Cadrenal Therapeutics, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Cadrenal Therapeutics is an early-stage biopharmaceutical company developing tecarfarin, an investigational oral anticoagulant for prevention of systemic thromboembolism in patients with end-stage renal disease and atrial fibrillation. The company has orphan drug and FDA Fast Track designations. The report covers the three months ended March 31, 2023. The comparative period is January 25, 2022, the company’s inception, through March 31, 2022, rather than a comparable prior-year quarter.
Financial condition and key metrics
| Metric | Q1 2023 | Comparative period |
|---|---|---|
| Revenue | $0; the company has no commercial revenue | $0 |
| General and administrative expense | $964,732 | $152,661 |
| Research and development expense | $3,235,317 | $17,860 |
| Total operating expenses | $4,200,239 | $170,521 |
| Net loss | $5,173,574 | $176,648 |
| Basic and diluted loss per share | $0.48 loss | $0.02 loss |
| Cash used in operating activities | $1,412,794 | $43,699 |
| Cash at period end | $4,028,367 | $462,341 |
No meaningful revenue or operating margin exists because the company is pre-commercial and reported a loss from operations. Operating expenses increased substantially, driven primarily by a $3.0 million stock issuance to HESP LLC related to the tecarfarin asset purchase and higher personnel, professional, research and development, and stock-based compensation costs.
Net loss included $4,256,475 of non-cash expenses, including $3.0 million of stock-based consideration for the tecarfarin asset, $740,139 of loss on extinguishment of debt, $286,396 of stock-based compensation, $216,095 of derivative liability remeasurement, and $13,567 of debt discount amortization.
As of March 31, 2023, total assets were $4,482,064, total liabilities were $416,802, and stockholders’ equity was $4,065,262. The company reported no debt, no derivative liabilities, and working capital of approximately $4.0 million. Total operating lease liabilities were $38,329.
Material changes versus the comparative period and year-end
- The company completed its initial public offering on January 24, 2023, selling 1.4 million shares at $5.00 per share. Gross proceeds were $7.0 million and net proceeds were $5.4 million after offering costs.
- Convertible notes and accrued interest were converted into 1,140,700 common shares, and the related derivative liabilities of $4.6 million were derecognized.
- Investor warrants were exercised for $250,000, and the proceeds were used to repay the November 2022 promissory notes. Consequently, all reported debt was settled during the quarter.
- Shares outstanding increased from 8,193,875 at December 31, 2022 to 11,722,754 at March 31, 2023, reflecting the IPO, debt conversion, warrant exercise, asset purchase consideration, and service-related issuances.
- Cash increased from $32,586 at December 31, 2022 to $4,028,367 at March 31, 2023, primarily because of the IPO proceeds, partially offset by operating cash use.
- Accumulated deficit increased from $6,714,329 at year-end 2022 to $11,887,903 at March 31, 2023.
Guidance, outlook, risks and unusual items
Management expects existing cash to fund operations for at least the next twelve months from the filing date, but states that additional funding is required to commence and complete the planned Phase 3 trial and submit a New Drug Application. Management estimates approximately $45 million will be required for the pivotal Phase 3 trial and related NDA expenditures, including at least $42 million beyond the approximately $3 million of IPO proceeds allocated to trial preparation. The company also estimates approximately $13 million of general and administrative expenses over the next three years.
Subject to FDA acceptance of the proposed trial design and available financing, management intends to commence the Phase 3 pivotal trial in the first half of 2024. Funding plans include equity and debt financings and potential partnering transactions; there is no assurance that financing or partnering will be completed on acceptable terms or at all.
- The company has a history of operating losses and negative operating cash flow and expects substantial future losses.
- Clinical, regulatory, manufacturing, commercialization, competitive, intellectual property, and financing risks remain material. Orphan drug and Fast Track designations do not guarantee FDA approval or market exclusivity.
- The prior Phase 2/3 trial did not demonstrate superiority of tecarfarin over warfarin on its primary endpoint, although management describes favorable safety observations.
- Two issued U.S. patents currently expire in 2024; the company expects to seek patent-term extensions but has not completed a freedom-to-operate analysis.
- The company recorded a $740,139 non-cash loss on debt extinguishment and a $216,095 non-cash derivative fair-value charge during the quarter.
- Contingent consideration under the tecarfarin asset purchase agreement may require future payments of up to $2.0 million based on financing, development, regulatory, licensing, or commercial milestones.
- No material legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective as of March 31, 2023.
Most important facts for investors to verify
- Cash runway relative to the stated Phase 3 and NDA funding requirement of approximately $45 million.
- Timing, design acceptance, enrollment requirements, and expected cost of the planned Phase 3 trial.
- Terms and potential dilution from future equity or debt financing, existing options, and 110,500 outstanding warrants.
- Regulatory status of tecarfarin, including FDA acceptance of the proposed Phase 3 design and the implications of the Fast Track and orphan drug designations.
- Patent-term extension prospects and freedom-to-operate risks, particularly given the stated 2024 patent expirations.
- Progress and economics of the licensing arrangement with Lee’s Pharmaceutical in Asian markets.
- Continued quarterly cash burn, research and development spending, stock-based compensation, and milestone obligations under the asset purchase agreement.