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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For 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)
N/A
(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(s) | Name of each exchange on which registered | ||
| None | None | None |
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 ☐ No
Number of shares of common stock of LadRx Corporation, $ par value, outstanding as of November 14, 2024: shares.
LADRX CORPORATION
FORM 10-Q
TABLE OF CONTENTS
| Page | ||
| PART I. — FINANCIAL INFORMATION | 4 | |
| Item 1. | Condensed Financial Statements (unaudited) | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 21 |
| Item 4. | Controls and Procedures | 21 |
| PART II. — OTHER INFORMATION | 22 | |
| Item 1. | Legal Proceedings | 22 |
| Item 1A. | Risk Factors | 22 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| Item 3. | Defaults Upon Senior Securities | 22 |
| Item 4. | Mine Safety Disclosures | 22 |
| Item 5. | Other Information | 22 |
| Item 6. | Exhibits | 22 |
| SIGNATURES | 23 | |
| INDEX TO EXHIBITS | 24 | |
| 2 |
Forward Looking Statements
All statements in this Quarterly Report on Form 10Q (this “Quarterly Report”), including statements in this section, other than statements of historical fact are forward-looking statements, including statements of our current views with respect to the recent developments regarding our business strategy, business plan and research and development activities, our future financial results, and other future events. These statements include forward-looking statements both with respect to us, specifically, and the biotechnology industry, in general. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “could” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements.
All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the factors discussed in this section and under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”), which should be reviewed carefully. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. Please consider our forward-looking statements in light of those risks as you read this Quarterly Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Note Regarding Company References
References throughout this Quarterly Report, the “Company”, “LadRx”, “we”, “us”, and “our”, except where the context requires otherwise, refer to LadRx Corporation.
| 3 |
PART I — FINANCIAL INFORMATION
Item 1. — Condensed Financial Statements
LADRX
CORPORATION
CONDENSED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Equipment and furnishings, net | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred Stock, $ par value, shares authorized, including shares of Series B Junior Participating Preferred Stock; shares issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
| 4 |
LADRX CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue: | ||||||||||||||||
| Licensing revenue | $ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Sale of royalty and milestone rights, net of transaction costs | ||||||||||||||||
| Other | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Dividends paid on preferred shares | ( | ) | ||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Total basic and diluted income (loss) per share | $ | ) | $ | ) | $ | ) | $ | |||||||||
| Basic and diluted weighted-average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements
| 5 |
LADRX CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) from operations | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation expense | ||||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other assets | ||||||||
| Amortization of operating lease right-of-use asset | ||||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Preferred stock dividend | ( | ) | ||||||
| Purchase of preferred investment option | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of Cash Flow Information: | ||||||||
| Conversion of Series C 10% Convertible Preferred Stock to Common Stock | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements
| 6 |
LADRX CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Nine Month Period Ended September 30, 2024
| Series B Preferred Shares Issued | Common Shares Issued | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Stock compensation on vested options | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Stock compensation on vested options | ||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||
| Stock compensation on vested options | ||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
For the Nine Month Period Ended September 30, 2023
| Series B Preferred Shares Issued | Common Shares Issued | Common Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| ( | ) | |||||||||||||||||||||||
| Conversion of Series C Convertible Preferred Stock | ||||||||||||||||||||||||
| Preferred dividend | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common stock | ( | ) | ||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | ($ | ) | $ | ( | ) | |||||||||||||||||
| Conversion of Series C Convertible Preferred Stock | ||||||||||||||||||||||||
| Payment to redeem investment option | ( | ) | ( | ) | ||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Net loss | ( | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| 7 |
LADRX CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
For
the Three Months and Nine-Months Periods Ended September 30, 2024 and 2023
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed financial statements of Ladrx Corporation (the “Company”) at September 30, 2024, and for the three-month and nine-month periods ended September 30, 2024 and 2023, respectively, are unaudited, but include all adjustments, consisting of normal recurring entries, that management believes to be necessary for a fair presentation of the periods presented. Interim results are not necessarily indicative of results for a full year. Balance sheet amounts as of December 31, 2023 were derived from our audited financial statements as of that date.
The financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The financial statements should be read in conjunction with our audited financial statements contained in the 2023 Annual Report.
Going Concern
The
Company’s condensed financial statements have been presented on the basis that it will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. During the nine-month period ended September
30, 2024, the Company incurred a net loss of $
At
September 30, 2024, we had cash and cash equivalents and short-term investments of approximately $
2023 Reverse Stock Split
The
Company effected a
| 8 |
Use of Estimates
Preparation of the Company’s condensed financial statements in conformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the Company’s condensed financial statements and accompanying notes. The significant estimates in the Company’s condensed financial statements relate to the valuation of equity awards, recoverability of deferred tax assets, and estimated useful lives of fixed assets, The Company bases estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.
Fair Value Measurements
The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Level 1—Inputs used to measure fair value are unadjusted quoted prices that are available in active markets for the identical assets or liabilities as of the reporting date.
Level 2— Other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3—Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment are used to measure fair value. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions. The determination of fair value for Level 3 investments and other financial instruments involves the most management judgment and subjectivity.
The carrying amounts of financial assets and liabilities, such as cash, other current assets, accounts payable, and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Research and Development Expenses
Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses and drugs, that are utilized in research and development and that have no alternative future use are expensed when incurred. Technology developed for use in its products is expensed as incurred until technological feasibility has been established.
Stock Compensation
The Company accounts for share-based awards to employees and non-employee directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
Basic and diluted net loss per common share is computed based on the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from computation when their effect is antidilutive. Common share equivalents that could potentially dilute net loss per share in the future, and which were excluded from the computation of diluted loss per share, were as follows:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Options to acquire common stock | ||||||||
| Warrants to acquire common stock | ||||||||
Recently Issued Accounting Pronouncements
Recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a material impact on the Company’s condensed financial statements and related disclosures.
