Transcode Therapeutics, Inc.: Form 10-Q for the period ended Jun 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with the “Financial Statements” section of this Quarterly Report on Form 10-Q including the related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those set forth in the “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” sections of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

TransCode is a platform delivery company focused on oncology, created on the belief that cancer can be defeated through the intelligent design and effective delivery of targeted therapeutics. Our lead therapeutic candidate, TTX-MC138, targets microRNA-10b, or miRNA-10b, generally believed to be a master regulator of metastatic cell viability in a range of cancers, including breast, pancreatic, ovarian, colon cancer, glioblastomas, and several others. In 2023, we received exploratory Investigational New Drug, or IND, Study May Proceed notification from the U.S. Food and Drug Administration, or FDA. This notification permitted us to conduct a Phase 0 clinical trial intended to demonstrate quantitative delivery of radiolabeled TTX-MC138 to metastatic lesions in subjects with advanced solid tumors. We treated one patient in the Phase 0 trial. In April 2024, we received IND Study May Proceed notification from FDA to conduct a Phase I/II clinical trial with TTX-MC138 which we expect to commence in mid-2024.

In addition to TTX-MC138, we have other solid tumor programs in the preclinical stage. One, TTX-siPDL1, is an siRNA-based modulator of programmed death-ligand 1. A second, TTX-RIGA, is an RNA-based agonist of the retinoic acid-inducible gene I, or RIG-I, targeting activation of innate immunity in the tumor microenvironment. In addition, we are developing TTX-CRISPR, a CRISPR/Cas9-based therapy platform for the repair or elimination of cancer-causing genes inside tumor cells; and TTX-mRNA, an mRNA-based platform for the development of cancer vaccines that activate cytotoxic immune responses against tumor cells.

All our therapeutic candidates are designed to utilize our proprietary TTX delivery mechanism with the goal of significantly improving outcomes for cancer patients.

Targeted Therapeutic Delivery Background

For decades, ribonucleic acid, or RNA, has been a topic of investigation by the scientific community as a potentially attractive therapeutic modality because it can target any gene and it lends itself to rational and straightforward drug design. RNA-based therapeutics are highly selective to their targets, potentially applicable to a broad array of previously undruggable targets in the human genome. We believe that one of the major challenges to widespread use of RNA therapeutics in oncology and other indications has been the inability to deliver these molecules inside cells other than in the liver.

Additionally, delivery remains a significant challenge with CRISPR-based genome editing tools as well as mRNAs in the context of cancer. We believe that our proprietary TTX delivery platform has the potential to resolve these key challenges. We believe overcoming the challenges of delivery would represent an important step in unlocking therapeutic access to a variety of documented targets involved in a range of cancers and other diseases.

We have developed a design engine to customize the development of targeted therapeutics that is modular at both the levels of the core nanoparticle and the therapeutic loading. The size, charge, and surface chemistry of the core iron oxide nanoparticle is designed so that it can be tuned to optimize the particles for the intended target and therapeutic load. The therapeutic load is designed to consist of synthetic oligonucleotides and other molecular moieties that can be adapted to the specific approach being developed. The approach can range from RNA interference, or RNAi, including small interfering RNAs, antisense oligonucleotides, and non-coding RNA mimics to mRNA-based cancer vaccines, CRISPR-based gene repair and replacement platforms, and Pattern Recognition Receptors such as RIG-I. We believe the TTX platform can further be used for developing targeted radiolabeled therapeutics and diagnostics and other custom products targeting known and novel biomarkers and other genetic elements as they are discovered and validated.

The TTX platform is designed to overcome extracellular and intracellular delivery issues of stability, efficiency, and immunogenicity faced by existing lipid and liposomal nanoparticle platforms while optimizing targeting of and accumulation in tumors and metastases. We believe the ability to deliver targeted therapeutics inside tumors and metastases will potentially allow us to target genes and other important biomarkers for cancer treatment that have until now remained undruggable using other delivery systems.

TTX Delivery System

The therapeutic potential of RNA in oncology has remained an unrealized promise due in large part, we believe, to the difficulty in safely and effectively delivering oligonucleotides, i.e., synthetic RNA molecules, to tumors. We believe we are now closer to solving this challenge by means of our TTX platform. Our TTX platform leverages an iron-oxide nanoparticle, or IONP, approved for clinical use as a cancer imaging agent and in treating iron deficiency anemia, as the physical carrier of the oligonucleotide.

Our TTX technology has gone through approximately 20 years of research and development, or R&D, and optimization, including 12 years at Harvard Medical School and the Massachusetts General Hospital, by our scientific co-founders prior to company formation. Our modular platform could allow us to participate in additional rapidly growing global marketplaces. According to a recent analysis by Emergen Research, the global CRISPR Technology Market is expected to reach $3.94 billion by 2027. The global mRNA therapeutics market was estimated to have been approximately $33.8 billion in 2023 and projected to grow at a compound annual rate of nearly 25% reaching approximately $158 billion by 2030 according to an April 2023 360iResearch™ publication.

Our TTX nanocarrier is designed to be tunable to certain specifications to deliver therapeutic oligonucleotides to RNA targets in tumors and metastases without compromising the integrity of the oligonucleotide. We believe our TTX nanocarriers differentiate us from competitive delivery approaches, many of which rely on lipid particles or chemical structures, such as GalNAc. These competitive delivery approaches effectively target sites in the liver but not sites in tumors and metastases elsewhere. Our nanocarrier is derived from, and is chemically similar to, nanoparticles extensively used in humans for imaging (Feridex, from Advanced Magnetics) or for treating iron deficiency anemia (Feraheme, also from Advanced Magnetics).

Our TTX delivery platform is also designed to minimize early kidney and liver clearance, which we expect to translate into a long circulation half-life that allows for efficient accumulation in tumors and metastases.

Nanoparticles similar in formulation to ours have an excellent clinical safety record of low toxicity and immunogenicity. Because their iron core is magnetic and visible with magnetic resonance imaging, or MRI, they have the additional benefit of enabling quantification of the particles’ delivery to target organs. Our nanoparticles are functionalized with amino groups to provide stable links to the therapeutic oligonucleotides of interest through covalent bonds. The nanoparticles are coated with dextran, a glucose polymer, to protect the oligonucleotides from degradation and to provide overall stability to the particle.

The small hydrodynamic size and the charge of the resulting nanoparticles are designed to maximize distribution throughout the tumor microvasculature, extravasation into the interstitium of tumors and metastases, and uptake by tumors. The physicochemical properties of the nanoparticles are expected to further facilitate their rapid uptake by tumors by exploiting the high metabolic activity of cancer cells, a process analogous to the mechanism behind the systemic loading of metastatic cancer cells with fluorodeoxyglucose for diagnostic Positron Emission Tomography. We believe the combined result of a hydrodynamically-favored distribution and a metabolically-triggered uptake will result in the enhanced ability of our nanoparticles to access genetic targets inside tumors.

