Dogwood Therapeutics, Inc.: Form 10-Q for the period ended Mar 31, 2024

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See our Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the Security and Exchange Commission (“SEC”) on March 8, 2024 (the “2023 Amended Annual Report on Form 10-K/A”), under “Risk Factors”, available on the SEC EDGAR website at www.sec.gov (http://www.sec.gov), for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements”, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements, including the risks set forth in the 2023 Amended Annual Report on Form 10-K/A. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements contained in this Quarterly Report on Form 10-Q include, among other things, statements about:

• our business strategies;
• our ability to obtain regulatory approval of our product candidate and any other product candidates we may develop, and the labeling under any regulatory approval we may obtain;
• risks relating to the timing and costs of clinical trials and the timing and costs of other expenses;
• timing and likelihood of success of our clinical trials and regulatory approval of our product candidates;
• risks associated with our reliance on third-party organizations;
• our competitive position;
• assumptions regarding the size of the available market, product pricing and timing of commercialization of our product candidates, if approved;
• our intellectual property position and our ability to maintain and protect our intellectual property rights;
• our results of operations, financial condition, liquidity, prospects, and growth strategies;
• our strategies to maintain the listing of our common stock;
• our cash needs and financing plans;
• the industry in which we operate; and
• the trends that may affect the industry or us.

Overview

We are a development-stage biotechnology company focused on advancing novel antiviral therapies to treat diseases associated with activation of previously dormant herpesviruses that trigger an abnormal immune response such as FM and LC. Overactive immune response related to activation of tissue resident herpesvirus has been postulated to be a potential root cause of chronic illnesses such as FM, IBS, LC, chronic fatigue syndrome and other functional somatic syndromes, all of which are characterized by a waxing and waning manifestation of disease, often triggered by events which compromise the immune system. While not completely understood, there is general agreement in the medical community that activation of the herpesvirus is triggered by some form of environmental and/or health stressor. Our lead product candidates, IMC-1 and IMC-2, are novel, proprietary, fixed dose combinations of nucleoside analog, anti-herpes antivirals and the anti-inflammatory agent, celecoxib. IMC-1 is a novel combination of famciclovir and celecoxib intended to synergistically suppress herpesvirus activation and replication, with the end goal of reducing viral mediated disease burden. IMC-2 is a combination of valacyclovir and celecoxib that like IMC-1, is intended to synergistically suppress herpesvirus activation and replication with a more specific activity against the Epstein-Barr virus (herpesvirus HHV-4).

IMC-1 and IMC-2 combine two specific mechanisms of action purposely designed to inhibit herpesvirus activation and replication, thereby keeping the herpesvirus in a latent (dormant) state or “down-regulating” the herpesvirus from a lytic (active) state back to latency. The famciclovir component of IMC-1 and the valacyclovir component of IMC-2 inhibit viral DNA replication. The celecoxib component of IMC-1 and IMC-2 inhibits cyclooxegenase-2 (COX-2) and to a lesser degree cyclooxegenase-1 (COX-1) enzymes, two proteins which are used by the herpesvirus to amplify or accelerate its own replication. We are unaware of any other antivirals currently in development for the treatment of FM or related conditions. We believe this novel approach was a germane consideration in the FDA designating IMC-1 for fast-track review status for the treatment of FM. IMC-1 has also been granted a synergy patent based on the fact that neither of the individual components has proven effective in the management of FM, yet the combination therapy generated a result that is greater than the sum of its parts.

Our novel combination antiviral approach (combining a viral DNA polymerase inhibitor + a COX-2 inhibitor) delivers clinical benefits for patients suffering from diseases with a suspected viral mediated catalyst, including FM and LC. We have received FDA feedback on our proposal to advance IMC-1 into Phase 3 development for the treatment of FM.

As previously reported, in 2023, the Company received positive data from an exploratory, open-label, proof of concept study in LC funded by an unrestricted grant provided to the BHC. BHC is a non-profit, interdisciplinary Center of Excellence advancing the diagnosis and treatment of chronic fatigue disorders including myalgic encephalomyelitis/chronic fatigue syndrome, FM, post-viral syndromes, and related comorbidities. BHC enrolled female patients diagnosed with LC illness, otherwise known as PASC. Patients treated with a combination of Val/Cel exhibited clinically and statistically significant improvements in fatigue, pain, and symptoms of autonomic dysfunction as well as ratings of general well-being related to LC when treated open-label for 14 weeks, as compared to a control cohort of female LC patients matched by age and length of illness and treated with routine care. The statistically significant improvements in PASC symptoms and general health status were particularly encouraging given that the mean duration of LC illness was two years for both the treated and control cohort prior to enrollment in this study. Based on these data, the Company met with the FDA to discuss opening an investigational new drug application to formally assess treatment of symptoms associated with PASC using IMC-2. In December 2023, we received FDA feedback on our proposed Phase 2b study and project to commence this trial upon securing funding for the program. In addition, in August 2023, we signed an unrestricted grant research agreement with BHC to conduct a second, investigator-initiated, randomized, double-blinded, placebo-controlled study of LC with IMC-2. Patient enrollment for this study began in the fourth quarter of 2023 and we expect results to be available in the second half of 2024.

In order to underscore the management team’s alignment as fellow shareholders and to emphasize our commitment to long-term success and value creation, effective March 1, 2024, all of our employees agreed to a 10% salary compensation reduction in exchange for future vesting stock options and all of our directors agreed to a 10% reduction in director fees.

In March 2024, we announced the publication of our global patent for IMC-2 covering antiviral treatment of LC. This will enable us to streamline the process for obtaining patent protection globally, representing a precursor to the national phase of patent examination by targeted countries across the globe.