2. Financing Under Securities Purchase Agreement
On
July 13, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single institutional
investor (the “Investor”) for aggregate gross proceeds of $
| 9 |
In
2022, the Company paid the following dividends: on January 1, 2022, $
At December 31, 2022, the Company had shares of Series C Preferred Stock outstanding. On January 31, 2023, the Investor converted a further shares of Series C Preferred Stock for shares of common stock and on May 8, 2023, the Investor converted its remaining shares of Series C Preferred Shares for shares of common stock. As of September 30, 2024 and December 31, 2023, there were shares of Series C Preferred Stock issued and outstanding.
3. XOMA
Royalty Purchase Agreement with XOMA
On
June 21, 2023, the Company, entered into (i) a Royalty Purchase Agreement (the “Royalty Agreement”) with XOMA (US) LLC (“XOMA”),
for the sale, transfer, assignment and conveyance of the Company’s right, title and interest in and to certain royalty payments
and milestone payments with respect to aldoxorubicin, and (ii) an Assignment and Assumption Agreement (the “Assignment Agreement”)
with XOMA for the sale, transfer, assignment and conveyance of the Company’s right, title and interest in the Asset Purchase Agreement
(the “2011 Arimoclomol Agreement”) between the Company and Orphazyme ApS (“Orphazyme”), dated as of May 13, 2011,
and assigned to Zevra Denmark A/S (“Zevra Denmark”), effective as of June 1, 2022, which includes certain royalty and milestone
payments with respect to arimoclomol. The combined aggregate purchase price paid to the Company for the sale, transfer, assignment and
conveyance of the Company’s right, title and interest in and to aldoxorubicin and arimoclomol was $
The
Royalty Agreement and the Assignment Agreement also provided for up to an additional $
Pursuant to the Royalty Agreement, the Company agreed to sell, transfer, assign and convey to XOMA, among other payments, all royalty payments and regulatory and commercial milestone payments payable to the Company pursuant to the worldwide license agreement (the “License Agreement”), dated July 27, 2017, by and between the Company and ImmunityBio, Inc (“ImmunityBio”). The Royalty Agreement also provides for the sharing of certain rights with XOMA to bring any action, demand, proceeding or claim as related to receiving such payments.
Management determined that the Royalty Agreement is not considered to be with a customer, and it does not fall within the scope of ASC 606. Instead, the Royalty Agreement represents an in-substance sale of non-financial assets and, therefore, should be accounted for within the scope of ASC 610-20.
First Amendment to Royalty Purchase Agreement
On June 3, 2024, in consideration for the termination of the License Agreement pursuant to the Termination Agreement (as defined below), the Company and XOMA entered into the First Amendment to the Royalty Agreement (the “First Amendment”).
| 10 |
Mutual Termination and Release Agreement
On June 3, 2024, pursuant to a Mutual Termination and Release Agreement (the “Termination Agreement”), the Company, NantCell, Inc., a Delaware corporation (“NantCell, Inc.,” and together with ImmunityBio “NantCell”), and its parent company, ImmunityBio, and XOMA agreed to a mutual termination of the License Agreement, effective as of the same date (the “Effective Date”). Neither the Company nor NantCell will have any continuing obligations to each other than as described in the Termination Agreement. Additionally, except that during the 30 day period following the Effective Date (the “Discussion Period”), the Company and NantCell shall engage in good faith discussions regarding the terms of an agreement pursuant to which the Company would have the right to purchase the inventory of aldoxorubicin (including, without limitation, active pharmaceutical ingredient, WPI and finished dose, the “Inventory”) and all other materials necessary for the research, development and commercialization, among others, worldwide as of the Effective Date, at the Company’s expense. Subsequently, the Company and NantCell have agreed that the disposition of the Inventory shall be at NantCell’s sole discretion.
The Termination Agreement additionally provides for the release of the Company and NantCell from claims, demands and liabilities, among others, and customary representations and warranties, covenants, and other provisions customary for transactions of this nature.
Assignment and Assumption Agreement with XOMA
On June 21, 2023, the Company entered into the Assignment Agreement with XOMA, pursuant to which, among others, the Company agreed to sell, transfer and assign to XOMA the Company’s right, title and interest in the arimoclomol pursuant to the 2011 Arimoclomol Agreement, including the right to receive certain milestone, royalty and other payments from Zevra Denmark.
The Company has the 2008 Stock Incentive Plan (the “2008 Plan”) under which shares of common stock are reserved for issuance. As of September 30, 2024, there were approximately shares subject to outstanding stock options and approximately shares outstanding related to restricted stock grants issued from the 2008 Plan. This plan expired on and thus no further shares are available for future grant under this plan.
In November 2019, the Company adopted the 2019 Stock Incentive Plan (the “2019 Plan”) under which shares of common stock are reserved for issuance. As of September 30, 2024, there were shares subject to outstanding stock options and shares outstanding related to restricted stock grants from the 2019 Plan. This Plan expires on .
On September 7, 2023, the Board approved the first amendment (the “Plan Amendment”) to the 2019 Plan, effective as of the same date. The Plan Amendment amends the 2019 Plan to (i) reflect the Company’s recent name change from CytRx Corporation to LadRx Corporation, and (ii) increase the aggregate number of shares of common stock that may be issued under the 2019 Plan, as set forth in Section 4(a) of the 2019 Plan, by an additional shares of common stock. On September 7, 2023, the Board additionally approved and set January 16, 2024, as the grant date for certain stock options to purchase shares of common stock to certain directors and officers of the Company, which such options to purchase up to a total of shares of common stock were granted to employees and directors. percent of these options were immediately vested, and the remaining balance will vest in equal installments on a monthly basis over . There were options issued in the period ended September 30, 2023.
| 11 |
| 2024 | 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected lives (years) | ||||||||
| Expected dividend yield | % | % | ||||||
The Company’s computation of expected volatility is based on the historical daily volatility of its publicly traded stock. For option grants issued during the nine-months ended September 30, 2024, the Company used a calculated volatility for each grant. The Company lacks adequate information about the exercise behavior at this time and has determined the expected term assumption under the simplified method provided for under ASC 718, which averages the contractual term of the Company’s options of with the . In 2024, the Company used the average term of six years. The dividend yield assumption of zero is based upon the fact the Company has never paid cash dividends on common stock and presently has no intention of paying cash dividends. The risk-free interest rate used for each grant is equal to the U.S. Treasury rates in effect at the time of the grant for instruments with a similar expected life. The Company accounts for forfeitures as they occur. No amounts relating to stock-based compensation have been capitalized. No amounts relating to employee stock-based compensation have been capitalized.