In addition, we have initiated research and development efforts designed to introduce radiotherapy into the delivery of RNA therapeutic payloads using TTX. Two of our programs, TTX-MC138 and TTX-RIGA, are being assessed for radionuclide integration in either a systemically or locally delivered manner for both the treatment and diagnosis of solid tumors.

Advancing new RNA therapies through a modular approach

TransCode’s TTX platform is modular by design. The size, charge, and surface chemistry of the core nanoparticles can be tuned to optimize them for the intended target and their therapeutic load. Also, the therapeutic load can be adapted to the specific approach being developed, ranging from RNA interference, or RNAi, which includes small interfering RNAs, or siRNAs, antisense oligonucleotides, non-coding RNA mimics to mRNA–based cancer vaccines, and Clustered Regularly Interspaced Palindromic Repeats, or CRISPR,–based gene repair and replacement platforms as well as Pattern Recognition Receptors such as retinoic acid inducible gene, or RIG-I.

In September 2021, research conducted by MGH was published in Cancer Nanotechnology, entitled “Radiolabeling and PET-MRI microdosing of the experimental cancer therapeutic, MN-anti-miR10b, demonstrates delivery to metastatic lesions in a murine model of metastatic breast cancer.” This paper reported on an MGH study using a radiolabeled derivative of TTX-MC138 (referred to in the paper as MN-anti-miR10b). In this study, TTX-MC138 was tagged with copper-64, or Cu-64. As a result, highly sensitive and specific quantitative determination of pharmacokinetics and biodistribution, as well as observation of delivery of the Cu-64 labeled TTX-MC138 to metastases, was made in laboratory tests using noninvasive positron emission tomography-magnetic resonance imaging, or PET-MRI. The key results of the study suggest that when injected intravenously, TTX-MC138 accumulates in metastatic lesions. These results suggest that our TTX platform delivers its therapeutic candidate as intended and support clinical evaluation of TTX-MC138. In addition, the MGH investigation describes a microdosing PET-MRI approach to measure TTX-MC138 biodistribution in cancer patients and its delivery to clinical metastases. (Microdoses are minute, subpharmacologic doses of a test compound, not greater than 100 micrograms.) The capacity to carry out microdosing PET-MRI studies in patients under an exploratory IND, or eIND, application could be important because they have the potential to support additional clinical trials we may propose for FDA consideration. The research described in this paper, published by Dr. Zdravka Medarova, our Chief Scientific Officer and scientific co-founder, and others, describes what we believe is an effective approach to assessing delivery of TTX-MC138 in metastatic cancer patients. Since the PET-MRI technique is sensitive enough to determine the concentration of radiolabeled drug candidate in the sub-picomolar range, microgram quantities of the radiolabeled drug candidate are believed to be sufficient to perform such a study in humans. We believe this capability has significant advantages in the initial phases of drug development. Because the low mass of radiolabeled TTX-MC138 is subtherapeutic, it may inform future clinical trials with this candidate.

Dr. Medarova’s paper suggests that the radiolabeling does not impact tumor cell uptake or the ability of TTX-MC138 to engage its target. The paper also shows that the biodistribution of Cu-64 labeled TTX-MC138, when injected at a microdose, reflects its biodistribution at the level of a therapeutic dose.

These key findings informed the design of our Phase 0 microdose clinical trial with radiolabeled TTX-MC138 which we believe offered numerous potential advantages:

(i) allowing more precise quantitation of the amount of TTX-MC138 delivered to the metastatic lesions because of the higher sensitivity and quantitative accuracy of positron emission tomography;

(ii) permitting measurement of the pharmacokinetics and biodistribution of TTX-MC138 not only in the metastatic lesions but in other tissues throughout the body, potentially informing Phase I/II clinical trial designs by allowing us to determine drug candidate uptake and clearance from vital organs;

(iii) supporting assessment of pharmacokinetic endpoints, potentially informing dosing for clinical trials. Specifically, because of the high sensitivity and quantitative nature of PET-MRI, we obtained information suggesting what drug concentration in the metastatic lesions over time could be which we then could assess relative to the effective dose used in our preclinical studies; and

(iv) further informing clinical trial designs by allowing patient inclusion in those trials based on the types of metastases that demonstrated accumulation of TTX-MC138 in prior trials.

Because of the benefits we believe accrue from a microdose Phase 0 trial, and reflecting the studies described in Cancer Nanotechnology, our First-in-Human Phase 0 trial was designed to deliver a microdose of our therapeutic candidate.

Results from the microdose trial could also validate delivery generally for our TTX pipeline which potentially opens-up additional relevant RNA targets that have been previously undruggable.

SBIR Award

In April 2021, we received a Fast-Track Small Business Innovation Research award, or SBIR Award, from the National Cancer Institute to provide up to $2,392,845 to fund a two-phased research partnership between us and Massachusetts General Hospital. The program commenced in April 2021 and ended in March 2024. We received SBIR Award funds of $308,861 in May 2021, $1,129,316 in the second year of the award and $870,597 in April 2023 for the third year of the Award. In the SBIR Award application, we proposed performing key translational experiments including IND-enabling and supporting imaging studies using MRI to assess delivery and target engagement of TTX-MC138 in metastatic lesions of breast cancer patients. The experiments were designed to achieve the following aims:

SBIR Phase I:

Aim 1. Optimize a method for measuring miR-10b expression in breast cancer clinical samples.

SBIR Phase II:

Aim 2. File an IND application for TTX-MC138.

Aim 3. Use imaging to determine the uptake of TTX-MC138 by radiologically-confirmed metastases in breast cancer patients.

We believe that we have achieved the first aim which included development and validation of a method for the use of a test called qRT-PCR to measure miR-10b expression in patient blood and tissue samples. The qRT-PCR test is often considered the gold standard for quantifying circulating miRNAs with high sensitivity and specificity and with a wide analytical measurement range. This research-level validated test can be used to identify the level that would be considered a positive expression of miR-10b in samples from metastatic cancer patients. We also believe that we achieved the study’s second aim as we filed an IND application with FDA to support a clinical trial with TTX-MC138 and received FDA Study May Proceed notification for the clinical trial. We have also completed studies proposed in the third aim of the application. We performed imaging in a patient with breast cancer metastatic to bone, lungs, and liver, before and after the patient received a radiolabeled microdose of TTX-MC138. The preliminary results obtained indicated accumulation and retention of TTX-MC138 in the metastatic lesions, a circulation half-life of approximately 20 hours, and drug stability in circulation.

In January 2024, we submitted a Direct-to-Phase II SBIR application to the National Cancer Institute, or NCI, in support of clinical development of TTX-MC138. If awarded, the Direct-to-Phase II SBIR award is expected to provide up to $2 million of non-dilutive funding over two years beginning in the second half of 2024.

In April 2024, we submitted a Fast-Track SBIR to the NCI in support of clinical development of TTX-siPDL1. If awarded, the SBIR award is expected to provide up to $2.3 million of non-dilutive funding over two years beginning in the second half of 2024.