We continue to be engaged with potential external entities who have an interest in partnering IMC-1 for the treatment of FM and we are actively exploring opportunities for IMC-2 for LC and complementary opportunities that will build shareholder value through strategic partnerships, collaborations or other transactions.

We have not generated revenues and have incurred losses since inception. Our net losses for the three and ended March 31, 2024 and 2023, were $1,291,335 and $1,516,864, respectively, and our accumulated deficit as of March 31, 2024 was $62,760,557. We expect to incur losses for the foreseeable future, and we expect these losses to increase as we continue to develop and seek regulatory approvals for our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. For example, the ongoing conflicts between Israel-Hamas and Ukraine-Russia, the effect of these wars and the resulting sanctions by the U.S. and European governments, has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, if at all.

Recent Developments

As previously reported, on November 2, 2023, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that, for the previous 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq. The letter stated that we had 180 calendar days, or until April 30, 2024 to regain compliance such that the closing bid price for our common stock is at least $1.00 for a minimum of 10 consecutive business days.

On May 1, 2024, we received another letter from Nasdaq informing us that our shares had failed to comply with the $1.00 minimum bid price required for continued listing and, as a result, our shares continue to be subject to delisting. In accordance with the latest letter and established Nasdaq procedures we have requested a hearing with Nasdaq at which we will seek to extend the period during which we will seek to regain compliance. Our request for such hearing has stayed the delisting of our common stock pending a Nasdaq hearings panel’s (the “Panel”) decision. The hearing date has been set for June 18, 2024. We intend to present a plan to regain compliance to the Panel that includes a discussion of the events that we believe will enable us to regain compliance, including the anticipated receipt of data from the study of IMC-2 for the treatment of Long-

COVID being conducted by the Bateman Horne Center as well as a commitment to effect a reverse stock split, if necessary.

We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance.

Results of Operations

Below is a summary of the results of operations:

(Unaudited)

Three Months Ended March 31, 2024 and 2023

Research and Development Expenses

Research and development expenses decreased by $0.2 million to $0.3 million for the three months ended March 31, 2024 from $0.5 million for the three months ended March 31, 2023 due to decreases in expenses for toxicology studies of $0.1 million and regulatory consulting costs of $0.1 million.

General and Administrative Expenses

General and administrative expenses decreased by $0.1 million to $1.0 million for the three months ended March 31, 2024 from $1.1 million for the three months ended March 31, 2023 primarily due to a decrease in insurance expenses associated with being a public company.

Liquidity and Capital Resources

Since our inception, we have financed our operations through public offerings of common stock and proceeds from private placements of membership interests and convertible promissory notes. To date, we have not generated any revenue from the sale of products and we do not anticipate generating any revenue from the sales of products for the foreseeable future. We have incurred losses and generated negative cash flows from operations since inception. As of March 31, 2024, our principal source of liquidity was our cash, which totaled $2.4 million.

Equity Financings

There were no equity financings during the three months ended March 31, 2024 and 2023.

Debt Financings

There were no debt financings during the three months ended March 31, 2024 and 2023. There was no debt outstanding at March 31, 2024 and December 31, 2023.

Future Capital Requirements

We estimate our current cash of $2.4 million at March 31, 2024 is not sufficient to fund operating expenses and capital requirements for at least the next 12 months. The Company will need to raise additional capital within the next three to five months to remain a going concern and to further advance clinical development and to commercially develop its product candidates. Currently, the planned research and development activities include a potential submission of an investigational new drug application to formally access IMC-2 as a treatment for the symptoms associated with Long-COVID; continued salaries and benefits; and continued funding of the grant to the BHC for ongoing execution of their double-blinded, placebo controlled investigator-sponsored study of Long-COVID with the combination of valacyclovir and celecoxib which is expected to read out later this year.

We plan to raise additional capital to complete clinical development of our product candidates. We will need to finance our cash needs through public or private equity offerings, debt financings, collaboration and licensing arrangements or other financing alternatives. To the extent that we raise additional funds by issuing equity securities, our shareholders will experience dilution. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. As a result, substantial doubt exists regarding our ability to continue as a going concern 12 months from the filing of this report on Form 10-Q. Failure to secure the necessary financing in a timely manner and on favorable terms could have a material adverse effect on the Company’s strategy and value and could require the delay of product development and clinical trial plans.

Summary of Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023, respectively:

(Unaudited)

Cash Flows for the Three Months Ended March 31, 2024 and 2023

Operating Activities

For the three months ended March 31, 2024, net cash used in operations was $0.9 million and consisted of a net loss of $1.3 million offset by a net change in operating assets and liabilities of $0.2 million attributable to an increase in accounts payable and accrued liabilities of $0.2 million and non-cash items of $0.2 million attributable to share-based compensation.

For the three months ended March 31, 2023, net cash used in operations was $1.7 million and consisted of a net loss of $1.5 million and a net change in operating assets and liabilities of $0.4 million attributable to a net decrease in accounts payable and accrued liabilities of $0.5 million offset by a decrease in prepaid expenses and other assets of $0.1 million and non-cash items of $0.2 million attributable to share-based compensation.

Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Discussion of Critical Accounting Policies and Significant Judgements and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to use judgment in making certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require difficult, subjective and complex judgments by management in order to make estimates about the effect of matters that are inherently uncertain. During the three months ended March 31, 2024, there were no significant changes to our critical accounting policies from those described in our annual financial statements for the year ended December 31, 2023, which we included in our 2023 Amended Annual Report on Form 10-K/A.

JOBS Act

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

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 Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Senior Vice President of Finance, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.

Based upon that evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules, regulations and forms of the SEC, including ensuring that such material information is accumulated by and communicated to our management, including our Chief Executive Officer and Senior Vice President of Finance, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(f) of the Exchange Act that occurred during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.