Cingulate Inc.: Form 10-Q for the period ended Sep 30, 2024

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, 2023 (Form 10-K) and in this report, as well as disclosures in this report and our other reports filed with the SEC, 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 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. With an initial focus on the treatment of Attention Deficit/Hyperactivity Disorder (ADHD) and anxiety, we are identifying and evaluating additional therapeutic areas where our PTR technology may be employed to develop future product candidates. 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, including debt financing, was approximately $106.4 million as of September 30, 2024.

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 $3.2 million and $6.0 million for the three months ended September 30, 2024 and 2023, respectively. See “Results of Operations” below for an explanation of the fluctuations in our net losses. As of September 30, 2024, we had an accumulated deficit of $102.4 million.

We expect to continue to incur significant expenses and operating losses in the near term, as we:

• seek regulatory approval for CTx-1301;
• continue research and development activities for our existing and new product candidates, primarily for CTx-1301;
• continue manufacturing activities, primarily relating to CTx-1301;
• seek licensing partners and/or outsource commercial infrastructure to support sales and marketing for CTx-1301; and
• operate as a public company.

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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.

2024 Reverse Stock Split

On August 9, 2024, we completed a one-for-twelve reverse stock split (2024 Reverse Stock Split), which reduced the number of shares of our common stock that were issued and outstanding immediately prior to the effectiveness of the 2024 Reverse Stock Split. The number of shares of our authorized common stock was not affected by the 2024 Reverse Stock Split and the par value of our common stock remained unchanged at $0.0001 per share. No fractional shares were issued in connection with the 2024 Reverse Stock Split. All share and per share amounts in this report have been adjusted to reflect the 2024 Reverse Stock Split.

Clinical, Manufacturing and Business Update

CTx-1301: We have designed our clinical program for CTx-1301 (dexmethylphenidate), our lead investigational product candidate for the treatment of ADHD, based on U.S. Food and Drug Administration (FDA) feedback regarding our CTx-1301 clinical plan, and longstanding guidance on the streamlined approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act.

We initiated two CTx-1301 Phase 3 clinical studies in pediatric and adolescent patients- a fixed dose study and a dose-optimized onset and duration study in a laboratory classroom setting in the third quarter of 2023. Based upon written communication with the FDA that further conduct of these pediatric and adolescent studies is not required for the submission of an NDA, we closed enrollment on both Phase 3 trials. We are performing the data consolidation and analytical activities for these trials. In addition, per FDA guidance, we initiated a food effect study utilizing CTx-1301’s highest dosage strength, 50-mg, in September 2024 and is expected to be completed by the end of 2024. Appropriate data will be included in the NDA, targeted for a mid-2025 submission.

We were issued a European patent for CTx-1301 for the treatment of ADHD on August 14, 2024. The patent application includes up to 30 European territories, including the United Kingdom.

CTx-2103: We have embarked on a program to develop CTx-2103 (buspirone), for the treatment of anxiety, which is one of the most common mental health concerns in the United States. We completed a formulation study in which the pharmacokinetics were evaluated for this trimodal tablet providing three precisely timed doses of buspirone versus one immediate release dose. In addition, scintigraphic imaging visualized transit of the tablets through the gastrointestinal tract to confirm both the site and onset of release, which will then be correlated with pharmacokinetic data to establish the full release profile of the CTx-2103 formulation. Based on the pharmacokinetic profile seen in the data, CTx-2103 achieved a triple release of buspirone. These results provided the critical information required to allow us to request a Pre-IND meeting with the FDA to discuss the design of our clinical and regulatory program for CTx-2103 which occurred in the fourth quarter of 2023. We received input from the FDA regarding the regulatory pathway for CTx-2103, and the design of clinical studies for filing of an IND. Based on this FDA feedback, we believe that we can seek and win approval of CTx-2103 under the 505(b)(2) pathway, which typically requires less time and resources than the 505(b)(1) full NDA pathway. Additional resources will be required to complete the development of this product candidate.

CTx-1302: We plan to initiate the clinical plan for CTx-1302 (dextroamphetamine), our second investigational asset for the treatment of ADHD, pending additional capital resources.

We continue to evaluate strategic partnerships under which we would license CTx-1301 in the United States and/or internationally. In March 2023, we entered into a joint commercialization agreement (the Commercialization Agreement) with Indegene, Inc. (Indegene) in the United States. We are able to utilize Indegene for commercialization services for CTx-1301, including marketing, sales, market access and distribution, on a fee for service, at our discretion.

