UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
From the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) |
| ||
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which Registered |
|
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
There were
TABLE OF CONTENTS
Page | ||
1 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
39 | ||
39 | ||
40 | ||
40 | ||
41 | ||
41 | ||
42 | ||
42 | ||
42 | ||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this Quarterly Report other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “target”, “potential”, “will”, “would”, “could”, “should”, “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
| ● | our ability to maintain compliance with the applicable listing requirements of The Nasdaq Capital Market; |
| ● | our ability to satisfy our existing payment obligations and other payment obligations as they become due, including those related to the acquisition of First Wave Bio, Inc. and merger with ImmunogenX; |
| ● | statements regarding the impact of geopolitical events, including the war in Ukraine and the Middle East, and their effects on our operations, access to capital, research and development and clinical trials and potential disruption in the operations and business of third-party vendors, contract research organizations (“CROs”), contract development and manufacturing organizations (“CDMOs”), other service providers, and collaborators with whom we conduct business; |
| ● | the availability of capital to satisfy our working capital requirements; |
| ● | our current and future capital requirements and our ability to raise additional funds to satisfy our capital needs; |
| ● | the integration and effects of our acquisitions, including the merger with ImmunogenX, and other strategic transactions; |
| ● | the accuracy of our estimates regarding expense, future revenue and capital requirements; |
| ● | our ability to continue operating as a going concern; |
| ● | our plans to develop and commercialize our product candidates, including Adrulipase, Capeserod and Niclosamide; |
| ● | our ability to initiate and complete our clinical trials and to advance our principal product candidates into additional clinical trials, including pivotal clinical trials, and successfully complete such clinical trials; |
| ● | regulatory developments in the U.S. and foreign countries; |
| ● | the performance of our third-party vendor(s), CROs, CDMOs and other third-party non-clinical and clinical development collaborators and regulatory service providers; |
| ● | our ability to obtain and maintain intellectual property protection for our core assets; |
| ● | the size of the potential markets for our product candidates and our ability to serve those markets; |
| ● | the rate and degree of market acceptance of our product candidates for any indication once approved; |
| ● | the success of competing products and product candidates in development by others that are or become available for the indications that we are pursuing; |
| ● | the loss of key scientific, clinical and nonclinical development, and/or management personnel, internally or from one of our third-party collaborators; and |
| ● | other risks and uncertainties, including those listed under Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K. |
Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. 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. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and consumer products, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources and we have not independently verified the data from third party sources. In some cases, we do not expressly refer to the sources from which these data are derived.
In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “Entero,” the “Company,” “we,” “us,” “our” and similar references are to Entero Therapeutics, Inc. and its subsidiaries on a consolidated basis. References to “FWB” refer to First Wave Bio, Inc. and references to “IMGX” refer to ImmunogenX, LLC, each of which are Entero’s wholly-owned subsidiaries.
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented. We have consolidated such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued by filing with the SEC.
These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2023, included in our Annual Report filed on Form 10-K, filed with the SEC on March 29, 2024.
The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2024.
-1-
ENTERO THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
| September 30, |
| ||||
2024 | December 31, | |||||
(unaudited) | 2023 | |||||
ASSETS | ||||||
Current Assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses |
| |
| | ||
Assets of disposal group held for sale | | — | ||||
Total Current Assets |
| |
| | ||
Property, equipment, and leasehold improvements, net |
| — |
| | ||
Other Assets: | ||||||
Restricted cash |
| | | |||
Goodwill | | | ||||
Operating lease right-of-use assets |
| |
| | ||
Deposits |
| |
| | ||
Total Other Assets |
| |
| | ||
Total Assets | $ | | $ | | ||
LIABILITIES, MEZZANINE EQUITY, AND STOCKHOLDERS’ EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses | | | ||||
Accrued dividend payable |
| |
| | ||
Note payable |
| — |
| | ||
Operating lease liabilities | | | ||||
Other current liabilities |
| — |
| | ||
Liabilities of disposal group held for sale | | — | ||||
Total Current Liabilities |
| |
| | ||
Non-current operating lease liabilities | | | ||||
Total Liabilities |
| |
| | ||
Mezzanine Equity: | ||||||
Series G redeemable preferred stock- Par value $ | | — | ||||
Total Mezzanine Equity | | — | ||||
Stockholders’ Equity: | ||||||
Common stock - Par value $ |
| |
| | ||
Series B preferred stock- Par value $ |
| |
| | ||
Series C preferred stock- Par value $ |
| |
| | ||
Series D preferred stock- Par value $ | | | ||||
Series E preferred stock- Par value $ | | | ||||
Series F preferred stock- Par value $ | | | ||||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total Stockholders’ Equity |
| |
| | ||
Total Liabilities, Mezzanine Equity and Stockholders’ Equity | $ | | $ | | ||
See accompanying notes to unaudited condensed consolidated financial statements
-2-
ENTERO THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations (unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 | ||||||
Operating expenses: | ||||||||||||
Research and development expenses | $ | | $ | | $ | | $ | | ||||
General and administrative expenses |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
Loss from operations |
| ( | ( | ( | ( | |||||||
Other expenses: |
|
|
|
|
| |||||||
Interest income (expense), net |
| |
| ( |
| |
| ( | ||||
Other expense, net |
| ( |
| — |
| ( |
| ( | ||||
Total other expenses |
| ( |
| ( |
| ( |
| ( | ||||
Loss before income tax benefit | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Income tax benefit |
| — |
| — |
| |
| — | ||||
Net loss from continuing operations | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Loss from discontinued operations | ( | — | ( | — | ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Preferred stock dividends |
| ( |
| ( |
| ( |
| ( | ||||
Net loss applicable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares outstanding, basic and diluted | |
| |
| |
| | |||||
Loss per share, basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Loss per share from discontinued operations, basic and diluted | $ | ( | $ | — | $ | ( | $ | — | ||||
See accompanying notes to unaudited condensed consolidated financial statements
-3-
ENTERO THERAPEUTICS, INC.
Condensed Consolidated Statements of Mezzanine Equity and Changes in Stockholders’ Equity (unaudited)
Series G Convertible | Series B Convertible | Additional | Total | |||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid In | Accumulated | Stockholders’ | |||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||||
Balance, July 1, 2024 |
| | $ | |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | ||||||
Issuance of common stock in connection with the exercise of warrants in the July 2024 Inducement Offering, net of offering costs |
| — |
| — |
| — |
| — |
| |
| |
| |
| — |
| | ||||||
Deemed dividend of Series B preferred stock |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Issuance of common stock from RSU vest |
| — |
| — |
| — |
| — |
| |
| |
| ( |
| — |
| — | ||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance, September 30, 2024 |
| | $ | |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | ||||||
| Series B Convertible |
|
|
|
| Additional |
|
|
| Total | |||||||||
Preferred Stock | Common Stock | Paid In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance, July 1, 2023 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
Issuance of common stock, pre-funded warrants and warrants in July 2023 offering, net of issuance costs |
| — |
| — |
| |
| |
| |
| — |
| | |||||
Issuance of common stock in connection with the exercise of warrants in the September 2023 Inducement Offering, net of offering costs |
| — |
| — |
| |
| |
| |
| — |
| | |||||
Exercise of pre-funded warrants into Common Stock |
| — |
| — |
| |
| |
| |
| — |
| | |||||
Deemed dividend of Series B preferred stock |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Conversion of Series B preferred shares into common stock | ( | — | | — | — | — | — | ||||||||||||
Common stock issued to consultants | — | — | | — | | — | | ||||||||||||
Issuance of Common Stock from RSU vest |
| — |
| — |
| |
| — |
| — |
| — |
| — | |||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, September 30, 2023 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
See accompanying notes to unaudited condensed consolidated financial statements
-4-
ENTERO THERAPEUTICS, INC.
Condensed Consolidated Statements of Mezzanine Equity and Changes in Stockholders’ Equity (unaudited)
Series G Convertible | Series B Convertible | Additional | Total | |||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid In | Accumulated | Stockholders’ | |||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||||
Balance, January 1, 2024 | | $ | | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||||
Issuance of common stock, pre-funded warrants and warrants in registered direct offerings, net of issuance costs | — | — | — | — | | | | — | | |||||||||||||||
Issuance of common stock in connection with the exercise of warrants in the July 2024 Inducement Offering, net of offering costs | — | — | — | — | | | | — | | |||||||||||||||
Issuance of Series G convertible preferred stock upon acquisition of IMGX | | | — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||
Issuance of common stock upon acquisition of IMGX | — | — | — | — | | | | — | | |||||||||||||||
Issuance of Series G convertible preferred stock to financial advisors | | | — |
| — |
| — |
| — |
| — |
| — |
| — | |||||||||
Issuance of common stock to financial advisors | — | — | — |
| — |
| |
| |
| |
| — |
| | |||||||||
Exercise of pre-funded warrants into common stock | — | — | — |
| — |
| |
| |
| — |
| — |
| | |||||||||
Deemed dividend of Series B preferred stock | — | — | — | — | — | — | ( | — | ( | |||||||||||||||
Conversion of Series B preferred shares into common stock | — | — | ( | — | | — | — | — | — | |||||||||||||||
Common stock issued to consultants | — | — | — | — | | | | — | | |||||||||||||||
Issuance of common stock from RSU vest | — | — | — | — | | | ( | — | — | |||||||||||||||
Stock-based compensation | — | — | — |
| — |
| — |
| — |
| |
| — |
| | |||||||||
Net loss | — | — | — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||||
Balance, September 30, 2024 | | $ | | | $ | — |
| | $ | | $ | | $ | ( | $ | | ||||||||
Series B Convertible |
|
| Additional |
| Total | ||||||||||||||
Preferred Stock | Common Stock | Paid In | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance, January 1, 2023 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
Issuance of common stock, pre-funded warrants and warrants in private placement, net of issuance costs |
| — |
| — |
| |
| |
| |
| — |
| | |||||
Issuance of Common Stock in connection with the exercise of warrants in the June 2023 Inducement Offering, net of offering costs | — | — | | | | — | | ||||||||||||
Issuance of common stock, pre-funded warrants and warrants in July 2023 offering, net of issuance costs | — | — | | | | — | | ||||||||||||
Issuance of common stock in connection with the exercise of warrants in the September 2023 Inducement Offering, net of offering costs | — | — | | | | — | | ||||||||||||
Exercise of pre-funded warrants into common stock | — | — | | | | — | | ||||||||||||
Deemed dividend of Series B preferred stock | — | — | — | — | ( | — | ( | ||||||||||||
Conversion of Series B preferred shares into common stock | ( | — | | — | — | — | — | ||||||||||||
Common stock issued to consultants | — | — | | — | | — | | ||||||||||||
Issuance of common stock from RSU vest | — | — | | — | — | — | — | ||||||||||||
Effect of cancelled shares from the -for-7 reverse stock split | — | — | ( | — | — | — | — | ||||||||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, September 30, 2023 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
See accompanying notes to unaudited condensed consolidated financial statements
-5-
ENTERO THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | |||||
2024 |
| 2023 | ||||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization |
| |
| | ||
Amortization of debt discount |
| |
| — | ||
Change in right-of-use assets |
| |
| | ||
Stock-based compensation |
| |
| | ||
Common stock granted to consultants |
| |
| | ||
Common stock issued to financial advisors at acquisition | | — | ||||
Series G convertible preferred stock issued to financial advisors at acquisition | | — | ||||
Deferred taxes | ( | — | ||||
Changes in assets and liabilities: | ||||||
Other receivables |
| — |
| | ||
Prepaid expenses |
| |
| | ||
Lease liabilities |
| ( |
| ( | ||
Deposits |
| ( |
| | ||
Accounts payable |
| |
| ( | ||
Accrued expenses | ( | | ||||
Other liabilities |
| ( |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: | ||||||
Cash acquired in acquisition of IMGX | | — | ||||
Net cash provided by investing activities | | — | ||||
Cash flows from financing activities: | ||||||
Proceeds from issuance of common stock, prefunded warrants and warrants, net |
| |
| | ||
Proceeds from the issuance of common stock in connection with the exercise of warrants in the July 2024 Inducement Offering, net | | — | ||||
Proceeds from exercise of warrants, net of issuance costs |
| — |
| | ||
Proceeds from exercise of pre-funded warrants | | — | ||||
Repayments of note payable |
| ( |
| ( | ||
Proceeds from note payable | | — | ||||
Net cash provided by financing activities |
| |
| | ||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| ( |
| | ||
Cash, cash equivalents and restricted cash, beginning balance |
| |
| | ||
Cash, cash equivalents and restricted cash, ending balance | $ | | $ | | ||
Supplemental disclosures of cash flow information: | ||||||
Cash paid for interest | $ | | $ | | ||
Non-cash investing and financing activities: | ||||||
Fair value of common shares issued in the IMGX acquisition, net of cash | $ | | $ | — | ||
Fair value of the Series G preferred stock issued in the IMGX acquisition | $ | | $ | — | ||
Fair value of options assumed in the IMGX acquisition | $ | | $ | — | ||
Fair value of warrants assumed in the IMGX acquisition | $ | | $ | — | ||
Accrued dividends on preferred stock | $ | ( | $ | ( | ||
See accompanying notes to unaudited condensed consolidated financial statements
-6-
ENTERO THERAPEUTICS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2024
Note 1 - The Company and Basis of Presentation
The Company
Entero Therapeutics, Inc. (“Entero”) and its wholly-owned subsidiaries, First Wave Bio, Inc. (“FWB”) and ImmunogenX, LLC (“IMGX”), are collectively referred to as the “Company”. The Company is engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e., in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.
