ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following management’s
discussion and analysis of financial condition and results of operations in conjunction with our unaudited condensed financial statements
and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related
notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on July 19, 2022.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). This section should be read in conjunction with our unaudited condensed financial
statements and related notes included in Part I, Item 1 of this report. The statements contained in this report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange
Act.
These statements relate to future events
or our future financial performance. We have attempted to identify forward-looking statements by terminology including “anticipates,”
“believes,” “expects,” “can,” “continue,” “could,” “estimates,”
“expects,” “intends,” “may,” “plans,” “potential,” “predict,”
“should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions;
uncertainties and other factors may cause our actual results, levels of activity, performance or achievements to be materially different
from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels
of activity, performance or achievements.
In this Quarterly
Report, unless the context requires otherwise, references to the “Company,” “Alzamend,” “we,” “our
company” and “us” refer to Alzamend Neuro, Inc., a Delaware corporation.
Overview
We were incorporated on February 26, 2016,
as Alzamend Neuro, Inc. under the laws of the State of Delaware. We were formed to acquire and commercialize patented intellectual property
and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer’s. With our two product candidates, we aim
to bring treatment or cures not only for Alzheimer’s, but also, bipolar disorder (“BD”), major depressive disorder (“MDD”)
and post-traumatic stress disorder (“PTSD”). Existing Alzheimer’s treatments only temporarily relieve symptoms but do
not, to our knowledge, slow or halt the underlying worsening of the disease. We have developed a novel approach in an attempt to combat
Alzheimer’s through immunotherapy.
Critical Accounting Policies and Estimates
Research and Development Expenses. Research
and development costs are expensed as incurred. Research and development costs consist of scientific consulting fees and lab supplies,
as well as fees paid to other entities that conduct certain research and development activities on behalf of our company.
We have acquired and may continue to acquire
the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, product or
rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is
no alternative future use of the rights in other research and development projects.
Stock-Based Compensation. We
maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows
for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.
We recognize stock-based compensation expense
for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based
compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the
extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement
of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting
date.
The Black-Scholes option pricing model utilizes
inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
| · | Fair Value of Common Stock. See the subsection titled “Common Stock Valuations”
below. |
| · | Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury
zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. |
| · | Expected Volatility. Because we do not have a sufficient trading history for our common
stock (“Common Stock”), the expected volatility was estimated based on the average volatility for comparable publicly traded
life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based
on the similar size, stage in life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical
information regarding the volatility of our own stock price becomes available. |
| · | Expected Term. The expected term represents the period that the stock-based awards
are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the
end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term. |
| · | Expected Dividend Yield. We have never paid dividends on our Common Stock and have
no plans to pay dividends on our Common Stock. Therefore, we used an expected dividend yield of zero. |
Certain of such assumptions involve inherent
uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly
different assumptions or estimates, our stock-based compensation could be materially different.
Common Stock Valuations. Prior
to our initial public offering (“IPO”) in June 2021, there was no public market for our Common Stock, and, as a result, the
fair value of the shares of Common Stock underlying our stock-based awards was estimated on each grant date by our Board. To determine
the fair value of our Common Stock underlying option grants, our Board considered, among other things, input from management, and our
Board’s assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed
from the date of the most recent valuation through the date of the grant. These factors included, but were not limited to:
| · | our results of operations and financial position, including our levels of available capital resources; |
| · | our stage of development and material risks related to our business; |
| · | progress of our research and development activities; |
| · | our business conditions and projections; |
| · | the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as
recently completed mergers and acquisitions of peer companies; |
| · | the lack of marketability of our Common Stock as a private company; |
| · | the prices at which we sold shares of our Common Stock to outside investors in arms-length transactions; |
| · | the likelihood of achieving a liquidity event for our security holders, such as an IPO or a sale of our
company, given prevailing market conditions; |
| · | trends and developments in our industry; and |
| · | external market conditions affecting the life sciences and biotechnology industry sectors. |
Following the closing of our IPO, our Board
determined the fair market value of our Common Stock based on the closing price of our Common Stock as reported on the date of grant.
Plan of Operations
Our plan of operations
is currently focused on the development of both our therapeutic candidates, which are at different stages of development. We submitted
an Investigational New Drug (“IND”) application for AL001 to the FDA on June 30, 2021. On July 28, 2021, we announced receipt
of FDA “Study May Proceed” letter for a Phase I study under our IND application for AL001, a lithium-based ionic cocrystal
oral therapy for patients with dementia related to mild, moderate, and severe cognitive impairment associated with Alzheimer’s.
