# Cingulate Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [Cingulate Inc.](/companies/cing.md) (CIK 1862150)
- Form: 10-Q
- Filed: 2022-08-11
- Accepted by EDGAR: Aug 11, 2022, 07:06 ET
- Period: 2022-06-30
- Accession: 0001493152-22-021964
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1862150/000149315222021964/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1862150/000149315222021964/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2022-04-01 to 2022-06-30 | $2.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-01-01 to 2022-06-30 | $4.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | −$4.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | −$9.1m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | −$4.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | −$9.0m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | −$0.36 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-01-01 to 2022-06-30 | −$0.80 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | −$8.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $10.4k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-06-30 | $8.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-06-30 | $10.1m | us-gaap:AssetsCurrent |
| Total assets | at 2022-06-30 | $13.8m | us-gaap:Assets |
| Current liabilities | at 2022-06-30 | $923.5k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-06-30 | $1.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-06-30 | $12.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,055 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.*

### Overview

We are a clinical stage biopharmaceutical company using our proprietary Precision Timed ReleaseTM (PTRTM) drug delivery platform technology to build and advance a pipeline of next-generation pharmaceutical products designed to improve the lives of patients suffering from frequently diagnosed conditions characterized by burdensome daily dosing regimens and suboptimal treatment outcomes. We are initially focusing our efforts on the treatment of Attention Deficit/Hyperactivity Disorder (ADHD). Our PTR platform incorporates a proprietary Erosion Barrier Layer (EBL) designed to allow for the release of drug substance at specific, pre-defined time intervals, unlocking the potential for once-daily, multi-dose tablets. We believe there remains a significant, unmet need within the current treatment paradigm for true once-daily ADHD stimulant medications with lasting duration and a superior side effect profile to better serve the needs of patients throughout their entire active-day.

Since inception in 2012, our operations have focused on developing our product candidates, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials. We do not have any product candidates approved for sale and have not generated any revenue. We have funded our operations through public and private capital raised. Cumulative capital raised from these sources, was approximately $63.8 million as of June 30, 2022.

We have incurred significant losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net losses were $4.0 million and $1.4 million for the three months ended June 30, 2022 and June 30, 2021, respectively and $9.0 million and $2.8 million for the six months ended June 30, 2022 and June 30, 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $60.8 million.

We expect to continue to incur significant expenses and increasing operating losses in the near term. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

- seek regulatory approval for CTx-1301;
- continue research and development activities for our existing and new product candidates, primarily for CTx-1301;
- manufacture supplies for our preclinical studies and clinical trials, primarily for CTx-1301;
- operate as a public company; and
- establish or outsource commercial infrastructure to support sales and marketing for our product candidates.

Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

### Debt Financing

We received $5.0 million of debt financing (the “WFIA Debt Financing”) from Werth Family Investment Associates LLC (“WFIA”). The promissory note, dated August 9, 2022, in favor of WFIA is unsecured with interest accruing at 15% per annum. Outstanding principal and all accrued and unpaid interest is due and payable on August 8, 2025 unless accelerated due to an event of default. Beginning April 1, 2023, WFIA has the right during the first five business days of each calendar quarter to demand payment of all outstanding principal and interest 120 days following notice to us. We may prepay the note, in whole or in part, without premium or penalty; provided, that no amount repaid may be reborrowed. See “Liquidity and Capital Resources” below.

WFIA owns 871,731 shares of our common stock and Peter J. Werth, a member of the Company’s Board of Directors and the manager of WFIA, owns 21,849 shares of our common stock. Our Audit Committee and Board of Directors reviewed the terms of the WFIA Debt Financing pursuant to our Policy and Procedures for Related Person Transactions and determined that the WFIA Debt Financing is in our best interest and the best interests of our stockholders. Due to the WFIA Debt Financing, our Board of Directors determined that Mr. Werth is no longer an independent director.

***CTx-1301:*** We have designed our clinical program for CTx-1301 (dexmethylphenidate), our lead investigational asset for the treatment of ADHD, based on U.S. Food and Drug Administration (FDA) feedback regarding our CTx-1301 initial Pediatric Study Plan (iPSP), and longstanding guidance on the expedited approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act.

