Eterna Therapeutics Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Business context
Eterna is a preclinical life-sciences company focused on mRNA cell engineering, with a portfolio of more than 100 in-licensed patents. Management says its near-term focus is deploying its technology through strategic partnerships. The company has had no product-sales revenue.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | No product revenue; $0.25 million option fee remains deferred | Not stated as revenue | No product revenue | Not stated as revenue |
| Research and development expense | $1.58 million | $1.69 million | $3.25 million | $3.47 million |
| General and administrative expense | $2.51 million | $6.21 million | $6.10 million | $10.72 million |
| Operating loss | $4.55 million | $13.88 million | $9.87 million | $20.18 million |
| Net loss | $4.51 million | $3.40 million | $9.92 million | $12.77 million |
| Net loss per common share | $0.85 | $1.16 | $1.90 | $4.55 |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $9.92 million | $9.43 million |
The company reported no revenue-based margins. For Q2, the operating loss narrowed substantially, but net loss rose year over year because the prior-year period included a much larger noncash gain from changes in warrant fair value. Lower headcount and stock compensation reduced expenses, while Factor-related research services added expense.
At June 30, cash was $1.84 million, plus $4.10 million of restricted cash collateral. Current assets were $3.89 million and current liabilities $7.17 million. Stockholders’ equity was $3.87 million; accumulated deficit was $175.23 million. No conventional borrowings are shown on the June 30 balance sheet, which did include $2.08 million due to a related party and $35.14 million of operating lease liabilities. The lease liability largely reflects the new Somerville facility.
Material changes and significant events
- In April, Eterna acquired substantially all of Exacis’s intellectual property assets, including a license. The $0.46 million acquisition cost was expensed as acquired in-process research and development. Consideration included about 69,000 shares and contingent payments, including possible future payments tied to market capitalization and licensing proceeds.
- The Somerville facility sublease commenced for accounting purposes in June. It covers approximately 45,500 square feet, runs to 2033, and resulted in a $34.17 million lease liability and $34.41 million right-of-use asset. The filing cites approximately $63 million of base rent over ten years, before certain additional costs.
- The February Lineage agreement provided a $0.25 million nonrefundable option fee. Lineage had not exercised its option by June 30, so the fee remained deferred; future customization, license, milestone, royalty, or sublicense income is uncertain.
- The April Lincoln Park equity purchase agreement provides for up to $10 million of stock purchases, subject to conditions and limits. Through June 30, Eterna reported approximately $0.3 million of gross proceeds and issuance of approximately 214,000 shares, including commitment shares.
- After quarter-end, a July private placement closed for $8.7 million principal of convertible notes and warrants to purchase approximately 6.1 million shares. Notes bear 6% interest, mature in 2028, and are convertible at an initial $2.86 per share; warrants are immediately exercisable at $2.61 per share. Proceeds are for general working capital.
Outlook, risks, and unusual items
- Going concern: Management concluded substantial doubt exists about Eterna’s ability to continue as a going concern, stating that available cash and working capital were insufficient for the twelve months following issuance of the statements. Even after the July financing, management said additional capital would be needed; no assurance was given that it could be raised on acceptable terms or at all.
- Funding and dilution: The company expects continued operating losses and may seek capital through equity, debt, partnerships, or licensing. Equity or convertible financing may dilute shareholders; licensing arrangements could require giving up rights or accepting unfavorable terms.
- Related-party arrangements: The Factor license and research-services arrangements involve companies affiliated with the CEO. A July amendment expanded licensed uses, changed renewal terms and fees, and provides for a monthly maintenance fee of approximately $0.4 million beginning September 2024.
- Legal matters: Westman and Sowyrda litigation includes remaining indemnification and employment-related claims; proceedings continued after quarter-end. A separate trademark complaint by eTheRNA entities was filed July 31, 2023. The filing says outcomes cannot currently be predicted for the latter case.
- Controls: Management concluded disclosure controls were ineffective due to an unremediated material weakness involving technical accounting proficiency and review of complex transactions. Remediation steps include enhanced reviews, training, and use of an accounting adviser.
- Valuation and operating risks: Fair-value changes in warrants and contingent consideration can create material noncash gains or losses. Eterna also depends on in-licensed intellectual property and has not established product-sales revenue.
The filing provides no quantified revenue or earnings guidance. Management’s stated near-term strategy is to pursue licensing and strategic-partnership opportunities; success and timing are uncertain.
Important facts for investors to verify
- Cash, restricted cash, and expected cash runway after the July note financing, including the timing and amount of any further capital requirement.
- Terms and potential dilution from the convertible notes, approximately 6.1 million note warrants, existing warrants, and the Lincoln Park equity facility.
- Whether Lineage exercises its option or requests cell-line work, and whether any resulting revenue is recognized.
- Cash obligations and ongoing costs of the Somerville lease, including tenant-improvement reimbursements and the future Factor maintenance fee.
- Progress in remediating the material weakness and developments in the Westman/Sowyrda and eTheRNA legal matters.
- Related-party transactions and the commercial terms, performance, and renewal conditions of the Factor license and services arrangements.