Recent Developments

Phase 0 Clinical Trial Results

Administration of TTX-MC138 previously demonstrated complete regression of metastatic disease in a number of mouse models of pancreatic and breast cancer. In addition, TTX-MC138 was successfully delivered and demonstrated bioactivity in a case study of spontaneous feline mammary carcinoma. These results supported our decision to advance TTX-MC138 into clinical development.

Our first clinical trial, a Phase 0 trial, was designed as an open-label, single-center, study intended to demonstrate delivery of a single microdose of radiolabeled TTX-MC138 (a microdose is less than 100 micrograms) to radiographically-confirmed metastases in subjects with advanced solid tumors. The single microdose was followed by positron emission tomography/magnetic resonance imaging and blood analyses. This trial was intended to quantify the amount of TTX-MC138 delivered to metastatic lesions, especially beyond the liver, and its pharmacokinetics in trial patients. Our intent was to obtain important data regarding delivery of TTX-MC138 to clinical metastases that could inform dose selection and frequency in future clinical trials. The trial was not intended to demonstrate a therapeutic effect.

Data from the patient dosed in the Phase 0 trial showed that radioactivity consistent with accumulation of TTX-MC138 was detected in the regions of the metastatic lesions. In addition, pharmacokinetic behavior of the radiolabeled TTX-MC138 was consistent with that expected based on non-clinical IND-enabling studies. Metabolite analysis indicated circulation of intact radiolabeled TTX-MC138 for more than 20 hours, equivalent to that predicted by Drug Metabolism and Pharmacokinetics (DMPK) modelling, and that the drug candidate analyzed in the blood was identical to that of the manufactured drug candidate, demonstrating in vivo stability.

Subsequent results from this patient indicated significant inhibition of miRNA-10b, the drug candidate’s molecular target, in the patient’s blood after the microdose. Specifically, the amount of miR-10b in the patient’s blood was significantly reduced compared to levels prior to administration of the drug candidate, reaching a reduction of 66% at 24 hours following dosing.

In addition, the study quantified the amount of drug candidate delivered to metastatic lesions, providing further evidence that TTX-MC138 accumulated in metastatic tumors. The increase of radioactive lesion-to-blood ratios suggests that circulating TTX-MC138 is actively taken up by the cancerous tissue.

The patient tolerated the dosing with no reported adverse reactions. Complete analysis of data from the Phase 0 trial is in process and will be included in the study’s final report.

Given what we believe were highly encouraging results from the Phase 0 trial and our receipt of FDA authorization to proceed with a Phase I clinical trial with TTX-MC138 at a therapeutic level, enrollment in the Phase 0 trial was closed to allow us to focus on advancing the Phase 1 clinical trial.

Phase 1 Clinical Trial

On April 15, 2024, we announced that FDA had completed its review of our IND application to conduct a Phase I/II clinical trial with our lead therapeutic candidate, TTX-MC138, and concluded that we may proceed with this clinical trial. The trial is a multicenter, open-label, dose-escalation and dose-expansion study of in patients with advanced solid tumors. We have entered into agreements with two clinical trial sites and expect patient enrollment to begin at these sites in the third quarter 2024. We may enter into agreements with up to three additional trial sites.

Collaborations

On January 29, 2024, we announced that we had entered into a collaboration agreement with Debiopharm, a privately-owned Swiss-based, global biopharmaceutical company aiming to establish tomorrow’s standard-of-care to cure cancer and infectious diseases. Specializing in the manufacturing and development of oncology and antibiotic therapies, Debiopharm entered this research collaboration to test the development of new targeted nucleic acid delivery modalities. As part of the collaboration, TransCode is combining its TTX delivery platform with Debiopharm’s proprietary technologies and expertise in targeted drug delivery to generate constructs designed to provide targeted mRNA delivery to cancer cells. The parties intend to test these constructs both in cancer cells and in tumor-bearing animals.

In April 2024, we entered into a Proof of Concept Agreement with another biotechnology company. This April 2024 collaboration is designed to assess whether our TTX Delivery platform could be used to deliver the other company’s drug candidates to designated tissues/targets.

Nasdaq Listing

On January 31, 2024, after completion of our January Offering, we received notice from Nasdaq Stock Market LLC, or Nasdaq, that it had determined that the Company had regained compliance with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) (the Equity Rule) for continued listing on the Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5815(d)(4)(B), we are subject to a mandatory panel monitor through January 26, 2025. The Nasdaq notice also stated that if, within the one-year monitoring period, the Nasdaq staff, or the Staff, finds us again out of compliance with the Equity Rule that was the subject of the exception, notwithstanding Rule 5810(c)(2), we will not be permitted to provide the Staff with a plan of compliance with respect to that deficiency and the Staff will not be permitted to grant additional time for us to regain compliance with respect to that deficiency, nor will we be afforded an applicable cure or compliance period pursuant to Rule 5810(c)(3). Instead, the Staff will issue a Delist Determination Letter and we will have an opportunity to request a new hearing with the initial Hearing Panel or a newly convened Hearing Panel if the initial Panel is unavailable. We will have the opportunity to respond/present to the Hearing Panel as provided by Listing Rule 5815(d)(4)(C). Our securities may at that time be delisted from Nasdaq.

Additionally, on August 13, 2024, we received a letter from the Staff notifying us that for the 30 consecutive business day period prior to that date, our common stock had not maintained a minimum closing bid price of $1.00 per share, or the Minimum Bid Price Requirement, required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). As a result, our shares are subject to delisting from The Nasdaq Capital Market. Normally, a company would be afforded a 180-calendar day period to demonstrate compliance with the Minimum Bid Price Requirement. However, pursuant to Listing Rule 5810(c)(3)(A)(iv), we are not eligible for any compliance period specified in Rule 5810(c)(3)(A) because we effected two reverse stock splits over the prior two-year period with a cumulative ratio of more than 250 shares to one. We have the right until August 20, 2024, to appeal the Staff’s determination to a Hearings Panel (the “Panel”). A hearing request will stay the suspension of our shares and we expect that our stock would remain listed pending the Panel’s decision. There can be no assurance that, if we do appeal the Staff’s determination to the Panel, such appeal would be successful.

In the event of a delisting from the Nasdaq Capital Market, we may seek to have our stock traded in the over-the-counter inter-dealer quotation system, more commonly known as the OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on the securities exchanges, such as the Nasdaq Capital Market, or, together, Exchange-listed stocks. Many OTC stocks trade less frequently and in smaller volumes than Exchange-listed stocks. Accordingly, our stock would be less liquid than it would be otherwise. Also, the prices of OTC stocks are often more volatile than Exchange-listed stocks. Additionally, institutional investors are usually prohibited from investing in OTC stocks, and it might be more challenging to raise capital.