We have commenced study start-up activities for the CTx-1301 Phase 3, fixed-dose, pediatric and adolescent safety and efficacy study, and anticipate dosing of the first patient in late 2022. We have been experiencing delays in the manufacturing and delivery of clinical supply for this study due to operational resource issues at our contract manufacturing organization (CMO). Manufacturing of the final two dosage strengths, which are necessary to dose the first patient, is expected to begin in the second half of this year. Results from the fixed-dose study are expected in the second half of 2023. In order to meet the pharmacology requirement for the CTx-1301 New Drug Application (NDA) submission, we plan to complete a food effect study in the fourth quarter of 2022. Assuming we receive positive clinical results from our Phase 3 trial and food effect study, we still plan to submit the NDA for CTx-1301 in late 2023 under the Section 505(b)(2) pathway.

In addition to the studies noted above, we plan to initiate an adult dose-optimization study (Phase 3b) to assess the onset and duration of efficacy in the second half of 2023. This Phase 3b trial is supplementary and is not required for the CTx-1301 NDA submission.

***CTx-1302:*** We plan to initiate a Phase 1/2 bioavailability study in ADHD patients for CTx-1302 (dextroamphetamine), our second investigational asset for the treatment of ADHD, in 2023 and, if the results from this study are successful, we plan to initiate pivotal Phase 3 clinical trials in all patient segments for CTx-1302 in 2024 with results expected in 2025.

***CTx-2103:*** We have embarked on a program to develop CTx-2103 (buspirone) for the treatment of anxiety, which is the most common mental health concern in the U.S. Furthermore, this trial extends the potential of the PTR platform where multiple daily doses are required and the timing, style, and ratio of this medication delivery is paramount. We initiated a human formulation study for CTx-2103 in May 2022 at BDD Pharma in Glasgow, Scotland, UK. Results from the study are expected by the end of August 2022.

As of June 30, 2022, we had cash and cash equivalents of $8.2 million. Based on our operating plan and with the proceeds from the WFIA Debt Financing, we believe that our cash and cash equivalents will enable us to fund our research and development and general and administrative expenses through the first quarter of 2023. In addition, in order to achieve the filing of our NDA for CTx-1301 in late 2023 for potential FDA approval, we believe that we will need approximately $16.5 million of additional capital. We will also need additional capital to advance our other programs. We are evaluating alternatives to raise additional capital, including equity and debt financing and non-dilutive strategic collaborations in the U.S. and abroad. In addition, we continue to evaluate commercial collaborations, which would provide us with more immediate access to marketing, sales, market access and distribution infrastructure. See “Liquidity and Capital Resources” below.

### Impact of the COVID-19 Pandemic

We are continuing to monitor the impact of the COVID-19 pandemic on our business, the extent of which will depend on a number of factors, including, but not limited to, the extent and severity of the impact on our service providers, suppliers, contract research organizations and our preclinical and clinical trials, all of which are uncertain and cannot be predicted.

While the full impact of the pandemic continues to evolve, the financial markets have been subject to significant volatility that may adversely impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing initiatives. The uncertain financial markets, disruptions in supply chains, mobility restraints, and changing priorities as well as volatile asset values may also affect our ability to enter into collaborations, joint ventures, and license and royalty agreements. The outbreak and government measures taken in response to the pandemic have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, have spiked, while demand for other goods and services, such as travel, have fallen. We may face difficulties recruiting or retaining patients in our ongoing and planned preclinical and clinical trials if patients are affected by the virus or are fearful of traveling to our clinical trial sites. We and our third-party CMOs, clinical research organizations (CROs), and clinical sites may also face disruptions in procuring items that are essential to our research and development activities, including, for example, medical and laboratory supplies used in our clinical trials or preclinical studies, in each case, that are sourced from abroad or for which there are shortages because of ongoing efforts to address the outbreak.

