Mira Pharmaceuticals, Inc.: Form 10-Q for the period ended Jun 30, 2023

The following discussion and analysis should be read in conjunction with the Condensed Financial Statements and Notes thereto included elsewhere in this Quarterly Report. This discussion contains certain forward-looking statements that involve risks and uncertainties. The Company’s actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Quarterly Report and in the Company’s other filings with the SEC. See “Cautionary Note Regarding Forward Looking Statements” below.

As used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, unless otherwise indicated, the terms “the Company”, “we”, “us”, “our” and similar terminology refer to MIRA Pharmaceuticals, Inc.

Background of the Company

We are an early pre-clinical-stage pharmaceutical company focused on the development and commercialization of a new molecular synthetic THC analog under investigation for the treatment of adult patients with anxiety and cognitive decline typically associated with early-stage dementia. Our target patient population is also typically presenting with neuropathic pain. Our drug candidate, MIRA1a, if approved by the FDA, may be a significant advancement in the treatment of neuropsychiatric, inflammatory, and neurologic diseases and disorders. Based on pre-clinical and animal studies conducted by us, we believe that MIRA1a enhances the therapeutic potential for treating anxiety, cognitive decline and neuropathic pain by potentially striking a balance between the beneficial effects of THC and CBD. MIRA1a achieves this by selectively targeting the cannabinoid type 1 (“CB1”) and cannabinoid type 2 (“CB2”) receptors. Cannabinoid receptors, located throughout the body, are part of the endocannabinoid system, which is involved in a variety of physiological processes and responses including appetite, pain-sensation, mood, and memory. With respect to THC, our pre-clinical studies have shown that MIRA1a may have less potency at CB1 but maintains high activation at CB2. Since CB1 activation corresponds to intoxication, we believe that MIRA1a is potentially less intoxicating than THC while still providing beneficial therapeutic effects. In addition, by curbing the negative effects of THC (e.g. cognitive impairment), preclinical studies suggest that MIRA1a may be capable of unmasking positive therapeutic effects not previously seen with THC (e.g. cognitive performance enhancement).

Substantive operations began in late 2020 and the Company’s Investigative New Drug application is anticipated to be filed with the U.S. Food and Drug Administration (“FDA”) end of third quarter 2024. The Company owns U.S. Patent 10,787,675 B2, titled “Purified Synthetic Marijuana and Methods of Treatment by Administering Same,”

which covers the MIRA1a compound as a new molecular entity as well as pharmaceutical formulations of the compound and methods of treating Alzheimer’s disease, anxiety, depression, and addictions.

Critical Accounting Policies

See Note 2 of the Notes to Condensed Financial Statements included in Item 1 of this Quarterly Report for a summary of significant accounting policies and information on recently issued accounting pronouncements.

Results of Operations

For the three months ended June 30, 2023 compared to the three months ended June 30, 2022

Research and Development Expenses. During the three months ended June 30, 2023, we incurred $0.3 million in research and development expenses, which were offset by $0.4 million in research and development credits. The credits were primarily related to toxicology expenses for projects and milestones that were not performed by our vendors. We incurred $0.3 million in research and development expenses during the three months ended June 30, 2022, relating to pre-clinical costs. Research and development expenses include pre-clinical, toxicology and consultant expenses.

General and Administrative Expenses. We incurred $1.1 million and $1.6 million in general and administrative expenses during the three months ended June 30, 2023 and June 30, 2022, respectively. General and administrative expenses are composed primarily of compensation, insurance, professional fees, stock-based compensation, administration and other related costs. The decrease is due primarily to a decrease in stock-based compensation expense in 2023.

Related Party Travel Costs. We incurred $0.6 million in related party travel costs during the three months ended June 30, 2022. There was no such expense incurred during the same period ended June 30, 2023. Related party travel costs consisted of a lease and use of an airplane with an entity under common control. The decrease in related party travel costs is due to the termination of the lease in March 2023.

Interest expense. We recognized $0.3 million and $0.002 million in interest expense during the three months ended June 30, 2023 and June 30, 2022, respectively. Interest expense during 2023 included $0.29 of debt issuance costs. The remaining 2023 and 2022 interest expense consists of accrued interest on a related party line of credit.

For the six months ended June 30, 2023 compared to the six months ended June 30, 2022

Research and Development Expenses. During the six months ended June 30, 2023, we incurred $0.6 million in research and development expenses, which were offset by $0.4 million in research and development credits. The credits were primarily related to toxicology expenses for projects and milestones that were not performed by our vendors. We incurred $0.8 million in research and development expenses during the six months ended June 30, 2022, relating to pre-clinical costs. Research and development expenses include pre-clinical, toxicology and consultant expenses.

General and Administrative Expenses. We incurred general and administrative expenses of $1.7 million and $2.2 million during the six months ended June 30, 2023 and June 30, 2022, respectively. General and administrative expenses consists of payroll, consulting fees, IT-related costs, legal and accounting costs, office and rent expenses, investor relations and stock-based compensation expenses. The decrease is due primarily to a decrease in stock-based compensation expense in 2023.