During the nine months ended September 30, 2024 and September 30, 2023, options were exercised.
| Nine-Months Ended September 30, 2024 | ||||||||||||||||
| Number of Options (Employees) | Number of Options (Non-Employees) | Total Number of Options | Weighted-Average Exercise Price | |||||||||||||
| Outstanding at January 1, 2024 | $ | |||||||||||||||
| Issued | ||||||||||||||||
| Exercised, forfeited or expired | ||||||||||||||||
| Outstanding at September 30, 2024 | $ | |||||||||||||||
| Exercisable at September 30, 2024 | $ | |||||||||||||||
| Range
of Exercise Prices | Number of Options | Weighted-Average
Remaining Contractual Life (years) | Weighted-Average Exercise Price | Number
of Options Exercisable | Weighted-Average
Remaining Contractual Life (years) | Weighted-Average Exercise Price | ||||||||||||||||||
| $ - $ | $ | $ | ||||||||||||||||||||||
| $ –$ | $ | $ | ||||||||||||||||||||||
| $ – $ | $ | $ | ||||||||||||||||||||||
| $ –$ | $ | $ | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||
The Company recorded $ of stock compensation costs in the period ended September 30, 2024 and costs in the period ended September 30, 2023. At September 30, 2024, there was $ of unrecognized compensation expense related to unvested stock options.
There was aggregate intrinsic value of the outstanding options as of September 30, 2024.
At
December 31, 2023, the Company had warrants to purchase up to
| 12 |
5. Commitments and Contingencies
Commitments
Aldoxorubicin
The
Company has an agreement (the “Vergell Agreement”) with Vergell Medical (formerly with KTB Tumorforschungs GmbH) (“Vergell”)
for the exclusive license of patent rights held by Vergell for the worldwide development and commercialization of aldoxorubicin. Under
the agreement, we had to make payments to Vergell upon meeting certain clinical and regulatory milestones up to and including the product’s
second final marketing approval. However, those payments are no longer required since the intellectual property acquired under the Vergell
Agreement has now expired. The Company accrued $
As discussed in Note 3, pursuant to the First Amendment to the Royalty Agreement, the Company and XOMA have amended the Royalty Agreement to provide XOMA with a low single-digit synthetic royalty on aldoxorubicin and a mid-single digit percentage of any economics derived by LadRx from future out-license agreements related to aldoxorubicin.
Arimoclomol
The
agreement relating to our worldwide rights to arimoclomol provides for our payment of up to an aggregate of $
As
disclosed in Note 3, Assignment Agreement with XOMA, pursuant to the Assignment Agreement, although all the liabilities and obligations
related to arimoclomol remain the responsibility of the Company, XOMA will direct an escrow agent appointed by them to pay on behalf
of LadRx up to an aggregate of $
Innovive
Under
the merger agreement by which the Company acquired Innovive, the Company agreed to pay the former Innovive stockholders a total of up
to approximately $
Contingencies
We apply the disclosure provisions of ASC 460, Guarantees (“ASC 460”) to its agreements that contain guarantees or indemnities by the Company. We provide (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims; and (ii) indemnifications of varying scope and size to officers and directors against third party claims arising from the services they provide to the Company.
The Company is occasionally involved in legal proceedings and other matters arising from the normal course of business. On November 30, 2022, Jerald Hammann (“Hammann”) filed a complaint (the “Complaint”) against the Company, Mr. Caloz, and Mr. Kriegsman (together, “Defendants”) in the Court of Chancery of the State of Delaware, alleging various violations of a Cooperation Agreement, dated August 21, 2020, by and between the Company and Hammann. The Complaint alleges breaches of a provision limiting the Board’s ability to effect discretionary compensation and a non-disparagement provision. The Complaint further alleges a breach of a purported implied obligation that the Company disclose various internal records to Hammann. Defendants moved to dismiss the Complaint in its entirety. As a result, the Court subsequently dismissed the claims against Mr. Caloz and Mr. Kriegsman and also dismissed one of the claims against the Company. The Company intends to litigate vigorously against Hammann’s claims.
The Company evaluates developments in legal proceedings and other matters on a quarterly basis. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.
| 13 |
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
LadRx Corporation (“LadRx,” the “Company,” “we,” “us,” or “our”) is a biopharmaceutical research and development company specializing in oncology. The Company’s focus is on the discovery, research and clinical development of novel anti-cancer drug candidates that employ novel technologies that target chemotherapeutic drugs to solid tumors and reduce off-target toxicities. During 2017, LadRx’s discovery laboratory in Freiburg, Germany, synthesized and tested over 75 rationally designed drug conjugates with highly potent anti-cancer payloads, culminating in the creation of two distinct classes of compounds. Four lead candidates (LADR-7 through LADR-10) were selected based on in vitro and animal studies in several different cancer models, stability, and manufacturing feasibility. In addition, a novel companion diagnostic, ACDx™, was developed to identify patients with cancer who are most likely to benefit from treatment with these drug candidates.