In May 2024, the Company changed its name from First Wave Biopharma, Inc. to Entero Therapeutics, Inc.
In March 2024, the Company acquired ImmunogenX, Inc. (“ImmunogenX”) (the Company’s acquisition of ImmunogenX, the “Merger”), a private, clinical-stage biopharmaceutical company founded in 2013, which was developing the biologic, Latiglutenase, for celiac disease. ImmunogenX was also developing CypCel, a metabolic marker compound that can measure the state of small-intestinal recovery of celiac patients undergoing gluten-free diets (“GFDs”).
The Company is seeking avenues to dispose of certain assets and liabilities of IMGX within 12 months of the date of the Merger, including Latiglutenase and CypCel. As of September 30, 2024, these were classified as assets and liabilities held for sale and due to the short period of time since the close of the Merger and are reported at their fair value less cost to sell. The Company determined that the discontinued operations of IMGX represents a strategic shift that will have a major effect on the Company’s operations and financial statements. See Note 3 for additional details regarding the Merger and see Note 4 for additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations.
The Company’s development pipeline consists of gut-restricted GI clinical drug candidates, including the biologic Adrulipase (formerly MS1819), a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients, and Capeserod, a selective 5-HT4 receptor partial agonist which the Company plans to pursue for GI indications. The Company is exploring strategic alternatives for its Niclosamide program, an oral small molecule with anti-viral and anti-inflammatory properties. All of the Company’s programs are currently on hold due to capital constraints.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund clinical trials and operations.
Worldwide supply chain constraints and economic and capital markets uncertainty arising out of conflicts between Russia and Ukraine and conflicts in the Middle East triggered by attacks on Israel in October of 2023 have disrupted commercial and capital markets and emerged as new barriers to long-term economic recovery. Capital markets uncertainty, with public stock price decreases and volatility, could make it more difficult for us to raise capital when needed.
In addition, the Company is subject to other challenges and risks specific to its business, its ability to maintain compliance with the continued listing requirements of The Nasdaq Capital Market and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the biotechnology and pharmaceutical industries with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its drug candidates; delays or problems in the manufacture and supply of its drug candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or drug candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements.
-7-
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of Entero and its wholly owned subsidiaries, FWB and IMGX. Intercompany transactions and balances have been eliminated upon consolidation.
In our opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2023, has been derived from audited financial statements of that date. The unaudited interim condensed consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously distributed in our Annual Report Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying unaudited interim condensed consolidated financial statements have been prepared as if the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. On September 30, 2024, the Company had cash and cash equivalents of approximately $
The Company has been, and is expected to continue, exploring various potential strategies available including but not limited to raising capital, restructuring its indebtedness and identifying and evaluating potential strategic alternatives but there can be no assurance that these efforts will be successful, that the Company will be able to raise necessary capital on acceptable terms, reach agreement with lenders, or that the strategic review process will result in the Company pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. The Company is evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that it will make any cash distributions to stockholders. Any failure in these efforts could force the Company to delay, limit or terminate operations, make reductions in its workforce, discontinue research and development programs, liquidate all or a portion of assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
Without adequate working capital, the Company may not be able to meet its obligations and continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern one year from the date these financial statements are issued. If the Company is not able to obtain necessary capital, it may be required to terminate operations, liquidate all or a portion of assets and/or seek bankruptcy protection. As a result, the Company concluded that its plans at this stage do not alleviate substantial doubt about the ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 - Significant Accounting Policies and Recent Accounting Pronouncements
Use of Estimates
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with GAAP and include certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements (including goodwill), and the reported amounts of revenue and expense during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.
-8-
Reverse Stock Split
On December 18, 2023, the Company effected a reverse stock split, whereby every shares of the Company’s issued and outstanding common stock was converted automatically into one issued and outstanding share of common stock, but without any change in the number of authorized shares of common stock and the par value per share.
On January 18, 2023, the Company effected a reverse stock split, whereby every shares of the Company’s issued and outstanding common stock was converted automatically into one issued and outstanding share of common stock, but without any change in the number of authorized shares of common stock and the par value per share.
All share and per share amounts have been retroactively restated to reflect the reverse stock splits referenced above.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. All cash and cash equivalent balances were highly liquid at September 30, 2024 and December 31, 2023. As of September 30, 2024 and December 31, 2023, the Company has classified approximately $
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash. The Company primarily maintains its cash balances with financial institutions in federally insured accounts in the U.S. The Company may from time to time have cash in banks in excess of FDIC insurance limits. At September 30, 2024 the Company had approximately $
Fair Value Measurements
The Company follows Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820”), which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions, which reflect those that a market participant would use.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
The Company recognizes transfers between levels as if the transfers occurred on the last day of the reporting period.
Goodwill
Goodwill represents the excess of the purchase price of the acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or circumstances indicate impairment may be present. Any excess in carrying value over the estimated fair value is charged to results of operations. The Company has not recognized any impairment charges through September 30, 2024 related to goodwill.
-9-
Impairment of Long-Lived Assets
The Company periodically evaluates its long-lived assets for potential impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). Potential impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends and product development cycles. If impairments are identified, assets are written down to their estimated fair value. The Company has not recognized any impairment charges through September 30, 2024.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. At September 30, 2024 and 2023, the Company does not have any significant uncertain tax positions.
Leases
Leases are recorded on the balance sheet as right of use assets and lease obligations. Lease liabilities are recognized based on the present value of the future minimum lease payments over the least term at the commencement date. Leases with a term of 12 months or less at inception are expensed monthly over the lease term. The lease term is determined by assuming the exercise of renewal options that are reasonably certain. The implicit interest rate or the incremental borrowing rate is used in determining the present value of future payments.
Research and Development
Research and development costs are charged to operations when incurred and are included in operating expenses, except for goodwill related to patents. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, payments to third parties for preclinical and non-clinical activities, expenses with clinical research organizations (“CROs”), investigative sites, consultants and contractors that conduct or provide other services relating to clinical trials, costs to acquire drug product, drug supply and clinical trial materials from contract development and manufacturing organization (“CDMOs”) and third-party contractors relating to chemistry, manufacturing and controls (“CMC”) efforts, the fees paid for and to maintain the Company’s licenses and research and development costs related to Adrulipase, Capeserod and Niclosamide. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.
Research and Development – Intellectual Property Acquired
The Company records intellectual property acquired in business acquisitions that has not reached technological feasibility and which has no alternative future use, as In-Process R&D (“IPR&D”) at the acquisition date. On March 13, 2024, the Company entered into an acquisition agreement with IMGX which included the intellectual property and patents for Latiglutenase and CypCel, which was accounted for as a business acquisition (see Note 3 and Note 4).
-10-
Intangible assets related to IPR&D are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist. If the associated research and development effort is abandoned, the related assets will be written-off, and the Company will record a noncash impairment loss on its Consolidated Statements of Operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. The impairment test for indefinite-lived intangible assets is a one-step test that compares the fair value of the intangible asset to its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company has not recognized any impairment charges through September 30, 2024 related to IPR&D.
For tax purposes, intangible assets related to IPR&D are considered indefinite-lived intangible assets.
Stock-Based Compensation
The Company’s board of directors (the “Board”) and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) which took effect on May 12, 2014, and the 2020 Omnibus Equity Incentive Plan, which took effect on September 11, 2020 (the “2020 Plan”). From the effective date of the 2020 Plan, no new awards have been or will be made under the 2014 Plan. On March 13, 2024, in connection with the IMGX acquisition, the Company assumed IMGX’s 2021 Stock Option Plan (the “IMGX Plan”), including all IMGX stock options immediately outstanding prior to the IMGX acquisition, with each becoming an option to purchase Common Stock, subject to adjustment. The IMGX Plan was adopted and approved by the board of directors and stockholders of IMGX in 2021. Following the assumption of the IMGX Plan by the Company, no new awards have been or will be made under the IMGX Plan. The Company accounts for its stock-based compensation awards to employees, consultants, and Board members in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, consultants, and Board members, including grants of employee stock options, to be recognized in the statements of operations by measuring the fair value of the award on the date of grant and recognizing this fair value as stock-based compensation using a straight-line method over the requisite service period, generally the vesting period.