Related Party Travel Costs. We incurred $0.5 million and $0.9 million in related party travel costs during the six months ended June 30, 2023 and June 30, 2022, respectively. Related party travel costs consisted of a lease and use of an airplane with an entity under common control. The decrease in related party travel costs is due to the termination of the lease in March 2023.

Interest expense. We recognized $0.3 million and $0.006 million in interest expense during the six months ended June 30, 2023 and June 30, 2022, respectively. Interest expense during 2023 included $0.29 of debt issuance costs. The remaining 2023 and 2022 interest expense consists of accrued interest on a related party line of credit.

Liquidity and Capital Resources

Since the Company’s inception in September 2020, we have financed our operations primarily through an unsecured line of credit with a major shareholder and through a private placement of shares of our common stock that occurred during the fourth quarter 2021 and during 2022. We intend to finance our research and development and working capital needs from existing cash, potential new sources of debt and equity financing, including the proceeds from our IPO. We may enter into new licensing and commercial partnership agreements.

On April 28, 2023, we entered into a Promissory Note and Loan Agreement with the Bay Shore Trust, a trust established by our founder, Jonnie R. Williams, Sr., and under which various of his family members are beneficiaries. Under this Promissory Note and Loan Agreement (the “Bay Shore Note”), we had the right to borrow up to an aggregate of $5 million from the Bay Shore Trust at any time up to the second anniversary of the issuance of the Bay Shore Note or, if earlier, upon the completion of our IPO. The Bay Share Note, together with accrued interest, will become due and payable on the second anniversary of the issuance of the note, provided that it may be prepaid at any time without penalty. The Bay Shore Note will accrue interest at a rate equal 7% per annum, simple interest, during the first year that the note is outstanding and 10% per annum, simple interest, thereafter. The Bay Shore Note is unsecured. As of June 1, 2023, we have borrowed an aggregate of $0.2 million under the Bay Shore Note. The Bay Shore Note replaced a Line of Credit Agreement that we entered into with The Starwood Trust, a separate trust established by our founder, in May 2021 and pursuant to which we had an outstanding principal balance of $0.2 as of the date of the Bay Shore Note (which outstanding balance was retired with an advance under the Bay Shore Note).

On July 20, 2023, we entered into a conversion agreement with the Bay Shore Trust under which the Bay Shore Trust had agreed to convert, upon the completion of the IPO, $1.1 million of the outstanding principal balance of the Bay Shore Note into shares of our common stock at a conversion price equal to our IPO price, which resulted in the issuance of 157,170 shares to the Bay Shore Trust upon the completion of the IPO (the “Bay Shore Trust Conversion Agreement”). On August 14, 2023, the Company paid $1.0 million in full to Bay Shore Trust, which was the amount due. The company also paid accrued interest of $0.03 million. As of the date of this report, the remaining amount of $0.003 million of accrued interest remains payable.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and therefore are not required to provide the information under this item.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report, our management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) (the “Certifying Officers”), conducted evaluations of our disclosure controls and procedures. As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosures.

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective as of June 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our second quarter of 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Report that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. In particular, statements about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance contained in this quarterly report under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” are forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this quarterly report under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements, or could affect our share price. Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to, the following:

• our use of the net proceeds from our recent offering;
• our ability to obtain and maintain regulatory approval of our product candidates;
• our ability to successfully commercialize and market our product candidates, if approved;
• our ability to contract with third-party suppliers, manufacturers and other service providers and their ability to perform adequately;
• the potential market size, opportunity, and growth potential for our product candidates, if approved;
• our ability to obtain additional funding for our operations and development activities;
• the accuracy of our estimates regarding expenses, capital requirements and needs for additional financing;
• the initiation, timing, progress and results of our pre-clinical studies and clinical trials, and our research and development programs;
• the timing of anticipated regulatory filings;
• the timing of availability of data from our clinical trials;
• our future expenses, capital requirements, need for additional financing, and the period over which we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditure requirements;
• our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
• our ability to advance product candidates into, and successfully complete, clinical trials;
• our ability to recruit and enroll suitable patients in our clinical trials;
• the timing or likelihood of the accomplishment of various scientific, clinical, regulatory, and other product development objectives;
• the pricing and reimbursement of our product candidates, if approved;
• the rate and degree of market acceptance of our product candidates, if approved;
• the implementation of our business model and strategic plans for our business, product candidates, and technology;
• the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
• developments relating to our competitors and our industry;
• the development of major public health concerns, including the novel coronavirus outbreak or other pandemics arising globally, and the future impact of it and COVID-19 on our clinical trials, business operations and funding requirements; and
• other risks and factors listed under “Risk Factors” and elsewhere in this quarterly report.

Given the risks and uncertainties set forth in this quarterly report, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this quarterly report are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this quarterly report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this quarterly report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this quarterly report speaks only as of the date of such statement. Except as required by federal securities laws, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this quarterly report.