As further described below, in light of our financial position and our need to raise additional capital, delisting of our common stock from the Nasdaq Capital Market would materially limit our ability to obtain additional equity capital. We may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such restructuring activities, holders of our common stock and other securities will likely suffer a total loss of their investment.

Restructuring

In December 2023, our board of directors approved various actions designed to streamline our operations and reduce our expenses. These included prioritizing, delaying or eliminating certain development activities and reducing headcount by laying-off four employees. This lowered our headcount to 11 employees at December 31, 2023, compared to 19 at December 31, 2022. At June 30, 2024, our headcount was 9 employees. The main focus of our operations in 2024 and 2025 will be on conducting our Phase 1 clinical trial with TTX-MC138.

As part of the restructuring, Michael Dudley, our then President, Chief Executive Officer and Director, resigned his positions with us effective January 13, 2024. Also in connection with the restructuring, Thomas A. Fitzgerald, our Chief Financial Officer and Director, was appointed by our board of directors to the position of President and Interim Chief Executive Officer, effective January 13, 2024. Mr. Fitzgerald will continue to serve as our Principal Financial and Accounting Officer. Dr. Zdravka Medarova was appointed Chief Scientific Officer. Additionally, Dr. Philippe Calais, our Chairman of the Board of Directors, assumed additional responsibilites. In March 2024, we appointed Daniel Vlock, M.D., as our Chief Medical Officer.

Financial Operations Overview

From inception in January 2016 through approximately mid-2021, we devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, securing intellectual property rights, conducting limited research and development activities, and preparing for manufacturing clinical-trial quantities of our lead product candidate. Following our IPO, we have expanded our R&D activities and our company operations. We do not have any products approved for sale and have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product. We have limited experience with clinical trials, have not obtained any regulatory approvals to sell any products, have not manufactured a commercial-scale drug, or conducted sales and marketing activities. Through June 30, 2024, we had received approximately $52.4 million of net proceeds, primarily from our IPO, other equity financings, our SBIR Award and from borrowings between 2018 and 2020 under convertible promissory notes.

We have incurred significant operating losses since inception. Our net losses were approximately $8.7 million and $18.5 million for the six months ended June 30, 2024, and the year ended December 31, 2023, respectively. At June 30, 2024, we had an accumulated deficit of approximately $55.1 million. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates for which there is no assurance of occurrence. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

• pursue preclinical studies and initiate or advance clinical trials for TTX-MC138;
• advance the development of our product candidate pipeline;
• continue to develop and expand our proprietary TTX platform to identify additional product candidates;
• support partnerships with industry and academic partners;
• obtain new intellectual property and maintain, expand and protect our intellectual property portfolio;
• seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
• hire additional quality assurance, clinical, scientific, commercial and administrative personnel to increase our overall knowledge base, scientific expertise, experience and capabilities;
• acquire or license additional product candidates or technologies;
• expand our infrastructure and facilities to accommodate increased activities and personnel;
• add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our continued operation as a public company; and incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other expenses that we did not incur as a private company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our business strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through sales of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating our development programs, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future restructuring activities, holders of our common stock and other securities will likely suffer a total loss of their investment.

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. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

At June 30, 2024, we had cash of approximately $3.4 million. In July 2024, we obtained additional funds of approximately $2.4 million representing the approximate net proceeds from an equity offering completed on July 24, 2024. We believe that these funds together will be sufficient to fund our operating expenses and capital expenditure requirements into late 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

To finance our operations beyond that point, we will need to raise additional capital which cannot be assured. If we are unable to raise additional capital in sufficient amounts or on terms we find acceptable, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives. See “Liquidity and capital resources.”

Impact of Global Economic and Political Developments and the Novel Coronavirus (COVID-19) Pandemic

The development of our product candidates or our operations could be disrupted and materially adversely affected by global economic or political developments. In addition, economic uncertainty in global markets caused by political instability and conflict, such as the ongoing conflicts in Ukraine and the Middle East, and economic challenges caused by global pandemics or other public health events, such as the COVID-19 pandemic and a resurgence of additional variants of COVID-19, may lead to market disruptions, including significant volatility in commodity prices, credit and capital market instability and supply chain interruptions. Our business, financial condition and results of operations could be materially and adversely affected by negative impacts on the global economy and capital markets resulting from these global economic conditions and circumstances, particularly if such conditions and circumstances are prolonged or worsen.

Although our business has not been materially impacted by these global economic and political developments or COVID-19 to date, it is impossible to predict the extent to which we may be impacted in the short and long term, or the ways in which our business, financial condition and results of operations could be affected by any of the foregoing or by other events which may occur in the future. Any such disruptions may also magnify the impact of other risks described herein or in our other filings with the Securities and Exchange Commission.

Components of our results of operations

Revenue

To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval of any product candidate, or license agreements with third parties, we may generate revenue in the future from product sales or licensing agreements. However, there can be no assurance as to when, if ever, we will generate any such revenue.

Operating expenses

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of product candidates. We expense research and development costs as incurred, which include:

• expenses incurred in performing manufacturing, preclinical and clinical development;
• expenses incurred to conduct the manufacturing, preclinical studies and clinical trials related to seeking regulatory approval to market product candidates that have successfully completed clinical trials;
• expenses incurred under agreements with contract research organizations, or CROs, conducting drug discovery work, preclinical studies, and clinical trials for us, and with contract manufacturing organizations, or CMOs, engaged to produce preclinical and clinical drug substance and drug product for our research and development activities;
• other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and our preclinical studies, materials for our clinical trials, including manufacturing validation batches, as well as costs related to investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
• payments made under third-party licensing, acquisition and option agreements;
• personnel-related expenses for research and development personnel, including salaries, benefits, travel and other related expenses, and share-based compensation expense;
• costs related to compliance with regulatory requirements; and
• allocated facilities costs, including rent and utilities, and depreciation and other facilities or equipment expenses.

We recognize external development costs based on an evaluation of the progress toward completion of specific tasks using information provided to us by our employees, consultants and service providers, including CROs and CMOs. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are subsequently expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

We seek to track our research and development expenses on a program-by-program basis. Our direct external research and development expenses comprise primarily payments to outside consultants, CROs, CMOs, research laboratories, and suppliers in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and option agreements. We do not intend generally to allocate costs of management personnel, certain costs associated with our discovery efforts, certain supplies used in the laboratory, and certain facilities costs, including depreciation or other indirect costs, to specific programs when these costs are incurred across multiple programs and where it may not be practical to track them by program. We use internal resources along with outside parties primarily to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally are expected to 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. As a result, we expect that our research and development expenses will increase substantially over the next several years if we commence additional manufacturing, continue planned clinical trials for TTX-MC138, or conduct other preclinical and clinical development, including submitting regulatory filings. In addition, we expect our discovery research efforts and related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with share-based compensation, will increase significantly over prior levels. Also, we may incur additional expenses related to milestone and royalty payments to third-parties with whom we have entered or may enter into license, acquisition and option agreements to assess, use or acquire intellectual property rights or rights to future product candidates.