On August 17, 2021,
we announced that we have contracted Altasciences Clinical Kansas (“Altasciences”) to conduct a six-month Phase I relative
bioavailability study for AL001 for dementia related to Alzheimer’s beginning in September 2021. The Phase I first-in-human study
was for the purpose of determining potential clinically safe and appropriate dosing for AL001 in future studies. The Phase I study investigated
the pharmacokinetics (the movement of drug through the body) of lithium following a single dose of AL001 (the “study drug”)
compared to a typical single dose of a marketed 300 mg immediate-release lithium carbonate capsule (the “comparator” –
currently indicated to treat mood disorders) in healthy male and female subjects. The lithium and salicylate components of AL001 was given
within the amounts already approved for use in patients. The purpose of the research study was to test the safety, tolerability, and bioavailability
(how much and when drug gets in the body) of the study drug, AL001, compared to the currently marketed formulation of the comparator,
lithium carbonate. This was expected to ascertain what AL001 doses should be given, and how often, in subsequent Phase 2 safety and efficacy
trials involving Alzheimer’s patients. At least 24 healthy male and female human subjects participated in the Phase I trial.
On September 13,
2021, we announced that the first group of healthy participants were dosed in a six-month Phase I relative bioavailability study for AL001
for dementia related to Alzheimer’s. On March 28, 2022, we announced receipt of full data set from the Phase I clinical trial for
AL001. The full data set builds upon topline data previously reported on December 17, 2021. This data affirmed that dose-adjusted relative
bioavailability analysis of the rate and extent of lithium absorption in plasma indicate that AL001 as 150 mg dosage is bioavailability
to the marketed 300 mg lithium carbonate product and the shapes of the lithium plasma concentration versus time curves are similar. AL001
salicylate plasma concentrations are observed to be well tolerated and consistently within safe limits and the safety profiles of both
AL001 and the marketed lithium carbonate capsule were benign.
During Phase I first-in-human trial, participants
received a single dose of AL001 containing lithium in an amount equivalent to 150 mg lithium carbonate; this is the dose proposed by the
inventors as likely appropriate for Alzheimer’s treatment when given three times daily (“TID”). Currently, marketed
immediate-release lithium carbonate 300 mg are given TID; for example, lithium carbonate 300 mg TID is a dose commonly used for bipolar
affective disorders. It can be difficult to set the appropriate dose of lithium carbonate and other lithium products due to the small
margin between effective and toxic blood levels and to avoid side effects or inadequate treatment outcomes. We see the possibility of
providing the benefits from lithium at up to 50% of the currently approved lithium carbonate dosage, with the potential for better outcomes
and with elimination of the need for lithium therapeutic drug monitoring. Moreover, the data confirms AL001’s potential as a replacement
of the current lithium-based treatments and may provide a treatment for over 40 million Americans suffering from Alzheimer’s and
other neurodegenerative diseases and psychiatric disorders.
Such findings may allow us to design a development
program that will potentially reduce the amount of new data generated to support approval. Bioequivalence may have utility for AL001 when
seeking approval for the indications of currently marketed lithium products, and for new indications as a benchmark for safety. Given
the systemic pharmacokinetic similarity to marketed immediate-release lithium carbonate products, AL001 may be dosed TID in the planned
Phase II study, a multiple ascending dose safety study in Alzheimer’s patients. In addition, we are pursuing investigational new
drug applications with the FDA for BD, MDD, and PTSD.
On April 28, 2022, we announced that Ault
Lending, LLC (“AL”) has made an additional investment in our company. On March 28, 2022, we announced receipt of the full
data set from Phase I clinical trial for AL001. Based on the achievement of this milestone, under the March 12, 2021, securities purchase
agreement, we sold an additional 2,666,667 shares of common stock to AL for $4 million, or $1.50 per share, and issued to AL warrants
to acquire 1,333,333 shares of common stock with an exercise price of $3.00 per share.
On May 5,
2022, we announced that the first patient with mild to moderate Alzheimer’s was dosed in a 12-month Phase IIA multiple
ascending dose (“MAD”) study for dementia related to Alzheimer’s. The Phase IIA study will evaluate the safety and
tolerability of AL001 under multiple-dose, steady-state conditions and determine the maximum tolerated dose in patients diagnosed
with mild to moderate Alzheimer’s. Lithium has been well characterized for safety and is approved/marketed in multiple
formulations for bipolar affective disorders. Lithium dosing for the MAD cohorts is based on a fraction of the usual dose for
treatment of bipolar affective disorder (i.e., AL001 lithium content at a lithium carbonate equivalent of 300 mg TID, daily total of
900 mg), with the target dose for Alzheimer’s treatment at half of that lithium carbonate equivalent value (150 mg TID, daily
total of 450 mg). In each cohort, consisting of six active and two placebo patients (as per randomization), multiple ascending doses
will be administered TID for 14 days under fasted conditions (at least 1 hour before or 4 hours after meals) up to
tolerability/safety limits. The lithium and salicylate components of AL001 will be given within the amounts already approved for use
in patients. Up to 40 subjects will complete the Phase IIA trial. The maximum tolerated dose will then be used for further studies.
On October 5, 2022, we announced the addition of a healthy adult subject cohort to the MAD study and that the first healthy patient
was dosed.
On May 17, 2022,
we announced submission of a Pre-IND meeting request for AL001 and supporting briefing documents to the FDA for the treatment of BD, MDD
and PTSD. On July 18, 2022, we announced receipt of a written response from the FDA to our meeting request relating to our Pre-IND application.
