of Series A convertible preferred
stock and all of the outstanding shares of Series A convertible preferred stock automatically converted into 7,283,843 shares of common
stock.
On
May 4, 2021, the Company filed an amended and restated certificate of incorporation (the “Restated Certificate”) with the
Secretary of State of the State of Delaware in connection with the closing of its IPO. As set forth in the Restated Certificate, the
Company’s authorized capital stock consists of 40,000,000 shares of common stock, par value $0.001 per share, and 2,000,000 shares
of preferred stock, par value $0.001 per share.
In
September 2020, the Company awarded 982,500 shares of restricted common stock to its Chief Executive Officer (“CEO”) under
the 2020 Stock Incentive Plan (“2020 Stock Incentive Plan”) at a grant date fair value of $0.11 per share. The restrictions
were subject to the satisfaction of certain performance targets and vesting requirements pursuant to the award and employment agreement.
The restricted common stock vested fully upon completion of the Company’s IPO in May 2021. The restricted common stock has voting
and dividend rights, and therefore all 982,500 shares have been considered issued and outstanding since their date of issuance.
Note
7. Stock-Based Compensation
In
June 2020, the Board of Directors adopted the 2020 Stock Incentive Plan, which provided for the grant of qualified incentive stock
options and nonqualified stock options or other awards to the Company’s employees, officers, directors, advisors, and outside
consultants for the purchase of up to 1,650,000
shares of the Company’s common stock. Other awards include restricted stock, restricted stock units, stock appreciation rights
and other stock-based awards. Other stock-based awards are awards valued in whole or in part by reference to, or are otherwise based
on, shares of common stock. Stock options generally vest over a four-year period, at achievement of a performance requirement, or
upon change of control (as defined in the applicable plan). The awards expire in five
or ten years from the date of grant. As of September 30, 2021, the Company had 63,096
shares available for future issuance under the 2020 Stock Incentive Plan.
Stock
Options
In
March 2021, the Company granted non-qualified stock option awards under the 2020 Stock Incentive Plan of 604,404 shares of the Company’s
common stock to its Board of Directors, an employee and consultants of the Company. These awards are subject to the satisfaction of certain
performance targets and vesting requirements pursuant to the award.
The
following table summarizes stock option activity for the quarter September 30, 2021:
Schedule of Stock Awards Granted
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2021
|
|
|
604,404
|
|
|
$
|
2.18
|
|
|
|
4.7
|
|
|
$
|
2,802,420
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2021
|
|
|
604,404
|
|
|
$
|
2.18
|
|
|
|
4.4
|
|
|
$
|
2,639,230
|
|
Options
exercisable at September 30, 2021
|
|
|
62,664
|
|
|
$
|
2.18
|
|
|
|
4.4
|
|
|
$
|
273,633
|
|
As
of September 30, 2021, unrecognized stock-based compensation expense related to unvested stock options totaled approximately $341,111
which is expected to be recognized over a weighted average period of 3.0 years.
Restricted
Stock
In
September 2020, the Company awarded 982,500 shares of restricted common stock to its CEO, at a grant date fair value of $0.11 per share.
The restrictions are subject to the satisfaction of certain performance targets and vesting requirements pursuant to the award and employment
agreement.
Upon
the IPO in May 2021, the CEO became entitled to the full vesting of his restricted stock.
Compensation
Expense
For
the three months ended September 30, 2021, the Company recorded stock-based compensation expense for all restricted shares and options
of $24,293 in general and administrative expenses and $9,880 in research and development expenses. For the three months ended September
30, 2020, the Company recorded stock-based compensation expense for all restricted shares and options of $16,408 in general and administrative
expenses and zero in research and development expenses.
