Ensysce Biosciences, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The company became public following the June 30, 2021 merger with Leisure Acquisition Corp.; its common stock began trading on Nasdaq under ENSC in July 2021. Ensysce is a clinical-stage pharmaceutical company developing abuse- and overdose-resistant drug candidates, primarily PF614, PF614-MPAR™, and oral nafamostat. It has no approved products and has not generated product-sale revenue.
Financial performance and position
| Metric | 2021 | 2020 | Change or comment |
|---|---|---|---|
| Federal grant revenue | $3.5 million | $3.9 million | Decreased $0.4 million |
| Research and development expense | $4.7 million | $4.4 million | Increased $0.3 million |
| General and administrative expense | $18.7 million | $1.2 million | Increased $17.6 million, substantially due to non-cash warrant and consultant-related expenses |
| Total operating expenses | $23.4 million | $5.5 million | Increased $17.9 million |
| Loss from operations | $19.9 million | $1.6 million | Materially increased |
| Net loss | $29.1 million | $0.2 million | Includes significant fair-value, warrant, financing and other non-cash or unusual items |
| Net loss attributable to common stockholders | $29.9 million | Net income of $0.1 million | 2021 loss included an $0.8 million deemed dividend related to a warrant down-round provision |
| Net loss per basic and diluted share | $1.48 loss | $0.00 | Based on 20.2 million weighted-average shares in 2021 |
| Net cash used in operating activities | $8.2 million | $1.2 million | Higher spending and public-company costs |
| Net cash provided by financing activities | $20.3 million | $1.1 million | Primarily merger proceeds and 2021 Notes |
| Cash and cash equivalents at year-end | $12.3 million | $0.2 million | Increased by $12.1 million during 2021 |
| Accumulated deficit | $85.8 million | $56.0 million | Continued accumulation of losses |
The balance sheet reported total assets of $16.4 million, total liabilities of $24.6 million and stockholders’ deficit of $8.2 million at December 31, 2021. Debt included approximately $16.8 million of fair value for the 2021 senior secured convertible notes and $0.4 million of financed insurance premiums. The 2021 Notes had an aggregate original principal amount of $15.9 million, a 5% stated interest rate, a 6% original issue discount and maturities in 2023.
Material changes versus 2020
- The June 2021 business combination provided approximately $7.8 million of net proceeds and resulted in Nasdaq listing and increased public-company reporting costs.
- Ensysce raised $15.0 million of cash purchase price through the 2021 Notes, issuing $15.9 million of principal and warrants to purchase 1,083,475 shares at $7.63 per share, subject to adjustment provisions.
- General and administrative expense increased sharply, including an approximately $11.6 million non-cash expense for GEM facility warrants, $1.3 million of consultant expense and $1.1 million of GEM commitment-fee expense.
- Research and development spending increased as PF614 and PF614-MPAR™ advanced into additional clinical studies.
- Prior convertible notes were converted into common stock in connection with the merger, while the company also issued shares in connection with the business combination and other settlements.
- Shares outstanding increased from approximately 15.8 million at December 31, 2020 to approximately 24.6 million at December 31, 2021.
Pipeline, outlook and management commentary
- PF614, the lead TAAP oxycodone prodrug, was in Phase 1b development. A multiple-ascending-dose and bioequivalence study concluded enrollment, with final data expected in the second quarter of 2022.
- PF614-MPAR™, combining PF614 with nafamostat for overdose protection, began a Phase 1 trial in December 2021; data were expected in the second half of 2022.
- A Phase 1 trial of oral nafamostat was completed in 2021. Management planned to evaluate nafamostat in a Phase 2 COVID-19 study.
- Management planned additional PF614 human abuse-liability studies in 2022 and was exploring pain-indication studies, subject to additional financing.
- The company expected research and development and general and administrative expenses to increase as clinical programs, regulatory activities, personnel and public-company infrastructure expand.
- Remaining approved federal grant funding was approximately $4.3 million at year-end and was expected to be utilized by December 31, 2022, subject to grant milestones and conditions.
Liquidity, going concern and key risks
Management stated that year-end cash and cash equivalents were expected to fund operating expenses and capital requirements through the third quarter of 2022. The filing nevertheless stated that existing cash was insufficient to fund planned operations for the following 12 months without additional financing and that substantial doubt existed regarding the company’s ability to continue as a going concern. The 2021 Notes also restricted the company’s ability to use certain equity and debt financings, including the GEM share subscription facility, while the notes remained outstanding.
- Ensysce expects substantial additional funding will be required. Potential sources include equity, convertible or other debt, grants, collaborations and licensing arrangements.
- The GEM facility permits up to $60.0 million of gross proceeds through common-stock issuances, generally at 90% of a specified market-price average, but is subject to trading-volume, registration, covenant and noteholder restrictions. Draws would dilute existing stockholders.
- The 2021 Notes require monthly redemptions beginning in 2022, payable in cash or shares subject to contractual conditions. In the first quarter of 2022, the company issued 4,708,525 shares to repay $6.4 million of monthly redemptions.
- At December 31, 2021, the company had 21.1 million warrants outstanding and 4.4 million stock options outstanding, creating substantial potential dilution.
- The company relies on third-party CROs and contract manufacturers and has no commercial manufacturing, sales or distribution infrastructure.
- PF614 contains oxycodone and is subject to Schedule II controlled-substance requirements, DEA quotas, security and recordkeeping rules.
- Regulatory approval remains uncertain. Fast-track designation for PF614 does not assure faster approval or approval, and the proposed 505(b)(2) pathway may not be accepted by the FDA.
- The company identified material weaknesses in internal control over financial reporting as of December 31, 2021 and 2020, relating principally to accounting expertise, supervision and review of complex or unusual transactions. Disclosure controls were deemed ineffective.
- Clinical, regulatory, manufacturing, intellectual-property, competitive, COVID-19, cybersecurity, Nasdaq-listing and product-liability risks could materially affect results.
Important facts for investors to verify
- Current cash balance, monthly cash burn and the timing and terms of any financing required after the reported third-quarter 2022 cash runway.
- Status, final results and regulatory consequences of the PF614, PF614-MPAR™ and nafamostat clinical programs.
- Outstanding principal, redemption schedule, conversion activity and dilution associated with the 2021 Notes and related warrants.
- Whether the GEM facility can be accessed while the 2021 Notes remain outstanding and the extent of any resulting discount and dilution.
- Progress in remediating the material weaknesses in internal control over financial reporting.
- Whether remaining federal grant funding will be received and whether required grant milestones are achieved.
- Patent ownership records, pending assignments and the enforceability and remaining term of patents covering PF614, PF614-MPAR™ and nafamostat.
- Availability and regulatory compliance of third-party clinical and manufacturing capacity, including controlled-substance quotas.