The FDA’s response provided a path for our planned clinical development of AL001 for the treatment of BD, MDD and PTSD. Based on
the FDA’s written feedback, we anticipate filing INDs for BD, MDD and PTSD upon the completion of the current Phase IIA MAD study.
This will allow us to initiate Phase II clinical trials for all three new indications.
We have an additional preclinical candidate for Alzheimer’s,
ALZN002, which has transitioned from early-stage development to an extensive program of preclinical study and evaluation, which was completed
on May 31, 2021. This was followed by a comprehensive report prepared by Charles River Laboratories, Inc., an independent preclinical
service provider, received on July 23, 2021. Our preclinical program included a toxicologic evaluation, histopathology study and brain
beta amyloid analysis and was expanded to include an immunoglobulin analysis and biodistribution study.
On July 30, 2021, we announced that we submitted
a pre-IND meeting request for ALZN002 and supporting briefing documents to the Center for Biological Evaluation and Research of the FDA.
On September 30, 2021, we announced that we have received a written response to our meeting request relating to our Type B Pre-IND application
from the FDA providing a path for our planned clinical development of ALZN002. ALZN002 is a patented method using a mutant-peptide sensitized
cell as a cell-based therapeutic vaccine that seeks to restore the ability of a patient’s immunological system to combat Alzheimer’s.
Preclinical work supports ALZN002 being associated with a positive anti-inflammatory response and a decrease in brain amyloid contents.
Based on ALZN002’s positive toxicology results, the biologic nature of this product and the urgent need to deliver treatments for
Alzheimer’s to patients, we proposed, and the FDA agreed, to conduct a combined Phase I/II study.
On September 29, 2022, we announced that
we submitted an IND application to the FDA for ALZN002 to conduct a Phase I/IIA clinical trial. The purpose of this trial is to assess
the safety, tolerability, and efficacy of multiple ascending doses of ALZN002 compared with that of placebo in 20-30 subjects with mild
to moderate dementia of the Alzheimer’s type. Also, the trial is designed to determine the optimal dosage of ALZN002, allowing for
induction of anti-Amyloid-beta antibody responses that can target Alzheimer’s-associated brain proteins while maintaining safety.
The primary goal of this initial clinical trial is to determine an appropriate dose of ALZN002 for treatment of patients with Alzheimer’s
in a larger Phase IIB efficacy and safety clinical trial (ALZN002-02), which we expect to initiate within three months of receiving data
from the initial trial.
On October 31, 2022 we announced receipt
of a “study may proceed” letter from the FDA for a phase I/IIA clinical trial under our IND application for ALZN002 to treat
mild to moderate dementia of the Alzheimer’s type. We are advancing the process and expect that the first patient will be dosed
in the first quarter of 2023.
The continuation of our current plan of
operations with respect to completing our IND applications and conducting the series of human clinical trials for each of our therapeutics
requires us to raise additional capital to fund our operations.
Because our working capital requirements
depend upon numerous factors, including the progress of our preclinical and clinical testing, timing and cost of obtaining regulatory
approvals, changes in levels of resources that we devote to the development of manufacturing and marketing capabilities, competitive and
technological advances, status of competitors, and our ability to establish collaborative arrangements with other organizations, we will
require additional financing to fund future operations.
Results of Operations
Results of Operations for the Three Months Ended January 31, 2023 and 2022
The following table summarizes the results
of our operations for the three months ended January 31, 2023 and 2022:
| | |
For the Three Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
%
Change | |
| OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
$ | 2,888,847 | | |
$ | 873,653 | | |
$ | 2,015,194 | | |
| 231 | % |
| General and administrative | |
| 2,534,665 | | |
| 1,682,913 | | |
| 851,752 | | |
| 51 | % |
| Total operating expenses | |
| 5,423,512 | | |
| 2,556,566 | | |
| 2,866,946 | | |
| 112 | % |
| Loss from operations | |
| (5,423,512 | ) | |
| (2,556,566 | ) | |
| (2,866,946 | ) | |
| 112 | % |
| | |
| | | |
| | | |
| | | |
| | |
| OTHER EXPENSE, NET | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (2,062 | ) | |
| (16,299 | ) | |
| 14,237 | | |
| -87 | % |
| Total other expense, net | |
| (2,062 | ) | |
| (16,298 | ) | |
| 14,237 | | |
| -87 | % |
| | |
| | | |
| | | |
| | | |
| | |
| NET LOSS | |
$ | (5,425,574 | ) | |
$ | (2,572,865 | ) | |
$ | (2,852,709 | ) | |
| 111 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted net loss per common share | |
$ | (0.06 | ) | |
$ | (0.03 | ) | |
$ | (0.03 | ) | |
| * | |
| | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted weighted average common shares outstanding | |
| 98,326,175 | | |
| 94,165,225 | | |
| | | |
| * | |
* Not meaningful
Revenue
We were formed on February 26, 2016, to acquire and commercialize patented
intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly Alzheimer’s. With our two product
candidates, we aim to bring treatments or cures not only for Alzheimer’s, but also BD, MDD and PTSD. These product candidates are
in the early clinical stage of development and will require extensive clinical study, review and evaluation, regulatory review and approval,
significant marketing efforts and substantial investment before either or both of them, or any respective successors, will provide us
with any revenue. We did not generate any revenues during the three months ended January 31, 2023 and 2022, and we do not anticipate that
we will generate revenue for the foreseeable future.