On June 1, 2018, LadRx launched Centurion BioPharma Corporation (“Centurion”), a wholly-owned subsidiary, and transferred into Centurion all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection with said transfer, the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render advisory, consulting, financial and administrative services to Centurion, for which Centurion shall reimburse the Company for the cost of such services plus a 5% service charge. On December 21, 2018, LadRx announced that Centurion had concluded the pre-clinical phase of development for its four LADRTM (Linker Activated Drug Release) drug candidates, and of its albumin companion diagnostic (ACDx™). As a result of completing this work, operations taking place at the pre-clinical laboratory in Freiburg, Germany were no longer needed and the lab was closed at the end of January 2019.
On March 9, 2022, Centurion merged with and into LadRx, with LadRx absorbing all of Centurion’s assets and continuing after the merger as the surviving entity (the “Merger”). The Merger was implemented through an agreement and plan of merger pursuant to Section 253 of the General Corporation Law of the State of Delaware and did not require approval from either our or Centurion’s stockholders. The Certificate of Ownership merging Centurion into LadRx was filed with the Secretary of State of Delaware on March 9, 2022.
Effective September 26, 2022, we changed our name from CytRx Corporation to LadRx Corporation pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the Secretary of State of Delaware. In accordance with the General Corporation Law of the State of Delaware (the “DGCL”), our board of directors approved the name change and the Certificate of Amendment. Pursuant to Section 242(b)(1) of the DGCL, stockholder approval was not required for the name change or the Certificate of Amendment.
2023 Reverse Stock Split
The Company effected a 1-for-100 reverse stock split (the “Reverse Stock Split”) of its issued and outstanding shares of common stock on May 17, 2023, pursuant to which every 100 shares of the Company’s issued and outstanding shares of common stock were converted into one share of common stock without any change in the par value per share. Any fraction of a share of common stock that would otherwise have resulted from the Reverse Stock Split was rounded up to the nearest whole share. All share and per share amounts in this Quarterly Report on Form 10-Q and the accompanying financial statements and notes thereto have been adjusted to reflect the Reverse Stock Split as if it had occurred at the beginning of the earliest period presented.
Corporate Information
We are a Delaware corporation, incorporated in 1985. Our corporate offices are located at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049, and our telephone number is (310) 826-5648. Our web site is located at http://www.ladrxcorp.com. We do not incorporate by reference into this Quarterly Report on Form 10-Q the information on, or accessible through, our website, and you should not consider it as part of this report.
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LADR Drug Discovery Platform
We believe that the LADR™ technology offers the opportunity for multiple pipeline drugs. The Company’s LADR™ technology platform consists of an organic backbone that is attached to a chemotoxic agent. The purpose of the LADR™ backbone is to first target and deliver the chemotoxic agent to the tumor environment, and then to release the chemotoxic agent within the tumor. By delivering, concentrating, and releasing the chemotoxic agent within the tumor, one expects to reduce the off-target side-effects of the chemotherapeutic, which in turn allows for several-fold higher dosing of the chemotherapeutic to the patient. Being small organic molecules, the Company expects LADR-based drugs to offer the benefits of targeting the tumor without the complexity, side effects, and expense inherent in macromolecules such as antibodies and nanoparticles.
The Company’s LADR-based drugs use circulating albumin as the binding target and as the trojan horse to deliver the LADR™ drugs to the tumor. Albumin is the most abundant protein in plasma and accumulates inside tumors due to the aberrant vascular structure that exists within solid tumors. Tumors use albumin as a nutritional source and for transport of signaling and other molecules that are important to the maintenance and growth of the tumor, which makes albumin an excellent target for drugs that are intended for solid tumors.
The first LADR-based drug is aldoxorubicin. Aldoxorubicin consists of the widely used chemotoxin doxorubicin attached to a LADR backbone that targets the drug to the tumor, and releases the active drug once inside the tumor. Aldoxorubicin has been administered to hundreds of patients in clinical trials in soft tissue sarcoma and glioblastoma. As expected for a LADR-based drug, aldoxorubicin is typically dosed at a level that provides 3-4 times the amount of doxorubicin that can be safely delivered to a patient. In a large Phase II study in advanced soft tissue sarcomas, aldoxorubicin met its primary endpoint in extending progression-free survival (PFS). This Phase II study also resulted in preliminary data suggestive of aldoxorubicin having an improved cardiotoxicity profile relative to doxorubicin, one of the major issues with the use of doxorubicin. This preliminary data suggesting a possible advantage in cardiotoxicity offered by aldoxorubicin over doxorubicin was also shown in a subsequent Phase III trial in soft tissue sarcoma. The primary PFS endpoint was not met in this Phase III trial, in which 2/3 of the patients in the aldoxorubicin group were known to have already progressed after treatment with doxorubicin, making efficacy results difficult to interpret in this Phase III trial. It is the opinion of the Company that additional Phase II and Phase III studies with aldoxorubicin are warranted.
The Company’s efforts at furthering LADR™ development are focused on two classes of ultra-high potency albumin-binding drugs. These LADR-based drugs, LADR7, 8, 9, and 10, combine the proprietary LADR™ backbone with novel derivatives of the auristatin and maytansinoid drug classes. Auristatin and maytansinoid are highly potent chemotoxins, and require targeting to the tumor for safe administration to humans, as is the case for the U.S. Food and Drug Administration (“FDA”)-approved drugs Adcetris (auristatin antibody-drug-conjugate manufactured by Seagen, Inc.) and Kadcyla (maytansine antibody-drug-conjugate manufactured by Genentech, Inc.). We believe that LADR-based drugs offer the benefits of tumor targeting without the disadvantages of antibodies and other macromolecules, which include expense, complexity, and negative side effects. Additionally, albumin is a very well-characterized drug target, which we believe will reduce clinical and regulatory costs and risks.
