9 METERS BIOPHARMA, INC. Except as otherwise noted or where the context otherwise requires, as used in this report, the words "we," "us," "our," the "Company" and "9 Meters" refer to9 Meters Biopharma, Inc. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes thereto for the year endedDecember 31, 2021 , included in our Annual Report on Form 10-K, filed with theSEC onMarch 23, 2022 .
Overview
9 Meters is a clinical-stage company pioneering novel treatments for people with
rare digestive diseases, gastrointestinal conditions ("GI") with unmet needs,
and debilitating disorders in which the biology of the gut is a contributing
factor. We are developing vurolenatide, a proprietary Phase 2 long-acting GLP-1
agonist, for short bowel syndrome ("SBS") and a robust pipeline of early-stage
candidates for undisclosed rare diseases and/or unmet needs. Our current product
development pipeline is described in the table below:
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Vurolenatide for the Treatment of Short Bowel Syndrome
Vurolenatide is a long-acting injectable glucagon-like-peptide 1 ("GLP-1")
analogue being developed for SBS, a debilitating orphan disease with an
underserved market. It affects up to 20,000 adults in the U.S. , with similar
prevalence in Europe . SBS results from massive and/or multiple resections of the
small intestine due to trauma, Crohn's disease, mesenteric vascula events,
malignancy, or complications from abdominal surgery. Patients with SBS cannot
absorb enough water, vitamins, protein, fat, calories and other nutrients from
food. It is a severe disease with life-changing consequences, such as impaired
intestinal absorption, diarrhea and metabolic complications. A portion of
patients have life-long dependency on Parenteral Support ("PS") to survive with
risk of life-threatening infections and extra-organ impairment. Vurolenatide
links exenatide, a GLP-1 analogue, to a long-acting linker technology and is
designed specifically to address the gastric effects in SBS patients by slowing
digestive transit time. The asset uses proprietary XTEN® technology to extend
the half-life of exenatide, allowing for weekly to every other week dosing,
which could increase convenience for patients and caregivers. Vurolenatide is
patent-protected and has received orphan drug designation by the U.S. Food and
Drug Administration ("FDA"). The FDA Office of Orphan Products Development
grants orphan designation to advance the evaluation of safe and effective drugs
and biologics to treat, prevent or diagnose rare diseases affecting fewer than
200,000 people in the U.S. Under the Orphan Drug Act, orphan designation
qualifies drug sponsors for development incentives conferred by the FDA,
including tax credits for qualified clinical testing.
We announced top-line results from our Phase 1b/2a clinical trial for
vurolenatide in SBS in the fourth quarter of 2020. The study met its primary
objective as vurolenatide demonstrated excellent safety and tolerability. In
addition, vurolenatide demonstrated a clinically relevant improvement in total
stool output (TSO) volume within 48 hours of first dose. The Phase 1b/2a
clinical trial was an open-label, two-dose study evaluating the safety and
tolerability of three escalating fixed doses of vurolenatide (50 mg, 100 mg, 150
mg) in 9 adults with SBS for 56 days. The trial was conducted at Cedars-Sinai
Medical Center . Patients in each of the three cohorts received two subcutaneous
doses two weeks apart with six weeks of subsequent follow-up. The study assessed
the safety and tolerability of repeated doses on Days 1 and 15 at each dose
level. Because reduced TSO volume and bowel movement frequency are correlated
with improved intestinal absorption and potentially less need for intravenous
supplementation for nutrition and hydration, these were key secondary objectives
in the trial. The primary purpose of this open-label Phase 1b/2a trial was to
assess the compound's safety and potential efficacy to inform future
development.
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--------------------------------------------------------------------------------Vurolenatide was generally safe and well tolerated: 17 treatment-emergent adverse events (TEAEs) were observed in 9 patients, 15 of which were mild, transient and self-limited without further intervention. The majority of TEAEs were GI-related (nausea and vomiting).