General and Administrative Expenses
General and administrative expenses for
each of the three months ended January 31, 2023 and 2022 were $2.5 million and $1.7 million, respectively. As reflected in the table below,
general and administrative expenses primarily consisted of the following expense categories: stock-based compensation expense; professional
fees; insurance; marketing fees; travel and entertainment; board fees; as well as salaries and benefits. For the three months ended January
31, 2023 and 2022, the remaining general and administrative expenses of $119,000 and $102,000, respectively, consisted of payments for
filing fees, transfer agent fees, license fees, and other office expenses, none of which was significant individually.
| | |
For the Three Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
%
Change | |
| Stock-based compensation expense | |
$ | 1,550,911 | | |
$ | 1,024,693 | | |
$ | 526,218 | | |
| 51 | % |
| Professional fees | |
| 190,169 | | |
| 114,524 | | |
| 75,645 | | |
| 66 | % |
| Insurance | |
| 130,838 | | |
| 214,299 | | |
| (83,461 | ) | |
| -39 | % |
| Salary and benefits | |
| 233,246 | | |
| 203,954 | | |
| 29,292 | | |
| 14 | % |
| Travel and entertainment | |
| 25,436 | | |
| 23,917 | | |
| 1,519 | | |
| 6 | % |
| Marketing fees | |
| 247,333 | | |
| - | | |
| 247,333 | | |
| * | |
| Board of director fees | |
| 37,500 | | |
| - | | |
| 37,500 | | |
| * | |
| Other general and administrative expenses | |
| 119,232 | | |
| 101,527 | | |
| 17,705 | | |
| 17 | % |
| Total general and administrative expenses | |
$ | 2,534,665 | | |
$ | 1,682,914 | | |
$ | 851,751 | | |
| 51 | % |
* Not meaningful
Stock-Based Compensation Expense
During the three months ended January 31,
2023 and 2022, we incurred general and administrative stock-based compensation expense of $1.6 million and $1.0 million, respectively,
related to stock option grants to executives, employees and consultants as well as shares issued for previously issued for services to
Spartan Capital Securities, LLC (“Spartan Capital”). All option grants are granted at the per share fair value on the grant
date. Vesting of options differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes
option pricing model. We valued the shares issued for services at their intrinsic value on the date of issuance. Stock-based compensation
is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares instead of settling
such obligations with cash payments.
Marketing Fees
During the three months ended January 31, 2023, we reported marketing
fees of $247,000, which were principally comprised of the related party marketing and brand development agreement.
Salaries and Benefits
During the three months ended January 31,
2023 and 2022, we incurred $233,000 and $204,000, respectively, in employee-related expenses. As of January 31, 2023, we had four full-time
and three part-time employees.
Henry C.W. Nisser,
our Executive Vice President and General Counsel and Kenneth S. Cragun, our Senior Vice President of Finance work for us on a part-time
basis. Mr. Nisser spends no less than an average of 8 hours per week on our company’s business and Mr. Cragun spends no less than
an average of 4 hours per week on our company’s business.
Research and Development Expenses
Research and development expenses for the
three months ended January 31, 2023 and 2022 were $2.9 million and $874,000, respectively. As reflected in the table below, research and
development expenses primarily consisted of professional fees, clinical trial fees, licenses and fees, as well as stock-based compensation
expense.
| | |
For the Three Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
| Professional fees | |
$ | 860,798 | | |
$ | 479,549 | | |
$ | 381,249 | | |
| 80 | % |
| Clinical trial fees | |
| 2,050,000 | | |
| 283,497 | | |
| 1,766,503 | | |
| 623 | % |
| Licenses and fees | |
| - | | |
| (45,000 | ) | |
| 45,000 | | |
| * | |
| Stock-based compensation expense | |
| (42,589 | ) | |
| 106,102 | | |
| (148,691 | ) | |
| -140 | % |
| Other research and development expenses | |
| 20,638 | | |
| 49,505 | | |
| (28,867 | ) | |
| -58 | % |
| Total research and development expenses | |
$ | 2,888,847 | | |
$ | 873,653 | | |
$ | 2,015,194 | | |
| 231 | % |
*Not meaningful
Professional Fees
During the three months ended January 31,
2023 and 2022, we incurred professional fees of $861,000 and $480,000, respectively, which were principally comprised of professional
fees attributed to various types of scientific services, including FDA consulting services. The increase relates to professional fees
incurred related to IND preparation for ALZN002.