The Company’s postulated mechanism of action for LADR-based drugs is as follows:
| ● | after administration, the linker portion of the drug conjugate forms a rapid and specific covalent bond to the cysteine-34 position of circulating albumin; | |
| ● | circulating albumin preferentially accumulates in tumors due to a mechanism called “Enhanced Permeability and Retention”, which results in lower exposure to the drug in noncancerous tissues of the heart, liver, and other organs; | |
| ● | once localized at the tumor, the acid-sensitive linker of the LADR™ backbone is cleaved due to the specific conditions within the tumor and in the tumor microenvironment; and | |
| ● | free active drug is then released within the tumor, causing tumor cell death. |
The first-generation LADR-based drug is called Aldoxorubicin. Aldoxorubicin is the well-known drug doxorubicin attached to the first generation LADR™ backbone (LADRs 7-10 employ a next generation LADR™ backbone). Aldoxorubicin has been administered to over 600 human subjects in human clinical trials and has proven the concept of LADR™ in that several-fold more doxorubicin can be safely administered to patients when the doxorubicin is attached to LADR™ than when administered as native doxorubicin.
The next generation LADR™ drugs are termed LADR7, 8, 9, and 10. A great deal of Investigational New Drug (“IND”) enabling work has already been accomplished on LADR7-10, including in-silico modeling, in-vitro efficacy testing in several different cancer models, in-vivo dosing, safety, and efficacy testing in several different cancer models in animals. We have also developed and proven manufacturability, an important step prior to beginning human clinical trials.
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The IND-enabling work that remains prior to applying to a regulatory agencyfor first-in-human studies for LADR 7-10 is limited due to the extensive experimentation already completed. In the case of LADR 7, a manufacturing run under Good Manufacturing Practices (GMP) has been completed.
The final toxicology studies required for the IND for LADR 7 have been completed, and all that remains prior to initiating first-in-human Phase I studies of LADR-7 are packaging of LADR-7 into clinical trial containers, and notification of relevant regulatory bodies. We expect these activities to require 6 months once funding has been secured. If the Company fails to meet regulatory agencies’ requirements for initiating first-in-human studies, the first-patient dosing could be substantially delayed.
Because the LADR™ backbone in future products would be the same as the LADR™ backbone in current product candidates, (i.e. the chemotoxin can be changed without changing the LADR™ backbone), management anticipates that future product candidates beyond LADR7-10 may enjoy abbreviated pre-clinical pathways to first-in-human. Such abbreviated pathways would be subject to FDA review and agreement.
The Company’s novel companion diagnostic, ACDx™ (albumin companion diagnostic) was developed to identify patients with cancer who are most likely to benefit from treatment with the four LADR™ lead assets. We have not yet determined whether the use of a companion diagnostic will be necessary or helpful, and plan to continue to investigate this question in parallel to the pre-clinical and clinical development of LADRs 7-10.
The LADR™ backbone and drugs that employ LADR™ are protected by domestic and international patents, and additional patents are pending.
Business Strategy for LADR™ Platform
With the non-dilutive financing concluded with XOMA (as defined below) in June 2023, the Company is focused on the work necessary to receive approval to initiate human clinical trials of LADR7 in the United States or another regulatory jurisdiction. The Company completed the production of approximately 100 grams of LADR7 under GMP, which is sufficient to carry out final toxicology studies, and to conduct Phase IA studies in human subjects.
The Company has also completed the Good Laboratory Practices (“GLP”) toxicology program that is expected to form the foundation of the regulatory applications necessary to initiate human clinical studies of LADR7. Management expects to apply for first-in-human approval with the FDA or an international equivalent within 6 months of receiving additional funding.
Management will continue to explore in parallel both partnered and non-partnered funding and development strategies for LADR™ with a goal of obtaining the least costly capital possible to enable value inflection milestones.
Partnering of Aldoxorubicin
On July 27, 2017, the Company entered into an exclusive worldwide license agreement (the “License Agreement”) with ImmunityBio, Inc. (formerly known as NantCell, Inc. (“NantCell, Inc.”), and which merged with NantKwest Inc. in March 2021 (“ImmunityBio” and together with NantCell, Inc., “NantCell”)), granting to ImmunityBio the exclusive rights to develop, manufacture and commercialize aldoxorubicin in all indications. As a result, we are no longer directly working on the development of aldoxorubicin. As part of the License Agreement, ImmunityBio made a strategic investment of $13 million in LadRx’s common stock at $660.00 per share (adjusted to reflect the 2017 reverse stock split), a premium of 92% to the market price on that date. The Company also issued ImmunityBio a warrant to purchase up to 5,000 shares of common stock at $660.00 per share, which such warrant expired on January 26, 2019.
ImmunityBio conducted an open-label, randomized, Phase 2 study of a combination of immunotherapy, aldoxorubicin, and standard-of-care chemotherapy versus standard-of-care chemotherapy alone for the treatment of locally advanced or metastatic pancreatic cancer in patients who have had 1 or 2 lines of treatment (Cohorts A and B) or 3 or greater lines of treatment (Cohort C). In June 2022, Immunity Bio presented data at the American Society of Clinical Oncology meeting showing that patients receiving combination immunotherapy with aldoxorubicin plus standard-of-care chemotherapy experienced overall survival of 5.8 months, compared to 3 months for historical control patients that had received only the standard-of-care chemotherapy (n=78, 95% confidence interval of 4 to 6.9 months). Immunity Bio submitted the results of the Phase 2 study to the FDA for registration. The FDA denied the request, and asked for a very large clinical trial with cohorts for each of the combination therapies alone, and in permutative combination with the other combination therapies. Immunity Bio chose not to proceed with the FDA’s recommended trial, and aldoxorubicin has been returned to LadRx (see below “Mutual Termination and Release Agreement”).
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Aldoxorubicin has received Orphan Drug Designation (ODD) by the FDA for the treatment of soft tissue sarcoma (“STS”). ODD provides several benefits including seven years of market exclusivity after approval, certain R&D related tax credits, and protocol assistance by the FDA. European regulators granted aldoxorubicin Orphan designation for STS which confers ten years of market exclusivity among other benefits.