Note
8. Net Loss Per Share Attributable to Common Stockholders
The
following common stock equivalents were excluded from the calculation of net loss per share due to their anti-dilutive effect:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
Series
A Convertible Preferred Stock, as converted
|
|
|
-
|
|
|
|
2,047,500
|
|
Stock
options outstanding
|
|
|
604,404
|
|
|
|
-
|
|
Total
|
|
|
604,404
|
|
|
|
2,047,500
|
|
Note
9. Subsequent Events
On
October 22, 2021, the Company’s stockholders approved an increase to the total authorized shares under the 2020 Stock
Incentive Plan to 3,650,000.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read together with our condensed financial
statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information
contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. As a result of many
factors, including those factors set forth in the “Risk Factors” section of the Company’s most recent Annual Report
on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
We
are a clinical-stage biotechnology company developing novel solutions for people suffering from ACI and substance addiction. Our lead
product candidate, ANEB-001, is intended to reverse the negative effects of ACI within 1 hour of administration. The signs and symptoms
of ACI range from profound sedation to anxiety and panic to psychosis with hallucinations. There is no approved medical treatment currently
available to specifically alleviate the symptoms of ACI. If approved by the FDA, we believe ANEB-001 has the potential to be the first
FDA approved treatment of its kind on the market for reversing the effects of THC, the principal psychoactive constituent of cannabis.
Clinical trials completed to date have shown that ANEB-001 is rapidly absorbed, well tolerated and leads to weight loss, an effect that
is consistent with central CB1 antagonism. We intend to launch a Phase 2 proof-of-concept trial for ANEB-001 in the fourth calendar quarter
of 2021.
ACI
episodes have become a widespread health issue in the United States, particularly in the increasing number of states that have legalized
cannabis for personal and recreational use. The ingestion of large quantities of THC is a major cause of ACI. Excessive ingestion of
THC via edible products such as candies and brownies, and intoxication from synthetic cannabinoids (also known as “synthetics,”
“K2” or “spice”), are two leading causes of THC-related emergency room visits. Synthetic cannabinoids are analogous
to fentanyl for opioids insofar as they are more potent at the cannabinoid receptor than their natural product congener THC. In recent
years, hospital emergency rooms across the United States have seen a dramatic increase in patient visits with cannabis-related conditions.
Before the legalization of cannabis, an estimated 450,000 patients visited hospital emergency rooms annually for cannabis-related conditions.
In 2014, this number more than doubled to an estimated 1.1 million patients, according to data published in “Trends and Related
Factors of Cannabis-Associated Emergency Department Visits in the United States: 2006-2014,” Journal of Addiction Medicine (May/June
2019), which provided a national estimate analyzing data from NEDS, the largest database of U.S. hospital-owned emergency department
visits. Based on our own analysis of the most recent NEDS data, we believe that the number of hospitalizations grew to 1.74 million patients
in 2018 and was growing at an approximately 15% compounded annual growth rate between 2012 and 2018. We believe the number of cannabis-related
hospitalizations and other health problems associated with ACIs such as depression, anxiety and mental disorders will continue to increase
substantially as more states pass laws legalizing cannabis for medical and recreational use. Given the consequences, there is an urgent
need for a treatment to rapidly reverse the symptoms of ACI.
In
May 2020, we entered into the royalty-bearing License Agreement with Vernalis to exploit its license compounds and licensed products
to combat symptoms of ACI and substance addiction. We are currently developing our lead product candidate, ANEB-001 to quickly, and effectively,
combat symptoms of ACI.
Our
objective is to develop and commercialize new treatment options for patients suffering from ACI and addiction. Our lead product candidate
is ANEB-001, a potent, small molecule cannabinoid receptor antagonist, to address the unmet medical need for a specific antidote for
ACI. ANEB-001 is an orally bioavailable, rapidly absorbed treatment that we anticipate will reverse the symptoms of ACIs, in most cases
within 1 hour of administration. Our proprietary position in the treatment of ACI is protected by one issued patent and rights to one
patent application covering various methods of use of the compound and delivery systems.
We
were incorporated in Delaware on April 23, 2020, and commenced operations in May 2020. Our operations to date have consisted of organizing
and acquiring the license rights to Vernalis’ licensed products, assembling an executive team, starting preparations for a Phase
2 proof-of-concept trial, including the synthesis of a new active pharmaceutical ingredient, the development and filing of a clinical
trial protocol with regulatory agencies in Europe and raising capital. Prior to our IPO, we funded our operations through a private placement
of our series A convertible preferred stock and issuance of two promissory notes to a related party.