Clinical Trial Fees
During the three months ended January 31,
2023 and 2022, we incurred clinical trial fees of $2.1 million and $283,000, respectively, which were principally comprised of clinical
trial fees attributed to our Phase I and Phase IIA clinical trials for AL001.
Licenses and Fees
There are certain initial license fees and
milestone payments required to be paid to the University of South Florida and the Licensor, for the licenses of the technologies, pursuant
to the terms of the License Agreement with Sublicensing Terms.
Stock-Based Compensation Expense
During the three months ended January 31,
2023 and 2022, we incurred $(43,000) and $106,000, respectively, in research and development stock-based compensation expense related
to stock option grants to consultants. All option grants are granted at the per share fair value on the grant date. Vesting of options
differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model.
Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares
instead of settling such obligations with cash payments.
Other Expense, Net
Interest Expense
Interest expense was $2,000 for the three
months ended January 31, 2023, primarily related to financing of D&O insurance.
Results of Operations for the Nine Months Ended January 31, 2023 and 2022
The following table summarizes the results
of our operations for the nine months ended January 31, 2023 and 2022:
| | |
For the Nine Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
%
Change | |
| OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
$ | 5,797,789 | | |
$ | 3,540,111 | | |
$ | 2,257,678 | | |
| 64 | % |
| General and administrative | |
| 5,767,668 | | |
| 4,906,628 | | |
| 861,040 | | |
| 18 | % |
| Total operating expenses | |
| 11,565,457 | | |
| 8,446,739 | | |
| 3,118,718 | | |
| 37 | % |
| Loss from operations | |
| (11,565,457 | ) | |
| (8,446,739 | ) | |
| (3,118,718 | ) | |
| 37 | % |
| | |
| | | |
| | | |
| | | |
| | |
| OTHER EXPENSE, NET | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (7,182 | ) | |
| (45,922 | ) | |
| 38,740 | | |
| -84 | % |
| Total other expense, net | |
| (7,182 | ) | |
| (45,922 | ) | |
| 38,740 | | |
| -84 | % |
| | |
| | | |
| | | |
| | | |
| | |
| NET LOSS | |
$ | (11,572,639 | ) | |
$ | (8,492,661 | ) | |
$ | (3,079,978 | ) | |
| 36 | % |
| | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted net loss per common share | |
$ | (0.12 | ) | |
$ | (0.09 | ) | |
$ | (0.03 | ) | |
| * | |
| | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted weighted average common shares outstanding | |
| 97,765,471 | | |
| 89,484,601 | | |
| | | |
| * | |
* Not meaningful
Revenue
We were formed on February 26, 2016, to
acquire and commercialize patented intellectual property and know-how to prevent, treat and potentially cure the crippling and deadly
Alzheimer’s. With our two product candidates, we aim to bring treatment or cures not only for Alzheimer’s, but also BD, MDD
and PTSD. These product candidates are in the early clinical stage of development and will require extensive clinical study, review and
evaluation, regulatory review and approval, significant marketing efforts and substantial investment before either or both of them, or
any respective successors, will provide us with any revenue. We did not generate any revenues during the nine months ended January 31,
2023 and 2022, and we do not anticipate that we will generate revenue for the foreseeable future.
General and Administrative Expenses
General and administrative expenses for
each of the nine months ended January 31, 2023 and 2022 were $5.8 million and $4.9 million, respectively. As reflected in the table below,
general and administrative expenses primarily consisted of the following expense categories: stock-based compensation expense; professional
fees; insurance; marketing fees; travel and entertainment; board of director fees; as well as salaries and benefits. For the nine months
ended January 31, 2023 and 2022, the remaining general and administrative expenses of $191,000 and $294,000, respectively, consisted of
payments for filing fees, transfer agent fees, license fees, and other office expenses, none of which is significant individually.
| | |
For the Nine Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
%
Change | |
| Stock-based compensation expense | |
$ | 3,133,888 | | |
$ | 2,791,515 | | |
$ | 342,373 | | |
| 12 | % |
| Professional fees | |
| 566,674 | | |
| 615,765 | | |
| (49,091 | ) | |
| -8 | % |
| Insurance | |
| 456,838 | | |
| 500,031 | | |
| (43,193 | ) | |
| -9 | % |
| Salary and benefits | |
| 676,155 | | |
| 547,244 | | |
| 128,911 | | |
| 24 | % |
| Travel and entertainment | |
| 135,447 | | |
| 120,086 | | |
| 15,361 | | |
| 13 | % |
| Marketing fees | |
| 495,267 | | |
| 7,154 | | |
| 488,113 | | |
| 6,823 | % |
| Board of director fees | |
| 112,500 | | |
| 31,256 | | |
| 81,244 | | |
| 260 | % |
| Other general and administrative expenses | |
| 190,899 | | |
| 293,577 | | |
| (102,678 | ) | |
| -35 | % |
| Total general and administrative expenses | |
$ | 5,767,668 | | |
$ | 4,906,628 | | |
$ | 861,040 | | |
| 18 | % |
Stock-Based Compensation Expense
During the nine months ended January 31,
2023 and 2022, we incurred general and administrative stock-based compensation expense of $3.1 million and $2.8 million, respectively,
related to stock option grants to executives, employees and consultants as well as shares issued for services to Spartan Capital. All
option grants are granted at the per share fair value on the grant date. Vesting of options differs based on the terms of each option.