In September 2021, we signed a statement of work with a European CMO to manufacture TTX-MC138 in accordance with current good manufacturing practices, or cGMP. Separately, we engaged a consulting toxicologist to assist us in designing and conducting IND-enabling studies including toxicology, pharmacokinetic, or PK, studies. These studies are designed to examine multiple parameters with a range of analytical assessments in support of regulatory submissions using radiolabeled or non-radiolabeled test substances. Toxicokinetic assessments can be conducted in parallel or concurrent with ongoing toxicology programs and in compliance with good laboratory practice, or GLP, requirements. We also engaged an analytical testing laboratory to provide testing and other services, as well as documentation and reporting that meet regulatory requirements.

On July 29, 2022, we signed a five-year strategic collaboration agreement with The University of Texas M. D. Anderson Cancer Center (“MD Anderson”). Under this alliance, we anticipate making certain expenditures with respect to Phase I and Phase II clinical trials which it expects will be conducted in part by MD Anderson as a primary investigator site. MD Anderson may also provide preclinical work under the alliance. The details of clinical and preclinical work are to be mutually agreed by the parties prior to commencing work. Payments to MD Anderson are initially recorded as Prepaid Expenses. As work under the collaboration is performed by MD Anderson, we record research and development costs in our statements of operations. We have committed to fund up to $10 million over the term of the collaboration which are funds we had already budgeted for research and development, so do not represent additional spending. Of this amount, $500,000 was payable within the first year; $250,000 was paid and recorded as a Prepaid Expense pending such time as payments for expenses under the collaboration become due. Subsequent payments were to be $2 million on the first anniversary of the effective date of the agreement and $2.5 million on each of the second, third and fourth anniversaries thereof. We are currently in negotiations with MD Anderson regarding changes in planned work and payment commitments as a result of changes in personnel at MD Anderson and in planned work. No additional payments are due from us until the terms of the agreement are renegotiated and work under the collaboration has begun. There is no assurance regarding the outcome of discussions with MD Anderson. We will need to raise additional funds to meet the subsequent payment obligations. Total expenses incurred under the arrangement for the three and six months ended June 30, 2024 and 2023, were $0 in all periods. The arrangement expires on the later of July 29, 2027, or when the last active study is completed.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the manufacturing, preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows might commence from or related to any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain due to the numerous risks and uncertainties associated with product development and commercialization, including:

• the scope, progress, outcome and costs of our preclinical development activities, clinical trials, manufacturing activities, and other research and development;
• the requirement to establish an appropriate safety and efficacy profile in IND-enabling studies;
• the timing and terms of regulatory submissions and, if received, approvals to conduct clinical trials;
• the number of sites and patients needed to complete clinical trials, the length of time required to enroll suitable patients and complete clinical trials, and the duration of patient follow-ups;
• assessment of data generated in clinical trials by us and regulatory agencies;
• the timing, receipt and terms of marketing approvals, if any, from applicable regulatory authorities including the FDA and regulators outside the U.S.;
• the extent of any post-marketing approval commitments that may be required of us by regulatory authorities;
• establishing capabilities, or making arrangements with third-parties, to manufacture the quantities and quality of product we need to conduct pre-clinical studies, clinical trials and manufacturing validation activities in advance of any New Drug Applications that we may submit;
• development and timely delivery of clinical-grade and commercial-grade drug formulations as required for use in our clinical trials and for manufacturing validation and regulatory agency review in connection with pursuit, if any, we may undertake for commercial launch of therapeutic candidates that receive marketing approval;
• obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
• significant and changing government regulation;
• launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
• competitive developments;
• the impact of any business interruptions on our operations, including on the timing and enrollment of patients in our planned clinical trials, or on operations of our manufacturers, suppliers, or other vendors resulting from the COVID-19 pandemic or similar public health crisis or for any other reason; and
• maintaining an acceptable safety profile of our product candidates following approval, if any, of our product candidates.

Any changes in or adverse outcome of any of these variables or others with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our product candidates.

General and administrative expenses

General and administrative expenses consist primarily of staffing costs comprising mainly salaries, benefits, and share-based compensation expense for personnel serving in executive, finance, and other business functions; insurance costs, especially directors and officers liability insurance; professional fees for legal, patent, consulting, investor and public relations, accounting, tax and audit services; corporate and office expenses, including facilities costs; and information technology costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our R&D activities, prepare for potential commercial activities including possible partnerships for the development or marketing of approved product candidates, if any, and the increased requirements of a larger and publicly-traded company. We also anticipate that we will incur significantly increased accounting, audit, tax, legal, regulatory, compliance and director and officer liability insurance costs as well as investor and public relations expenses associated with operating as a public company. Additionally, if and when we believe regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other personnel-related expenses as we prepare for commercial operations, especially as it relates to the sales and marketing of that product candidate. There is a risk that we could incur the foregoing expenses but not receive the anticipated regulatory approval.

In September 2021, we engaged an independent executive compensation advisory firm to support the continued development of our compensation programs and governance model for officers, directors and employees. Our goal is to ensure that our culture, values, and strategic priorities are effectively represented in our compensation philosophy and strategy.

Other income (expense)

Interest expense

Interest expense previously consisted primarily of accrued interest on convertible promissory notes and other charges related to the notes. Since the notes converted into shares of common stock concurrent with our IPO, we no longer incur interest expense on these notes. Under our payment program for directors and officers liability insurance, we incur certain financing charges and we incur imputed interest expense in connection with our right-of-use asset.

Interest income

Interest income consists primarily of income earned on our cash balances. Our interest income has not been significant.

Grant income

From time to time, we apply for grant funding from government programs and may, in the future, apply for grants from non-government sources as well. There is no assurance that any grants will be awarded to us or, if awarded, that we will receive all the funds expected from such award. Grant payments received in advance of us performing the work for which the grant was awarded are recorded as deferred grant income on our balance sheets. Grant income is recognized in our statements of operations as and when earned for performance of the specific R&D activities for which the grants are awarded. Grant income earned in excess of grant payments received is recorded as grant receivable on our balance sheets.

Results of operations

The following table summarizes the approximate amounts of our results of operations for the periods indicated:

(in thousands)

Comparison of the three and six months ended June 30, 2024 and 2023

Research and development expenses

Research and development, or R&D, expenses increased $116 thousand and decreased $716 thousand, respectively, in the three and six months ended June 30, 2024, compared to the same periods in 2023. The increase in the three month period of 2024 reflects primarily increased compensation and benefits (primarily noncash expenses of share-based compensation offset in part by lower cash compensation costs) and increased clinical trial related expenses, offset in part by reduced materials, supplies, consulting and purchased services costs. The decrease in the six month period of 2024 reflects primarily reduced materials, supplies, consulting and purchased services costs offset in part by increased compensation and benefits (primarily noncash expenses of share-based compensation offset in part by lower cash compensation costs), increased clinical trial related expenses and higher intellectual property costs.