Securities Issuances

Public Offering

On February 2, 2024, we entered into agreements, including a Securities Purchase Agreement, with investors, pursuant to which we issued 114,583 shares of our common stock, pre-funded warrants to purchase up to an aggregate of 197,917 shares of our common stock, Series A warrants to purchase up to 312,500 shares of our common stock and Series B warrants to purchase up to 156,250 shares of our common stock (the “February 2024 Offering”). The February 2024 Offering closed on February 6, 2024. The combined purchase price per share of common stock and accompanying Series A and Series B warrants was $24.00. The combined purchase price per prefunded warrant and accompanying Series A and Series B warrants was $23.99, which represents the public offering price per share of common stock and accompanying warrants less the $0.0012 per share exercise price for each prefunded warrant. The pre-funded warrants are exercisable at any time after the date of issuance and have no expiration date. The holder of pre-funded warrants may not exercise the warrants if the holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. The Series A warrants have an exercise price of $24.00 per share, were exercisable immediately, and will expire five years after the issuance date, and the Series B warrants have an exercise price of $24.00 per share, were exercisable immediately, and will expire two years after the issuance date. We received gross proceeds of approximately $7.5 million, before deducting $750,950 of placement agent’s fees and other offering expenses, pursuant to the February 2024 Offering. As of September 30, 2024, all pre-funded warrants had been exercised. Holders of Series A warrants to purchase 177,084 shares and Series B warrants to purchase 88,500 shares gave notice of exercise in connection with the June 2024 Warrant Inducement (as defined below) on June 28, 2024.

Warrant Inducement

On June 28, 2024, we entered into an inducement offer letter agreement (June 2024 Warrant Inducement), pursuant to which certain holders (Holders) of certain of our existing warrants to purchase 265,625 shares of common stock issued to the Holders on February 6, 2024 (February 2024 Warrants) agreed to exercise for cash their February 2024 Warrants at a reduced exercise price of $7.02 per share. In consideration for the exercise of the February 2024 Warrants, the Holders received new Series C common stock purchase warrants to purchase an aggregate of 354,167 shares of common stock and new Series D common stock purchase warrants to purchase an aggregate of 177,083 shares of common stock. Such new warrants have an exercise price of $7.02 per share. We received net proceeds of $1.6 million from the closing of the June 2024 Warrant Inducement, which occurred on July 1, 2024.

ATM Agreement

We entered into an At The Market Offering Agreement (ATM Agreement) with H.C. Wainwright & Co., LLC (HCW), as sales agent, in January 2023 as amended in May 2023, pursuant to which we may offer and sell, from time to time through HCW, shares of our common stock for aggregate proceeds of up to $19.7 million based on prospectus supplements filed with the SEC through the date of this report (upon the terms and subject to the conditions and limitations set forth in the ATM Agreement). In the three months ended September 30, 2024, we sold 902,300 shares of common stock under the ATM Agreement, for net proceeds of approximately $5.8 million, after deducting $0.2 million of compensation to HCW and other administration fees. In the nine months ended September 30, 2024, we sold 957,808 shares of common stock under the ATM Agreement, for net proceeds of approximately $9.3 million, after deducting $0.3 million of compensation to HCW and other administration fees.

Equity Line of Credit

In April 2023, we entered into a purchase agreement (Lincoln Park Agreement) with Lincoln Park Capital Fund LLC (Lincoln Park). Pursuant to the Lincoln Park Agreement, Lincoln Park has agreed to purchase from us up to an aggregate of $12.0 million of common stock (upon the terms and subject to the conditions and limitations set forth in the Lincoln Park Agreement) from time to time and at our sole discretion over the 36-month term of the Lincoln Park Agreement. During the quarter ended September 30, 2024, we sold 1,092,337 shares of common stock under the Lincoln Park Agreement, for net proceeds of approximately $6.1 million. During the nine months ended September 30, 2024, we sold 1,181,757 shares of common stock under the Lincoln Park Purchase Agreement, for net proceeds of approximately $6.8 million. Subsequent to September 30, 2024, we sold 213,522 shares of common stock under the Lincoln Park Purchase Agreement, for net proceeds of approximately $0.9 million.

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 contract research organizations (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;
• 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 well as adding additional PTR product candidates to our pipeline. 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.