We valued the options at their date of grant utilizing the Black-Scholes option pricing model. We valued the shares issued for services
at their intrinsic value on the date of issuance. Stock-based compensation is a non-cash expense because we settle these obligations by
issuing shares of Common Stock from authorized shares instead of settling such obligations with cash payments.
Salaries and Benefits
During the nine months ended January 31,
2023 and 2022, we incurred $676,000 and $547,000, respectively, in employee-related expenses. As of January 31, 2023, we had four full-time
and three part-time employees.
Henry C.W. Nisser, our Executive Vice President and General Counsel
and Kenneth S. Cragun, our Senior Vice President of Finance work for us on a part-time basis. Mr. Nisser spends no less than an average
of 8 hours per week on our company’s business and Mr. Cragun spends no less than an average of 4 hours per week on our company’s
business.
Professional Fees
During the nine months ended January 31,
2023 and 2022, we reported professional fees of $567,000 and $616,000, respectively, which were principally comprised of Spartan Capital
consulting fees and audit fees.
Marketing Fees
During the nine months ended January 31, 2023 and 2022, we reported
marketing fees of $495,000 and $7,000, respectively, which were principally comprised of the related party marketing and brand development
agreement.
Insurance
During the nine months ended January 31, 2023 and 2022, we reported
insurance expense of $457,000 and $500,000, respectively, which was principally comprised of Directors and Officers insurance.
Research and Development Expenses
Research and development expenses for the
nine months ended January 31, 2023 and 2022 were $5.8 million and $3.5 million, respectively. As reflected in the table below, research
and development expenses primarily consisted of professional fees, clinical trial fees, licenses and fees, as well as stock-based compensation
expense.
| | |
For the Nine Months Ended January 31, | |
| | |
2023 | | |
2022 | | |
$ Change | | |
% Change | |
| Professional fees | |
$ | 2,969,835 | | |
$ | 1,868,167 | | |
$ | 1,101,668 | | |
| 59 | % |
| Clinical trials fees | |
| 2,625,271 | | |
| 1,006,503 | | |
| 1,618,768 | | |
| 161 | % |
| Licenses and fees | |
| 55,000 | | |
| 210,000 | | |
| (155,000 | ) | |
| -74 | % |
| Stock-based compensation expense | |
| (42,589 | ) | |
| 359,286 | | |
| (401,875 | ) | |
| -112 | % |
| Other research and development expenses | |
| 190,272 | | |
| 96,155 | | |
| 94,117 | | |
| 98 | % |
| Total research and development expenses | |
$ | 5,797,789 | | |
$ | 3,540,111 | | |
$ | 2,257,678 | | |
| 64 | % |
Professional Fees
During the nine months ended January 31, 2023 and 2022, we reported
professional fees of $3.0 million and $1.9 million, respectively, which were principally comprised of professional fees attributed to
various types of scientific services, including FDA consulting services. The increase relates to professional fees incurred related to
preparation of Phase IIA clinical trials for AL001 and IND preparation for ALZN002.
Clinical Trial Fees
During the nine months ended January 31, 2023 and 2022, we incurred
clinical trial fees of $2.6 million and $1.0 million, respectively, which were principally comprised of clinical trial fees attributed
to our Phase I and Phase IIA clinical trials for AL001.
Licenses and Fees
There are certain initial license fees and
milestone payments required to be paid to the University of South Florida and the Licensor, for the licenses of the technologies, pursuant
to the terms of the License Agreement with Sublicensing Terms.
Stock-Based Compensation Expense
During the nine months ended January 31,
2023 and 2022, we incurred $(43,000) and $359,000, respectively, in research and development stock-based compensation expense related
to stock option grants to consultants. All option grants are granted at the per share fair value on the grant date. Vesting of options
differs based on the terms of each option. We valued the options at their date of grant utilizing the Black-Scholes option pricing model.
Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of Common Stock from authorized shares
instead of settling such obligations with cash payments.
Other Expense, Net
Interest Expense
Interest expense was $7,000 for the nine months ended January
31, 2023, primarily related to financing of D&O insurance.
Liquidity and Capital Resources
The accompanying financial statements have
been prepared on the basis that our company will continue as a going concern. As of January 31, 2023, we had cash of $7.4 million and
an accumulated deficit of $40.8 million. We have incurred recurring losses and reported losses for the three and nine months ended January
31, 2023 totaling $5.4 million and $11.6 million, respectively. In the past, we have financed our operations principally through issuances
of promissory notes and equity securities.