The extent to which the COVID-19 pandemic may in the future impact our financial condition, liquidity or results of operations is uncertain. While the pandemic did not materially affect our financial results and business operations in the quarter ended June 30, 2022, we are unable to predict the impact that COVID-19 may have on our financial position and operating results in future periods due to numerous uncertainties. Management continues to actively monitor the situation and the possible effects on our financial condition, operations, suppliers, vendors, our workforce and the overall industry. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, our financial condition or our results of operations, see the “Risk Factors” section in our Form 10-K.

### Components of Operating Results

### Revenue

Since inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration of license agreements.

### Operating Expenses

#### Research and Development Expenses

Research and development expenses consist of costs incurred in the discovery and development of our product candidates, and primarily include:

- expenses incurred under third party agreements with CROs, and investigative sites, that conducted or will conduct our clinical trials and a portion of our pre-clinical activities;
- costs of raw materials, as well as manufacturing cost of our materials used in clinical trials and other development testing;

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- expenses, including salaries and benefits of employees engaged in research and development activities;
- costs of manufacturing equipment, depreciation and other allocated expenses; and
- fees paid for contracted regulatory services as well as fees paid to regulatory authorities including the FDA for review and approval of our product candidates.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued costs.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue clinical development for our product candidates. As products enter later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. Historically, our research and development costs have primarily related to the development of CTx-1301. As we advance CTx-1301, CTx-1302, and CTx-2103, as well as identify any other potential product candidates, we will continue to allocate our direct external research and development costs to the products. We expect to fund our research and development expenses from our current cash and cash equivalents and any future equity or debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions.

#### General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for our employees in administrative, executive and finance functions. General and administrative expenses also include professional fees for legal, accounting, audit, tax and consulting services, insurance, office, and travel expenses.

We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our growing operations including the potential commercialization of our product candidates. We have experienced increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services; director and officer insurance; and investor and public relations costs.

### Interest and other income (expense), net

Interest and other income (expense), net consists of interest earned on our short-term investments and interest expense. The primary objective of our investment policy is liquidity and capital preservation.

Interest expense to date has consisted primarily of interest expense on notes payable to related parties, interest charged by certain vendors, financing charge on insurance premiums and credit card interest. All related party notes were paid in full in December 2021 with proceeds from our IPO.

### Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during a reporting period. Actual results could differ from estimates.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we have identified several accounting policies that are critical to the judgements and estimates used in the preparation of our consolidated financial statements. These policies relate to research and development costs and stock-based compensation. A discussion of these policies can be found in the “Critical Accounting Policies and Significant Judgments and Estimates” section of our Form 10-K.

There have been no changes in our application of critical accounting policies since December 31, 2021.

### Results of Operations

### Comparison of the three months ended June 30, 2022 and June 30, 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

| Operating Expenses: | Three Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $2,178 | $794 | $1,384 | 174.3% |
| General and administrative | 1,870 | 629 | 1,241 | 197.3% |
| Loss from operations | (4,048) | (1,423) | (2,625) | 184.5% |
| Interest and other income (expense), net | 8 | (9) | 17 | 188.9% |
| Net Loss | $(4,040) | $(1,432) | $(2,608) | 182.1% |

#### Research and development expenses

The following table summarizes our research and development expenses for the three months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Three Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Clinical operations | $693 | $56 | $637 | **NM** |
| Drug manufacturing and formulation | 801 | 353 | 448 | 126.9% |
| Personnel expenses | 654 | 359 | 295 | 82.2% |
| Regulatory costs | 30 | 26 | 4 | 15.4% |
| Total research and development expenses | $2,178 | $794 | $1,384 | 174.3% |

Research and development (R&D) expenses were $2.2 million for the three months ended June 30, 2022, an increase of $1.4 million or 174.3% from the three months ended June 30, 2021. This increase was related to increased development activity as we prepare for a Phase 3 clinical trial for CTx-1301. Manufacturing clinical supply began in the first quarter of 2022 and continued through the second quarter and study start-up activities have been occurring since late 2021. In addition, the Company added clinical and manufacturing personnel in late 2021 in anticipation of the increased development activity.