Importantly, 8 of the 9 patients experienced meaningful declines in TSO following each dose, relative to a baseline output. The rapid onset of clinical improvements in stool volumes, as observed in all 9 patients having substantial reductions in stool output within 48 hours of the first dose, shows the potential for vurolenatide to address the primary problem of chronic malabsorptive diarrhea in SBS patients. Additionally, four of seven patients showed reductions in bowel movement frequency after one dose and 5 of 6 evaluable patients showed reductions in bowel movement frequency after the second dose. Furthermore, of the five patients on PS in the trial, two patients showed reduction in PS after each dose. Results of the short-form health survey quality of life instrument demonstrated directional improvement in multiple elements of health status over the course of the trial. The short-form health survey, or SF-36, is a set of generic, coherent and easily administered quality-of-life measures. These measures rely upon patient self-reporting and are now widely utilized by managed care organizations and by Medicare for routine monitoring and assessment of care outcomes in adult patients. In the second quarter of 2021, we launched a multi-center, double-blind, double-dummy, randomized, placebo-controlled Phase 2 trial of vurolenatide for the treatment of SBS. The study's primary efficacy outcome measure was TSO. Treatment groups were determined based on doses identified as effective in the Phase 1b/2a study (50 mg weekly, 50 mg biweekly, 100 mg biweekly and placebo) and dosing interval was based on earlier pharmacokinetic data. Study patients receive weekly or biweekly subcutaneous injections of vurolenatide in a double dummy fashion. The primary objective is to determine whether there is any improvement in 24-hour stool output volume over the double-blind treatment period compared to baseline and to further evaluate the efficacy and tolerability of vurolenatide in the SBS population in light of the positive Phase 1b/2a data. There is no regulatory approval precedent for the Phase 3 study population; this necessitated development of a novel primary efficacy outcome measure based on the pathophysiology of SBS (i.e., chronic malabsorptive diarrhea) and what is often perceived as the most bothersome clinical symptom experienced by SBS patients. Hence, the primary efficacy endpoint is 24-hour mean TSO (TSO = sum of ostomy and per rectal stool output) over the treatment period. OnSeptember 26, 2022 , we announced positive results of the Phase 2 study of vurolenatide and the outcome from our End-of-Phase 2 ("EOP2") meeting with the FDA. VIBRANT (VurolenatIde for short Bowel syndrome Regardless of pArenteral support requiremeNT) was a multi-center, double-blind, placebo-controlled, parallel-group study evaluating the safety, efficacy, and tolerability of vurolenatide in adult patients with SBS. The trial included four parallel treatment arms: vurolenatide 50 mg every two weeks (Q2W), vurolenatide 50 mg every week, vurolenatide 100 mg (Q2W), and placebo. The primary efficacy endpoint for the study was change from baseline in mean 24-hour TSO volume over the six-week post-randomization observation period. The randomization block of the first 11 patients across the four arms resulted in three patients in each vurolenatide arm and two patients in the placebo arm. In the 50 mg vurolenatide Q2W treatment arm, the mean 24-hour TSO volume was a 30% decrease versus an increase of 32% in the placebo arm, for a relative reduction compared to placebo of 62%. This group showed a rapid (at one week) and sustained TSO reduction over the six-week post-randomization period. Importantly, TSO reduction from baseline was observed in 16 of the 18 weeks of the observation period in the 50 mg Q2W treatment group. These results, coupled with the most favorable adverse event and optimal pharmacokinetic profile, contributed to our decision to move this dose regimen forward into a pivotal clinical development program. In patients treated with 50 mg vurolenatide every week, there was a mean TSO decrease of 8%, for a relative reduction compared to placebo of 40%. In patients treated with 100 mg vurolenatide every two weeks (Q2W), there was mean a TSO increase of 16%, for a relative reduction compared to placebo of 16%. Notably, the pharmacokinetic profile from both these arms showed evidence of drug accumulation resulting in a suboptimal pharmacokinetic profile. The study allowed the inclusion of SBS patients both requiring and not requiring parenteral nutrition support. Five of the 11 patients in the study were receiving parenteral support prior to entering the study and all five were randomly assigned to treatment with vurolenatide. Change from baseline in parenteral support volume, an important secondary endpoint, was also evaluated over the 6-week observation period. There was a mean decrease of 17% in the parenteral support volume of these five patients by week two which was sustained throughout the 6-week observation period. Of the five patients, two remained stable and three demonstrated a mean decrease in PS of 28%. Among the 12 patients in the safety population, vurolenatide was generally well tolerated with mild to moderate and transient side effects, the most common of which were nausea and vomiting. One patient terminated early in the 100 mg 29 -------------------------------------------------------------------------------- Q2W arm due to nausea and vomiting. Importantly, there were no serious adverse events related to vurolenatide. Two serious adverse events were reported but deemed to be unrelated to study drug. Both were central catheter infections, which are common in patients with a central line. Based on the outcome from the EOP2 meeting with the FDA and this Phase 2 data, we intend to finalize the Phase 3 protocol in collaboration with the FDA during the fourth quarter of 2022. Clinical plans and activities are currently underway to facilitate initiation of the study upon protocol finalization. We plan to provide further details on the Phase 3 vurolenatide clinical development program following protocol finalization.