For awards with performance conditions that affect their vesting, such as the occurrence of certain transactions or the achievement of certain operating or financial milestones, recognition of fair value of the award occurs when vesting becomes probable.
The Company estimates the grant date fair value of stock option awards using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the Common Stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the Common Stock.
Assets Held for Sale and Discontinued Operations
Assets and liabilities are classified as held for sale when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets and liabilities are classified as held for sale in the condensed consolidated balance sheet. A newly acquired business in a business combination that has met the held for sale criteria should be measured at fair value less costs to sell. This is because the business has been recently acquired and its carrying value has been adjusted to its fair value. Depreciation and amortization of assets cease upon designation as held for sale.
Discontinued operations comprise activities that were disposed of, discontinued or held for sale at the end of the period, represent a separate major line of business that can be clearly distinguished for operational and financial reporting purposes, and represent a strategic business shift having a major effect on the Company’s operations and financial results according to ASC Topic 205, Presentation of Financial Statements.
Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 4.
-11-
Recent Accounting Pronouncements
The Company has evaluated recently issued accounting pronouncements and has concluded that the impact of recently issued standards that are not yet effective, will not have a material impact on the Company’s financial position or results of operations upon adoption.
Note 3 – Business Acquisition
On March 13, 2024, the Company acquired ImmunogenX, Inc., a Delaware corporation, in accordance with the terms of an Agreement and Plan of Merger, dated March 13, 2024 (the “Merger Agreement”), by and among the Company, IMMUNO Merger Sub I, Inc., a Delaware corporation (“First Merger Sub”), IMMUNO Merger Sub II, LLC, a Delaware limited liability company (“Second Merger Sub”), and ImmunogenX. Pursuant to the Merger Agreement, First Merger Sub merged with and into ImmunogenX, pursuant to which ImmunogenX was the surviving corporation (the “First Merger”). Immediately following the First Merger, IMGX merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity and a wholly owned subsidiary of the Company (the “Second Merger” and, together with the First Merger, the “IMGX Merger”). Second Merger Sub subsequently changed its name to ImmunogenX, LLC. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
Under the terms of the Merger Agreement, following the consummation of the Merger (the “Closing”), in exchange for the outstanding shares of capital stock of ImmunogenX immediately prior to the effective time of the First Merger, the Company issued to the stockholders of ImmunogenX an aggregate of (A)
The Company incurred transaction costs of $
In addition, the Company assumed (i) all ImmunogenX stock options immediately outstanding prior to the First Merger, each becoming an option to purchase Common Stock subject to adjustment pursuant to the terms of the Merger Agreement (the “Assumed Options”) and (ii) all ImmunogenX warrants immediately outstanding prior to the First Merger, each becoming a warrant to purchase Common Stock subject to adjustment pursuant to the terms of the Merger Agreement (the “Assumed Warrants”). The Assumed Options are exercisable for an aggregate of
Tungsten Partners LLC (“Tungsten”) acted as financial advisor to the Company in connection with the Merger. As partial compensation for services rendered by Tungsten, the Company issued to Tungsten or its affiliates or designees an aggregate of
The Merger was accounted for as a business combination under the acquisition method of accounting with First Wave as the accounting acquirer. Under the acquisition method, the total purchase price of the acquisition is allocated to the net identifiable tangible and intangible assets acquired and liabilities assumed based on the fair values as of the date of such acquisition. The preliminary fair value of the consideration totaled approximately $
| Amount | ||
Common stock issued to ImmunogenX stockholders | $ | | |
Replacement options |
| | |
Replacement warrants |
| | |
Preferred stock issued to ImmunogenX stockholders |
| | |
Total consideration paid | $ | | |
-12-
The Company has made a provisional allocation of the purchase price of the Merger to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the Merger:
Assets acquired: |
| ||
Cash and cash equivalents | $ | | |
Prepaid expenses and other current assets |
| | |
Property and equipment, net |
| | |
Intangibles |
| | |
Operating lease right-of-use assets |
| | |
Total assets | $ | | |
Liabilities assumed: |
|
| |
Accounts payable |
| | |
Accrued expenses and other current liabilities |
| | |
Long term debt |
| | |
Deferred tax liability |
| | |
Total liabilities | $ | | |
Goodwill recorded: | |||
Goodwill | $ | | |
Net assets acquired | $ | |
The fair value of IPR&D was capitalized as of the IMGX Merger date and accounted for as indefinite-lived intangible assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon successful completion of the development efforts, the useful lives of the IPR&D assets will be determined based on the anticipated period of regulatory exclusivity and will be amortized within operating expenses. Until that time, the IPR&D assets will be subject to impairment testing and will not be amortized. The goodwill recorded related to the IMGX Merger is the excess of the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and liabilities assumed at the date of such acquisition. The goodwill recorded is not deductible for tax purposes.
All intangible assets acquired are subject to amortization and their associated estimated acquisition date fair values are as follows:
| Estimated |
| Acquisition Date | ||
Intangible Asset | Useful Life | Fair Value | |||
Patents |
| $ | | ||
Trade names and trademarks |
|
| | ||
IPR&D – Latiglutenase |
| Indefinite |
| | |
IPR&D - CypCel |
| Indefinite | $ | | |
Net loss in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2024 includes net losses of IMGX from the date of acquisition to September 30, 2024 of approximately $
The Merger is classified as held for sale as of September 30, 2024. Refer to Note 4 for further information.
-13-
Pro forma disclosure for the IMGX acquisition
The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the Acquisition had taken place on January 1, 2024. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date:
| Three Months |
| Nine Months | |||
Ended September 30, 2024 | Ended September 30, 2024 | |||||
Operating expenses | $ | | $ | | ||
Loss before income tax benefit |
| ( |
| ( | ||
Loss from discontinued operations |
| ( |
| ( | ||
Net loss applicable to common shareholders | ( | ( | ||||
Basic and diluted weighted average shares outstanding |
| |
| | ||
Loss per share - basic and diluted | $ | ( | $ | ( | ||
Notes 4 – Discontinued Operations and Assets and Liabilities Held for Sale
The Company has initiated a plan to dispose of certain assets and liabilities of IMGX within 12 months of the date of the Merger with IMGX. These are classified as assets and liabilities held for sale and, due to the short period of time since the close of the Merger, are reported at their fair value less cost to sell. The Company determined that the discontinued operations of IMGX represents a strategic shift that will have a major effect on the Company’s operations and financial statements.
The following table summarizes the Company’s loss from discontinued operations for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Operating expenses: |
|
|
|
|
|
|
|
| ||||
Research and development expenses | $ | | $ | — | $ | | $ | — | ||||
General and administrative expenses |
| |
| — |
| |
| — | ||||
Total operating expenses |
| |
| — |
| |
| — | ||||
Interest expense |
| ( |
| — |
| ( |
| — | ||||
Other (expense) income |
| ( |
| — |
| |
| — | ||||
Loss from discontinued operations | $ | ( | $ | — | $ | ( | $ | — | ||||
The assets and liabilities associated with discontinued operations consist of the following as of September 30, 2024:
Assets held for sale: |
|
| |
Prepaid expenses and other current assets | $ | | |
Property and equipment, net |
| | |
Goodwill and intangible assets |
| | |
Total assets held for sale | $ | | |
Liabilities held for sale: |
|
| |
Accounts payable | $ | | |
Accrued expenses and other current liabilities |
| | |
Debt |
| | |
Deferred tax liability | | ||
Total liabilities held for sale | $ | |
Total assets and liabilities classified as held for sale are presented as current assets and liabilities, respectively, as they are anticipated to be sold within 12 months.
-14-
Note 5 - Fair Value Disclosures
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.
The fair value of the Company’s financial instruments are as follows:
Fair Value Measured at Reporting Date | |||||||||||||||
Using | |||||||||||||||
Carrying | |||||||||||||||
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Fair Value | ||||||
September 30, 2024 (unaudited): | |||||||||||||||
Money market funds | $ | | $ | | $ | — | $ | — | $ | | |||||
December 31, 2023: | |||||||||||||||
Money market funds | $ | | $ | | $ | — | $ | — | $ | | |||||
Note payable | | — | | $ | — | | |||||||||
At September 30, 2024 and December 31, 2023, the Company had no other assets or liabilities that are subject to fair value methodology and estimation in accordance with U.S. GAAP.
Note 6 – Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements consisted of the following:
September 30, | ||||||
| 2024 |
| December 31, | |||
(unaudited) | 2023 | |||||
Computer equipment and software | $ | | $ | | ||
Office equipment |
| |
| | ||
Leasehold improvements |
| |
| | ||
Total property, equipment and leasehold improvements |
| |
| | ||
Less accumulated depreciation |
| ( |
| ( | ||
Property, equipment and leasehold improvements, net | $ | — | $ | | ||
Depreciation expense for the three months ended September 30, 2024 and 2023 was approximately $
Note 7 –Goodwill
Goodwill is as follows:
| Goodwill | ||
Balance on January 1, 2023 | $ | | |
Balance on December 31, 2023 |
| | |
Goodwill associated with IMGX acquisition |
| | |
Goodwill reclassified as held for sale | $ | ( | |
Balance on September 30, 2024 (unaudited) | $ | | |
-15-
Note 8 – Intangible Assets and In-Process R&D
Intangible assets consist of IPR&D, patents, tradenames and trademarks acquired from ImmunogenX. As of September 30, 2024, Intangible assets have been reclassified as held for sale. Intangible assets and IPR&D activity is as follows:
Estimated | September 30, | ||||
| Useful Life |
| 2024 | ||
Patents |
| $ | | ||
Trademarks and trade names |
|
| | ||
Less: accumulated amortization |
| ( | |||
Intangible assets, net |
| | |||
In-process R&D |
| | |||
Intangible assets and in-process R&D reclassified as held for sale | ( | ||||
Total intangible assets and in-process R&D, net | $ | — | |||
Note 9 - Accrued Expenses
Accrued expenses consisted of the following:
September 30, | ||||||
| 2024 |
| December 31, | |||
(unaudited) | 2023 | |||||
Professional fees | | | ||||
Consulting fees | — | | ||||
Payroll and benefits | | | ||||
Total accrued expenses | $ | | $ | | ||
Accrued expenses in the amount of $
Note 10 – Capital Stock
Common Stock and Preferred Stock
The Company’s amended and restated certificate of incorporation, as amended to date, (the “Charter”) authorizes the issuance of up to
The Company had
The Company had approximately
The Company had
-16-
Most Favored Nations Exchange Right and Waiver Agreements
In the event the Company effects any issuance by the Company or any of its subsidiaries of Common Stock or Common Stock equivalents for cash consideration, or a combination of units thereof (a “Subsequent Financing”), each holder of the Series B Preferred Stock had the right, subject to certain exceptions set forth in the Series B Certificate of Designations, at its option, to exchange (in lieu of cash subscription payments) all or some of the Series B Preferred Stock then held (with a value per share of Series B Preferred Stock equal to the stated value of each share of Series B Preferred Stock, or $
As of September 30, 2024, (i) holders of approximately
Mezzanine Equity
Series G Preferred Stock
The Company had
On March 13, 2024, the Company issued
General; Transferability. Share of Series G Preferred Stock will be uncertificated and issued in book-entry form. Shares of Series G Preferred Stock may be transferred by the holders thereof without the consent of the Company, provided that such transfer is in compliance with applicable securities laws.