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, and will continue to experience, 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 consisted of interest expense on our related party notes payable until the last of those obligations were converted to equity in the first quarter of 2024, and interest earned on our cash and cash equivalents, including money market funds. The primary objective of our investment policy is liquidity and capital preservation.

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.

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, 2023.

Results of Operations

Comparison of the three months ended September 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:

(in thousands)

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Research and development expenses

The following table summarizes our research and development (R&D) expenses for the three months ended September 30, 2024 and 2023:

(in thousands)

R&D expenses were $1.4 million for the three months ended September 30, 2024, a decrease of $2.5 million or 63.6% from the three months ended September 30, 2023. This change was primarily the result of decreased clinical activity in the three months ended September 30, 2024 as compared to the same period in 2023. During the third quarter of 2023, we incurred significant costs relating to two Phase 3 studies for CTx-1301, the fixed dose pediatric and adolescent safety and efficacy study and the pediatric dose optimization and duration study. Enrollment in these two studies was closed in early 2024 and we are progressing with the remaining close-out and analytical activities required for an NDA submission. Manufacturing costs also decreased, as the activity in 2023 was more significant for the manufacture of clinical supply for the Phase 3 studies. In 2024, manufacturing activity included the completion of registration batches of CTx-1301. The decrease in personnel costs is the result of lower headcount and the cost containment measures, which were implemented in late 2023 in order to conserve cash, including salary reductions ranging from 5-55% for all employees. This decrease was offset by the reinstatement of 2023 base salaries for all employees in September 2024.

General and administrative expenses

The following table summarizes our general and administrative (G&A) expenses for the three months ended September 30, 2024 and 2023:

(in thousands)

Total G&A expenses were $1.9 million for the three months ended September 30, 2024, an increase of 1.5% from the three months ended September 30, 2023. This is primarily the result of an increase in legal and professional fees, offset by a decrease in personnel expenses and insurance. The increase in legal and professional fees was due to the increased use of consultants in connection with the special shareholders meetings, the 2024 Reverse Stock Split and capital raising activity. This increase was offset by a decrease in personnel expenses primarily due to lower headcount and the cost containment measures, which we implemented in late 2023 in order to conserve cash, including salary reductions ranging from 5-55% for all employees. 2023 base salaries for all employees were reinstated in September 2024. In addition, there was a decrease in the annual directors’ and officers’ insurance premium from 2023 to 2024.

Interest and other income (expense), net

The following table summarizes interest and other income (expense), net for the three months ended September 30, 2024 and 2023:

(in thousands)

Total interest and other income (expense), net for the three months ended September 30, 2023, primarily relates to interest incurred on outstanding notes payable, offset by interest earned on invested balances. Total interest and other income for the three months ended September 30, 2024 relates to interest earned on invested balances, resulting from the increase in the Company’s cash balance relating to capital raise activities in the third quarter of 2024.

Comparison of the nine months ended September 30, 2024 and 2023

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:

(in thousands)

Research and development expenses

The following table summarizes our R&D expenses for the nine months ended September 30, 2024 and 2023:

(in thousands)

R&D expenses were $5.1 million for the nine months ended September 30, 2024, a decrease of $5.4 million or 51.3% from the nine months ended September 30, 2023. This change was primarily the result of decreased clinical activity in the nine months ended September 30, 2024 as compared to the same period in 2023. During the first nine months of 2023, we incurred significant costs relating to two Phase 3 studies for CTx-1301, the fixed dose pediatric and adolescent safety and efficacy study and the pediatric dose optimization and duration study. Enrollment in these two studies was closed in early 2024 and we are progressing with the remaining close-out and analytical activities required for an NDA submission. Manufacturing costs also decreased, as the activity in 2023 was more significant for the manufacture of clinical supply for the Phase 3 studies. In 2024, manufacturing activity included the completion of registration batches of CTx-1301. The decrease in personnel costs is the result of lower headcount and the cost containment measures, which were implemented in late 2023 in order to conserve cash, including salary reductions ranging from 5-55% for all employees. This decrease was offset by the reinstatement of 2023 base salaries for all employees in September 2024.