Larazotide
In 2019, we initiated a Phase 3 clinical trial ("CeDLara") for our drug
candidate, larazotide in CeD. In June 2022 , we announced completion of a
pre-specified interim analysis for the Phase 3 CeDLara study for patients with
CeD who continue to experience gastrointestinal symptoms while adhering to a
gluten-free diet. The interim analysis was conducted by an independent
statistician, with the sole purpose of re-estimating the treatment group size
required to detect a statistically significant clinical effect of larazotide,
utilizing patient data from the study.
Based on consultation with the independent statistician, we determined that the
additional number of patients needed to reach a significant clinical outcome
between placebo and larazotide would be too large to support trial continuation.
The interim analysis included the first approximately 50% of the initial target
enrollment and followed the completion of the 12-week double-blind efficacy
portion of the study. Following thorough analysis of the interim data, we
decided to discontinue further development of larazotide in celiac disease. The
study of larazotide for the treatment of MIS-C is not affected by this decision.
Resources dedicated to the larazotide celiac program will be reallocated to
support the vurolenatide Phase 3 program. Furthermore, we will continue to
consider other potential uses of larazotide where the mechanism of action may be
applicable.
We entered into a collaboration with the European Biomedical Research Institute
of Salerno, Italy ("EBRIS") to study larazotide for the treatment of MIS-C.
MIS-C is a rare and serious complication of COVID-19 with symptoms that resemble
those of Kawasaki disease, potentially including persistent fever,
gastrointestinal symptoms, myocardial dysfunction, and cardiogenic shock with
ventricular dysfunction in the setting of multisystem inflammation. MIS-C occurs
when SARS-CoV-2 superantigens move through the tight junctions between the gut
epithelial cells into the bloodstream, leading to the hyperinflammatory immune
response. We believe that larazotide's mechanism of action as a tight junction
regulator may prevent SARS-CoV-2 superantigens from entering the bloodstream.
Following receipt of a Study May Proceed letter from the FDA under a recently
filed Investigator IND, EBRIS initiated a Phase 2a study in MIS-C in the fourth
quarter of 2021 to evaluate the use of larazotide in a group of children through
a randomized placebo-controlled trial at MassGeneral Hospital for Children led
by pediatric pulmonologist Lael Yonker , M.D. and Johns Hopkins Hospital . Under
the terms of the collaboration agreement, we will supply larazotide for the
purposes of the clinical study and EBRIS is responsible for conducting the Phase
2a trial inclusive of all associated clinical costs.
NM-003 Long-Acting GLP-2
NM-003 is a proprietary long-acting glucagon-like-peptide ("GLP-2") receptor
agonist with improved serum half-life compared with short-acting versions. On
December 9, 2020 , we announced that the FDA has granted orphan drug designation
to NM-003 for prevention of acute graft versus host disease. NM-003, utilizes
proprietary XTEN technology to extend circulating half-life. NM-003 is currently
undergoing a preclinical proof-of-concept study. Based on the results of this
study, we intend to progress NM-003 through a clinical and regulatory pathway in
an undisclosed orphan and rare GI indication.