Conversion. Following stockholder approval of the conversion of the Series G Preferred Stock into Common Stock in accordance with the listing rules of the Nasdaq Stock Market (the “Conversion”), each share of Series G Preferred Stock will automatically convert into
The Series G Preferred Stock is redeemable for cash at the option of the holder thereof at any time following the date that is six months after the initial issuance of the Series G Preferred Stock (without regard to the lack of obtaining the requisite stockholder approval to convert the Series G Preferred Stock into Common Stock), at a price per share equal to the then-current fair value of the Series G Preferred Stock, which shall be the last reported closing sale price of the Company’s Common Stock as reported on the Nasdaq Stock Market as of the trading day immediately prior to the conversion event. As such, Series G Preferred Stock is classified as Mezzanine Equity on the balance sheet.
-17-
Voting Rights. Except as otherwise required by law, the Series G Preferred Stock does not have voting rights. However, as long as any shares of Series G Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then-outstanding shares of the Series G Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series G Preferred Stock or alter or amend the Certificate of Designation, amend or repeal any provision of, or add any provision to, the Charter or bylaws of the Company, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, in each case if any such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series G Preferred Stock, regardless of whether any of the foregoing actions shall be by means of amendment to the Charter or by merger, consolidation, recapitalization, reclassification, conversion or otherwise, (ii) issue further shares of Series G Preferred Stock, (iii) prior to the earlier of stockholder approval of the Conversion or the six-month anniversary of issuance, consummate either: (A) any Fundamental Transaction (as in the Certificate of Designation) or (B) any stock sale to, or any merger, consolidation or other business combination of the Company with or into, another entity in which the stockholders of the Company immediately before such transaction do not hold at least a majority of the capital stock of the Company immediately after such transaction, or (iv) enter into any agreement with respect to any of the foregoing.
Liquidation Preference. The Series G Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.
Dividend Rights. Holders of Series G Preferred Stock are entitled to receive dividends on shares of Series G Preferred Stock equal to, on an as-if-converted-to-Common-Stock basis, and in the same form as dividends actually paid on shares of the Common Stock.
Redemption. The shares of Series G Preferred Stock shall not be redeemable at the option of the Company or the holder thereof.
Trading Market. There is no established trading market for any of the Series G Preferred Stock, and we do not expect a market to develop. We do not intend to apply for a listing for any of the Series G Preferred Stock on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the Series G Preferred Stock will be limited.
At The Market Agreement with H.C. Wainwright
On May 26, 2021, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent, pursuant to which the Company may issue and sell, from time to time, through Wainwright, shares of its Common Stock, and pursuant to which Wainwright may sell its Common Stock by any method permitted by law deemed to be an “at the market offering” as defined by Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. The Company will pay Wainwright a commission of
July 2024 Inducement Offering
On July 10, 2024, the Company entered into a warrant exercise inducement offer letter (the “Inducement Letter”) with a holder (the “Holder”) of warrants to purchase shares of the Company’s common stock (the “Existing Warrants”) pursuant to which the Holder agreed to exercise for cash their Existing Warrants to purchase
-18-
May 2024 Registered Direct Offering
On May 14, 2024, the Company completed a Registered Direct Offering (the “May 2024 Offering”) priced at market under Nasdaq rules, for an aggregate of (i)
The Company received gross proceeds of approximately $
March 2024 Registered Direct Offering
On March 6, 2024, the Company completed a Registered Direct Offering (the “March 2024 Offering”) priced at market under Nasdaq rules, for an aggregate of (i)
September 2023 Inducement Offering
On September 14, 2023, the Company entered into warrant exercise inducement offer letters with certain holders (the “September 2023 Holders”) of warrants to purchase shares of the Company’s Common Stock (the “September 2023 Existing Warrants”) pursuant to which the September 2023 Holders agreed to exercise for cash their September 2023 Existing Warrants to purchase
July 2023 Offering
On July 21, 2023, the Company completed an offering (the “July 2023 Offering”) for an aggregate of (i)
-19-
June 2023 Inducement Offering
On June 13, 2023, the Company entered into warrant exercise inducement offer letters with certain holders (the “Holders”) of warrants to purchase shares of the Company’s Common Stock (the “Existing Warrants”) pursuant to which the Holders agreed to exercise for cash their Existing Warrants to purchase
March 2023 Private Placement
On March 15, 2023, the Company completed a private placement offering (the “March 2023 Offering”) priced at market under Nasdaq rules, for an aggregate of (i)
Common Stock Issuances
Issuances for the Three Months Ended September 30, 2024
During the three months ended September 30, 2024, the Company issued
During the three months ended September 30, 2024, the Company issued an aggregate of
Issuances for the Nine Months Ended September 30, 2024
During the nine months ended September 30, 2024, the Company issued
During the nine months ended September 30, 2024, the Company issued
During the nine months ended September 30, 2024, the Company issued an aggregate of
During the nine months ended September 30, 2024, the Company issued an aggregate of
During the nine months ended September 30, 2024, the Company issued an aggregate of
During the nine months ended September 30, 2024, the Company issued an aggregate of
-20-
During the nine months ended September 30, 2024, the Company issued an aggregate of
During the nine months ended September 30, 2024, the Company issued an aggregate of
Issuances for the Three Months Ended September 30, 2023
During the three months ended September 30, 2023, the Company issued
During the three months ended September 30, 2023, the Company issued
During the three months ended September 30, 2023, the Company issued an aggregate of
During the three months ended September 30, 2023, the Company issued an aggregate of
During the three months ended September 30, 2023, the Company issued an aggregate of
During the three months ended September 30, 2023, the Company issued an aggregate of
Issuances for the Nine Months Ended September 30, 2023
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued
During the nine months ended September 30, 2023, the Company issued an aggregate of
During the nine months ended September 30, 2023, the Company issued an aggregate of
During the nine months ended September 30, 2023, the Company issued an aggregate of
-21-
During the nine months ended September 30, 2023, the Company issued an aggregate of
During the nine months ended September 30, 2023, the Company cancelled an aggregate of
Note 11 – Warrants
Warrant activity for the nine months ended September 30, 2024 and 2023 was as follows:
Weighted | Weighted | ||||||
Average | Average | ||||||
Number of | Exercise Price | Remaining | |||||
| Warrants |
| Per Share |
| Term in Years | ||
Outstanding and exercisable on January 1, 2024 |
| | $ | |
| ||
Issued |
| |
| |
| ||
Assumed from IMGX |
| |
|
| |||
Expired | ( | ||||||
Exercised |
| ( |
| |
| ||
Warrants outstanding and exercisable on September 30, 2024 |
| | $ | |
| ||
Warrants outstanding and exercisable on January 1, 2023 |
| | $ | |
| ||
Issued |
| | |
| |||
Expired |
| ( | | ||||
Exercised |
| ( |
| |
| ||
Warrants outstanding and exercisable on September 30, 2023 |
| | $ | |
| ||
As of September 30, 2024, the outstanding warrants expire from 2024 through 2033.
During the nine months ended September 30, 2024, the Company issued warrants to purchase
During the nine months ended September 30, 2024, an investor exercised pre-funded warrants to purchase
During the nine months ended September 30, 2023, the Company issued warrants to purchase
During the nine months ended September 30, 2023, an investor exercised pre-funded warrants to purchase
-22-
Note 12 – Equity Incentive Plan
The Company’s Board and stockholders adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which took effect on May 12, 2014. The Company’s Board and stockholders adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which took effect on September 11, 2020. From the adoption and approval of the 2020 Plan, no new awards have been or will be made under the 2014 Plan.
The 2020 Plan allows for the issuance of securities, including stock options to employees, Board members and consultants. The initial number of shares of Common Stock available for issuance under the 2020 Plan was
On March 13, 2024, in connection with the IMGX acquisition, the Company assumed the IMGX Plan, including all
As of January 1, 2024, the number of shares of Common Stock available for issuance under the 2020 Plan automatically increased to
As of September 30, 2024, there were an aggregate of
As of September 30, 2024, there were an aggregate of
As of September 30, 2024,
During the nine months ended September 30, 2024 and 2023, stock option activity under the 2014 Plan, 2020 Plan, and IMGX 2021 Plan was as follows:
Average | Remaining | |||||||||
Number | Exercise | Contract | Intrinsic | |||||||
| of Shares |
| Price |
| Life (Years) |
| Value | |||
Outstanding at January 1, 2024 |
| | $ | |
| $ | — | |||
Assumed from ImmunogenX |
| |
| |
|
| — | |||
Expired | ( | | — | — | ||||||
Outstanding at September 30, 2024 |
| | $ | |
| $ | — | |||
Exercisable at September 30, 2024 |
| | $ | |
| $ | — | |||
Outstanding at January 1, 2023 |
| | $ | |
| $ | — | |||
Granted |
| |
| |
|
| — | |||
Outstanding at September 30, 2023 |
| | $ | |
| $ | — | |||
Exercisable at September 30, 2023 |
| | $ | |
| $ | — | |||
During the nine months ended September 30, 2024, the Company assumed fully vested options to purchase
-23-
For the nine months ended September 30, 2024 and 2023, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes Option Pricing Model with the following weighted-average assumptions:
| 2024 |
| 2023 |
| |
Contractual term (in years) |
| ||||
Expected Volatility |
| | % | | % |
Risk-free interest rate |
| | % | | % |
Expected Dividend yield |
| | % | | % |
Using the Black-Scholes Option Pricing Model, the estimated weighted average fair value of an option to purchase one share of common stock assumed during the nine months ended September 30, 2024 and 2023 was $
Restricted Stock and Restricted Stock Units
Restricted stock refers to shares of Common Stock subject to vesting based on certain service, performance, and market conditions. Restricted stock units (“RSUs”) refer to an award which constitutes a promise to grant shares of Common Stock at the end of a specified restriction period.