General and administrative expenses

General and administrative expenses decreased $125 thousand and $891 thousand, respectively, in the three and six months ended June 30, 2024, compared to the same periods in 2023. The decrease in the three month period of 2024 reflects primarily reduced consulting and insurance expenses offset in part by increased legal fees and costs of being a public company. The decrease in the six month period of 2024 reflects primarily decreased compensation and benefits (primarily increased noncash expenses of share-based compensation offset by lower cash compensation costs), and reduced legal, consulting, insurance and travel expenses offset in part by increased costs of being a public company.

Grant Income

Grant income decreased $789 thousand and $841 thousand, respectively, in the three and six months ended June 30, 2024, compared to the same periods in 2023. Grant income was recognized under an NIH grant awarded in April 2021 to fund certain costs to advance our lead therapeutic candidate into clinical trials. The award ended in March 2024.

Interest expense

Interest expense was $4 thousand and $14 thousand, respectively, in the three and six months ended June 30, 2024. These amounts reflect imputed interest expense charged in connection with our right-of-use asset and charges for the premium finance program related to our directors’ and officers’ liability insurance.

Interest income

Interest income was $0 for the three and six months ended June 30, 2024. Interest income primarily reflects our low cash balances.

Currency exchange gain (loss)

Loss on currency exchange was $73 thousand and $128 thousand, respectively, in the three and six months ended June 30, 2024, reflecting exchange rates on billings in Euros from certain vendors.

Cash flows

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Comparison of the six months ended June 30, 2024 and 2023

Operating activities

During the six months ended June 30, 2024, we used cash of $6,277 thousand in operating activities compared to $8,905 thousand used in the six months ended June 30, 2023. Cash used in operating activities in 2024 primarily reflected our net loss of $8,518 thousand offset partly by an increase of $656 thousand in prepaid expenses and other current assets, $224 thousand in accounts payable and accrued expenses, $1,328 thousand in non-cash charges for share-based compensation expense, $220 thousand in amortization of right-of-use asset, and depreciation of $64 thousand, and a reduction in grant receivable of $360 thousand.

Changes in accounts payable and accrued expenses were generally due to the amounts and timing of vendor invoicing and payments.

Investing activities

During the six months ended June 30, 2024, we used cash of $8 thousand in investing activities, primarily for purchases of laboratory and computer equipment, compared to $31 thousand used for such purchases in the six months ended June 30, 2023.

Financing activities

During the six months ended June 30, 2024, we obtained cash of $6,872 thousand (net) from the sale of common stock, including from exercises of warrants. During the six months ended June 30, 2023, we obtained cash of $7,540 thousand (net) from the sale of common stock.

Liquidity and capital resources

Sources of liquidity

Since inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if ever. We have funded our operations to date primarily with proceeds from borrowings under convertible promissory notes, funds from our IPO and other equity financings, and our SBIR Award. Through June 30, 2024, we had received net cash proceeds of approximately $52.4 million from these sources.

At June 30, 2024, we had cash of approximately $3.4 million.

Future requirements

We expect our expenses to increase substantially in connection with our ongoing and planned activities, particularly as we advance preclinical activities and pursue additional clinical trials of TTX-MC138. We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, tax, investor relations and other expenses that we did not incur as a private company.

The timing and amount of our operating expenditures will depend largely on our ability to, among other things:

• advance clinical development of TTX-MC138;
• develop validated processes to effectively manufacture, or have manufactured on our behalf, our preclinical and clinical drug materials and for commercial manufacturing of any product candidates that may receive regulatory approval;
• seek regulatory approvals for any product candidates that successfully complete clinical trials;
• establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we obtain marketing approval and intend to commercialize on our own;
• establish collaborations to commercialize any product candidates for which we obtain marketing approval but do not intend to commercialize on our own;
• expand our operational, financial and management systems and hire additional personnel, including personnel to support our clinical development, quality control, scientific research, manufacturing and commercialization efforts, our general and administrative activities and our operations as a public company; and
• obtain or develop new intellectual property and maintain, expand and protect our intellectual property portfolio.

We believe that our cash of approximately $3.4 million at June 30, 2024, plus approximately $2.4 million of net proceeds from our July 24, 2024, equity offering, will be sufficient to fund our operating expense and capital expenditure requirements into late 2024. We have based this estimate on assumptions that may prove wrong, and we could utilize our available capital resources sooner than we expect. We do not believe that our existing cash will be sufficient to fund our planned operating and capital expenditures for at least the next 12 months from the date of our financial statements included elsewhere herein. Changed circumstances may also result in the depletion of our capital resources more rapidly than we currently anticipate. These factors raise substantial doubt about our ability to continue as a going concern. We anticipate that we will require additional capital for additional research, development, and clinical trials, as we seek regulatory approval of our product candidates, for operations, and for licenses or acquisitions of other product candidates we may choose to pursue. If we receive regulatory approval for TTX-MC138 or other product candidates we may develop, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, all of which will vary depending on where and how we choose to commercialize approved product candidates.

Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:

• the scope, progress, outcome and costs of conducting preclinical development activities, clinical trials, and other research and development;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs, timing and requirements to manufacture our product candidates to supply our preclinical development efforts and our clinical trials;
• the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
• the costs of manufacturing commercial-grade product meeting quality and regulatory requirements and building inventory of such product to support commercial launch;
• the ability to receive non-dilutive funding, including grants from governments, organizations and foundations;
• the revenue, if any, received from commercial sales of our products, should any of our product candidates receive marketing approval;
• the costs of preparing, filing and prosecuting patent applications, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
• the terms of any industry collaborations we may be able to establish;
• the extent to which we acquire or license other product candidates and technologies; and
• the efficiency with which we operate our business.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings, governmental funding, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties. There is no assurance that funding from any of the foregoing sources or otherwise will be available on acceptable terms, if at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests in our common stock may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, we could incur fixed payment obligations as a result of any debt or preferred equity financing.

If we raise additional funds through governmental funding, collaborations, strategic partnerships and alliances, or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue or earnings streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds when needed, we will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating our development programs, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future restructuring activities, holders of our common stock and other securities will likely suffer a total loss of their investment.

Contractual obligations and commitments

At June 30, 2024, we had future minimum lease payments under one non-cancelable operating lease commitment of approximately $230 thousand. We enter into contracts in the normal course of business with CROs, collaborators, CMOs and other third-parties for the manufacture of our product candidates, to support clinical trials and preclinical research studies and testing, and for other purposes. Any payments due upon completion or cancellation of these contracts generally consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation although some agreements provide for termination fees or payments for the balance of the term of the agreement.