NM-102 Tight Junction Microbiome Modulator
NM-102, a small molecule peptide, is being developed as a potential microbiome modulator and undergoing an indication selection process. NM-102 is a long-acting, degradation-resistant peptide, believed to be gut-restricted, and presumed to prevent gut microbial metabolites and antigens from trafficking into systemic circulation. We recently announced a collaboration withGustav Roussy , a leading cancer center inVillejuif, France , using NM-102. This collaboration adds to an initial 14-month preclinical research project initiated inMarch 2019 , which focused on the relationship between intestinal microbiome composition and systemic responses to cancer treatments such as chemotherapy and immune checkpoint inhibitors. Preclinical testing and formulation development to support an IND are ongoing. 30 --------------------------------------------------------------------------------
NM-136 Humanized Monoclonal Antibody
OnJuly 19, 2021 , we entered into and closed an asset purchase agreement (the "Lobesity Asset Purchase Agreement") withLobesity LLC ("Lobesity"), pursuant to which we acquired global development rights to a proprietary and highly specific humanized monoclonal antibody, now known as NM-136, that targets glucose-dependent insulinotropic polypeptide ("GIP"), as well as the related intellectual property (the "Lobesity Acquisition"). GIP is a hormone found in the upper small intestine that is released into circulation after food is ingested, and when found in high concentrations, can contribute to obesity and obesity-related disorders. NM-136 has been shown to prevent GIP from binding to its receptor, which in preclinical obesity models has been shown to significantly decrease weight and abdominal fat by reducing nutrient absorption from the intestine as well as nutrient storage without affecting appetite. We have completed antibody profiling and have manufactured pilot batches in support of IND-enabling studies. Corporate Development 2022 Convertible Note OnJune 30, 2022 , we entered into a securities purchase agreement (the "Purchase Agreement") for the purchase of senior secured convertible notes with an institutional investor (the "Holder"). The principal amount of the initial note issued onJuly 15, 2022 and maturingJuly 1, 2025 , is$22.1 million (the "2022 Convertible Note"), with an option for us to issue additional convertible notes to the Holder with principal amounts of up to an aggregate of$70.0 million , subject to certain limitations. The 2022 Convertible Note bears interest equal to the three-month benchmark rate plus 5% (with a floor of 6% and 18% upon default). The 2022 Convertible Note will rank senior to all outstanding and future indebtedness of the Company and its subsidiaries. The 2022 Convertible Note also contains customary affirmative and negative covenants, including limitations on incurring additional indebtedness, the creation of additional liens on our assets, and entering into investments, as well as a subsequent financing requirement to raise at least$25.0 million byMarch 31, 2023 , and a minimum liquidity requirement. InNovember 2022 , we amended and restated the 2022 Convertible Note (the "Amended 2022 Note") to, among other things, reduce the minimum liquidity requirement from 110% of the outstanding principal amount to 80% of the outstanding principal amount. In accordance with the Amended 2022 Note, betweenNovember 2022 andJune 2023 , we will make a monthly amortization payment of$1.68 million , subject to certain increases, to be paid in shares of our common stock (unless we elect to pay in cash), subject to certain conditions, including the Equity Conditions (as defined in the 2022 Convertible Note). Such amortization payment may be optionally decreased by us, or if agreed to in writing by the Holder and the Company, increased. On the first day of each month on or afterJuly 1, 2023 , we will make an amortization payment equal to$882,000 in cash (unless we elect to pay in shares of common stock, subject to certain conditions, including the Equity Conditions). Such amortization payment may be optionally increased by us, if agreed to in writing by the Holder and the Company. The Amended 2022 Note also amended the definitions of the Conversion Floor Price, Subsequent Financing, Subsequent Financing Requirement and Required Reserve Amount. The Amended 2022 Note represents the same indebtedness represented by the original 2022 Convertible Note, and except as set forth herein, the material terms of the Amended 2022 Note are otherwise substantially similar to the 2022 Convertible Note. The Amended 2022 Note is optionally convertible by us or the Holder, subject to certain limitations. The Holder can elect to convert at the Holder's conversion rate of$7.06 . If there is an event of default under the Amended 2022 Note, the Holder may accelerate our obligations and redeem the note at a premium which ranges from 5% to 15% depending on the type of default (as defined in the 2022 Convertible Note). There were no events of default during the three and nine months endedSeptember 30, 2022 . 31 --------------------------------------------------------------------------------
Lobesity Acquisition
OnJuly 19, 2021 , we completed Lobesity Asset Purchase Agreement with Lobesity, pursuant to which we acquired global development rights to a proprietary and highly specific humanized monoclonal antibody, NM-136, that targets GIP, as well as the related intellectual property. We paid a combination of cash and equity consideration in the form of a$5 million upfront payment, as 40% cash and 60% equity (consisting of 120,861 shares of unregistered common stock priced at our 3-day volume weighted-price immediately prior to the closing), plus the right to contingent payments including certain potential worldwide regulatory and clinical milestone payments totaling$45.5 million for a single indication (with the total amount payable, if multiple indications are developed, not to exceed$58.0 million ), global sales-related milestone payments totaling up to$50.0 million , and, subject to certain adjustments, a mid-single digit royalty on worldwide net sales.
