Ensysce Biosciences, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Ensysce Biosciences is a clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drug technologies. Its lead programs are PF614, a TAAP-based extended-release oxycodone prodrug, PF614-MPAR, a PF614 and nafamostat combination intended to reduce overdose risk, and oral nafamostat for infectious and pulmonary diseases. The filing covers the fiscal year ended December 31, 2022, with comparative 2021 information.
The Company has no approved products, has not generated product-sales revenue, and remains dependent on research grants, equity financings, and convertible debt. It had seven full-time employees and five consultants at year-end.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Federal grant revenue | $2.5 million | $3.5 million | Down $1.0 million |
| Research and development expense | $19.8 million | $4.7 million | Up $15.1 million |
| General and administrative expense | $6.9 million | $18.7 million | Down $11.8 million |
| Total operating expenses | $26.7 million | $23.4 million | Up $3.3 million |
| Loss from operations | $24.2 million | $19.9 million | Loss increased $4.4 million |
| Net loss | $24.2 million | $29.1 million | Loss decreased $4.9 million |
| Net loss attributable to common stockholders | $25.1 million | $29.9 million | Loss decreased $4.8 million |
| Basic and diluted loss per share | $11.62 | $29.64 | Improved primarily due to higher share count |
| Net cash used in operating activities | $17.9 million | $8.2 million | Use increased $9.6 million |
| Cash and cash equivalents at year-end | $3.1 million | $12.3 million | Down $9.1 million |
The Company reported a $110.9 million accumulated deficit and total stockholders’ deficit of $4.0 million at December 31, 2022. Current liabilities were $9.5 million versus current assets of $5.3 million. Debt at year-end included approximately $4.2 million of fair-value-based 2022 Notes and $0.2 million of financed insurance obligations.
Cash provided by financing activities was $8.8 million, principally from the 2022 convertible-note financing and the December 2022 public offering. The Company had approximately $21.6 million of open purchase orders and contractual obligations, principally for clinical and preclinical research. The filing states that available cash was expected to fund operations only into the second quarter of 2023.
Material changes versus the prior comparable period
- Research and development spending increased substantially as PF614 and PF614-MPAR clinical programs advanced.
- General and administrative expense declined because 2021 included approximately $11.6 million of non-cash expense associated with the GEM share subscription facility, plus other nonrecurring non-cash and commitment-fee expenses.
- Federal grant revenue declined to $2.5 million from $3.5 million, reflecting the timing of eligible research activities.
- The Company issued $8.0 million of gross 2022 convertible financing and completed a December public offering generating approximately $4.1 million of gross proceeds, alongside substantial warrant issuance.
- The 2021 Notes were satisfied in October 2022. Approximately $4.2 million of 2022 Notes remained outstanding at year-end and were repaid primarily through shares and cash in the first quarter of 2023.
- Common shares outstanding increased materially, including shares issued upon debt conversions and in the public offering. The October 2022 reverse split was a one-for-20 split, with historical share and per-share data retrospectively adjusted.
- Outstanding warrants and potential note conversions represented significant future dilution. Approximately 8.0 million warrant shares and approximately 1.9 million shares related to the 2022 Notes were reserved at year-end.
Clinical progress, outlook, and unusual items
- PF614’s Phase 1b multi-ascending-dose and bioequivalence study was completed in 2022. The filing states that 100 mg of PF614 was bioequivalent to 40 mg of OxyContin under fed and fasted conditions.
- The intranasal human abuse-potential study reported lower peak drug liking for PF614 than crushed immediate-release oxycodone. Data from the oral abuse-potential study was expected in early 2023.
- Part A of the PF614-MPAR Phase 1 study was completed in December 2022. Additional overdose-protection testing was planned for 2023, with data expected in the second half of 2023.
- Management planned to pursue acute-pain development for PF614 and stated that November 2022 FDA feedback indicated an acute-pain pathway involving at least two adequate and well-controlled trials appeared reasonable. The Company also planned a Phase 2 nafamostat study, subject to financing.
- PF614 has FDA fast-track designation, but the filing emphasizes that this does not assure faster approval or eventual approval. Management expected to pursue the Section 505(b)(2) pathway, subject to FDA acceptance.
- The Company recognized significant non-cash and valuation-driven items, including a $3.6 million loss on issuance of convertible notes, a $5.8 million gain from changes in convertible-note fair value, a $6.7 million gain from changes in warrant fair value, a $4.0 million loss on debt conversions, and a $3.7 million expense for liability-classified warrants.
- The auditor included a going-concern explanatory paragraph. Management stated that existing resources were insufficient to fund planned operations for the following 12 months without additional financing.
- Management reported material weaknesses in internal control over financial reporting as of December 31, 2022, involving inadequate accounting expertise and insufficient supervision and review of complex or unusual transactions. Disclosure controls were deemed ineffective.
- Nasdaq compliance was at risk. The Company had received an exception through June 12, 2023, subject to conditions including meeting bid-price and market-value requirements, eliminating or addressing convertible notes, obtaining shareholder approval for a reverse split, and raising additional capital.
- The GEM facility permits up to $60 million of gross equity proceeds, but the Company had not drawn on it and stated that proceeds might not be available before expiration. Draws are subject to Nasdaq listing, registration, trading-volume, and other conditions and would be highly dilutive.
Key risks and contingencies
- Substantial doubt exists regarding the Company’s ability to continue as a going concern without additional financing.
- PF614, PF614-MPAR, and nafamostat remain investigational and have not demonstrated approval-level efficacy in pivotal trials.
- Clinical results may not be replicated, safety issues may emerge, trials may be delayed, and FDA requirements may be more extensive or costly than anticipated.
- The Company relies on third-party CROs and CMOs and has no commercial manufacturing, sales, marketing, or distribution infrastructure.
- PF614 contains oxycodone and will be subject to Schedule II controlled-substance requirements, DEA quotas, security, recordkeeping, and anti-diversion obligations.
- Patent ownership and assignment records have not been fully updated for certain patent families, and some amphetamine-related applications lack assignments from all inventors.
- Additional equity issuance, debt conversions, warrant exercise-price resets, and the GEM facility may cause substantial dilution and pressure the common-stock price.
- Nasdaq delisting could reduce liquidity and impair access to public-market financing.
- The Company maintains cash balances above FDIC insurance limits and is exposed to potential counterparty or bank-failure risk.
- No material legal proceedings were reported as of the filing date, but the Company remains exposed to intellectual-property, product-liability, regulatory, contract, and clinical-trial claims.
Most important facts for investors to verify
- Current cash balance, monthly cash burn, and whether financing raised after year-end extends the operating runway.
- Final repayment amounts, share issuance, and cash true-up obligations related to the 2022 Notes.
- Whether Nasdaq listing requirements were satisfied by the applicable deadlines and whether the common stock remains listed.
- Current fully diluted share count, including shares issued for debt repayment, outstanding warrants, options, and contingent anti-dilution adjustments.
- Final oral PF614 abuse-potential data and subsequent FDA feedback on abuse-deterrent labeling and the 505(b)(2) pathway.
- PF614-MPAR formulation-selection results and the timing and quality of planned 2023 overdose-protection data.
- Funding status and milestone compliance under the remaining NIH and NIDA grants.
- Progress in remediating the reported material weaknesses in internal control over financial reporting.
- Whether the Company can meet its approximately $21.6 million of contractual and purchase commitments while continuing planned clinical development.