Ensysce Biosciences, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022; filed November 10, 2022. Ensysce is a clinical-stage biotechnology company developing abuse- and overdose-resistant prescription drugs, including PF614, PF614-MPAR, and related programs. The company has no approved products and has not generated product revenue.
Financial Performance and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Federal grant revenue | $0.3 million vs. $1.2 million | $1.1 million vs. $1.9 million |
| Research and development expense | $4.8 million vs. $1.7 million | $13.4 million vs. $2.5 million |
| General and administrative expense | $1.7 million vs. $16.4 million | $5.7 million vs. $17.3 million |
| Loss from operations | $6.2 million vs. $16.9 million | $18.0 million vs. $17.9 million |
| Net loss attributable to common stockholders | $9.9 million vs. $17.2 million | $19.6 million vs. $19.0 million |
| Loss per share | $5.13 vs. $14.15 | $11.74 vs. $20.31 |
- The company recognized grant revenue but no product sales revenue. Profitability and operating margins are not meaningful because the company remains pre-commercial and loss-making.
- Operating cash flow was negative $14.6 million for the first nine months of 2022, compared with negative $4.5 million in the prior-year period.
- Financing activities provided $6.8 million, primarily from the 2022 convertible notes. Investing activities provided $4,500.
- Cash and cash equivalents declined to $4.5 million at September 30, 2022, from $12.3 million at December 31, 2021.
- Total assets were $8.3 million, total liabilities were $14.7 million, and total stockholders’ deficit was $6.4 million at September 30, 2022.
- Debt at fair value included approximately $8.6 million of convertible notes and $1.4 million of liability-classified warrants. The company reported $8.9 million of net debt in its debt schedule, including financed insurance.
- Accumulated deficit was $105.4 million at September 30, 2022.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased by $10.9 million for the nine-month period, primarily due to expanded clinical and preclinical activity for PF614 and PF614-MPAR.
- General and administrative expense decreased by $11.5 million for the nine-month period, largely because the 2021 period included significant non-cash warrant valuation expense.
- Federal grant revenue decreased by $0.8 million for the nine-month period because of the timing of eligible research activities and grant periods.
- The company issued $8.48 million aggregate principal amount of 2022 convertible notes in July and August 2022, generating $7.5 million of net proceeds. The notes carried a 6% stated interest rate and were accompanied by warrants.
- Debt conversions increased common shares outstanding from 1.23 million at December 31, 2021 to 2.21 million at September 30, 2022, before the subsequent reverse stock split.
- The 1-for-20 reverse stock split became effective October 28, 2022. The filing retroactively restates share and per-share information for the periods presented.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued net losses and negative cash flows for the foreseeable future, with research and development and public-company expenses expected to remain substantial or increase.
- Management states that current cash resources are insufficient to fund planned operations for the following 12 months without additional financing. The financial statements therefore contain a going-concern uncertainty.
- The company expects to rely on equity or debt financings, federal grants, collaborations, or other strategic transactions. Additional financing may dilute existing shareholders or impose restrictive covenants.
- The GEM share subscription facility provides for up to $60.0 million of gross proceeds, but the company’s ability to use it was restricted while the 2021 and 2022 notes remained outstanding. A $400,000 commitment fee was due in January 2023.
- The company had approximately $25.7 million of open purchase orders and contractual commitments as of September 30, 2022, including commitments to CROs for clinical and preclinical studies. Many arrangements may be cancellable, rescheduled, or adjusted.
- Subsequent to quarter-end, the company paid $390,701 in cash to satisfy the remaining 2021 Notes. It also issued 573,944 shares in the fourth quarter of 2022 upon conversion of $2.1 million of 2022 note principal and interest.
- Nasdaq had notified the company of deficiencies concerning minimum value of listed securities and minimum bid price. Following the reverse split, the company reported that it regained compliance with the minimum bid price requirement on November 11, 2022. The minimum value of listed securities deficiency remained a material listing risk as of the filing.
- Disclosure controls and procedures were not effective as of September 30, 2022 because of material weaknesses involving insufficient technical accounting expertise and inadequate supervision and review due to limited accounting personnel.
- Key business risks include clinical-trial failure or delays, evolving FDA standards for abuse-deterrent opioids, regulatory approval risk, reliance on CROs and other third parties, intellectual-property challenges, competition, supply-chain disruption, COVID-19 effects, and inability to retain key personnel.
Most Important Facts for Investors to Verify
- Whether the company obtained sufficient financing after the filing date to address the stated going-concern uncertainty and fund planned operations.
- The status and terms of the remaining 2022 Notes, subsequent conversions, warrant adjustments, and potential future share dilution.
- Whether Nasdaq minimum value of listed securities compliance was restored and maintained after the November 2022 filing date.
- Progress, enrollment, safety results, and regulatory interactions for PF614, PF614-MPAR, nafamostat, and the OUD program.
- Whether the reported material weaknesses in internal control over financial reporting were remediated.
- The availability and milestone requirements for the remaining approximately $5.8 million of federal grant funding through August 2023.
- Actual cash burn relative to the $4.5 million cash balance at September 30, 2022 and the company’s approximately $25.7 million of contractual commitments.