Financial Overview
Since our inception, we have focused our efforts and resources on identifying and developing our research and development programs. We have not had any products approved for commercial sale and have incurred operating losses in each year since inception. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. To date, we have financed our operations primarily through public offerings of equity securities and private placements of convertible debt and equity securities. As ofSeptember 30, 2022 , we had an accumulated deficit of$200.7 million . We incurred net losses of$9.4 million and$13.5 million during the three months endedSeptember 30, 2022 and 2021, respectively, and$31.8 million and$27.2 million during the nine months endedSeptember 30, 2022 and 2021, respectively. We expect to continue to incur significant expenses and continue increasing our operating losses for the foreseeable future, which may fluctuate significantly between periods. We anticipate that our expenses will increase substantially as and to the extent we:
•continue research and development, including preclinical and clinical development of our existing and future product candidates, including vurolenatide;
•experience delays in our clinical trials due to the COVID-19 pandemic;
•successfully develop acquired clinical assets;
•seek regulatory approval for our product candidates;
•commercialize any product candidates for which we obtain regulatory approval;
•maintain and protect our intellectual property rights;
•add operational, financial and management information systems and personnel;
•pursue additional in- or out-licenses or similar strategic transactions; and
•continue to incur additional legal, accounting, regulatory, tax-related and other expenses required to operate as a public company.
As such, we will need substantial additional funding to support our operating
activities. Adequate funding may not be available to us on acceptable terms, or
at all. We currently anticipate that we will seek to fund our operations through
equity or debt financings, strategic alliances or licensing arrangements, or
other sources of financing. Our failure to obtain sufficient funds on acceptable
terms could have a material adverse effect on our business, results of
operations and financial condition.
32
--------------------------------------------------------------------------------COVID-19
The effect of the COVID-19 pandemic and its associated restrictions, including the recent Omicron variant, has delayed and may continue to delay the expected development timelines and may increase the anticipated aggregate costs for our product candidates. Impacts from the COVID-19 pandemic include, but are not limited to, disruptions in the supply chain for clinical supplies, delays in the timing and pace of participant enrollment in clinical trials and lower than anticipated participant enrollment and completion rates due to COVID-19 clinical site closures, delays in the review and approval of our regulatory submissions by the FDA and other agencies with respect to our product candidates, and other unforeseen disruptions. Site activation and patient enrollment have been impacted by the COVID-19 pandemic and could continue to be impacted by the pandemic over the next several months and potentially longer. We are working closely with our clinical trial sites and product candidate manufacturers to ensure that patient safety and clinical supply of our product candidates are not adversely impacted by the pandemic, while also attempting to progress our trials and product candidate development as much as we can. In response to the COVID-19 pandemic, we put in place several safety measures for our employees, patients, healthcare providers and suppliers. These measures included, but were not limited to, substantially restricting travel, limiting access to our corporate office, including allowing employees to work remotely, providing personal protective equipment to employees, investigator sites and third-party vendors, implementing social distancing protocols, and coordinating safety protocols with our investigator sites. The ultimate impact resulting from the COVID-19 pandemic will depend, among other factors, on the extent of the pandemic in the regions with clinical trial sites, the timing and availability of the COVID-19 vaccines and length and severity of travel restrictions and other limitations ordered by governmental agencies. New and potentially more contagious variants, could further affect the impact of the COVID-19 pandemic on our operations. The economic impact of the COVID-19 pandemic and its effect on capital markets and investor sentiment may adversely impact our ability to raise capital when needed or on acceptable terms to fund our development programs and operations. We do not yet know the full extent of potential delays or impacts on our business, clinical trial activities, ability to access capital or on healthcare systems or the global economy as a whole due to the COVID-19 pandemic. However, these effects could have a material adverse impact on our business and financial condition.