General and administrative expenses

The following table summarizes our G&A expenses for the nine months ended September 30, 2024 and 2023:

(in thousands)

Total G&A expenses were $4.3 million for the nine months ended September 30, 2024, a decrease of $1.1 million or 20.8% from the nine months ended September 30, 2023. This is primarily the result of a decrease in personnel expenses and insurance. The decrease in personnel expenses is the result of lower headcount and the cost containment measures which we implemented in late 2023 in order to conserve cash, including salary reductions ranging from 5-55% for all employees. 2023 base salaries for all employees were reinstated in September 2024. In addition, there was a decrease in the annual directors’ and officers’ insurance premium from 2023 to 2024. The decrease was offset by an increase in legal and professional fees due to the increased use of consultants in connection with the special shareholders meetings, the 2024 Reverse Stock Split and capital raising activity.

Interest and other income (expense), net

The following table summarizes interest and other income (expense), net for the nine months ended September 30, 2024 and 2023:

(in thousands)

Total interest and other income (expense), net for the nine months ended September 30, 2023, primarily relates to interest incurred on outstanding notes payable, offset by interest earned on invested balances. Total interest and other income for the nine months ended September 30, 2024 relates to interest earned on invested balances, resulting from the increase in the Company’s cash balance relating to capital raise activities.

Cash Flows

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Cash Flows from Operating Activities

Net cash used in operating activities was $14.4 million for the nine months ended September 30, 2024. 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 $9.4 million, prior to the effects of two noncash items, stock-based compensation expense of $0.9 million and depreciation expense of $0.5 million. Changes in operating assets and liabilities included a decrease in trade accounts payable and accrued expenses of $5.5 million primarily due to the payment of vendor balances in the first quarter of 2024 with the cash proceeds from the issuance of common stock pursuant to our ATM Agreement in January 2024 and the issuance of equity in the February 2024 Offering.

Net cash used in operating activities was $12.5 million for the nine months ended September 30, 2023. 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 $16.6 million, prior to the effects of two noncash items, stock-based compensation expense of $0.7 million and depreciation expense of $0.4 million. Changes in operating assets and liabilities included a decrease in miscellaneous receivables of $0.2 million primarily due to collection of an amount recoverable on an insurance claim which had been recorded as a receivable as of December 31, 2022, a decrease of prepaid expenses and other current assets of $1.4 million primarily due to the utilization of a deposit made to our contract manufacturing organization (CMO) for the build out of our new manufacturing suite and the utilization of deposits made to our CROs, and an increase in trade accounts payable and accrued expenses of $1.5 million due to increased clinical and manufacturing amounts resulting from increased development activity, an increase in interest accrued due to the WFIA Note and an increase in legal fees payable relating to legal activity incurred primarily in connection with capital raise activities.

Cash Flows from Investing Activities

Net cash used in investing activities for both the nine months ended September 30, 2024 and 2023 was primarily related to the purchase of equipment to support our research and development.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine-month period ended September 30, 2024 was related to the cash proceeds from the issuance of common stock pursuant to the ATM Agreement, the Lincoln Park Agreement, the February 2024 Offering and the June 2024 Warrant Inducement.

Net cash provided by financing activities for the nine months ended September 30, 2023 was primarily related to gross proceeds of approximately $4.0 million from the capital raise in September 2023, gross proceeds of approximately $1.0 million from the WFIA Private Placement and proceeds from the issuance of shares of common stock pursuant to the Lincoln Park Agreement and the ATM Agreement. In addition, we received $3.0 million from the 2023 WFIA Debt Financing .

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in 2012 through September 30, 2024, we have not generated any revenue and have incurred significant operating losses and negative cash flow from our operations.

In February 2024, we received gross proceeds of approximately $7.5 million, before deducting $750,950 of placement agent’s fees and other offering expenses in the February 2024 Offering.

On July 1, 2024, we received net proceeds of approximately $1.6 million from the closing of the June 2024 Warrant Inducement.

In the three months ended September 30, 2024, we sold 902,300 shares of common stock under the ATM Agreement, for net proceeds of approximately $5.8 million, after deducting $0.2 million of compensation to HCW and other administration fees. In the nine months ended September 30, 2024, we sold 957,808 shares of common stock under the ATM Agreement, for net proceeds of approximately $9.3 million, after deducting $0.3 million of compensation to HCW and other administration fees.