Mutual Termination and Release Agreement
On June 3, 2024 (the “Effective Date”), we entered into a Mutual Termination and Release Agreement (the “Termination Agreement”) with NantCell and its parent company, ImmunityBio and XOMA (as defined below). Pursuant to the Termination Agreement, the License Agreement will terminate automatically on the Effective Date, and neither the Company nor NantCell will have any continuing obligations to each other than as described in the Termination Agreement. Additionally, except that during the 30 day period following the Effective Date (the “Discussion Period”), the Company and NantCell shall engage in good faith discussions regarding the terms of an agreement pursuant to which the Company would have the right to purchase the inventory of aldoxorubicin (including, without limitation, active pharmaceutical ingredient, WPI and finished dose, the “Inventory”) and all other materials necessary for the research, development and commercialization, among others, worldwide as of the Effective Date, at the Company’s expense. Subsequently, the Company and NantCell have agreed the disposition of the Inventory shall be at NantCell’s sole discretion.
The Termination Agreement additionally provides for the release of the Company and NantCell from claims, demands and liabilities, among others, and customary representations and warranties, covenants, and other provisions customary for transactions of this nature.
Royalty Purchase Agreement with XOMA
On June 21, 2023, the Company, entered into (i) a Royalty Purchase Agreement (the “Royalty Agreement”) with XOMA (US) LLC (“XOMA”), for the sale, transfer, assignment and conveyance of the Company’s right, title and interest in and to certain royalty payments and milestone payments with respect to aldoxorubicin, and (ii) an Assignment and Assumption Agreement (the “Assignment Agreement”) with XOMA for the sale, transfer, assignment and conveyance of the Company’s right, title and interest in the 2011 Arimoclomol Agreement (as defined herein) between the Company and Orphazyme ApS (“Orphazyme”), dated as of May 13, 2011, and assigned to Zevra Denmark A/S (“Zevra”), effective as of June 1, 2022, which includes certain royalty and milestone payments with respect to arimoclomol. The combined aggregate purchase price paid to the Company for the sale, transfer, assignment and conveyance of the Company’s right, title and interest in and to aldoxorubicin and arimoclomol was $5 million, less certain transaction fees and expenses.
The Royalty Agreement and the Assignment Agreement also provide for up to an additional $6 million based on regulatory and commercial milestones related to the development of arimoclomol and aldoxorubicin by their respective sponsors, Zevra, Inc. and Immunity Bio. The $6 million in potential post-closing payments is comprised of $1 million upon acceptance by the FDA of the arimoclomol New Drug Application (“NDA”), $1 million upon first commercial sale of arimoclomol, and $4 million upon FDA approval of aldoxorubicin. All royalty and milestone payments made to XOMA will be net of the existing licensing and milestone obligations owed by LadRx related to arimoclomol and aldoxorubicin. In January 2024, the Company recognized the $1 million milestone relating to the acceptance by the FDA of the arimoclomol NDA.
Pursuant to the Royalty Agreement, the Company agreed to sell, transfer, assign and convey to XOMA, among other payments, all royalty payments and regulatory and commercial milestone payments payable to the Company pursuant to the worldwide license agreement, dated July 27, 2017, by and between the Company and Immunity Bio. The Royalty Agreement also provides for the sharing of certain rights with XOMA to bring any action, demand, proceeding or claim as related to receiving such payments.
First Amendment to Royalty Purchase Agreement
On June 3, 2024, in consideration for the termination of the License Agreement pursuant to the Termination Agreement, the Company and XOMA entered into the First Amendment to the Royalty Agreement (the “First Amendment”). Pursuant to the First Amendment, if the Company decides to commercialize aldoxorubicin itself, prior to the first commercial sale of aldoxorubicin, the Company and XOMA shall enter into a synthetic royalty purchase agreement, pursuant to which the Company shall agree to make quarterly royalty payments to XOMA equal to the amount of all aggregate net sales of aldoxorubicin during each calendar quarter multiplied by 1.5%. If the Company decides not to commercialize aldoxorubicin itself and instead licenses aldoxorubicin to a third party, upon entry of such a new license agreement, XOMA shall be entitled to receive (i) royalty payments with respect to net sales of aldoxorubicin payable to the Company multiplied by 7.5% and (ii) milestone payments of 7.5% of any milestone payable to the Company pursuant to the License Agreement. The First Amendment contains customary covenants and other provisions customary for transactions of this nature.
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Transfer of Rights to Molecular Chaperone Assets
On May 13, 2011, pursuant to the Asset Purchase Agreement by and between the Company and Orphazyme A/S (“Orphazyme”, formerly Orphazyme ApS), LadRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, in exchange for a one-time, upfront payment and the right to receive up to a total of $120 million in milestone payments upon the achievement of certain pre-specified regulatory and business milestones, as well as royalty payments based on a specified percentage of any net sales of products derived from arimoclomol (the “2011 Arimoclomol Agreement”). Orphazyme transferred its rights and obligations under the 2011 Arimoclomol Agreement to KemPharm Denmark A/S (“KemPharm”), a wholly owned subsidiary of KemPharm Inc., in May 2022.
In May 2021, Orphazyme announced that the pivotal phase 3 clinical trial for arimoclomol in Amyotrophic Lateral Sclerosis did not meet its primary and secondary endpoints, reducing the maximum amount that LadRx currently has the right to receive under the 2011 Arimoclomol Agreement to approximately $100 million. Orphazyme also tested arimoclomol in Niemann-Pick disease Type C (“NPC”) and Gaucher disease, and following a Phase II/III trial submitted to the FDA a New Drug Application for the treatment of NPC with arimoclomol. On June 18, 2021, Orphazyme announced it had received a complete response letter (the “Complete Response Letter”) from the FDA indicating the need for additional data. In late October 2021, Orphazyme announced it held a Type A meeting with the FDA, at which the FDA recommended that Orphazyme submit additional data, information and analyses to address certain topics in the Complete Response Letter and engage in further interactions with the FDA to identify a pathway to resubmission. The FDA concurred with Orphazyme’s proposal to remove the cognition domain from the NPC Clinical Severity Scale (“NPCCSS”) endpoint, with the result that the primary endpoint is permitted to be recalculated using the 4- domain NPCCSS, subject to the submission of additional requested information which Orphazyme had publicly indicated that it intended to provide. To bolster the confirmatory evidence already submitted, the FDA affirmed that it would require additional in vivo or pharmacodynamic (PD)/pharmacokinetic (PK) data.
