Pasithea Therapeutics Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited. Pasithea is a CNS-focused biotechnology company and also earns revenue from business-support services to ketamine-treatment providers. Its drug-development programs were preclinical or in discovery during the period.
Financial performance and liquidity
| Metric | Q3 2022 | Nine months 2022 | Prior comparable period |
|---|---|---|---|
| Revenue | $218,608 | $245,847 | $0 in 2021 |
| Gross profit | $132,143 | $131,344 | $0 in 2021 |
| Operating expenses | $4.38 million | $9.87 million | $1.27 million and $2.55 million, respectively |
| Net loss | $4.59 million | $8.82 million | $1.53 million and $2.80 million, respectively |
| Basic and diluted loss per share | $0.17 | $0.36 | $0.17 and $0.33, respectively |
Gross margin was approximately 60% for Q3 and 53% for the nine-month period. Revenue came from ketamine-clinic support services; the company records its retained share of ketamine-treatment revenue and, for certain psychotherapy sessions, gross revenue.
At September 30, cash was $42.4 million, current assets $44.5 million, current liabilities $1.5 million, and working capital $43.0 million. Cash declined $10.6 million from year-end 2021. Nine-month operating cash use was $10.1 million; investing cash use was $0.3 million; there were no financing cash flows in 2022. Total liabilities were $2.8 million, including $1.0 million of lease liabilities and $0.6 million of warrant liabilities; the filing reports no borrowings. Management said available working capital should meet liquidity needs for at least 12 months from the financial-statement issuance date.
Material changes and notable items
- Compared with 2021, operating expenses and losses increased substantially. Management cited business expansion, Alpha 5 and AlloMek acquisition-related expenses, legal and proxy costs associated with a dissident shareholder campaign, and R&D spending on PAS-001, PAS-002 and PAS-003.
- Nine-month results included a $0.87 million gain from the reduction in fair value of warrant liabilities, partly offsetting operating losses; Q3 included a $0.34 million warrant-liability expense.
- In June, Pasithea acquired preclinical-stage Alpha 5 Integrin, developing an antibody program for ALS and other neuroinflammatory disorders. Preliminary purchase consideration was $3.64 million, including shares and warrants; the preliminary allocation included $3.83 million of goodwill. A potential FDA-approval-dependent earnout remains undetermined. One seller was the company’s Executive Chairman and Co-Founder.
- On October 11, 2022, after quarter-end, Pasithea acquired AlloMek for 2.7 million shares, 1.0 million warrants, $1.05 million cash, potential milestone payments of up to $5 million, and contingent sales-based earnouts. The acquired PAS-004/CIP-137401 asset was described as IND-ready; the company said it was preparing cGMP manufacturing to support an IND application.
- Shares outstanding were 26.55 million at quarter-end, up from 23.01 million at December 31, 2021, including 3.26 million shares issued for the Alpha 5 acquisition. The filing reports 29.25 million shares outstanding as of November 14, 2022.
Outlook, risks and controls
The filing provides no quantified revenue, earnings or clinical-development guidance. Management’s liquidity outlook was based on cash and working capital available at September 30. The company’s development programs depend on successful research, regulatory progress and future financing or other resources; actual results may differ materially from expectations. It also cited uncertainty around COVID-19 impacts, foreign-currency translation, warrant valuation, acquired-asset valuation and potential earnouts.
A Delaware Chancery Court action filed October 31, 2022 challenges aspects of the 2022 acquisitions and seeks, among other relief, to prevent counting acquisition shares in upcoming director-election votes. The company said it would vigorously contest the case. The filing reported no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Cash burn, remaining cash runway and whether the stated 12-month liquidity expectation reflects the post-quarter AlloMek cash payment and planned development spending.
- AlloMek and Alpha 5 transaction terms, final purchase-price allocations, related-party aspects, potential earnouts and dilution from shares and warrants.
- Clinical, manufacturing and regulatory milestones for PAS-004 and the company’s other research programs, including the timing and funding required for an IND.
- Status and potential consequences of the Delaware litigation and the dissident shareholder campaign.
- Revenue scale and economics of the ketamine-clinic support business relative to the company’s expanding operating expenses.