In March of 2021, we entered into a securities purchase agreement with
AL, pursuant to which we sold an aggregate of 6,666,667 shares of Common Stock for an aggregate of $10 million, or $1.50 per share, which
sales were made in tranches. On March 9, 2021, AL paid $4 million, less the $1.8 million in prior advances and the surrender for cancellation
of the $50,000 convertible promissory note, previously issued to Ault Alliance, Inc. (formerly, BitNile Holdings, Inc.), the parent company
of AL, for an aggregate of 2,666,667 shares of Common Stock. Under the terms of the securities purchase agreement, AL (i) purchased, in
July 2021, an additional 1,333,333 shares of Common Stock upon FDA approval of our IND for our Phase IA clinical trials for AL001 for
a purchase price of $2 million, and (ii) purchased, in April 2022, 2,666,667 shares of Common Stock upon completion of our Phase IA clinical
trials for AL001 for a purchase price of $4 million. We issued AL warrants to purchase 3,333,333 shares of Common Stock at an exercise
price of $3.00 per share. Finally, we agreed that for a period of eighteen months following the date of the payment of the final tranche
of $4 million, AL will have the right to invest an additional $10 million on the same terms, except that no specific milestones have been
determined with respect to the additional $10 million as of the date of this Quarterly Report.
We will need to obtain substantial additional
funding in the future for our clinical development activities and continuing operations. If we are unable to raise capital when needed
or on favorable terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization
efforts. Our future capital requirements will depend on many factors, including:
| · | successful enrollment in, and completion of, clinical trials; |
| · | our ability to establish agreements with third-party manufacturers for clinical supply for our clinical
trials and, if our product candidates are approved, commercial manufacturing; |
| · | our ability to maintain our current research and development programs and establish new research and development
programs; |
| · | addition and retention of key research and development personnel; |
| · | our efforts to enhance operational, financial, and information management systems, and hire additional
personnel, including personnel to support development of our product candidates; |
| · | negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter
and performing our obligations in such collaborations; |
| · | the timing and amount of milestone and other payments we may receive under our collaboration arrangements; |
| · | our eventual commercialization plans for our product candidates; |
| · | the costs involved in prosecuting, defending, and enforcing patent claims and other intellectual property
claims; and |
| · | the costs and timing of regulatory approvals. |
A change in the outcome of any of these
or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated
with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional
funds to meet operational needs and capital requirements associated with such operating plans.
We expect to continue to incur losses for
the foreseeable future and need to raise additional capital until we are able to generate revenues from operations sufficient to fund
our development and commercial operations. However, based on our current business plan, we believe that our cash at January 31, 2023,
is sufficient to meet our anticipated cash requirements during the twelve-month period subsequent to the issuance of the financial statements
included in this Quarterly Report.
Cash Flows
The following table summarizes our cash flows for the nine months
ended January 31, 2023 and 2022:
| | |
For the Nine Months Ended January 31, | |
| | |
2023 | | |
2022 | |
| Net cash provided by (used in): | |
| | | |
| | |
| Operating activities | |
$ | (6,687,970 | ) | |
$ | (5,051,637 | ) |
| Financing activities | |
| - | | |
| 14,912,656 | |
| Net (decrease) increase in cash | |
$ | (6,687,970 | ) | |
$ | 9,861,019 | |
Operating Activities
During the nine months ended January 31,
2023, net cash used in operating activities was $6.7 million. This consisted primarily of a net loss of $11.6 million, partially offset
by an increase in our net operating assets and liabilities of $1.8 million and non-cash charges of $3.1 million. The non-cash charges
primarily consisted of stock-based compensation expense. The increase in our net operating assets and liabilities was due to an increase
in accounts payable and accrued liabilities and in prepaid expenses and other current assets.
During the nine months ended January 31, 2022, net cash used in operating
activities was $5.1 million. This consisted primarily of a net loss of $8.5 million, partially offset by an increase in non-cash charges
of $3.2 million and our net operating assets and liabilities of $277,000. The non-cash charges primarily consisted of stock-based compensation
expense. The increase in our net operating assets and liabilities was primarily due to an increase in prepaid expenses and other current
assets.
Investing Activities
There were no investing activities for the
nine months ended January 31, 2023 or 2022.
Financing Activities
There were no financing activities for the
nine months ended January 31, 2023. Financing activities for the nine months ended January 31, 2022 related primarily to proceeds from
our initial public offering.
License Agreement
On May 1, 2016,
we entered into a Standard Exclusive License Agreement for ALZN002 with Sublicensing Terms with the University of South Florida Research
Foundation, Inc., as licensor (the “Licensor”), pursuant to which the Licensor granted us a royalty bearing exclusive worldwide
license limited to the field of Alzheimer’s Immunotherapy and Diagnostics, under United States Patent No. 8,188,046, entitled “Amyloid
Beta Peptides and Methods of Use,” filed April 7, 2009 and granted May 29, 2012.