As of each September 30, 2024 and September 30, 2023, under the 2014 Plan, the Company had
During the nine months ended September 30, 2024 and 2023, RSU activity under the 2020 Plan was as follows:
| Weighted-Average |
| Weighted-Average | ||||
Number | Grant Date | Remaining Recognition | |||||
| of Shares |
| Fair Value |
| Period (Years) | ||
Non-vested Outstanding at January 1, 2024 | | $ | | ||||
Awarded |
| |
| |
| — | |
Vested | ( | | — | ||||
Cancelled |
| ( |
| |
| — | |
Non-vested Outstanding at September 30, 2024 |
| | $ | |
| ||
Non-vested Outstanding at January 1, 2023 | — | — | — | ||||
Awarded | | $ | | — | |||
Vested | ( | | — | ||||
Canceled | ( | | — | ||||
Non-vested Outstanding at September 30, 2023 | | $ | | ||||
During the nine months ended September 30, 2024 and 2023, the Board approved the grant of
The total stock-based compensation expense for employees and non-employees is included in the accompanying condensed consolidated statements of operations and as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Research and development | $ | | $ | | $ | | $ | | ||||
General and administrative |
| |
| |
| |
| | ||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | | ||||
-24-
As of September 30, 2024, the Company had unrecognized stock-based compensation expense related to stock options and RSUs of approximately $
As of September 30, 2023, the Company had unrecognized stock-based compensation expense related to stock options and RSUs of approximately $
Note 13 – Agreements
License Agreement with Sanofi
On September 13, 2023, the Company entered into a License Agreement with Sanofi, pursuant to which the Company received a license to obtain certain exclusive worldwide rights to develop and commercialize Capeserod, a selective 5-HT4 receptor partial agonist which the Company intends to repurpose and develop for gastrointestinal indications.
The Company paid Sanofi an upfront payment of $
The upfront payment of $
The License Agreement shall expire on a country-by-country basis upon the later of: (i) the expiration of the last to expire valid claim of an applicable patent in such country covering such licensed product, (ii) the expiration of the regulatory exclusivity for such licensed product in the applicable country and (iii) the tenth anniversary of the date of first commercial sale of a licensed product in such country. Each party may terminate the License Agreement if the other party materially breaches its obligations under the License Agreement and fails to cure such material breach within
Note 14 – Leases
The Company leases its offices under operating leases which are subject to various rent provisions and escalation clauses.
The Company is a party to
The Company’s leases expire at various dates through 2026. The escalation clauses are indeterminable and considered not material and have been excluded from minimum future annual rental payments.
Lease expenses amounted to approximately $
-25-
The weighted-average remaining lease term and weighted-average discount rate under operating leases as of September 30, 2024 are:
September 30, |
| ||
| 2024 |
| |
Lease term and discount rate |
| ||
Weighted-average remaining lease term (years) |
| ||
Weighted-average discount rate |
| | % |
Maturities of operating lease liabilities as of September 30, 2024, were as follows:
2024 (remainder of year) |
| $ | |
2025 |
| | |
2026 |
| | |
Total lease payments |
| | |
Less imputed interest |
| ( | |
Present value of lease liabilities | $ | |
Note 15 – Debt
Debt consists of the following:
|
| Related |
|
| Directors |
| |||||||||
party | and Officer’s | ||||||||||||||
Revolving | promissory | Liability | |||||||||||||
line of credit | notes | EIDL loan | Insurance | Total | |||||||||||
Principal balance as of January 1, 2024 | $ | — | $ | — | $ | — | $ | | $ | | |||||
Additions | | | | | | ||||||||||
Payments |
| — | — | — | ( | ( | |||||||||
Debt discount |
| — |
| — |
| ( |
| — |
| ( | |||||
Reclassification to liabilities held for sale | ( | ( | ( | — | ( | ||||||||||
Total debt as of September 30, 2024 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||
Revolving line of credit
In connection with the IMGX acquisition, the Company assumed a revolving line of credit. In October 2022, ImmunogenX entered into a credit agreement, which allowed for a revolving line of credit (the “Revolver”) for borrowings up to $
Promissory notes
In connection with the IMGX acquisition, the Company assumed
-26-
EIDL loan
In connection with the IMGX acquisition, the Company assumed an Economic Injury Disaster Loan (“EIDL”) loan with a principal balance of $
Directors and Officer’s Liability Insurance
On November 30, 2023, the Company entered into
Note 16 – Net Loss per Common Share
Basic net loss per share is computed by dividing net loss available to Common Stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive.
For the nine months ended September 30, 2024 stock options in the amount of
All shares of Common Stock that may potentially be issued in the future are as follows:
September 30, 2024 | September 30, 2023 | |||
| (unaudited) |
| (unaudited) | |
Series G convertible preferred stock | | — | ||
Common stock warrants |
| |
| |
Stock options |
| |
| |
RSUs not yet issued | | | ||
Series B convertible preferred stock (1) |
| |
| |
Restricted stock not yet issued |
| |
| |
Total shares of common stock issuable |
| |
| |
| (1) | Series B convertible preferred stock is assumed to be converted at the rate of $ |
Note 17 - Employee Benefit Plans
401(k) Plan
Since 2015, the Company has sponsored a multiple employer defined contribution benefit plan, which complies with Section 401(k) of the Internal Revenue Code covering substantially all employees of the Company. All employees are eligible to participate in the plan. Employees may contribute from
Employer contributions under this 401(k) plan amounted to approximately $
-27-
Note 18 - Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.
The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Although the Company believes that it has adequately reserved for uncertain tax positions (including interest and penalties), it can provide no assurance that the final tax outcome of these matters will not be materially different. The Company makes adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and operating results. Carryforward attributes that were generated in tax years prior to those that remain open for examination may still be adjusted by relevant tax authorities upon examination if they either have been, or will be, used in a future period.
In applying the estimated annual effective tax rate approach prescribed under ASC 740 - 270 and based on present evidence and conclusions around the realizability of deferred tax assets, the Company determined that any deferred tax benefits related to the forecasted tax rate and pretax activity during the first half of 2024 and 2023 are neither more likely than not to be realized in the current year nor realizable as a deferred tax asset at the end of the year. Therefore, the appropriate amount of income tax benefit to recognize related to deferred tax assets generated during the nine months ended September 30, 2024 and 2023 is
The Company’s effective income tax rate was approximately
-28-
Note 19 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued. The Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements except for the items noted below.
Binding Term Sheet
In November 2024, the Company entered into a binding term sheet (the “Binding Term Sheet”) with Journey Therapeutics, Inc. (“Journey”), a life sciences company. Pursuant to the Binding Term Sheet, the Company will acquire
Lease Termination
In November 2024, the Company terminated its lease in Newport Beach, California.
Share Issuances
In October 2024, the Company issued an aggregate of
-29-
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report to “Entero,” “First Wave,” “AzurRx,” “Company,” “we,” “us,” “our,” or similar references mean Entero Therapeutics, Inc. and its subsidiaries on a consolidated basis. References to “AzurRx SAS” refer to Entero’s former wholly owned subsidiary through which we previously conducted our European operations. References to “FWB” refer to First Wave Bio, Inc. and references to “IMGX” refer to ImmunogenX, LLC, Entero’s wholly-owned subsidiaries. References to the “SEC” refer to the U.S. Securities and Exchange Commission.
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” included in this Report and in our Annual Report filed on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 29, 2024. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
We are engaged in the research and development of targeted, non-systemic therapies for the treatment of patients with gastrointestinal (“GI”) diseases. Non-systemic therapies are non-absorbable drugs that act locally, i.e., in the intestinal lumen, skin or mucosa, without reaching an individual’s systemic circulation.
Our therapeutic pipeline primarily consists of multiple late-stage clinical programs built around three proprietary technologies – the biologic Adrulipase, a recombinant lipase enzyme designed to enable the digestion of fats and other nutrients in cystic fibrosis and chronic pancreatitis patients with exocrine pancreatic insufficiency; Capeserod, a selective 5-HT4 receptor partial agonist which we are developing for the treatment of gastroparesis; and Niclosamide, an oral small molecule with anti-inflammatory properties for patients with inflammatory bowel diseases such as ulcerative colitis and Crohn’s disease. We are currently focusing on our Adrulipase and Capeserod programs and are exploring strategic alternatives for our Niclosamide program.
In May 2024, we changed our name from First Wave Biopharma, Inc. to Entero Therapeutics, Inc.
In March 2024, we announced the closing of a merger with ImmunogenX, Inc. (“IMGX”) (the Company’s acquisition of IMGX, the “Merger”), a private, clinical-stage biopharmaceutical company founded in 2013, which is developing the biologic Latiglutenase for the treatment of celiac disease. IMGX is also developing CypCel, a metabolic marker compound that can measure the state of small-intestinal recovery of celiac patients undergoing gluten-free diets (“GFDs”).
We have initiated a plan to dispose of certain assets and liabilities of IMGX, including Latiglutenase and CypCel, within 12 months of the date of the Merger with IMGX. As of September 30, 2024, these were classified as assets and liabilities held for sale and due to the short period of time since the close of the Merger, are reported at their fair value less cost to sell. We determined that the discontinued operations of IMGX represents a strategic shift that will have a major effect on our operations and financial statements.
In December 2023, we announced that we have entered into a non-binding term sheet to sell our Niclosamide program. The non-binding term sheet includes a low seven-figure upfront payment to us for rights to Niclosamide, as well as economics related to future milestones and royalties. This transaction is not expected to move forward at this time.
-30-
Recent Developments
March 2024 Registered Direct Offering
On March 6, 2024, we completed the March 2024 Offering priced at market under Nasdaq rules, for an aggregate of (i) 173,100 shares of Common Stock, (ii) pre-funded warrants to purchase up to an aggregate of 352,525 shares of Common Stock and (iii) common warrants to purchase up to an aggregate of 525,625 shares of Common Stock. The public offering price for each share of Common Stock and accompanying March 2024 Warrant to purchase one share of Common Stock was $7.61 per share. The March 2024 Pre-Funded Warrants have an exercise price of $0.0001 per share, are exercisable immediately and will expire when exercised in full. The March 2024 Warrants have an exercise price of $7.48 per share, are exercisable immediately and will expire five years from the initial exercise date. We received gross proceeds of approximately $4.0 million less placement agent’s fees and other offering expenses of approximately $0.4 million. The March 2024 Offering included customary registration rights, for registration under the Securities Act, of the shares underlying the warrants in the March 2024 Offering.
May 2024 Registered Direct Offering
On May 10, 2024, we announced that we entered into a Registered Direct Offering (the “May 2024 Offering”) likewise priced at market under Nasdaq rules. The May 2024 Offering was for an aggregate of (i) 275,000 shares of Common Stock, (ii) pre-funded warrants (the “May 2024 Pre-Funded Warrants”) to purchase up to an aggregate of 91,000 shares of Common Stock and (iii) common warrants (the “May 2024 Warrants”) to purchase up to an aggregate of 732,000 shares of Common Stock. The May 2024 Pre-Funded Warrants had the same exercise price and exercise terms as the March 2024 Pre-Funded Warrants. The public offering price for each share of Common Stock in the May 2024 Offering was $2.95, and the public offering price for each May 2024 Pre-Funded Warrant, was $2.9499. The May 2024 Warrants have an exercise price of $2.70 per share, are exercisable immediately and will expire six years from the initial exercise date. In this offering, we received gross proceeds of approximately $1.1 million less placement agent’s fees and other offering expenses.