#### General and administrative expenses

The following table summarizes our general and administrative (G&A) expenses for the three months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Three Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Personnel expenses | $546 | $314 | $232 | 73.9% |
| Legal and professional fees | 401 | 107 | 294 | 274.8% |
| Occupancy | 118 | 111 | 7 | 6.3% |
| Insurance | 670 | 38 | 632 | **NM** |
| Other | 135 | 59 | 76 | 127.3% |
| Total general and administrative expenses | $1,870 | $629 | $1,241 | 197.1% |

Total G&A expenses were $1.9 million for the three months ended June 30, 2022, an increase of $1.2 million or 197.1% from the three months ended June 30, 2021. The overall increase in G&A expenses is the result of operating as a public company in 2022 as compared to operating as a private company in 2021. Personnel expenses increased by $0.3 million as legal and accounting personnel were added in late 2021, insurance costs increased by $0.6 million which relates to the directors and officers insurance policy, and legal and professional fees increased by $0.3 million which relates to increased investor and public relations fees, board compensation fees and audit fees.

#### Interest and other income (expense)

The following table summarizes interest and other income (expense) for the three months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Three Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Interest and other income (expense), net | $8 | $(9) | $17 | 188.9% |

Total interest and other income (expense), net primarily relates to interest and dividends earned on invested balances during the three months ended June 30, 2022 and relates to interest incurred on outstanding notes payable during the three months ended June 30, 2021. All notes payable were paid in full in December 2021 with proceeds from our IPO.

### Comparison of the six months ended June 30, 2022 and June 30, 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

| Operating Expenses: | Six Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Research and development | $4,941 | $1,356 | $3,585 | 264.4% |
| General and administrative | 4,117 | 1,397 | 2,720 | 194.7% |
| Loss from operations | (9,058) | (2,753) | (6,305) | 229.0% |
| Interest and other income (expense), net | 14 | (13) | 27 | 207.7% |
| Net Loss | $(9,044) | $(2,766) | $(6,278) | 227.0% |

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#### Research and development expenses

The following table summarizes our R&D for the six months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Six Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Clinical operations | $1,501 | $77 | $1,424 | **NM** |
| Drug manufacturing and formulation | 2,154 | 600 | 1,554 | 259.0% |
| Personnel expenses | 1,237 | 658 | 579 | 88.0% |
| Regulatory costs | 49 | 21 | 28 | 133.3% |
| Total research and development expenses | $4,941 | $1,356 | $3,585 | 264.4% |

R&D expenses were $4.9 million for the six months ended June 30, 2022, an increase of $3.6 million or 264.4% from the six months ended June 30, 2021. This increase was related to increased development activity as we prepare for a Phase 3 clinical trial for CTx-1301. Manufacturing clinical supply began in the first quarter of 2022 with continued activity in the second quarter and study start-up activities have been occurring since late 2021. In addition, the Company added clinical and manufacturing personnel in late 2021 in anticipation of the increased development activity.

#### General and administrative expenses

The following table summarizes our G&A expenses for the six months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Six Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Personnel expenses | $1,229 | $595 | $634 | 106.6% |
| Legal and professional fees | 1,048 | 371 | 677 | 182.5% |
| Occupancy | 246 | 212 | 34 | 16.0% |
| Insurance | 1,343 | 79 | 1,264 | **NM** |
| Other | 251 | 140 | 111 | 79.3% |
| Total general and administrative expenses | $4,117 | $1,397 | $2,720 | 194.7% |

Total G&A expenses were $4.1 million for the six months ended June 30, 2022, an increase of $2.7 million or 194.7% from the six months ended June 30, 2021. The overall increase in G&A expenses is the result of operating as a public company in 2022 as compared to operating as a private company in 2021. Personnel expenses increased by $0.6 million as legal and accounting personnel were added in late 2021, insurance costs increased by $1.3 million which relates to the directors and officers insurance policy, and legal and professional fees increased by $0.7 million which relates to increased investor and public relations fees, board compensation fees and audit fees.