Critical Accounting Policies and Use of Estimates
Use of Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
Critical Accounting Policies
Areas of the financial statements where estimates may have the most significant effect include fair value measurements, accrued expenses, share-based compensation, income taxes and management's assessment of our ability to continue as a going concern. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from these estimates. There have been no material changes to our critical accounting policies described in "Critical Accounting Policies and Use of Estimates" of the Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 23, 2022 . 33 --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
For details of recent Accounting Standards Updates and our evaluation of their adoption on our condensed consolidated financial statements, see "Note 1-Summary of Significant Accounting Policies-Recent Accounting Pronouncements" to our condensed consolidated financial statements in "Part I. Financial Information - Item I. Financial Statements" included elsewhere in this Quarterly Report on Form 10-Q. Results of Operations
Comparison of the Three Months Ended
The following table sets forth the key components of our results of operations
for the three months ended
Three Months Ended
September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 6,298,501 $ 6,049,444 $ 249,057 4 %
Acquired in-process research and development - 5,103,753 (5,103,753) (100) %
General and administrative 2,417,484 2,386,461 31,023 1 %
Total operating expenses 8,715,985 13,539,658 (4,823,673) (36) %
Loss from operations (8,715,985) (13,539,658) 4,823,673 (36) %
Total other income (expense), net (638,686) (573) (638,113) 111,364 %
Net loss $ (9,354,671) $ (13,540,231) $ 4,185,560 (31) %
Research and Development Expense
Research and development expense for the three months endedSeptember 30, 2022 , increased approximately$0.2 million , or 4%, as compared to the three months endedSeptember 30, 2021 . The increase was driven primarily by an increase of approximately$2.9 million for completion of our Phase 2 clinical trial in SBS and preparation for the launch of the Phase 3 trial in SBS. In addition, personnel costs and benefits for our research and development personnel increased by approximately$0.2 million , and non-cash stock compensation expense increased by approximately$0.1 million . These increases were offset by a decrease of approximately$1.8 million associated with the discontinuation of our Phase 3 clinical trial of larazotide for celiac disease, which resulted in a write-off of approximately$0.4 million for certain costs negotiated with the clinical sites. In addition, development costs for NM-102 decreased by approximately$0.4 million , milestone and license fees decreased by$0.5 million and research and development costs of our other pre-clinical product candidates decreased by approximately$0.2 million . Three Months Ended September 30, 2022 2021 Research and development expenses: NM-001 Celiac Disease$ (12,129) $
1,790,305
NM-002 Short Bowel Syndrome 4,911,476 2,024,290
NM-102 Orphan Indication 150,857 576,533
NM-136 Obesity Disorder 41,928 -
Milestone & license fees - 500,000Other research and development expenses 1,206,369 1,158,316
Total research and development expenses
34
--------------------------------------------------------------------------------Acquired in-process research and development expense for the three months endedSeptember 30, 2021 represents expenses associated with the Lobesity Acquisition that closed inJuly 2021 . Approximately$2.6 million represents non-cash acquired in research and development expense paid in equity ownership. There was no acquired in-process research and development expense during the three months endedSeptember 30, 2022 .
General and Administrative Expense
General and administrative expense for the three months endedSeptember 30, 2022 , increased by less than$0.1 million , or 1%, as compared to the three months endedSeptember 30, 2021 . The change is primarily due to an increase of approximately$0.2 million in personnel costs and benefits for our general and administrative personnel. In addition, non-cash stock compensation expense increased by approximately$0.1 million for our general and administrative personnel. These increases were offset by a decrease in general corporate costs of approximately$0.2 million and costs associated with operating as a public company of$0.1 million .
Other Income (Expense), Net
Other income (expense), net for the three months endedSeptember 30, 2022 , changed by approximately$0.6 million as compared to the three months endedSeptember 30, 2021 . The change in other income (expense), net is primarily due to the increase in interest expense associated with the 2022 Convertible Note of approximately$0.8 million . This increase in expense was offset by an increase in interest income of approximately$0.1 million and gain on fair value of derivative liability of$0.1 million .