In connection with the May 2024 Offering, we were obligated to file a registration statement with the SEC to register the shares underlying the warrants sold in the offering under the Securities Act, within 30 days of the closing of the May 2024 Offering and have such registration statement declared effective by the SEC within 60 days of such closing, or in the case of full review of the applicable registration statement by the SEC, within 120 days of such closing. If such registration statement is not so filed or declared effective, on each applicable monthly anniversary for which such registration even is not achieved or cured, we are required to pay to the holder an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 1.0% multiplied by the product of the most recent closing price of our Common Stock on the applicable event date, and the number of shares underlying such warrants, until the shares underlying such warrants are freely tradeable under Rule 144 of the Securities Act or we regain compliance with the registration rights. If we fail to pay partial liquidated damages required thereby within seven (7) days after the date payable, we are required to pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages provisions apply on a daily pro rata basis for any applicable portion of a month.
July 2024 Inducement Offering
On July 10, 2024, we entered into a warrant exercise inducement offer letter (the “Inducement Letter”) with a holder (the “Holder”) of warrants to purchase shares of our Common Stock (the “Existing Warrants”) pursuant to which the Holder agreed to exercise for cash their Existing Warrants to purchase 1,762,674 shares of our Common Stock (the “Existing Warrant Shares”), in the aggregate, at a reduced exercised price of $1.09 per share, in exchange for our agreement to issue new warrants (the “Inducement Warrants”) on substantially the same terms as the Existing Warrants as described below, to purchase up to 3,525,348 shares of our Common Stock (the “Inducement Warrant Shares”). The Inducement Warrants will be exercisable upon the receipt of stockholder approval and may be exercised until the fifth anniversary of the date on which such stockholder approval is obtained. We received aggregate gross proceeds of approximately $1.9 million from the exercise of the Existing Warrants by the Holder and the sale of the Inducement Warrants. We engaged Roth Capital Partners, LLC (“Roth”) to act as our financial advisor in connection with the transactions summarized above and paid Roth approximately $96,000 for its services, in addition to reimbursement for certain expenses.
-31-
Nasdaq Continued Listing Requirements
On August 17, 2023, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we were not in compliance with the $2.5 million minimum stockholders’ equity requirement for continued listing of our common stock on Nasdaq as set forth in Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholder’s Equity Rule”). In that regard, we reported stockholders’ equity of $881,960 in our Quarterly Report on Form 10-Q for the period ended June 30, 2023 (we did not then, and do not now, meet the alternative compliance standards relating to the market value of listed securities of $35.0 million or net income from continuing operations of $0.5 million in the most recently completed fiscal year or in two of the last three most recently completed fiscal years). On April 1, 2024, we received a determination from the Staff that we are back in compliance with the Minium Stockholder’s Equity Rule and that the matter is closed.
On October 26, 2023, we received a notice from the Staff of Nasdaq indicating that in connection with an offering completed in July 2023 (the “July 2023 Offering”), we were not in compliance with Nasdaq’s shareholder approval requirements set forth in listing rule 5635(d), which requires prior shareholder approval for transactions, other than public offerings, involving the issuance of 20% or more of the pre-transaction shares outstanding at less than the Minimum Price, defined as a price that is the lower of: (i) the Nasdaq official closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement. On December 12, 2023, during the Special Meeting, our stockholders ratified our entry into the July 2023 Offering as we received the affirmative vote of the majority of the votes cast by shares of our common stock present or represented by proxy and entitled to vote at the Special Meeting. On March 19, 2024, we received a Letter of Reprimand from the Nasdaq Listing Qualifications Staff (the “Letter of Reprimand”) stating that, while we failed to comply with Nasdaq’s continued listing requirements, our violation of listing rule 5635 (d) does not appear to have been the result of a deliberate intent to avoid compliance, and as such, the Staff does not believe that delisting our securities is an appropriate sanction and that it is appropriate to close these matters by issuing the Letter of Reprimand.
On August 7, 2024, we notified the Staff of Nasdaq that, as the result of the resignations of two of our directors, we were no longer in compliance with Nasdaq Rule 5605(c)(2) (the “Audit Committee Rule”), which requires a Nasdaq-listed company to have an audit committee of the Board comprised of at least three independent directors meeting the eligibility requirements of the Audit Committee Rule. On August 8, 2024, our Board, having determined that both individuals meet the eligibility requirements of the Audit Committee Rule, appointed Chaitan Khosla and Alastair Riddell to the audit committee of the Board (the “Audit Committee”) to fill the vacancies on the Audit Committee created by the aforementioned resignations. Additionally, the Board appointed the existing Audit Committee member, Edward J. Borkowski, as chair of the Audit Committee. As a result of the appointments, the Audit Committee once again had three members, as required by the Audit Committee Rule.
On September 6, 2024, we received a letter from the Staff of Nasdaq indicating that, based upon the closing bid price of our Common Stock for the last 30 consecutive business days, we are not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Notice”. The Notice has no immediate effect on the continued listing status of our common stock on The Nasdaq Capital Market, and, therefore, our listing remains fully effective. We are provided a compliance period of 180 calendar days from the date of the Notice, or until March 5, 2025, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before March 5, 2025, the closing bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, subject to Nasdaq’s discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H), Nasdaq will provide written notification that we have achieved compliance with the minimum bid price requirement, and the matter would be resolved. If we do not regain compliance during the compliance period ending March 5, 2025, then Nasdaq may grant us a second 180 calendar day period to regain compliance, provided we meet the continued listing requirement for market value of publicly-held shares and all other initial listing standards for The Nasdaq Capital Market, other than the minimum closing bid price requirement, and notify Nasdaq of our intent to cure the deficiency.
-32-
Rationalization Activities and Developments
As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. In connection with certain cost reduction measures we have taken, on July 16, 2024, we reduced our headcount to 11 employees, and Dr. Syage agreed to reduce his annual base salary to $66,560, effective July 1, 2024. On August 1, 2024, in order to further reduce costs and conserve resources, we approved the termination of all non-essential employees and are considering vacating the Boca Raton office.
On August 2, 2024, in connection with the reduction in workforce, the Board approve the termination of (i) the employment agreement with our Chief Executive Officer, James Sapirstein (the “Sapirstein Employment Agreement”), and (ii) the offer letter between us and our President, Jack Syage. In connection with the termination of the Sapirstein Employment Agreement, on August 2, 2024, we entered into a consulting agreement with Mr. Sapirstein (the “Sapirstein Consulting Agreement”), whereby he will continue to serve as our Chief Executive Officer, and pursuant to which Mr. Sapirstein will be paid $400 an hour monthly for services rendered to us. The Sapirstein Consulting Agreement has an initial term of six months, subject to early termination by either party for any reason at any time, and may be extended on a month-to-month basis upon mutual agreement after the expiration of the initial six-month term.
Additionally, on August 2, 2024, as part of the reduction in workforce described above, the Board approved the payout of unused vacation time for all employees accrued through August 1, 2024, including Mr. Sapirstein, Dr. Syage, and our Chief Financial Officer, Sarah Romano. We paid Mr. Sapirstein, Dr. Syage, and Ms. Romano $69,230, $1,920, and $45,590, respectively, to compensate for their unused vacation time accrued through August 1, 2024.
As a result of the rationalization, we have paused development of Latiglutenase, Adrulipase, Niclosamide, Capeserod, and any other non-essential research and development activities. We are exploring strategic alternatives, including a sale or wind-down of the IMGX entity, as well as other potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction, however our board of directors has not yet approved any strategic transactions. We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be forced to delay, reduce or terminate our business activities.
Notice of Default and Acceleration
As previously disclosed in our Current Report on Form 8-K filed with the SEC on March 14, 2024, we acquired ImmunogenX in a merger transaction, the terms of which included, among other things, our wholly owned subsidiary, IMGX, assuming the debt of ImmunogenX. On August 2, 2024, IMGX received a Notice of Default and Acceleration (the “Notice”) relating to that certain Credit Agreement, dated as of October 3, 2022 (as amended, modified, supplemented or restated from time to time, the “Credit Agreement”) by and among Mattress Liquidators, Inc. (the “Lender”) and ImmunogenX.
The Notice informed IMGX that one or more events of default under the Credit Agreement (“Event of Defaults”) were existing and continuing. Such outstanding Events of Default include, among others, IMGX suffering an adverse change in its financial condition which would reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement).
The Notice indicated that, as a result of the outstanding Events of Default, pursuant to the terms of Section 8.3 of the Credit Agreement, (a) the outstanding principal balance of the loan made under the Credit Agreement, all interest and fees related thereto, and all other outstanding obligations are accelerated and declared immediately due and payable, and that the Lender demands immediate payment of all obligations, and (b) the Lender is increasing the effective interest rate to the Default Rate (as defined in the Credit Agreement). The Credit Agreement affords IMGX thirty (30) days to cure Events of Default (the “Cure Period”), with a possible extension of an additional thirty (30) days, provided that in no event shall the Cure Period be greater than sixty (60) days in the aggregate. If IMGX is not able to cure the Events of Default within the Cure Period, IMGX may also be deemed to be in default of the stockholder notes ImmunogenX entered into with Jack Syage and Peter Felker as part of the acquisition of ImmunogenX by us (the “Stockholder Notes”), the entry into such notes having been previously disclosed by us on our Current Report on Form 8-K filed with the SEC on March 14, 2024. If IMGX is deemed to have defaulted under the Stockholder Notes, the holders of the Stockholder Notes may, at their option and upon notice to IMGX, declare the outstanding principal of, and all accrued interest on, the Stockholder Notes immediately due and payable.
-33-
As of the date of the Notice, the aggregate outstanding obligations under the Credit Agreement were $6,997,583 (comprised of (i) $5,360,000 in respect of outstanding principal, (ii) $1,637,583 of accrued and unpaid interest, and (iii) other, presently unliquidated, amounts for fees and expenses (including legal fees) payable in accordance with the Credit Agreement and related documents). This outstanding amount does not include any additional obligations incurred following the date of the Notice (including additional interest, which shall continue to accrue on the outstanding obligations following the date of the Notice).
As previously disclosed in our Current Report on Form 8-K filed with the SEC on September 3, 2024, on August 29, 2024, after discussions with the Lender, ImmunogenX received a letter (the “Letter”) from the Lender informing ImmunogenX that at this time, the Lender is suspending the MAE Default. The Letter additionally provided that the Lender’s suspension of the MAE Default is not, and shall not be construed as, a waiver of the MAE Default and the Lender expressly reserves all rights with respect to its enforcement of the MAE Default.
Letter of Intent with Data Vault Holdings, Inc.