#### Interest and other income (expense)

The following table summarizes interest and other income (expense) for the six months ended June 30, 2022 and June 30, 2021:

*(in thousands)*

|  | Six Months ended% June 30, 2022 | 2021 | Increase (Decrease) | Increase (Decrease) |
| --- | ---: | ---: | ---: | ---: |
| Interest and other income (expense), net | $14 | $(13) | $27 | 207.7% |

Total interest and other income (expense), net primarily relates to interest and dividends earned on invested balances during the six months ended June 30, 2022 and relates to interest incurred on outstanding notes payable during the six months ended June 30, 2021. All notes payable were paid in full in December 2021 with proceeds from our IPO.

### Cash Flows

|  | Six Months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash (used in) operating activities | $(8,277) | $(3,224) |
| Net cash (used in) investing activities | (13) | (89) |
| Net cash (used in) provided by financing activities | (7) | 3,160 |
| Net decrease in cash and cash equivalents | $(8,297) | $(153) |

#### Cash Flows from Operating Activities

Net cash used in operating activities was $8.3 million for the six months ended June 30, 2022. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $9.0 million, prior to the effects of two noncash items, stock-based compensation expense of $0.4 million and depreciation of $0.2 million. Changes in operating assets and liabilities included a decrease in miscellaneous receivables resulting from the receipt in early 2022 of a significant portion of the payroll and research and development tax credits owed to us, and a decrease in accrued liabilities resulting from the final payments made on the second manufacturing press which were accrued at the end of 2021.

Net cash used in operating activities was $3.2 million for the six months ended June 30, 2021. Cash used in operating activities was primarily due to the use of funds in our operations to develop our product candidates resulting in a net loss of $2.9 million, offset primarily by depreciation. Changes in operating assets and liabilities included a decrease in accounts payable and accrued expenses of $0.3 million mainly due to the timing of payments to our service providers.

#### Cash Flows from Investing Activities

Net cash used in investing activities for both the six months ended June 30, 2022 and June 30, 2021 was related to the purchase of equipment to support our research and development.

#### Cash Flows from Financing Activities

Net cash used in financing activities in the six months ended June 30, 2022 was related to principal payments on finance lease obligations.

Net cash provided by financing activities in the six months ended June 30, 2021 was primarily related to proceeds of the issuance of $1.6 million of equity units of CTx.

### Liquidity and Capital Resources

### Sources of Liquidity

On August 10, 2022, we received $5.0 million pursuant to the WFIA Debt Financing.

Since our inception in 2012 through June 30, 2022, we have not generated any revenue and have incurred significant operating losses and negative cash flow from our operations. Based on our current operating plan and with the proceeds from the WFIA Debt Financing, we expect our cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through the first quarter of 2023. In addition, in order to achieve the filing of our NDA for CTx-1301 in late 2023 for potential FDA approval, we believe that we will need approximately $16.5 million of additional capital. We will also need additional capital to advance our other programs. However, it is difficult to predict our spending for our product candidates prior to obtaining FDA approval. Moreover, changing circumstances may cause us to expend cash significantly faster than we currently anticipate, and we may need to spend more cash than currently expected because of circumstances beyond our control.

Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity while producing a modest return on investment. Accordingly, our cash equivalents are invested primarily in money market funds which provide a minimal return.

We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for our product candidates, we will incur significant sales, marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public company.

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

- the cost and timing of manufacturing the clinical supply of our product candidates;
- the initiation, progress, timing, costs and results of clinical trials for our product candidates;
- the clinical development plans we establish for each product candidate;
- the number and characteristics of product candidates that we develop or may in-license;
- the terms of any collaboration agreements we may choose to execute;
- the outcome, timing and cost of meeting regulatory requirements established by the FDA or other comparable foreign regulatory authorities;
- the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
- the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
- the cost and timing of the implementation of commercial scale manufacturing activities; and
- the cost of establishing, or outsourcing, sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.

To continue to grow our business over the longer term, we plan to commit substantial resources to research and development, including clinical trials of our product candidates, and other operations and potential product acquisitions and in-licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in-license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we may pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in-licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. We have no arrangements, agreements, or understandings in place at the present time to enter into any acquisition, in-licensing or similar strategic business transaction. In addition, we continue to evaluate commercial collaborations, which would provide us with more immediate access to marketing, sales, market access and distribution infrastructure.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences that are not favorable to us or our existing stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

### Contractual Obligations

The following summarizes our contractual obligations as of June 30, 2022 that will affect our future liquidity. Based on our current operating plan, we plan to satisfy the obligations identified below with cash and cash equivalents as of June 30, 2022.