Orphazyme had also submitted a Marketing Authorization Application (“MAA”) with the European Medicines Agency (the “EMA”). In February 2022, Orphazyme announced that although they had received positive feedback from the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA, they were notified by the CHMP of a negative trend vote on the MAA for arimoclomol for NPC following an oral explanation.
On May 31, 2022, Orphazyme announced that it had completed the sale of substantially all of its assets and business activities for cash consideration of $12.8 million and assumption of liabilities estimated to equal approximately $5.2 million to KemPharm (the “KemPharm Transaction”). KemPharm is a specialty biopharmaceutical company focused on the discovery and development of novel treatments for rare CNS diseases. As part of the KemPharm Transaction, all of Orphazyme’s obligations to LadRx under the 2011 Arimoclomol Agreement, including with regard to milestone payments and royalties on sales, were assumed by KemPharm. KemPharm is expected to continue the early access programs with arimoclomol, and to continue to pursue the potential approval of arimoclomol as a treatment option for NPC. KemPharm re-branded to Zevra Therapeutics, Inc. (“Zevra”) in February 2023. In January 2024, the FDA accepted Zevra’s NDA for arimoclomol and in September, the FDA approved arimoclomol as an orally-delivered treatment for NPC. In September 2024, Zevra additionally announced that MIPLYFFA™ (arimoclomol) will be commercially available in the United States towards the end of 2024. Shortly thereafter, we expect to receive a $1 million milestone payment pursuant to the terms of the Assignment Agreement.
Assignment and Assumption Agreement with XOMA
On June 21, 2023, the Company entered into the Assignment Agreement with XOMA, pursuant to which, among others, the Company agreed to sell, transfer and assign to XOMA the Company’s right, title and interest in the arimoclomol pursuant to the 2011 Arimoclomol Agreement, including the right to receive certain milestone, royalty and other payments from Zevra.
Pursuant to the Assignment Agreement, the Company is entitled to receive (i) a one-time payment of $1 million upon acceptance of a re-submission of a NDA to the FDA for arimoclomol, which the Company received in February 2024, and (ii) a one-time payment of $1 million upon the first invoiced sale in certain territories of a pharmaceutical product derived from arimoclomol as an active pharmaceutical ingredient, subject to the receipt of the applicable regulatory approval required to sell such a product in such countries.
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Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, impairment of long-lived assets, including finite-lived intangible assets, research and development expenses and clinical trial expenses and stock-based compensation expense.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in Note 2 to our audited financial statements contained in the 2023 Annual Report.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Stock-Based Compensation
The Company accounts for share-based awards to employees and nonemployees directors and consultants in accordance with the provisions of ASC 718, Compensation—Stock Compensation., and under the recently issued guidance following FASB’s pronouncement, ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under ASC 718, and applicable updates adopted, share-based awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service, or vesting, period. The Company values its equity awards using the Black-Scholes option pricing model, and accounts for forfeitures when they occur.
Known Trends, Events, and Uncertainties
The Company does not believe that inflation has had a material effect on its operations to date, other than the impact of inflation on the general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary pressures in the future, which would have the effect of increasing the Company’s operating costs, and which would put additional stress on the Company’s working capital resources.
Additionally, the consequences of the ongoing conflict between Russia and Ukraine, and the ongoing conflict between Israel and Hamas, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations. Furthermore, other than as discussed in this Quarterly Report, we have no committed source of financing and may not be able to raise money as and when we need it to continue our operations. If we cannot raise funds as and when we need them, we may be required to severely curtail, or even to cease, our operations. Other than as discussed above and elsewhere in this report, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.
Liquidity and Capital Resources
Going Concern
The Company’s condensed financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the nine-month period ended September 30, 2024, the Company incurred a net loss of $1.9 million and had total stockholders’ deficit as of September 30, 2024 of $1.8 million. The Company has no recurring revenue, and we are likely to continue to incur losses unless and until we conclude a successful strategic partnership or financing for our LADR™ technology. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its audit report on the Company’s consolidated financial statements for the year ended December 31, 2023, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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At September 30, 2024, we had cash and cash equivalents and short-term investments of approximately $0.1 million. The Company expects to receive a $1 million milestone payment upon the first commercial sale of arimoclomol from Xoma in the fourth quarter of 2024. This is predicated upon the recent announcement in September 2024 by Zevra that arimoclomol was approved by the Food and Drug Administration and that Zevra expects to initiate its lauch activities for MIPLYFFA (arimoclomol) in the fourth quarter of 2024. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing.
Net cash used in operating activities for the nine months ended September 30, 2024 was $2.0 million, which was primarily the result of the sale of royalty and milestone rights, net of transaction costs of $1.0 million less a net loss from operations $2.9 million, and $0.1 million in net cash outflows associated with changes in assets and liabilities.
Net cash provided by operating activities for the nine months ended September 30, 2023 was $1.9 million, which was primarily the result of the sale of royalty and milestone rights, net of transaction costs of $4.2 million less a net loss from operations of $2.9 million, and $0.6 million in net cash inflows associated with changes in assets and liabilities.
There were no investing activities in either of the nine-month periods ended September 30, 2024 and 2023, and we do not expect any significant capital spending during the next 12 months.
There were no financing activities in the nine-month period ended September 30, 2024, whereas we purchase the preferred investment option for $250,000 and paid dividends on the shares of Series C 10.00% Convertible Preferred Stock of $0.1 million in the nine-month period ended September 30, 2023.