During the three months ended September 30, 2024, we sold 1,092,337 shares of common stock under the Lincoln Park Purchase Agreement, for net proceeds of $6,081,814. During the nine months ended September 30, 2024, we sold 1,181,757 shares of common stock under the Lincoln Park Purchase Agreement, for net proceeds of approximately $6.8 million . Subsequent to September 30, 2024, we sold 213,522 shares of common stock under the Lincoln Park Purchase Agreement, for net proceeds of approximately $0.9 million.

As of September 30, 2024, we had cash and cash equivalents of $10 million. We believe our cash will satisfy our capital needs into the third quarter of 2025 under our current business plan. We are targeting to file our NDA submission for CTx-1301 in mid-2025. We will need additional capital to advance our other programs and commercialization efforts. While we aware of the clinical and manufacturing requirements and estimated costs for an NDA submission of CTx-1301, it is difficult to predict spending for additional 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 are currently providing only a minimal return given the current interest rate environment.

We expect to continue to incur losses from operations for at least the next several years as we continue to develop our product candidates, primarily CTx-1301 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 or license 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 and timing of outsourcing our commercialization efforts, including, 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.

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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 licensing arrangement. We are actively seeking a strategic pharmaceutical partnership under which we would license CTx-1301 in the United States, internationally, or both. In March 2023, we entered into a Joint Commercialization Agreement with Indegene. Should we be unable to identify an appropriate pharmaceutical partnership, if we receive FDA approval for CTx-1301, Indegene would provide commercialization services for CTx-1301, including marketing, sales, market access and distribution, on a fee for service basis.

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. 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.

Contractual Obligations

The following summarizes our contractual obligations as of September 30, 2024 that will affect our future liquidity.

We entered into a patent and know-how licensing agreement with BDD Pharma Limited in August 2018. See “Item 1. Business – Material Agreements” section of our Form 10-K for a description of this agreement. We are required to pay BDD Pharma certain amounts in connection with clinical trial and regulatory milestones. The first milestone payment of $250,000 was paid in February 2023 upon dosing of the first patient in the Phase 3 adult onset and duration study for CTx-1301. Additional payments will become due upon completion of certain milestones as defined in the agreement.

We entered into agreements with vendors to complete the data consolidation and analysis for the two CTx-1301 Phase 3 clinical studies in pediatric and adolescent patients for which we closed enrollment in early 2024 based on FDA guidance regarding our clinical program. Total estimated cost of these agreements is $1.8 million.

We entered into an agreement with a CRO on August 22, 2024 to complete the final required study for CTx-1301, a fast fed study utilizing our highest dosage strength, 50mg. Total estimated cost of this agreement is $1.5 million.

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 that 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 months ended September 30, 2024 and 2023 and had accumulated losses of $102.4 million since inception to September 30, 2024. 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 initial public offering (IPO), public offerings, including the February 2024 Offering, sales of common stock under our ATM Agreement and Lincoln Park Agreement, a private placement with WFIA, the WFIA Note which was subsequently converted to equity, and the June 2024 Warrant Inducement. Additional capital 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 capital will be available when needed or on acceptable terms.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 ( 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.

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 September 30, 2024, have concluded that our disclosure controls and procedures were effective as of September 30, 2024.

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 September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 Form 10-K, 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.

Except as set forth below, there were no material changes to the risk factors previously disclosed in our Form 10-K.

Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our securities from Nasdaq, and the price of our common stock and/or warrants and our ability to access the capital markets could be negatively impacted.

Our common stock and warrants are currently listed for trading on The Nasdaq Capital Market. We must satisfy the continued listing requirements of Nasdaq to maintain the listing of our securities on The Nasdaq Capital Market.

On May 16, 2023, we received a notice from the Listing Qualifications Staff (Staff) of Nasdaq stating that we no longer complied with the minimum stockholders’ equity requirement of $2.5 million under the Nasdaq Listing Rule 5550(b)(1) (Minimum Stockholders’ Equity Rule) for continued listing. We submitted a plan of compliance to Nasdaq on June 30, 2023. On July 28, 2023, Nasdaq notified us that it had granted an extension until November 13, 2023 to regain compliance with the Minimum Stockholders’ Equity Rule, conditioned upon achievement of certain milestones included in the plan of compliance previously submitted to Nasdaq, including a plan to raise additional capital. On November 14, 2023, we received a letter from Nasdaq indicating that, based upon our non-compliance with the Minimum Stockholders’ Equity Rule, the Staff had determined to delist our securities from Nasdaq, subject to our request for a hearing before the Nasdaq Hearings Panel Panel).