We entered into a patent and know-how licensing agreement with BDD Pharma Limited in August 2018. See the “Business – Material Agreements” section of our Form 10-K for a description of this agreement. We may be required to pay BDD Pharma certain amounts in connection with clinical trial and regulatory milestones. The first milestone payment of $250,000 will likely become due in the next twelve months based on the dosing of the first patient in the Phase 3 fixed-dose pediatric and adolescent safety and efficacy study for CTx-1301. This payment is accrued in our June 30, 2022 financial statements.

We entered into an agreement with a CRO for the Phase 3 fixed-dose pediatric and adolescent safety and efficacy study for CTx-1301, in which we plan to dose the first patient in late 2022. We also entered into agreements with a CMO and other third parties for manufacture of the Phase 3 clinical supply of CTx-1301. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation and in some cases, wind-down costs. The exact amount of such obligations is dependent on the timing of termination and the terms of the related agreement and are not known.

### Going Concern

Since inception we have been engaged in organizational activities, including raising capital and research and development activities. We have not generated revenues and have not yet achieved profitable operations, nor have we ever generated positive cash flow from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. We are subject to those risks associated with any pre-clinical stage pharmaceutical company that has substantial expenditures for research and development. There can be no assurance that our research and development projects will be successful, that products developed will obtain necessary regulatory approval, or that any approved product will be commercially viable. In addition, we operate in an environment of rapid technological change and is largely dependent on the services of our employees and consultants. Further, our future operations are dependent on the success of our efforts to raise additional capital. These uncertainties raise substantial doubt about our ability to continue as a going concern for one year after the issuance date of our financial statements. The accompanying consolidated financial statements have been prepared on a going concern basis. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We have incurred a net loss for the three and six-month periods ended June 30, 2022 and June 30, 2021 and had accumulated losses of $60.8 million since inception to June 30, 2022. We anticipate incurring additional losses until such time, if ever, that we can generate significant revenue from our product candidates currently in development. Our sources of capital have included private capital raises in various classes of units of CTx prior to the Reorganization Merger, the issuance of equity securities in connection with our IPO and the WFIA Debt Financing. Additional financings will be needed by us to fund our operations, to complete development of and to commercially develop our product candidates. There is no assurance that such financing will be available when needed or on acceptable terms.

### Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, *Measurement of Credit Losses on Financial Instruments* which significantly changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU 2018-19, *Codification Improvements to Topic 326, Financial Instruments–Credit Losses*, which amends Subtopic 326-20 (created by ASU 2016-13) to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the FASB issued ASU 2019-04, *Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments*; in May 2019, the FASB issued ASU 2019-05, *Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief*; in November 2019, the FASB issued ASU 2019-10, *Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates*, and ASU 2019-11, *Codification Improvements to Topic 326, Financial Instruments—Credit Losses*; and in March 2020, the FASB issued ASU 2020-03, *Codification Improvements to Financial Instruments*, to provide further clarifications on certain aspects of ASU 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022. The Company does not expect the adoption of ASU 2016-13 to have a material effect on its consolidated financial statements.

### JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company”. As an “emerging growth company,” we are electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for emerging growth companies.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the completion of our IPO or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.

## Controls and procedures

As filed, 1,491 characters.

#### Evaluation of Our Disclosure Controls

We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2022, have concluded that our disclosure controls and procedures were effective as of June 30, 2022.

#### Evaluation of Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 777 characters.

Our business is subject to substantial risks and uncertainties. Investing in our securities involves a high degree of risk. You should carefully consider the risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 28, 2022, together with the information contained elsewhere in this report, including Part I, Item 1 “Financial Statements” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other SEC filings in evaluating our business. These risks and uncertainties could materially and adversely affect our business, financial condition, results of operations, prospects for growth, and the value of an investment in our securities.

Filed Aug 11, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-021964. Last ingested by Listed: Nov 15, 2026, 00:00 ET. No prices; not investment advice.