We continue to evaluate potential future sources of capital, as we do not currently have commitments from any third parties to provide us with additional capital and we may not be able to obtain future financing on favorable terms, or at all. The results of our technology licensing efforts and the actual proceeds of any fund-raising activities will determine our ongoing ability to operate as a going concern. Our ability to obtain future financings through joint ventures, product licensing arrangements, royalty sales, equity financings, grants or otherwise is subject to market conditions and our ability to identify parties that are willing and able to enter into such arrangements on terms that are satisfactory to us. Depending upon the outcome of our fundraising efforts, the accompanying financial information may not necessarily be indicative of our future financial condition. Failure to obtain adequate financing would adversely affect our ability to operate as a going concern.
We do not have any off-balance sheet arrangements.
There can be no assurance that we will be able to generate revenues from our product candidates and become profitable. Even if we become profitable, we may not be able to sustain that profitability.
Results of Operations
We recorded a net loss of approximately $0.8 million and $1.9 million for the three-month and nine-month periods ended September 30, 2024, respectively, as compared to a net income (loss) of approximately $(0.8) million and $1.2 million for the three-month and nine-month periods ended September 30, 2023, respectively.
We recognized no licensing revenue in the nine-month periods ended September 30, 2024 and 2023. We will no longer be entitled to future licensing revenues from our current licensing agreements, since we transferred the royalty and milestone rights associated with arimoclomol and aldoxorubicin to XOMA, pursuant to the Royalty Agreement, as amended, and the Assignment Agreement for net proceeds of approximately $4.2 million, along with $6 million in potential post-closing payments, based on achievement of certain future milestones. For the nine-month period ended September 30, 2023, we recognized those net proceeds of $4.2 million as Other Income on our statement of operations, and for the nine-month period ended September 30, 2024, we recognized a $1.0 million post-closing as Other Income on our statement of operations.
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General and Administrative Expenses
| Three-Month Period Ended September 30, | Nine-Month Period Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
| General and administrative expenses | $ | 818 | $ | 823 | $ | 2,262 | $ | 2,918 | ||||||||
| Amortization of stock awards | 4 | — | 59 | — | ||||||||||||
| Depreciation and amortization | 1 | 3 | 5 | 9 | ||||||||||||
| $ | 823 | $ | 826 | $ | 2,326 | $ | 2,927 | |||||||||
General and administrative expenses include all administrative salaries and general corporate expenses, including legal expenses. Our general and administrative expenses, excluding stock expense, non-cash expenses and depreciation and amortization, were $0.8 million and $2.3 million for the three and nine-month periods ended September 30, 2024, respectively, and $0.8 million and $2.9 million, respectively, for the same periods in 2023. Our general and administrative expenses in the comparative periods excluding amortization of stock awards, non-cash expenses and depreciation and amortization, decreased primarily due to a decrease in professional fees, insurance costs and salaries, offset by an increase in franchise taxes.
Research and Development
Research expenses are incurred by us in the discovery of new information that will assist us in the development of LADR-7. We incurred $14,000 of these expenses for both the three and nine-month periods ended September 30, 2023, whereas for the three and nine-month period ended September 30, 2024, we incurred $4,400 and $629,000 respectively in research and development expenses.
Interest Income
Interest income was approximately $3,000 and $33,000 for the three-month and nine-month periods ended September 30, 2024, respectively, as compared to $24,000 and $31,000, respectively, for the same periods in 2023.
Item 3. — Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because a significant portion of our investments are in short-term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. Due to the nature of our short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any speculative or hedging derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three-month period ended September 30, 2024, it would not have had a material effect on our results of operations or cash flows for that period.
Item 4. — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Controls over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continually seek to assure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weaknesses we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock.
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PART II — OTHER INFORMATION
Item 1. — Legal Proceedings
None.
Item 1A. — Risk Factors
The following description of risk factors includes any material changes to risk factors associated with our business, financial condition and results of operations previously disclosed in “Item 1A. Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2023, and filed with the SEC on April 16, 2024. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results, and stock price.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-Q. The following information should be read in conjunction with the condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.
Because we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability to raise capital may be severely limited.
Developing products and conducting clinical trials require substantial amounts of capital. We need to raise additional capital to fund our general and administrative expenses and, if we determine to develop products based on our LADR™ technology platform, we will need to raise additional capital to fund development of product candidates, prepare, file, prosecute, maintain, enforce and defend patent and other proprietary rights, and develop and implement sales, marketing and distribution capabilities. However, capital raising has been significantly challenging.
At September 30, 2024, we had cash and cash equivalents and short-term investments of approximately $0.1 million. Our continuation as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing. Additionally, pursuant to the Assignment Agreement, we expect to receive a $1 million milestone royalty payment upon the first commercial sale of MIPLYFFA (arimoclomol) by Zevra. The commercial launch of MIPLYFFA is expected in the fourth quarter of 2024. There is no assurance that we will receive this milestone royalty payment in a timely manner, or that such milestone royalty payment is sufficient to meet our anticipated cash requirements. This in turn may have a material adverse effect on our business, operating results and prospects.
If we raise additional funds by issuing equity securities, dilution to stockholders may result and new investors could have rights superior to current equity holders. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not available to us, we may have to liquidate some or all of our assets or delay or reduce the scope of or eliminate some portion or all of our development programs. We also may have to license to other companies our product candidates or technologies that we would prefer to develop and commercialize ourselves.
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. — Defaults Upon Senior Securities
None.
Item 4. — Mine Safety Disclosure
Not applicable.
Item 5. — Other Information
None.
Item 6. — Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q and incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LadRx Corporation | ||
| Date: November 14, 2024 | By: | /s/ JOHN Y. CALOZ |
| John Y. Caloz | ||
| Chief Financial Officer | ||
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INDEX TO EXHIBITS
* Filed herewith.
** Furnished herewith.
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