Recent
Developments
On
October 12, 2021, the United States Patent and Trademark Office issued to the Company U.S. Patent No. 11,141,404, titled “Formulations
and Methods For Treating Acute Cannabinoid Overdose.” The issued patent describes the use of the Company’s investigational
drug ANEB-001 to treat acute cannabinoid overdose and is expected to provide patent protection through 2040. We expect to begin our Phase
2 proof-of-concept study for ANEB-001 in the fourth calendar quarter of 2021, and we expect initial topline results from the first cohort
in the first half of calendar 2022.
Stock
Split and Initial Public Offering
On
April 23, 2021, we effected a six-for-one stock split of our common stock to be consummated prior to the completion of our IPO. All shares,
stock options, warrants and per share information presented in the accompanying condensed financial statements and notes thereto have
been adjusted to reflect the stock split on a retroactive basis for all periods presented. There was no change in the par value of our
common stock.
On
May 11, 2021, the Company completed an IPO of 3,078,224 shares of its common stock, including the exercise by the underwriter of their
option to purchase 78,224 additional shares of common stock, for aggregate gross proceeds of approximately $21,548,000 and its shares
started trading on The Nasdaq Capital Market under the ticker symbol “ANEB.” The Company received approximately $19,783,000
in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by the Company. Upon the closing
of the IPO on May 11, 2021, a cashless exercise of warrants resulted in the issuance of 5,236,343 shares of Series A convertible preferred
stock and all of the outstanding shares of Series A convertible preferred stock automatically converted into 7,283,843 shares of common
stock.
Components
of Results of Operations
Revenue
We
have not generated any revenue since inception. If our development efforts for our current lead product candidate, ANEB-001, or other
additional product candidates that we may develop in the future, are successful and result in marketing approval, or if we enter into
collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or
payments from such collaboration or license agreements. We cannot predict if, when, or to what extent we will generate revenue from the
commercialization and sale of our product candidates. We have incurred operating losses since inception and expect to continue to incur
significant operating losses and negative cash flows from operations in the future.
Research
and Development Expenses
We
expect to continue incurring significant research and development costs related to ANEB-001. Our research and development expenses for
the three months ended September 30, 2021 and 2020 included research and development consulting expenses and costs associated with development
of our lead product candidate, ANEB-001.
We
anticipate that our research and development activities will account for a significant portion of our operating expenses and these costs
are expensed as incurred. We expect to significantly increase our research and development efforts as we continue to develop ANEB-001
and conduct clinical trials with patients suffering from symptoms of ACI, as well as continue to expand our product-candidate pipeline.
Research and development expenses include:
|
●
|
employee-related
expenses, such as salaries, share-based compensation, benefits and travel expense for research and development personnel that we
plan to hire;
|
|
|
|
|
●
|
direct
third-party costs such as expenses incurred under agreements with contract research organizations (“CROs”) and contract
manufacturing organizations (“CMOs”);
|
|
|
|
|
●
|
costs
associated with research and development activities of consultants;
|
|
|
|
|
●
|
manufacturing
costs in connection with producing materials for use in conducting preclinical studies and clinical trials;
|
|
|
|
|
●
|
other
third-party expenses directly attributable to the development of our product candidates; and
|
|
|
|
|
●
|
amortization
expense for future asset purchases used in research and development activities.
|
We
currently have one lead product candidate; therefore, we do not track our internal research and development expenses on an indication-by-indication
basis.
Research
and development activities will continue to be central to our business model. We expect our research and development expenses to be significant
over the next several years as we advance our current clinical development program and prepare to seek regulatory approval.
General
and Administrative Expenses
General
and administrative expenses for the three months ended September 30, 2021 and 2020 consisted primarily of professional fees, stock-based
compensation, insurance, personnel costs and rent.
