Ensysce Biosciences, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
Clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drug technologies. Lead programs include PF614, PF614-MPAR, and a methadone prodrug for opioid use disorder; PF614 was in Phase 2 and PF614-MPAR in Phase 1b. The company has no approved products and has generated no product-sale revenue. The filing covers the three months ended March 31, 2023, compared with the same period in 2022.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Federal grant revenue | $789,635 | $603,098 |
| Research and development expense | $1,796,015 | $3,140,096 |
| General and administrative expense | $1,554,855 | $2,265,806 |
| Total operating expenses | $3,350,870 | $5,405,902 |
| Loss from operations | $(2,561,235) | $(4,802,804) |
| Net loss | $(2,191,806) | $(950,925) |
| Net loss attributable to common stockholders | $(2,196,174) | $(1,666,686) |
| Basic and diluted loss per share | $(2.08) | $(14.66) |
| Net cash used in operating activities | $(3,606,919) | $(3,437,014) |
- Cash and cash equivalents were $1.42 million at March 31, 2023, down from $3.15 million at December 31, 2022.
- Total assets were $3.91 million and total liabilities were $4.07 million. Stockholders’ deficit was $152,424.
- Outstanding debt was zero at March 31, 2023 after repayment and conversion of the 2022 Notes. A $0.6 million cash true-up obligation remained payable to noteholders.
- Financing activities provided $1.87 million of net cash, including approximately $2.69 million of net proceeds from the February 2023 offering, partially offset by debt and insurance-premium repayments.
- Federal grant revenue represented reimbursement of eligible research costs, not product revenue. Remaining approved funding under the two grants was $3.9 million at March 31, 2023.
Material changes versus the prior comparable period
- Grant revenue increased $186,537, or approximately 31%, primarily because of the timing of eligible research activities.
- Research and development expense decreased $1.34 million, or approximately 43%, mainly due to timing changes in external clinical and preclinical costs.
- General and administrative expense decreased $711,000, or approximately 31%, primarily due to lower stock-based compensation, insurance, and employee bonus costs.
- Operating loss improved by $2.24 million, but net loss attributable to common stockholders increased by $529,488 because Q1 2022 benefited from substantially larger fair-value gains on convertible notes and liability-classified warrants.
- The company issued 750,012 common shares during the quarter through note conversions, settlement of a GEM commitment fee, and the February public offering. Shares outstanding increased to 1,284,583 at March 31, 2023 from 534,490 at December 31, 2022.
- A 1-for-12 reverse stock split was completed in March 2023; historical share and per-share amounts were retroactively adjusted.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects continued operating losses and negative operating cash flow, with research and development and general and administrative expenses expected to remain at approximately current levels, subject to financing.
- The company states that existing cash resources were insufficient to fund planned operations for the following 12 months without additional financing. These conditions raise substantial doubt about the company’s ability to continue as a going concern.
- On May 12, 2023, after quarter-end, the company completed a public offering generating approximately $7.0 million of gross proceeds before expenses, issued 1.8 million shares or pre-funded warrants, and issued warrants covering up to 3.6 million shares. It also paid the $0.6 million noteholder true-up obligation.
- Open purchase orders and contractual obligations, including clinical and preclinical research commitments, were estimated at $20.4 million at March 31, 2023. Terms generally permit cancellation, rescheduling, or adjustment before services are delivered.
- The GEM share subscription facility permits up to $60 million of gross proceeds through July 2024, but the company had not used it and may be unable to do so before expiration.
- Material weaknesses in internal control over financial reporting remained outstanding, attributed to inadequate technical accounting expertise and limited accounting personnel. Disclosure controls were therefore considered ineffective as of March 31, 2023.
- Key business risks include clinical-trial failure or delays, regulatory approval risk, manufacturing and third-party service-provider dependence, intellectual-property challenges, competition, market acceptance, dilution from future financing, Nasdaq listing compliance, and the ability to retain key personnel.
Most important facts for investors to verify
- Whether the May 2023 financing provides sufficient liquidity and the expected cash runway after offering expenses, the $0.6 million true-up payment, and ongoing operating cash use.
- Whether additional financing will be required and the potential dilution from shares, pre-funded warrants, and approximately 987,421 warrants outstanding at March 31, 2023.
- Progress, safety, efficacy, enrollment, and regulatory milestones for PF614, PF614-MPAR, and the OUD and nafamostat programs.
- Whether the remaining $3.9 million of grant funding is received, the company satisfies the remaining OUD Grant milestone, and the grants are renewed or replaced after the stated utilization period.
- Management’s remediation of the material weaknesses and whether future filings report effective internal controls.
- The company’s ability to satisfy the $20.4 million of contractual commitments and maintain Nasdaq listing compliance.