On September 9, 2024, we entered into the Letter of Intent with Data Vault Holdings, Inc. (“DVHI”) for the licensing of certain clinical trial software owned by DVHI and associated intellectual property (the “Assets”). The Letter of Intent contemplates a worldwide exclusive license to the Assets with the right to grant sublicenses, and a right of first refusal for the Company to fully acquire the Assets in exchange for the issuance of $250,000 of shares of the Company’s junior convertible preferred stock (the “Preferred Shares”) priced at a price per preferred share equal to 180% of the five (5) trading day Volume-Weighted Average Price (“VWAP”) of the Company’s common stock (the “Common Share Price”), immediately preceding the closing of the Proposed Transaction multiplied by 1,000 (the “Preferred Share Price”), and single digit royalties on net sales (the “Proposed Transaction”). Entry into definitive documentation for the Proposed Transaction will be conditioned upon the Company receiving no less than $500,000 of strategic investment (the “Strategic Investment”), with a target of ultimately securing up to $3.0 million of strategic investment with the assistance of DVHI. There can be no assurance that the Proposed Transaction will be completed on the terms contemplated in the Letter of Intent or otherwise.
Binding Term Sheet
On November 8, 2024, we entered into a binding term sheet (the “Binding Term Sheet”) with Journey Therapeutics, Inc. (“Journey”), a life sciences company. Pursuant to the Binding Term Sheet, we will acquire 100% of the outstanding equity interests of Journey in return for 99% of our fully-diluted equity (the “Acquisition”).
Following the close of the Acquisition, it is anticipated that Henry Ji, M.D., Ph.D., the Chief Executive Officer of Journey, will assume the roles of Chief Executive Officer and Chairman of the Board of Entero. Further, following the close of the Acquisition, the Board will be of a size to be determined jointly by Entero and Journey, with one to two members of the post-closing Board to be designated by Entero.
We anticipate adopting an equity incentive plan (the “Equity Plan”) for up to 15% of the outstanding shares of Common Stock of Entero at the time of the close of the Acquisition. We will also create an employee stock purchase plan for up to 1% of the outstanding shares of Common Stock of Entero at the time of the close of the Acquisition (the “ESPP”). The creation and adoption of the Equity Plan and the ESPP are subject to obtaining requisite Company stockholder, Board and committee approvals.
The Acquisition is subject to a number of conditions, including the completion of customary due diligence, negotiation of the definitive agreement, as well as approvals by our Board and our stockholders. Such definitive agreement will include a number of customary provisions, including without limitation, representations and warranties of Journey and Entero, restrictive covenants appliable to Journey and Entero and indemnification provisions. The Acquisition is also conditioned upon the completion of an equity financing providing net proceeds of at least $5.0 million, the effectiveness of a Form S-4 Registration Statement with regard to the Acquisition, to be filed with the SEC, and the shares of Common Stock of the combined company being approved for initial listing on Nasdaq.
Under the Binding Term Sheet, Journey and Entero are subject to an exclusivity period that is a minimum of 30 days, and such exclusivity shall continue after the 30-day period until a party delivers a notice of termination of exclusivity (the “Exclusivity Period”). During the Exclusivity Period, both parties are restricted from soliciting, negotiating or entering into any agreements with third parties for the sale of their respective businesses or material assets.
-34-
Liquidity and Capital Resources
To date, we have not generated any revenues and have experienced net losses and negative cash flows from our activities.
As of September 30, 2024, we had cash and cash equivalents of approximately $0.4 million and had sustained cumulative losses attributable to common stockholders of approximately $190.1 million. Based on our cash on hand at September 30, 2024, we anticipate having sufficient cash to fund planned operations into December 2024. We believe that we will need to raise substantial additional capital in the near term to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support our working capital needs and business activities. The acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. In order to manage our operating costs, we have reduced headcount and paused development activities, and we are exploring strategic alternatives for the purpose of maximizing value of all of our stakeholders of the Company. We have been, and expect to continue to, explore various potential strategies available to us, including but not limited to raising capital, restructuring our indebtedness and identifying and evaluating potential strategic alternatives but there can be no assurance that these efforts will be successful, that we will be able to raise necessary capital on acceptable terms, reach agreement with our lenders, or that the strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We are evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transactions. As discussed above, in November 2024, we entered into a binding term sheet with Journey Therapeutics, Inc. pursuant to which we will acquire 100% of the outstanding equity interests of Journey in return for 99% of our fully-diluted equity, subject to a number of conditions. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments. However, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our research and development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
We evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As described herein, if we are not able to obtain necessary capital, we may be required to terminate our operations, liquidate all or a portion of our assets and/or seek bankruptcy protection. As a result, management has concluded that its plans at this stage do not alleviate substantial doubt about our ability to continue as a going concern.
Under current Securities and Exchange Commission regulations, because our public float was less than $75.0 million at the relevant measurement period pursuant to General Instruction I.B.6. to Form S-3, the amount we can raise through primary public offerings of securities in any subsequent twelve-month period under our shelf registration statement is limited to an aggregate of one-third of our public float until such time, if any, as our public float is $75.0 million or more. Due to the late filing of our Form 10-Q for the quarter ended June 30, 2024, we are prohibited from registering shares under a Form S-3 for 12 months from the original filing due date, or August 14, 2025.
Our ability to issue securities is subject to market conditions. Each issuance under the shelf registration statements will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.
Debt Obligations
Revolving line of credit
In connection with the IMGX acquisition, we assumed a revolving line of credit. In October 2022, IMGX entered into a credit agreement, which allowed for a revolving line of credit (the “Revolver”) for borrowings up to $6.0 million, maturing on October 1, 2024, and bearing interest per annum of the prime rate plus 4.5%. The credit agreement was amended in September 2023 (the “First Amendment”) to increase the maximum borrowings of the Revolver to $7.5 million. The credit agreement was amended and restated on March 13, 2024 (the “Second Amendment”). Terms under the Second Amendment include a maturity date of September 13, 2025, interest per annum of the prime rate plus 6.0%, and no further draws on the line of credit after March 13, 2024. As of September 30, 2024, the Revolver and accrued interest has been reclassified to liabilities of the disposal group held for sale.
-35-
Promissory notes
In connection with the IMGX acquisition, we assumed two promissory notes, one of which is with a related party. The notes are each in the amount of $0.5 million, accrue interest at a rate of the prime rate plus 4.5% per annum, and have a maturity date of September 30, 2025. As of September 30, 2024, the promissory notes and all accrued interest has been reclassified to liabilities of the disposal group held for sale.
EIDL loan
In connection with the IMGX acquisition, we assumed an EIDL loan with a principal balance of $0.5 million bearing interest of 3.75% per annum, with interest payable monthly in arrears. All unpaid principal and interest are due at maturity on June 30, 2050. As of September 30, 2024, the EIDL loan and all accrued interest has been reclassified to liabilities of the disposal group held for sale.
Consolidated Results of Operations for the Three Months Ended September 30, 2024 and 2023
The following table summarizes our consolidated results of operations for the periods indicated:
Three Months Ended | |||||||||
September 30, | Increase | ||||||||
| 2024 |
| 2023 |
| (Decrease) | ||||
Operating expenses: |
|
|
|
|
|
| |||
Research and development expenses | $ | 206,999 | $ | 1,011,055 | $ | (804,056) | |||
General and administrative expenses | 1,685,608 | 2,422,082 | (736,474) | ||||||
Total operating expenses | 1,892,607 | 3,433,137 | (1,540,530) | ||||||
Other expenses | 2,645 | 1,021 | 1,624 | ||||||
Loss from continuing operations | $ | (1,895,252) | $ | (3,434,158) | $ | (1,538,906) | |||
Loss from discontinued operations | (685,719) |
| — |
| 685,719 | ||||
Net loss | $ | (2,580,971) | $ | (3,434,158) | $ | (853,187) | |||
Research and Development Expense
Research and development expenses include expenses primarily relating to the development of our Adrulipase and Capeserod drug candidates.
Research and development expenses for the three months ended September 30, 2024 totaled approximately $0.2 million, a decrease of approximately $0.8 million, or 80%, over the approximately $1.0 million recorded for the three months ended September 30, 2023.
The approximately $0.8 million decrease in total research and development expenses was primarily attributable to a decrease of $0.5 million related to the September 2023 up-front payment to Sanofi per the executed license agreement for Capeserod, as well as a $0.2 million decrease in clinical trial related expenses and a $0.1 million decrease in personnel costs.
We expect research and development expenses to decrease during the remainder of this fiscal year as we conserve cash.
General and Administrative Expense
General and administrative expenses include expenses primarily relating to our overall operations and being a public company, including personnel, legal and financial professional services, insurance, corporate communications and investor relations, listing and compliance related costs, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.
General and administrative expenses for the three months ended September 30, 2024 totaled approximately $1.7 million, a decrease of approximately $0.7 million, or 30% over the approximately $2.4 million recorded for the three months ended September 30, 2023.
The approximately $0.7 million decrease in total general and administrative expenses was primarily attributable to a decrease of $0.5 million in public company costs and investor relations and $0.1 million in share-based compensation.
-36-
We expect general and administrative expenses to decrease during the remainder of this fiscal year as we conserve cash.
Other Expenses
Other expenses for the three months ended September 30, 2024 and 2023 were insignificant.
Loss from discontinued operations
Loss from discontinued operations for the three months ended September 30, 2024 of $0.7 million represents expenses related to the disposal group that was classified as held for sale as of September 30, 2024.
Net Loss
As a result of the factors above, our net loss for the three months ended September 30, 2024 totaled approximately $2.6 million, a decrease of approximately $0.9 million, or 25%, over the net loss of approximately $3.4 million recorded for the three months ended September 30, 2023.
Consolidated Results of Operations for the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our consolidated results of operations for the periods indicated:
| Nine Months Ended | ||||||||
September 30, | Increase | ||||||||
| 2024 |
| 2023 |
| (decrease) | ||||
Operating expenses: |
|
|
|
|
|
| |||
Research and development expenses | $ | 882,522 | $ | 3,725,833 | $ | (2,843,311) | |||
General and administrative expenses | 13,535,241 | 7,951,373 | 5,583,868 | ||||||
Total operating expenses | 14,417,763 | 11,677,206 | 2,740,557 | ||||||
Other expenses | 7,184 | 16,837 | (9,653) | ||||||
Loss before income tax benefit |
| (14,424,947) |
| (11,694,043) |
| 2,730,904 | |||
Income tax benefit |
| 10,604,640 |
| — |
| 10,604,640 | |||
Loss from continuing operations | $ | (3,820,307) | $ | (11,694,043) | $ | (7,873,736) | |||
Loss from discontinued operations | (2,000,760) | — | 2,000,760 | ||||||
Net loss | $ | (5,821,067) | $ | (11,694,043) | $ | (5,872,976) | |||
Research and Development Expenses
Research and development expenses include expenses primarily relating to the development of our Adrulipase and Capeserod drug candidates.
Research and development expenses for the nine months ended September 30, 2024 totaled approximately $0.9 million, a decrease of approximately $2.8 million, or 76%, over the approximately $3.7 million recorded for the nine months ended September 30, 2023.