Comparison of the Nine Months Ended
The following table sets forth the key components of our results of operations
for the nine months ended
Nine Months Ended
September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 22,213,456 $ 14,947,036 $ 7,266,420 49 %
Acquired in-process research and development - 5,103,753 (5,103,753) (100) %
General and administrative 9,062,199 7,146,432 1,915,767 27 %
Total operating expenses 31,275,655 27,197,221 4,078,434 15 %
Loss from operations (31,275,655) (27,197,221) (4,078,434) 15 %
Total other income (expense), net (560,857) (27,199) (533,658) 1,962 %
Net loss $ (31,836,512) $ (27,224,420) $ (4,612,092) 17 %
Research and Development Expense
Research and development expense for the nine months endedSeptember 30, 2022 increased approximately$7.3 million , or 49%, as compared to the nine months endedSeptember 30, 2021 . The increase is primarily driven by an increase of approximately$7.3 million for the completion of our Phase 2 clinical trial in SBS and preparation for the launch of the Phase 3 trial in SBS. In addition, development costs for NM-136 increased by approximately$2.4 million . Personnel costs associated with our research and development personnel increased by approximately$0.8 million and non-cash stock compensation expense increased by approximately$0.1 million . These increases were offset by decreases of approximately$2.6 million due to discontinuation of our Phase 3 clinical trial in celiac disease,$0.2 million in development costs for NM-102 and$0.5 million in research and development costs of our preclinical product candidates. 35 -------------------------------------------------------------------------------- Nine Months Ended September 30, 2022 2021 Research and development expenses: NM-001 Celiac Disease$ 2,646,817 $ 5,294,781 NM-002 Short Bowel Syndrome 11,955,067 4,614,277 NM-102 Orphan Indication 1,252,158 1,424,775 NM-136 Obesity Disorder 2,402,057 - Milestone & license fees 500,000 500,000
Other research and development expenses 3,457,357 3,113,203
Total research and development expenses
Acquired in-process research and development expense for the nine months endedSeptember 30, 2021 represents expenses associated with the Lobesity Acquisition that closed inJuly 2021 . Approximately$2.6 million represents non-cash acquired in-process research and development expense paid in equity ownership. There was no acquired in-process research expense during the nine months endedSeptember 30, 2022 .
General and Administrative Expense
General and administrative expense for the nine months endedSeptember 30, 2022 increased by approximately$1.9 million , or 27%, as compared to the nine months endedSeptember 30, 2021 . The increase is primarily due to an increase in non-cash stock compensation expense of approximately$1.3 million which is primarily related to option modification expense associated with the accelerated vesting of options for certain former employees, board members and consultants. In addition, professional and legal fees increased by approximately$0.4 million and personnel costs and benefits of our general and administrative employees increased by approximately$0.4 million . These increases were offset by a decrease of approximately$0.2 million in costs associated with being a public company. Other Income (Expense), Net Other income (expense), net for the nine months endedSeptember 30, 2022 , changed by approximately$0.5 million as compared to the nine months endedSeptember 30, 2021 . The change in other income (expense), net is primarily due to the increase in interest expense of approximately$0.8 million associated with the 2022 Convertible Note. This increase in expense was offset by an increase in interest income of approximately$0.2 million and gain on fair value of the derivative liability of$0.1 million .
Liquidity and Capital Resources
Sources of Liquidity
As ofSeptember 30, 2022 , we had cash and cash equivalents of approximately$39.4 million (of which$23.5 million is restricted), compared to approximately$47.0 million as ofDecember 31, 2021 . The decrease in cash and cash equivalents was primarily due to expenditures for business operations, research and development and clinical trial costs, including completion of our Phase 2 trial in SBS, preparation for the launch of the Phase 3 trial in SBS and close out fees associated with discontinuation of our Phase 3 clinical trial in celiac disease. InJuly 2022 , we received net proceeds of$19.9 million from the issuance of the 2022 Convertible Note, subject to a subsequent financing requirement to raise at least$25.0 million byMarch 31, 2023 , and a minimum liquidity requirement. The 2022 Convertible Note was amended inNovember 2022 , to among other things, reduce the minimum liquidity requirement from 110% of the outstanding principal amount to 80% of the outstanding principal amount, which releases approximately$6.3 million from restricted cash upon the effective date of the Amended 2022 Note. The 2022 Convertible Note and Amended 2022 Note are further described in Note 5-Debt and Note 10-Subsequent Events, respectively. 36 -------------------------------------------------------------------------------- To date, we have not generated revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We expect to incur substantial expenditures in the foreseeable future for the continued development and clinical trials of our product candidates. We will continue to require additional financing to develop and eventually commercialize our product candidates. Our future liquidity and capital requirements will depend on a number of factors, including the outcome of our clinical trials, which could be delayed due to the ongoing COVID-19 pandemic and our ability to complete the development and commercialization of our products. There are a number of variables beyond our control including the timing, success and overall expense associated with our clinical trials. Consequently, there can be no assurance that we will be able to achieve our objectives and we will need to seek additional funding. If we are unable to raise additional funds when needed, our ability to develop our product candidates will be impaired. We may also be required to delay, reduce or terminate some or all of our development programs and clinical trials. We continue to evaluate multiple dilutive and non-dilutive sources for future funding. If we raise additional funds through the issuance of equity securities, substantial dilution to our existing stockholders could occur. We have concluded that the prevailing conditions and ongoing liquidity risks faced by us raise substantial doubt about our ability to continue as a going concern. Cash Flows
The following table sets forth the primary sources and uses of cash for the nine
months ended
Nine Months Ended
2022 2021
Net cash (used in) provided by:
Operating activities $ (27,504,607) $ (21,507,608)
Investing activities (2,842) (2,428,013)
Financing activities 19,911,706 39,692,818
Net (decrease) increase in cash and cash equivalents and
restricted cash $ (7,595,743) $ 15,757,197
Operating Activities
For the nine months ended September 30, 2022 , our net cash used in operating
activities of approximately $27.5 million primarily consisted of a net loss of
$31.8 million and gain on fair value of the derivative liability of $0.1
million , offset by the adjustment for non-cash share-based compensation of
approximately $3.2 million , non-cash payment of milestone fees of $0.5 million ,
non-cash amortization of debt discount of approximately $0.5 million and the net
change in operating assets and liabilities of approximately $0.2 million .
