Filing summary
Registrant note: The supplied filing is Brooklyn ImmunoTherapeutics, Inc.’s Form 10-Q for the quarter ended June 30, 2022, not a filing identified as Ernexa Therapeutics Inc. This summary reflects the registrant named in the filing.
Business context and reporting period
Brooklyn is a development-stage biopharmaceutical company developing mRNA, gene-editing and cell therapies. It reported unaudited results for the three and six months ended June 30, 2022. It had no product revenue.
Financial results and liquidity
- Revenue: No product-sale revenue to date; therefore, revenue-based margins are not meaningful.
- Q2 2022: Operating expenses were $13.9 million and operating loss was $13.9 million, compared with $10.0 million for each in Q2 2021. Net loss was $3.4 million, versus $10.1 million. The improvement in net loss primarily reflected a $10.8 million noncash gain from revaluing warrant liabilities.
- First half 2022: Operating expenses were $20.2 million and operating loss was $20.2 million, versus $18.9 million and $18.9 million, respectively, in first-half 2021. Net loss was $12.8 million, versus $28.6 million.
- Notable expenses and other items: First-half 2022 included a $6.0 million noncash impairment of acquired in-process research and development (IPR&D), $0.9 million of equity-method losses on NoveCite, and approximately $1.0 million of PIPE-related fees. The prior-year period included a $9.6 million loss on sale of the legacy NTN assets and $5.8 million of merger-related transaction costs.
- Cash flow: Operating activities used $9.4 million in the first half of 2022, compared with $10.2 million in the prior-year period. Investing activities used $0.1 million; financing activities provided $12.0 million. Cash increased by $2.4 million to $19.4 million.
- Balance sheet: At June 30, cash was $19.4 million, current assets $21.9 million, current liabilities $7.1 million, total liabilities $12.1 million and stockholders’ equity $14.8 million. Operating lease liabilities totaled $2.8 million; the filing does not identify conventional borrowings as a material balance-sheet item.
- Per-share results and shares: Q2 and first-half basic and diluted net loss per share were $0.06 and $0.23, respectively. Common shares outstanding were 57.5 million at June 30 and 58.8 million as of August 10, 2022.
Material changes versus comparable periods
- Q2 operating expenses rose by $3.9 million, including the $6.0 million IPR&D impairment, partly offset by lower research and development spending. First-half operating expenses increased $1.2 million, as higher general and administrative costs and the impairment more than offset lower R&D and the absence of prior-year transaction costs.
- R&D expense declined year over year, in part because the 2021 period included a $4.0 million license fee. The company also reduced its workforce and reported plans to consolidate R&D in Cambridge, Massachusetts.
- Net loss improved substantially year over year, but this comparison was affected by unusual prior-year asset-sale and transaction losses and 2022 warrant remeasurement gains. Operating losses increased in both the quarter and first half.
- Cash was higher than at December 31, 2021, largely following the March 2022 private placement. The company issued 5.5 million common shares and pre-funded warrants, and received approximately $12.0 million gross proceeds (about $11.0 million net cash proceeds reported in financing activities).
Outlook, management commentary and risks
- Going concern: Management concluded there is substantial doubt about the company’s ability to continue as a going concern. It stated that available cash and working capital are not expected to fund operations for the twelve months following issuance of the financial statements. Additional financing is required, and no assurance was given that it would be available on acceptable terms or at all.
- Funding and obligations: Potential funding sources include equity, debt, collaborations and grants; additional equity could dilute shareholders. A $3.5 million payment to Factor under a license agreement was due in October 2022. The PIPE agreement also restricted variable-rate equity issuance for one year after closing.
- Pipeline: The Phase 2 INSPIRE trial of IRX-2 did not meet its two-year event-free-survival primary endpoint. Although certain predefined subgroups favored IRX-2, management said it had no plans to further develop the candidate and wrote its $6.0 million IPR&D asset down to zero. The company described plans to develop its mRNA, gene-editing and cell-therapy platform, but provided no financial guidance or quantified development timetable in this filing.
- Unusual valuation item: Warrant liabilities were $2.5 million at quarter-end. Changes in their fair value are recorded in earnings and may cause significant noncash gains or losses.
- Management and controls: CEO and President Howard Federoff resigned effective May 26, 2022, with severance and equity-award benefits. Management said disclosure controls were ineffective due to material weaknesses, including insufficient accounting personnel and documentation and lack of technical accounting proficiency. The company had filed its Q1 2022 10-Q late and amended its 2021 annual report to correct prior-period financial-statement errors.
- Legal and operating risks: A former consultant’s claims were in arbitration, with the hearing scheduled for December 2022; the company said it could not predict the outcome. The company paid $1.2 million to settle Emerald stockholder claims without admitting wrongdoing. Other acquired-company disputes were also disclosed. The filing additionally cited potential COVID-19 disruption to research, trials and supply chains.
Important facts for investors to verify
- Whether the company obtained sufficient financing to address the stated going-concern shortfall, and the resulting dilution or other financing terms.
- Subsequent cash use, clinical and preclinical spending, and payment of the $3.5 million Factor license fee.
- Progress of the Cambridge R&D consolidation and any costs or savings associated with the San Diego lease and intended sublease.
- Remediation of material weaknesses, the status of financial reporting controls, and whether further restatements or filing delays occur.
- Developments in the disclosed arbitrations and litigation, and potential obligations or expenses arising from them.