Results
of Operations
Comparison
of the Three Months Ended September 30, 2021 and 2020
The
following table summarizes our results of operations:
|
|
Three
Months Ended
September
31,
|
|
|
Period
to Period
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Research
and development
|
|
$
|
715,098
|
|
|
$
|
20,286
|
|
|
$
|
694,812
|
|
General
and administrative
|
|
|
839,826
|
|
|
|
232,060
|
|
|
|
607,766
|
|
Total
operating expenses
|
|
|
1,554,924
|
|
|
|
252,346
|
|
|
|
1,302,578
|
|
Loss
from operations
|
|
|
(1,554,924
|
)
|
|
|
(252,346
|
)
|
|
|
(1,302,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses), net
|
|
|
1,529
|
|
|
|
(4,033
|
)
|
|
|
5,562
|
|
Net
loss
|
|
$
|
(1,553,395
|
)
|
|
$
|
(256,379
|
)
|
|
$
|
(1,297,016
|
)
|
Research
and Development Expenses
Research
and development expenses consisted of the following:
|
|
Three
Months Ended
September
31,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Pre-clinical
and clinical studies
|
|
$
|
291,112
|
|
|
$
|
5,738
|
|
|
$
|
285,374
|
|
Contract
manufacturing
|
|
|
250,950
|
|
|
|
-
|
|
|
|
250,950
|
|
Compensation
and related benefits
|
|
|
21,530
|
|
|
|
-
|
|
|
|
21,530
|
|
Stock
compensation expense
|
|
|
9,880
|
|
|
|
-
|
|
|
|
9,880
|
|
Other
research and development
|
|
|
141,626
|
|
|
|
14,548
|
|
|
|
127,078
|
|
Total
research and development expenses
|
|
$
|
715,098
|
|
|
$
|
20,286
|
|
|
$
|
694,812
|
|
The
overall increase was primarily attributable to an increase in activities related to pre-clinical and clinical studies and direct third-party
costs incurred under agreements with CROs and CMOs for ANEB-001.
General
and Administrative Expenses
General
and administrative expenses consisted of the following:
|
|
Three
Months Ended
September
31,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Compensation
and related benefits
|
|
$
|
90,521
|
|
|
$
|
3,282
|
|
|
$
|
87,239
|
|
Professional
and consultant fees
|
|
|
328,531
|
|
|
|
203,887
|
|
|
|
124,644
|
|
Stock
compensation expense
|
|
|
24,293
|
|
|
|
16,408
|
|
|
|
7,885
|
|
Directors’
and officers’ insurance
|
|
|
327,818
|
|
|
|
-
|
|
|
|
327,818
|
|
Facilities
and other costs
|
|
|
68,662
|
|
|
|
8,483
|
|
|
|
60,180
|
|
Total
general and administrative expenses
|
|
$
|
839,826
|
|
|
$
|
232,060
|
|
|
$
|
607,766
|
|
The
overall increase was primarily attributable to an increase in directors’ and officers’ insurance, and compensation and related
benefits for additional executives and finance employees to enable the Company to operate as a public company. In addition, there was
an increase in professional and consultant fees and facilities and other costs.
Other
income (expenses), net
Interest
expense of $0 and $4,033 for the three months ended September 30, 2021 and 2020, respectively, were related to two promissory notes issued
to a related party in May and June of 2020. The notes were repaid in March 2021. Interest income of $1,916 was earned and $387 in
other fees were incurred for the three months ended September 30, 2021.
Liquidity
and Capital Resources
Overview
Since
our inception in April 2020, we have incurred significant operating losses. We expect to incur significant expenses and operating losses
in the future as we advance the clinical development of our programs. In May 2021, we completed our IPO in which we sold 3,078,224 shares
of our common stock, including the exercise by the underwriter of their option to purchase 78,224 additional shares of common stock,
at a public offering price of $7.00 per share. We received net proceeds from our IPO of approximately $19,783,000, after deducting underwriter
discounts and offering expenses paid by us. As of September 30, 2021 we had cash of approximately $19,208,000.
We
expect our current cash resources will be sufficient to operate into the first calendar quarter of 2023. We anticipate that additional
capital will be needed to commence and complete a Phase 3 study of our drug candidate ANEB-001. As and if necessary, we will seek to
raise these additional funds through various potential sources, such as equity and debt financings or through corporate collaboration
and license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations,
or, if such funds are available to us, that such additional financing will be sufficient to meet our needs.
Cash
Flows
The
following table sets forth a summary of our cash flows:
|
|
Three
Months Ended
September
31,
|
|
|
|
2021
|
|
|
2020
|
|
Net
cash used in operating activities
|
|
$
|
(777,902
|
)
|
|
$
|
(134,956
|
)
|
Net
decrease in cash
|
|
$
|
(777,902
|
)
|
|
$
|
(134,956
|
)
|
Operating
Activities
During
the three months ended September 30, 2021, we used cash in operating activities of $777,902, primarily resulting from our net loss of
$1,553,395, partially offset by the non-cash related stock-based compensation of $34,173 and increase in accounts payable of $383,771
and the decrease in prepaid expenses of $375,247 and accrued expenses of $17,698. During the three months ended September
30, 2020, we used cash in operating activities of $134,956, primarily resulting from our net loss of $256,379, partially offset by the
non-cash related stock-based compensation of $16,408 and increase in accounts payable of $166,405, accrued expenses of $50,608 and deferred
offering costs of $73,452.