For the nine months ended September 30, 2021 , our net cash used in operating
activities of approximately $21.5 million primarily consisted of a net loss of
$27.2 million offset by the adjustment for non-cash share-based compensation of
approximately $1.9 million , non-cash acquired in-process research and
development of approximately $2.6 million and the net change in operating assets
and liabilities of approximately $1.2 million .
Investing Activities
Net cash used in investing activities for the nine months endedSeptember 30, 2022 represents the purchase of property and equipment of approximately$3,000 . Net cash used in investing activities for the nine months endedSeptember 30, 2021 represents the purchase of acquired in-process research and development of approximately$2.5 million and the purchase of property and equipment of approximately$10,000 . These cash outflows were offset by the maturity of our restricted investment of$75,000 . 37 --------------------------------------------------------------------------------
Financing Activities
For the nine months endedSeptember 30, 2022 , net cash provided by financing activities consisted of gross proceeds from the issuance of the 2022 Convertible Note of$21.0 million offset by debt issuance costs of approximately$1.1 million . For the nine months endedSeptember 30, 2021 , net cash provided by financing activities of approximately$39.7 million primarily consisted of gross proceeds of approximately$34.5 million from theApril 2021 Offering, proceeds of approximately$7.9 million from the exercise of warrants and proceeds of approximately$0.2 million from the exercise of stock options. These cash proceeds were offset by an outflow of approximately$2.9 million in stock issuance costs and$0.1 million in repayments of debt.
Contractual Obligations and Commitments
InJuly 2020 , we entered into a four-year lease agreement for office space that expires onSeptember 30, 2024 . Base annual rent for the four-year lease period is$72,000 with monthly rent payments of$6,000 . We estimated the present value of the lease payments over the remaining term of the lease using a discount rate of 12%, which represented our estimated incremental borrowing rate. The two-year renewal option was excluded from the lease payments as we concluded the exercise of this option was not considered reasonably certain. InOctober 2022 , we entered into a lease agreement for office space that will be our headquarters in 2023 (the "2023 Lease"). The initial term of the lease is expected to commence inApril 2023 for a term of 126 months. The 2023 Lease provides for rent abatement for the first six months and beginning on the seventh month, the base rent payments are approximately$24,000 per month. The 2023 Lease may be extended for a period of five years, at the option of the Company. Periodically, we enter into separation and general release agreements with former executives that include separation benefits consistent with the former executive's employment agreements. There was no severance expense incurred during the three and nine months endedSeptember 30, 2022 and 2021. Severance payments are made in equal installments over 12 months from the date of separation. The accrued severance obligation in respect of former executives is approximately$0.1 million as ofSeptember 30, 2022 . We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. In general, the amount and timing of sub-license fees and the achievement and timing of development and commercialization milestones are not probable and estimable, and as such, these commitments have not been included on the accompanying condensed consolidated balance sheets. We incurred approximately$0.5 million in development milestone fees during the nine months endedSeptember 30, 2022 . There were no development milestone fees incurred during the three months endedSeptember 30, 2022 or the three and nine months endedSeptember 30, 2021 . We also enter into agreements in the normal course of business with contract research organizations and other third parties with respect to services for clinical trials, clinical supply manufacturing and other operating purposes that are generally terminable by us with thirty to ninety days advance notice.
Off-Balance Sheet Arrangements
As of
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