Collaboration Obligations

On July 29, 2022, we signed a five-year strategic collaboration agreement with The University of Texas M. D. Anderson Cancer Center (“MD Anderson”). Under this alliance, we anticipate making certain expenditures with respect to Phase I and Phase II clinical trials which we expect will be conducted in part by MD Anderson as a clinical trial site. MD Anderson may also provide scientific or preclinical work under the alliance. The details of clinical and preclinical work are to be mutually agreed by the parties prior to commencing work. Payments to MD Anderson are initially recorded as Prepaid Expenses. As work under the collaboration is performed by MD Anderson, we record research and development costs in our statements of operations. We have committed to fund up to $10 million over the term of the collaboration which are funds we had already budgeted for research and development, so do not represent additional spending. Of this amount, $500,000 was payable within the first year; $250,000 was paid and recorded as a Prepaid Expense pending such time as payments for expenses under the collaboration become due. Subsequent payments were to be $2 million on the first anniversary of the effective date of the agreement and $2.5 million on each of the second, third and fourth anniversaries thereof. We are currently in negotiations with MD Anderson regarding changes in planned work and payment commitments as a result of changes in personnel at MD Anderson and in planned work. No additional payments are due from us until the terms of the agreement are renegotiated and work under the collaboration has begun. There is no assurance regarding the outcome of discussions with MD Anderson. We will need to raise additional funds to meet the subsequent payment obligations.

The term of the agreement is five years or until the studies are completed, whichever is later, unless earlier terminated by either party for a material breach of the collaboration agreement or by MD Anderson as provided in the collaboration agreement.

Critical accounting policies and significant judgments and estimates

We have based our management’s discussion and analysis of financial condition and results of operations on our financial statements. Our financial statements are prepared in accordance with United States GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate estimates and assumptions on an ongoing basis. Our actual results may differ from amounts derived from these estimates or from amounts obtained under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our financial statements for the six months ended June 30, 2024, elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Research and development expenses

In preparing our financial statements, we are required to estimate our accrued research and development expenses.

We rely to a significant extent on third-parties to conduct preclinical studies, provide materials, manufacture our therapeutic candidate and to provide clinical trial services, including trial conduct, data management, statistical analysis and electronic compilation. At the end of each reporting period, we compare payments made to each service provider to the estimated progress towards completion of the related project. Factors that we consider in preparing these estimates include materials delivered or services provided, milestones achieved, the number of patients enrolled in studies, and other criteria related to the efforts of these vendors. These estimates are subject to change as additional information becomes available. Depending on the timing of payments to vendors and estimated services provided, we record net prepaid or accrued expenses related to these costs.

The estimating process involves reviewing open contracts and purchase orders, communicating with our relevant personnel to identify services that have been performed on our behalf or deliveries of materials made to us, and estimating the level of service performed and the associated cost incurred for those services when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. As of each balance sheet date, we make estimates of our accrued expenses based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:

• vendors, including research laboratories, in connection with preclinical development activities;
• CROs and investigative sites in connection with preclinical testing and clinical trials; and
• CMOs in connection with the production of drug substance and drug product formulations for use in preclinical testing and clinical trials.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

Share-based compensation

We measure the expense of share-based awards granted to employees, directors and others based on the fair value of the underlying award on the date of the grant. We recognize the corresponding compensation expense of those awards over the requisite service period, generally the vesting period of the respective award.

As of June 30, 2024, we had issued restricted stock and stock options, each with service-based vesting conditions, and recorded share-based compensation expense resulting from those awards as vesting occurred. All shares of restricted stock have vested and there is no further compensation expense to be recorded in connection with restricted stock. We would apply the graded-vesting method to all share-based awards with performance-based vesting conditions or to awards with both service-based and performance-based vesting conditions.

For share-based awards to consultants and non-employees, we recognize compensation expense over the period during which services are rendered by such consultants and non-employees until completed.

Warrant accounting

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815 “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary shares and whether warrant holders could potentially require “net cash settlement” in a circumstance outside of our control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end-date while the warrants are outstanding.

For issued or modified warrants that meet all the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of warrants classified as liabilities are recognized as a non-cash gain or loss on our statements of operations.

As the warrants issued upon our financings in 2023 and in the six months ended June 30, 2024, meet the criteria for equity classification under ASC 815, those warrants were classified as equity as of June 30, 2024, and December 31, 2023.

Factors that may affect future results

You should refer to Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of important factors that may affect our future results.

Off-balance sheet arrangements

During the periods presented, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently issued accounting pronouncements

A description of recently issued accounting pronouncements that may affect our financial position and results of operations is disclosed in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Internal control over financial reporting

In preparation of our financial statements to meet the requirements of our IPO, we determined that material weaknesses in our internal control over financial reporting existed prior to our IPO which remain unremediated. See Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, under the caption, “We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.” In September 2022, we retained an independent consulting firm to assist us improve our control systems and procedures and have implemented new software systems designed to enhance our ability to process financial transaction information. There is no assurance that any controls we implement will prevent fraud or enable accurate or timely financial reporting.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.235 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards by delaying adoption of these standards until they would apply to private companies. We have elected to use the extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date on which we (i) are no longer an emerging growth company and (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of effective dates applicable to public companies.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of our initial public offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We will continue to be a smaller reporting company until either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Information Technology Risks

Our data and computer systems are subject to threats from malicious software codes and viruses, phishing, ransomware, business email compromise attacks, or other cyber-attacks. In July 2021, we were subject to what we believe was a phishing attack. Although we do not believe this incident had a material impact on our business or financial condition, the number and complexity of these threats continue to increase. See Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, under the caption, “We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.” The Company has taken and continues to take steps to mitigate the risk of cyberattacks including enhancing its email screening, engaging with a computer support firm to provide forensics and training services, among other services, and enhancing security protocols for vendor payments. The Company intends to take additional steps to continue to enhance its cybersecurity defenses. Despite steps the Company has taken or may take in the future, there is no assurance that it will not suffer material and adverse consequences as a result of cyberattacks or other computer-based activities. In addition, there is no assurance that any steps we may take will be effective or prevent material adverse effects on our financial condition or results of operations.

Interest rate risk

We are exposed to market risk related to changes in interest rates. At June 30, 2024, and December 31, 2023, our cash was held in checking and savings accounts at major U.S. banks. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. However, because of the short-term nature of our holdings, an immediate 10% change in the interest rate would not materially affect the fair market value of our investments or our financial position or results of operations.

At June 30, 2024, and December 31, 2023, we had no debt outstanding other than liabilities related to the right-of-use asset from our sublease in Newton, Massachusetts. We currently, therefore, are not subject to interest rate risk related to debt.

Foreign currency exchange risk

Our primary exposure to market risk is foreign exchange rate sensitivity to the Euro, the currency for certain of our major purchases. For the six months ended June 30, 2024, we recognized a loss on foreign currency transactions of $128 thousand recorded as a component of other income (expense) in our statements of operations. An immediate 5% change in the Euro exchange rate would not have a material effect on our results of operations.