There are certain
initial license fees and milestone payments required to be paid by us to the Licensor, pursuant to the terms of license agreements we
have entered into with the Licensor. The license agreements for ALZN002 require us to pay royalty payments of 4% on net sales of products
developed from the licensed technology for ALZN002 while the license agreements for AL001 require that we pay combined royalty payments
of 4.5% on net sales of products developed from the licensed technology for AL001. We have already paid an initial license fee of $200,000
for ALZN002 and an initial license fee of $200,000 for AL001. As an additional licensing fee for the license of ALZN002, the Licensor
received 3,601,809 shares of our common stock. As an additional licensing fee for the license of the AL001 technologies, the Licensor
received 2,227,923 shares of our common stock. Minimum royalties for AL001 are $25,000 in 2023, $45,000 in 2024 and $70,000 in 2025 and
every year thereafter, for the life of the agreement. Minimum royalties for ALZN002 are $20,000 in 2022, $40,000 in 2023 and $50,000 in
2024 and every year thereafter, for the life of the respective agreement. Additionally, we are required to pay milestone payments on the
due dates to the Licensor for the license of the AL001 technologies and for the ALZN002 technology, as follows:
Original AL001 License:
| Payment |
|
Due Date |
|
Event |
| $ |
50,000 |
* |
Completed September 2019 |
|
Pre-IND meeting |
| |
|
|
|
|
|
| $ |
65,000 |
* |
Completed June 2021 |
|
ND application filing |
| |
|
|
|
|
|
| $ |
190,000 |
* |
Completed December 2021 |
|
Upon first dosing of patient in a clinical trial |
| |
|
|
|
|
|
| $ |
500,000 |
* |
Completed March 2022 |
|
Upon Completion of first clinical trial |
| |
|
|
|
|
|
| $ |
1,250,000 |
|
12 months from completion of the first Phase II clinical trial |
|
Upon first patient treated in a Phase III clinical trial |
| |
|
|
|
|
|
| $ |
10,000,000 |
|
8 years from the effective date of the agreement |
|
Upon FDA approval |
*Milestone met and completed
ALZN002 License:
| Payment |
|
Due Date |
|
Event |
| $ |
50,000 |
* |
Completed September 2022 |
|
Upon IND application filing |
| |
|
|
|
|
|
| $ |
50,000 |
|
12 months from IND application filing date |
|
Upon first dosing of patient in first Phase I clinical trial |
| |
|
|
|
|
|
| $ |
175,000 |
|
12 months from first patient dosed in Phase I |
|
Upon completion of first Phase I clinical trial |
| |
|
|
|
|
|
| $ |
500,000 |
|
24 months from completion of first Phase I clinical trial |
|
Upon completion of first Phase II clinical trial |
| |
|
|
|
|
|
| $ |
1,000,000 |
|
12 months from completion of the first Phase II clinical trial |
|
Upon first patient treated in a Phase III clinical trial |
| |
|
|
|
|
|
| $ |
10,000,000 |
|
7 years from the effective date of the agreement |
|
Upon FDA BLA approval |
*Milestone met and completed
We have met the
pre-IND meeting, IND application filing, and successfully completed the Phase I clinical trial milestones encompassing AL001 and
the IND application filing milestone for ALZN002. If we fail to meet a milestone by its specified date, Licensor may terminate
the license agreement.
The Licensor was
also granted a preemptive right to acquire such shares or other equity securities that may be issued from time to time by us while the
Licensor remains the owner of any equity securities of our company.
On
June 10, 2020, we obtained two (2) additional royalty-bearing exclusive worldwide licenses from the Licensor to a therapy named AL001.
One of the additional licenses is for the treatment of neurodegenerative diseases excluding Alzheimer’s and the other license is
for the treatment of psychiatric diseases and disorders. There are certain license fees and milestone payments required to be paid pursuant
to the terms of the Standard Exclusive License Agreements with Sublicensing Terms, both dated June 10, 2020 and effective as
of November 1, 2019, with the Licensor and the University of South Florida (the “June AL001 License Agreements”). Under
each of the June AL001 License Agreements, a royalty payment of 3% is required on net sales of products developed from the licensed
technology. For the two (2) additional AL001 licenses, in the aggregate, we have paid initial license fees of $20,000. Additionally, under
each of the June AL001 License Agreements, we are required to pay milestone payments on the due dates to the Licensor for the license
of the technology, as follows:
Additional AL001 Licenses:
| Payment |
|
Due Date |
|
Event |
| $ |
50,000 |
|
Upon IND application filing |
|
IND application filing |
| |
|
|
|
|
|
| $ |
150,000 |
|
12 months from IND filing date |
|
Upon first dosing of patient in a clinical trial |
| |
|
|
|
|
|
| $ |
400,000 |
|
12 months from first patient dosing |
|
Upon Completion of first clinical trial |
| |
|
|
|
|
|
| $ |
1,000,000 |
|
36 months from completion of the first Phase II clinical trial |
|
Upon first patient treated in a Phase III clinical trial |
| |
|
|
|
|
|
| $ |
8,000,000 |
|
8 years from the effective date of the agreement |
|
First commercial sale |
Recent Accounting Standards
For information about recent accounting
pronouncements that may impact our financial statements, please refer to Note 3 of the Notes to Unaudited Condensed Financial Statements
under the heading “Recent Accounting Standards.”