On December 26, 2023, we received an additional letter from the Staff indicating that, based upon the resignation of three members of our board of directors on December 12, 2023 and December 13, 2023, we no longer compiled with the independent director, audit committee, compensation committee and independent director oversight of director nominations requirements as set forth in Nasdaq Listing Rule 5605. We timely requested a hearing before the Panel, which was held on February 13, 2024. On February 22, 2024, the Panel notified us that (i) as a result of the appointment of three independent board members on February 12, 2024, we had regained compliance with the board composition requirements of Nasdaq set forth in Nasdaq Listing Rule 5605 and (ii) it granted our request for an exception to evidence continued compliance with the Minimum Stockholders’ Equity Rule through May 13, 2024. On May 21, 2024, we were formally notified that the Panel determined that we had regained compliance with the Minimum Stockholders’ Equity Rule. Pursuant to Nasdaq Listing Rule 5815(d)(4)(A), we will be subject to a discretionary panel monitor through May 21, 2025 (Panel Monitor). If, within that one-year monitoring period, we fail to maintain compliance with any Nasdaq continued listing requirement, the Staff will issue a Delist Determination Letter and we will have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. Notwithstanding Nasdaq Listing Rule 5810(c)(2), we will not be permitted to provide the Staff with a plan of compliance with respect to any deficiency that arises during the one-year monitoring period, and the Staff will not be permitted to grant additional time for us to regain compliance with respect to any deficiency.

On July 28, 2023, we received a notice from Nasdaq indicating that we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq (Minimum Bid Price Rule). We were provided a compliance period of 180 calendar days from the date of the notice, or until January 24, 2024, to regain compliance with the Minimum Bid Price Rule, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). On November 30, 2023, we effected a reverse stock split of our common stock, and on December 15, 2023, we received notice from Nasdaq that we had regained compliance with the Minimum Bid Price Rule.

On June 17, 2024, we received a notice from Nasdaq indicating that, based upon our non-compliance with the Minimum Bid Price Rule, the Staff had determined to delist our securities from Nasdaq unless we timely requested a hearing before the Panel. Because we are subject to the Panel Monitor, the Staff did not grant additional time for the Company to regain compliance with the Minimum Bid Price Rule. We timely requested a hearing before the Panel, which was held on July 25, 2024. Our request for a hearing stayed any suspension or delisting action by the Staff. At such hearing we requested an extension within which to evidence compliance with the Minimum Bid Price Rule. On August 2, 2024, we received a notice from Nasdaq stating that the Panel determined to grant our request for an exception through August 23, 2024 to demonstrate compliance with the Minimum Bid Price Rule. Accordingly, the Panel granted our request for continued listing on Nasdaq, subject to: 1) on or before August 9, 2024, the Company effecting a reverse stock split at a ratio of between 1-for-3 and 1-for-15; and 2) on or before August 23, 2024, the Company demonstrating compliance with the Minimum Bid Price Rule by evidencing a closing bid price of $1.00 or more per share for a minimum of ten consecutive trading sessions. On August 9, 2024, we completed a one-for-twelve reverse stock split in an effort to evidence compliance with the Minimum Bid Price Rule. On September 9, 2024, we were formally notified that the Panel determined the Company has regained compliance with the Minimum Bid Price Rule.

In the event that our closing bid price again falls below $1.00 per share for more than 30 consecutive business days, we will no longer be in compliance with the Minimum Bid Price Rule, and as a result of the Panel Monitor, we would receive a Delist Determination Letter and we would have an opportunity to request a new hearing with the initial Panel or a newly convened Hearings Panel if the initial Panel is unavailable. There can be no assurance that we will continue to maintain compliance with the Minimum Bid Price Rule or the other Nasdaq listing requirements.

We must satisfy Nasdaq’s continued listing requirements, including, among other things, the Minimum Stockholders’ Equity Rule and the Minimum Bid Price Rule, or risk delisting, which could have a material adverse effect on our business. If our common stock and warrants are delisted from Nasdaq, it could materially reduce the liquidity of our common stock and warrants and result in a corresponding material reduction in the price of our common stock and warrants as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities. If our common stock and warrants are delisted, it could be more difficult to buy or sell our common stock and warrants or to obtain accurate quotations, and the price of our common stock and warrants could suffer a material decline. Delisting could also impair our ability to raise capital on acceptable terms, if at all.