The decrease in research and development expenses of $2.8 million was primarily attributable to decreases of approximately $2.0 million in clinical related expenses primarily related to our Phase 2b Adrulipase SPAN clinical trial which occurred during the nine months ended September 30, 2023 and a decrease of $0.5 million related to the September 2023 up-front payment due to Sanofi per the executed license agreement for Capeserod.
We expect research and development expenses to decrease during the remainder of this fiscal year as we conserve cash.
General and Administrative Expenses
General and administrative expenses include expenses primarily relating to our overall operations and being a public company, including personnel, legal and financial professional services, insurance, corporate communication and investor relations, listing and compliance related costs, rent, and expenses associated with obtaining and maintaining intellectual property and patents, among others.
-37-
General and administrative expenses for the nine months ended September 30, 2024 totaled approximately $13.5 million, an increase of approximately $5.6 million, or 70% over the approximately $7.9 million recorded for the nine months ended September 30, 2023.
The increase in general and administrative expenses of $5.6 million was primarily due to $4.0 million of non-cash expense recorded for financial advisor fees related to the IMGX acquisition, $1.5 million in share-based compensation for consultants, and an increase of $0.9 million in legal fees and professional fees related to the IMGX acquisition. The increase was partially offset by a decrease of $0.5 million in public company costs and investor relations.
We expect general and administrative expenses to decrease during the remainder of this fiscal year as we conserve cash.
Other Expenses
Other expenses for the nine months ended September 30, 2024 and 2023 were insignificant.
Income Tax Benefit
A tax benefit of approximately $10.6 million was recorded in the nine months ended September 30, 2024 due to the release of a portion of our valuation allowance in connection with the IMGX Merger of $14.9 million, partially offset by an increase in our valuation allowance of $4.3 million related to the reclassification of the IMGX IPR&D to held for sale.
Loss from discontinued operations
Loss from discontinued operations for the nine months ended September 30, 2024 of $2.0 million represents expenses related to the disposal group that was classified as held for sale as of September 30, 2024.
Net Loss
As a result of the factors above, our net loss for the nine months ended September 30, 2024 totaled approximately $5.8 million, a decrease of approximately $5.9 million, or 50%, over the approximately $11.7 million net loss recorded for the nine months ended September 30, 2023.
Cash Flows for the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended | ||||||
September 30, | ||||||
| 2024 |
| 2023 | |||
Net cash (used in) provided by: |
|
|
|
| ||
Operating activities | $ | (9,046,305) | $ | (8,938,474) | ||
Investing activities |
| 88,169 |
| — | ||
Financing activities | 5,613,152 | 10,867,899 | ||||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (3,344,984) | $ | 1,929,425 | ||
Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2024 of approximately $9.0 million was primarily attributable to our non-cash change in deferred tax valuation allowance of $10.6 million and our net loss of $5.8 million, partially offset by other non-cash expenses totaling approximately $7.4 million, mainly related to stock issued to our financial advisors in connection with the IMGX acquisition of $4.0 million, common stock granted to consultants of $1.5 million, and stock-based compensation of $0.6 million, as well as a decrease in prepaid expenses of $0.9 million.
Net cash used in operating activities during the nine months ended September 30, 2023 of approximately $8.9 million was primarily attributable to our net loss of approximately $11.7 million; partially offset by a decrease in prepaid expenses of approximately $1.3 million, non-cash expenses of approximately $1.0 million, mainly related to stock-based compensation and common stock issued to consultants; and a net increase in accrued expenses and accounts payable of approximately $0.4 million.
-38-
Investing Activities
Net cash provided by investing activities during the nine months ended September 30, 2024 of approximately $0.1 million was due to the net cash acquired in the acquisition of IMGX.
Financing Activities
Net cash provided by financing activities of approximately $5.6 million for the nine months ended September 30, 2024 was primarily due to net proceeds of approximately $4.5 million from the March 2024 and May 2024 registered direct offerings and $1.7 million from the July Inducement offering, partially offset by approximately $0.6 million of cash repayments of the note payable financing for corporate insurances.
Net cash provided by financing activities of approximately $10.9 million for the nine months ended September 30, 2023 was due to the net proceeds of approximately $5.9 million from the exercise of warrants, the net proceeds of approximately $5.5 million from the March 2023 and July 2023 offerings of our common stock, partially offset by repayments of approximately $0.6 million related to the note payable.
Critical Accounting Policies and Estimates
Our accounting policies are essential to understanding and interpreting the financial results reported on the consolidated financial statements. The significant accounting policies used in the preparation of our consolidated financial statements are summarized in Note 2 to the consolidated financial statements and notes thereto found in our Annual Report on Form 10-K for the year ended December 31, 2023. Certain of those policies are considered to be particularly important to the presentation of our financial results because they require us to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.
During the nine months ended September 30, 2024, there were no material changes to matters discussed under the heading “Critical Accounting Policies and Significant Judgments and Estimates” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a - 15(b) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10 - Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a - 15(e) and 15d - 15(e) under the Exchange Act. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a - 15(d) or 15d - 15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10 - Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
-39-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Except as described below, there have been no material changes in or additions to the risk factors included in our Quarterly Report on Form 10-Q for the period ended September 30, 2024 or our Annual Report on Form 10-K for the year ended December 31, 2023.
There is substantial doubt about our ability to continue as a “going concern,” and we will require substantial additional funding to finance our near- and long-term operations. If we are unable to raise additional capital, we have delayed, and could be forced to further delay, reduce or terminate certain of our products or other operations.
We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future. As of September 30, 2024, we had cash and cash equivalents of approximately $0.4 million and have sustained cumulative losses attributable to common stockholders of approximately $190.1 million.
Based on our cash on hand at November 13, 2024, we anticipate having sufficient cash to fund planned operations into December 2024. The acceleration or reduction of cash outflows by management can significantly impact the timing for the need to raise additional capital to complete development of our products. We believe that we will need to raise substantial additional capital in the near term to fund our continuing operations, satisfy existing and future obligations and liabilities, and otherwise support our working capital needs and business activities. In order to manage our operating costs, we have paused development activities for Latiglutenase, Capeserod and Adrulipase, and we are exploring strategic alternatives for Latiglutenase and Niclosamide.
We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability. Therefore, we are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We are actively working to obtain additional funding. However, there are currently no commitments in place for further financing nor is there any assurance that such financing will be available to us on favorable terms, if at all. We believe these conditions may raise substantial doubt about our ability to continue as a going concern. If we are unable to secure additional capital, we may be required to delay or curtail any future development of products, and we may take additional measures to reduce expenses in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. This would negatively impact our business and operations, which would likely cause the price of our Common Stock to decline or ultimately force us to cease our operations.
We have recently rationalized our operations and may further rationalize or terminate our operations if we cannot obtain sufficient capital.
We are dependent on obtaining, and are continuing to pursue, the necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue our operations. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be forced to delay, reduce or terminate our business activities.
As of December 31, 2023, we had 9 employees, which increased to 15 employees in March 2024 following the IMGX Merger. In connection with certain cost reduction measures we have taken, on July 16, 2024, we reduced our headcount to 11 employees, and Dr. Syage agreed to reduce his annual base salary to $66,560, effective July 1, 2024. On August 1, 2024, in order to further reduce costs and conserve resources, we approved the termination of all non-essential employees.
-40-
On August 2, 2024, in connection with the reduction in workforce, the Board approve the termination of (i) the employment agreement with our Chief Executive Officer, James Sapirstein (the “Sapirstein Employment Agreement”), and (ii) the offer letter between us and our President, Jack Syage. In connection with the termination of the Sapirstein Employment Agreement, on August 2, 2024, we entered into a consulting agreement with Mr. Sapirstein (the “Sapirstein Consulting Agreement”), whereby he will continue to serve as our Chief Executive Officer, and pursuant to which Mr. Sapirstein will be paid $400 an hour monthly for services rendered to us. The Sapirstein Consulting Agreement has an initial term of six months, is subject to early termination by either party for any reason at any time, and may be extended on a month-to-month basis upon mutual agreement after the expiration of the initial six-month term.
Additionally, on August 2, 2024, as part of the reduction in workforce described above, the Board approved the payout of unused vacation time for all employees accrued through August 1, 2024, including Mr. Sapirstein, Dr. Syage, and our Chief Financial Officer, Sarah Romano. We paid Mr. Sapirstein, Dr. Syage, and Ms. Romano $69,230, $1,920, and $45,590, respectively, to compensate for their unused vacation time accrued through August 1, 2024.
As a result of the rationalization, we have paused research and development activities for our Latiglutenase, Adrulipase and Capeserod product candidates and any other non-essential research and development activities and have paused or terminated third party service arrangements related thereto. We are exploring strategic alternatives for Niclosamide and are evaluating all potential strategic options, including a merger, reverse merger, sale, wind-down, liquidation and dissolution or other strategic transaction, including a potential sale or wind-down of the IMGX assets and liabilities. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stakeholder value or that we will make any cash distributions to our stockholders. Any failure in these efforts could force us to delay, limit or terminate our operations, make reductions in our workforce, discontinue our research and development programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
Due to the significant resources required for the development of our product candidates, we must prioritize development of certain product candidates and/or certain disease indications, and deprioritize others. We may expend our limited resources, as they become available, on candidates or indications that do not yield a successful product and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Our goal is to develop a pipeline of product candidates to treat GI and other diseases. Due to the significant resources required for the development of product candidates, we must focus our attention and resources on specific diseases and/or indications and decide which product candidates to pursue and the amount of resources to allocate to each. We intend to focus our resources, as they become available, on the development of our product candidates Adrulipase and Capeserod.
Our decisions concerning the allocation of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away from better opportunities. Similarly, any decision to delay, terminate or collaborate with third parties in respect of certain programs or product candidates may subsequently prove to be suboptimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the viability or market potential of any of our programs or product candidates or misread trends in the GI, CF, CP, COVID-19, ICI-AC or biotechnology industry, our business, financial condition and results of operations could be materially adversely affected. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases and indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to invest additional resources to retain development and commercialization rights.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sale of Unregistered Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
-41-
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
(b) | Exhibits |
Exhibit |
| Description |
3.1 | ||
3.2 | ||
4.1 | ||
10.1 | ||
10.2† | ||
31.1* |
| |
31.2* |
| |
32.1** |
| |
101.INS* |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
| Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
*filed herewith
**furnished, not filed, herewith
† Indicates a management contract or compensation plan, contract or arrangement.
-42-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ENTERO THERAPEUTICS, INC. | ||
By | /s/ James Sapirstein | |
James Sapirstein | ||
Chief Executive Officer and Chairman | ||
(Principal Executive Officer) | ||
By | /s/ Sarah Romano | |
Sarah Romano | ||
Chief Financial Officer | ||
Date: November 13, 2024 | (Principal Financial and Accounting Officer) |
-43-