Business context and reporting period
Larimar Therapeutics, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. Larimar is a clinical-stage biotechnology company developing CTI-1601, a potential treatment for Friedreich’s ataxia; it has no product revenue. The May 28, 2020 merger with Zafgen was accounted for as a reverse asset acquisition, with Chondrial treated as the accounting acquirer. Accordingly, pre-merger historical results are Chondrial’s, while post-merger results include the combined company; the 2020 and 2019 periods are not fully comparable.
Financial and operating highlights
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $8.9 million | $13.9 million |
| General and administrative expense | $2.5 million | $4.2 million |
| Net loss | $11.3 million | $18.0 million |
| Net loss per share, basic and diluted | $1.21 | $2.33 |
| Net cash used in operating activities | Not provided for quarter | $21.1 million |
For the six months, R&D expense increased $6.6 million year over year, mainly from CTI-1601 development, manufacturing and toxicology costs, and added personnel. G&A rose $3.1 million, largely reflecting merger, audit, legal and public-company costs and higher stock compensation. Net loss increased from $8.4 million in the first half of 2019.
At June 30, 2020, cash and cash equivalents were $112.7 million and marketable debt securities were $1.0 million; restricted cash was $1.3 million. Total assets were $125.5 million, total liabilities $12.9 million, and stockholders’ equity $112.5 million. The filing reports no borrowings; operating lease liabilities totaled $6.9 million, including $0.6 million current. No profit margin is meaningful because the company had no revenue and reported operating losses.
Six-month cash flows included $40.6 million provided by investing activities, primarily reflecting cash acquired in the merger, and $93.5 million provided by financing activities, including $75.5 million net private-placement proceeds and $18.0 million in pre-merger contributions from Holdings. Cash, cash equivalents and restricted cash increased $113.0 million to $114.0 million.
Material changes, outlook and risks
- Merger and financing: The merger closed May 28, 2020. The June private placement raised $80.0 million gross and $75.4 million net through common shares and pre-funded warrants, substantially increasing cash and share count.
- Clinical program and COVID-19: COVID-19 temporarily halted the CTI-1601 Phase 1 single-ascending-dose trial after two cohorts; the trial resumed in July 2020. Top-line results for the ongoing Phase 1 trials, originally expected by year-end 2020, were pushed to the first half of 2021. Further restrictions could cause additional delays and costs, including for patient transport and isolation.
- Runway and funding: Management said available cash and cash equivalents were expected to fund operations for at least 12 months from issuance of the statements. The company expects continuing losses and rising development costs, and may need further financing; funding may not be available on acceptable terms.
- Subsequent financing capacity: An August 14, 2020 at-the-market program permits sales of up to $50 million of common stock. No shares had been sold under the program as described in the filing.
- Other key risks: CTI-1601 remains in early clinical development and requires further testing and regulatory approval. The company depends on a small number of third-party manufacturers. A Boston office lease acquired in the merger extends for approximately 124 months; Larimar had ceased using the space and was seeking a subtenant.
- Controls and contingencies: Disclosure controls were not effective due to previously identified material weaknesses in the control environment and review of reconciliations and journal entries. Remediation was underway, including additional finance hires and control improvements; management said the weaknesses were not yet remediated. The company reported no known pending or threatened legal actions expected to have a material adverse effect.
Important facts for investors to verify
- Trial progress, safety and timing of CTI-1601 Phase 1 results, including any further COVID-19-related interruptions.
- Cash burn and whether the stated minimum 12-month runway remains adequate as clinical, manufacturing and public-company expenses evolve.
- Potential dilution from the private-placement shares, pre-funded warrants, outstanding options and any use of the $50 million ATM program.
- Progress and effectiveness of remediation for the disclosed material weaknesses in internal control.
- Costs and potential subletting or other disposition of the long-term Boston lease.