As we continue to develop our business, our results of operations and cash flows will likely be more affected by fluctuations in foreign currency exchange rates, including the Euro and other currencies, which could adversely affect our results of operations. To date, we have not entered into any foreign currency hedging contracts to mitigate our exposure to foreign currency exchange risk.

Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. 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 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 policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. Based upon such evaluation, and due to the material weakness described in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Quarterly Report on Form 10-Q, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures were not effective.

Continuing Remediation Efforts

To remediate the material weaknesses in our internal control over financial reporting and address the material weaknesses in our accounting processes, we previously began and continue to implement steps to address the internal control deficiencies that contributed to the material weaknesses, including the following:

• implementing more robust accounting policies and procedures;
• hiring of additional finance and accounting personnel with requisite experience and technical accounting expertise, supplemented by third-party resources;
• implementing new accounting and operating software;
• documenting and formally assessing our accounting and financial reporting policies and procedures; and
• assessing significant accounting transactions and other technical accounting and financial reporting issues, preparing accounting memoranda addressing these issues and maintaining these memoranda in our corporate records.

Also, in September 2022, we engaged an independent consulting firm to assist us in determining what personnel are needed, evaluating and improving our accounting processes, and in evaluating new accounting policies, which work is ongoing.

While we believe that these efforts will improve our internal control over financial reporting, implementation of these and other measures will be ongoing and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles. We cannot reasonably estimate when these remediation measures will be completed nor can we assure you that the measures we have taken to date, and are continuing to take, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses. Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary.

Management’s Annual Report on Internal Control Over Financial Reporting

This Quarterly Report on Form 10-Q does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.

Changes in Internal Control over Financial Reporting

Other than the remediation measures taken to date as described above, there were no material 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 six months ended June 30, 2024, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2023, or our Annual Report, filed with the SEC, as amended and supplemented by the information in our subsequent Quarterly Reports on Form 10-Q or other subsequent filings, together with all of the other information contained in this Quarterly Report, including our unaudited financial statements and the related notes appearing elsewhere in this Quarterly Report, and the risk factors set forth below. The risk factor disclosure in our Annual Report and subsequent Quarterly Reports on Form 10-Q is qualified by the information that is described in this Quarterly Report. Any of these factors could result in a significant or material adverse effect on our business, results of operations or financial condition. Additional risk factors not currently known to us or that we currently deem immaterial may also have a material adverse effect on our business, financial condition or results of operations. You should review the risk factors in our Annual Report and the risk factors discussed below 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 this Quarterly Report. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

We could lose our listing on the Nasdaq Capital Market if we do not meet Nasdaq stockholders’ equity requirement, if the closing bid price of our common stock does not increase, or if Nasdaq determines that our equity offerings do not qualify as public offerings as defined under Nasdaq rules. The loss of our Nasdaq listing would in all likelihood make our common stock significantly less liquid and adversely affect its value.

Nasdaq Listing Rule 5550(b)(1) requires that companies listed on the Nasdaq Capital Market, or the Exchange, maintain stockholders’ equity of at least $2,500,000, or the Stockholders’ Equity Requirement. We had not met this requirement until January 22, 2024, but there is no assurance that we will be able to continue to meet this requirement in the future. Our stockholders’ equity at June 30, 2024, was approximately $1.3 million but adding the approximate $2.4 million of net proceeds from our July 2024 Offering results in a pro forma stockholders’ equity of approximately $3.7 million. There is no assurance that Nasdaq will assess our stockholders’ equity on a pro forma basis.

Additionally, on August 13, 2024, we received a letter from the Staff notifying us that for the 30 consecutive business day period prior to that date, our common stock had not maintained a minimum closing bid price of $1.00 per share, or the Minimum Bid Price Requirement, required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). As a result, our shares are subject to delisting from The Nasdaq Capital Market. Normally, a company would be afforded a 180-calendar day period to demonstrate compliance with the Minimum Bid Price Requirement. However, pursuant to Listing Rule 5810(c)(3)(A)(iv), we are not eligible for any compliance period specified in Rule 5810(c)(3)(A) because we effected two reverse stock splits over the prior two-year period with a cumulative ratio of more than 250 shares to one. We have the right until August 20, 2024, to appeal the Staff’s determination to a Hearings Panel (the “Panel”). A hearing request will stay the suspension of our shares and we expect that our stock would remain listed pending the Panel’s decision. There can be no assurance that, if we do appeal the Staff’s determination to the Panel, such appeal would be successful.

The continued listing of our common stock on the Nasdaq Capital Market also depends on our compliance with other Nasdaq requirements including but not limited to Market Place Rule 5635, or the shareholder approval rule. The shareholder approval rule prohibits the issuance of shares of common stock (or derivatives) in excess of 20% of our outstanding shares of common stock without shareholder approval, unless those shares are sold at a price that equals or exceeds the Minimum Price, as defined in the shareholder approval rule, or are sold in what Nasdaq deems a Public Offering, as defined in the shareholder approval rule. The securities sold in our recent offerings were at a significant discount to the Minimum Price and we did not obtain stockholder approval for those issuances. We have sought to conduct these offerings as Public Offerings, but that determination is a qualitative analysis based on several factors as determined by Nasdaq. Nasdaq has also published guidance that an offering of securities sold at a price that is “deeply discounted” to the Minimum Price (for example, a discount of 50% or more) will typically preclude a determination that the offering qualifies as Public Offering for purposes of the shareholder approval rule. If Nasdaq determines that any of our offerings was not conducted in compliance with the shareholder approval rule, Nasdaq may cite a deficiency and move to delist our securities from the Nasdaq Capital Market.

Upon a delisting from the Nasdaq Capital Market, our stock would likely be traded in the over-the-counter inter-dealer quotation system, more commonly known as the OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on the securities exchanges, such as the Nasdaq Capital Market, or, together, Exchange-listed stocks. Many OTC stocks trade less frequently and in smaller volumes than Exchange-listed stocks. Accordingly, our stock would be less liquid than it would be otherwise. Also, prices of OTC stocks are often more volatile than Exchange-listed stocks. Additionally, institutional investors are usually prohibited from investing in OTC stocks, and it would likely be more challenging to raise capital when needed.

We have identified conditions and events that raise substantial doubt about our ability to continue operations in the near-term. We may need to seek an in-court or out-of-court restructuring of our liabilities.

We may be forced to amend, delay, limit, reduce or terminate the scope of our development programs and/or limit or cease our operations if we are unable to obtain additional funding. As of June 30, 2024, we had cash of approximately $3.4 million, plus approximately $2.4 million in estimated net proceeds received from our July 2024 equity offering. We do not believe that this cash will enable us to fund our operating expenses and capital requirements beyond late 2024. We will need to raise additional capital to continue as a going concern. The failure to obtain sufficient additional funds on commercially acceptable terms to fund our operations and satisfy our obligations to creditors may have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations in the near-term. We will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating our development programs, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future restructuring activities, holders of our common stock and other securities will likely suffer a total loss of their investment.