Funding
Requirements
We
expect that our cash at September 30, 2021 will enable us to fund our current and planned operating expenses and capital expenditures
for at least the next 12 months from the filing of this report. We have based these estimates on assumptions that may prove to be imprecise,
and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated
with the development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated
with completing the research and development of our product candidates.
Until
such time, if ever, as we can generate substantial product revenue from sales of any of our current or future product candidates, we
expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development
agreements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
Contractual
Obligations and Commitments
License
Agreement with Vernalis Development Limited
On
May 26, 2020, we entered into an exclusive License Agreement with Vernalis. Pursuant to the License Agreement, Vernalis granted us an
exclusive worldwide royalty-bearing license to develop and commercialize a compound that we refer to as ANEB-001, as well as access to
and a right of reference with respect to any regulatory materials under its control. The License Agreement allows us to sublicense the
rights thereunder to any person with similar or greater financial resources and expertise without Vernalis’ prior consent, provided
the proposed sublicensee is not developing or commercializing a product that contains a CB1 antagonist or is for the same indication
covered by the trials or market authorization for ANEB-001. In exchange for the exclusive license, we agreed to pay Vernalis a non-refundable
signature fee of $150,000, total potential developmental milestone payments of up to $29,900,000, total potential sales milestone payments
of up to $35,000,000, and low to mid-single digit royalties on net sales. Subsequently, in May 2021 as part of the IPO, we issued 192,857
shares of common stock to Vernalis in lieu of future milestone payments of $1,350,000.
Under
the License Agreement, we purchased the API for ANEB-001 from Vernalis on an “as is” basis for $20,000. We have the sole
discretion to carry out the development and commercialization of ANEB-001, including obtaining regulatory approvals, and we are responsible
for all costs and expenses in connection therewith. We have access to certain regulatory materials, including study reports from clinical
and non-clinical trials, under Vernalis’ control. We agreed to use commercially reasonable efforts to (i) develop and commercialize
ANEB-001 in the United States and certain European countries and (ii) conduct a Phase 2 and human clinical trial within specified periods,
which periods could be extended for a nominal fee. We also agreed to provide Vernalis with periodic reports of our activities and notice
of market authorization within specified timeframes.
Office
Lease, Manufacturing Contract and CRO Contract
We
manage our business operations from our principal executive office in Lakeway, Texas, in 700 square feet of leased space under a sublease
with a related party. Our office lease is month-to-month, and currently we pay rent of approximately $1,200 per month. In October 2020,
we entered into an agreement with a third-party contract manufacturing organization. The total cost for the manufacturing contracts is
approximately $973,000. Subsequently in February 2021, we entered into an agreement with a third-party CRO to manage and conduct our
Phase 2 clinical trial in the fourth calendar quarter of 2021 with the anticipation of completing the trial by the first calendar quarter
of 2022. The total cost for the CRO agreement is approximately €1,450,758 or $1,679,107.
We
enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturers and other services
and products for operating purposes. These contracts generally provide for termination after a notice period, and therefore, are cancellable
contracts.
Critical
Accounting Policies and Significant Judgments and Estimates
Our
condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”). The preparation of our condensed financial statements and related disclosures requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities
in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors
that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis.
Our actual results may differ from these estimates under different assumptions or conditions.
While
our significant accounting policies are described in more detail in Note 2, Summary of Significant Accounting Policies, to our
condensed financial statements in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most
critical to the judgments and estimates used in the preparation of our condensed financial statements.
Accrued
Research and Development Expenses
As
part of the process of preparing our condensed financial statements, we are required to estimate our accrued research and development
expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that
have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when
we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears
for services performed and some require advanced payments. We make estimates of our accrued expenses of each balance sheet date in our
condensed financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and
development expenses include fees paid to:
|
●
|
CROs
in connection with performing research services on our behalf and any clinical trials;
|
|
|
|
|
●
|
Investigative
sites or other providers in connection with studies and any clinical trials;
|
|
●
|
Vendors
in connection with the preparation of our NDA filing, market and patient awareness programs, market research and analysis and medical
education; and
|
|
|
|
|
●
|
Vendors
related to product manufacturing, development and distribution of clinical supplies.
|
We
base our expenses for services rendered on our estimates of the services received and efforts expended pursuant to quotes, contracts
and communicating with our vendors. The financial terms of these agreements are subject to negotiation, vary from contract to contract
and may result in uneven payments. There may be instances in which payments made to our vendors will exceed the level of services provided
and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed
and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies
from our estimate, we adjust the accrual or amount of prepaid or accrued expenses accordingly. Although we do not expect our estimates
to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative
to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in
any particular period.
Stock-Based
Compensation Expense
In
June 2020, the Board of Directors adopted the 2020 Stock Incentive Plan, which provided for the grant of qualified incentive stock options
and nonqualified stock options or other awards to our employees, officers, directors, advisors, and outside consultants for the purchase
of up to 1,650,000 shares of our common stock. Other awards include restricted stock, restricted stock units, stock appreciation rights
and other stock-based awards. Other stock-based awards are awards valued in whole or in part by reference to, or are otherwise based
on, shares of common stock. Stock options generally vest over a four-year period, at achievement of a performance requirement, or upon
change of control (as defined in the applicable plan). The awards expire five years from the date of grant.
For
the three months ended September 30, 2021 and 2020, we recorded stock-based compensation expense of $24,293 and $16,408 in general and
administrative expenses respectively and $9,880 and $0 in research and development expenses respectively.
We
estimate the fair value of each stock option grant using the Black-Scholes option pricing model, which uses inputs such as the fair value
of our common stock, assumptions we make for the volatility of our common stock the expected term of the stock options, the risk-free
interest rate for a period that approximates the expected term, and our expected dividend yield. The fair value of our common stock is
used to determine the fair value of restricted stock.
Prior
to our IPO, the fair value of our common stock was estimated on each grant date by our Board of Directors. In order to determine the
fair value of our common stock, our Board of Directors considered, among other things, timely valuations of our common stock prepared
by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants
Practice Guide, Valuation of Privately Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading
market for our common stock, our Board of Directors exercised reasonable judgment and considered a number of objective and subjective
factors to determine the best estimate of the fair value of our common stock, including (i) our business, financial condition and results
of operations, including related industry trends affecting our operations; (ii) our forecasted operating performance and projected future
cash flows; (iii) the illiquid nature of our common stock; (iv) the rights and privileges of our common stock; (v) market multiples of
our most comparable public peers; and (vi) market conditions affecting our industry.
There
are significant judgments and estimates inherent in these valuations. The assumptions underlying these valuations represent management’s
best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected
outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially
different.
After
the closing of the IPO, our Board of Directors now determine the fair value of our shares of common stock underlying stock-based awards
based on the closing price of our common stock as reported by Nasdaq on the date of grant.
JOBS
Act Accounting Election
The
JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with
new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.
Financial
Impact of COVID-19 Pandemic
While
we cannot presently predict the scope and severity of any potential business shutdowns or disruptions, if we or any of our business partners,
clinical trial sites, distributors and other third parties with whom we conduct business, were to experience shutdowns or other business
disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively
impacted. For example, if our development program for cannabinoid overdoses were to be delayed, it may have a material adverse effect
on our business, results of operations and financial condition.
The
pandemic’s impact on the medical community and the global economy could have an adverse impact on future sales upon which we expect
to derive royalties and milestones, which could lead to a decrease in our revenues, net income and assets.
Several
measures have been and are currently being implemented by the United States and other governments to address the current COVID-19 pandemic
and its economic impacts. At this time, it is impossible to predict the success of these measures and whether or not they will have unforeseen
negative consequences for our business. In addition, our results of operations, financial position and cash flows may be adversely affected
by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the current COVID-19 pandemic or
the U.S. healthcare system, which, if adopted, could result in direct or indirect restrictions to our business, results of operations,
financial condition and cash flow.