Business Context and Reporting Period
NRX Pharmaceuticals, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The company is a clinical-stage pharmaceutical developer with no product revenue. Its principal programs were NRX-101 for suicidal bipolar depression, ZYESAMI (aviptadil) for COVID-19-related respiratory failure, and the BriLife COVID-19 vaccine.
On May 24, 2021, the company completed its merger with NeuroRx, Inc., accounted for as a reverse recapitalization. The filing therefore reflects significant post-merger equity, warrant, earnout and non-cash accounting items. As of November 12, 2021, 58,810,338 common shares were outstanding.
Financial Results and Key Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | No revenue | No revenue |
| Research and development expense | $6.3 million vs. $4.3 million | $13.8 million vs. $6.3 million |
| General and administrative expense | $13.8 million vs. $3.8 million | $28.4 million vs. $4.9 million |
| Settlement expense | None | $21.4 million |
| Net loss | $20.8 million vs. $5.2 million | $62.3 million vs. $6.6 million |
| Net loss attributable to common stockholders | $20.8 million | $318.1 million, including a $253.1 million deemed dividend for contingent earnout shares |
| Basic and diluted loss per share | $0.40 loss | $1.44 loss, or $7.35 attributable to common stockholders |
| Operating cash flow | Not separately provided | $(26.4) million vs. $(1.9) million |
Gross profit and operating margins are not meaningful because the company had no revenue. The nine-month operating loss was $62.8 million. General and administrative expense included substantial non-cash consulting, stock-based compensation and merger-related costs.
At September 30, 2021, cash was $38.9 million, compared with $1.9 million at December 31, 2020. Total assets were $45.3 million, total liabilities were $36.3 million, and stockholders’ equity was $9.0 million compared with a deficit of $43.8 million at year-end 2020.
Current liabilities included a $26.3 million Earnout Cash liability, $0.8 million of warrant liabilities, and $0.5 million of notes payable and accrued interest. The remaining principal debt was primarily a $0.5 million Relief Therapeutics loan, maturing April 6, 2022. The PPP loan was fully forgiven in February 2021.
Material Changes Versus the Prior Comparable Period
- R&D expense increased 119% for the nine-month period, primarily due to higher ZYESAMI clinical and development costs and regulatory activities.
- G&A expense increased 480%, driven by consultant fees, stock-based compensation, insurance, legal and professional fees, and payroll.
- The company recorded $21.4 million of non-cash settlement expense related to the GEM warrant and $12.8 million of non-cash consulting expense paid in common stock.
- Cash used in operations increased to $26.4 million from $1.9 million, while financing activities provided $63.5 million, including proceeds from equity issuances, warrant exercises, the merger and the August private placement.
- The August 2021 private placement issued 2,727,273 common shares and options to purchase 2,727,273 shares, generating approximately $30.0 million of gross proceeds before offering costs.
- Common shares outstanding increased materially as a result of the merger, equity issuances, warrant and option exercises, and shares issued for services.
Guidance, Outlook, Risks and Unusual Items
- Management expects continuing operating losses and negative operating cash flow and stated that the company may never become profitable.
- Management believed available cash and the ability to reduce expenditures would support operations for the twelve months following issuance of the financial statements, but stated that additional financing may be required and may not be available on acceptable terms.
- The company stated that most non-COVID clinical trials had been halted because of the pandemic and that COVID-19 could materially affect liquidity, operations and future results.
- ZYESAMI’s Phase 2b/3 trial did not meet its primary endpoint without adjustments for ventilation status and site of care, although management reported positive adjusted survival-related results. In November 2021, after the quarter-end, the FDA declined the company’s Emergency Use Authorization application for ZYESAMI.
- The company planned additional ZYESAMI clinical and regulatory work, including a potential NDA and accelerated approval strategy, but approval and commercialization remained uncertain.
- Relief Therapeutics stopped funding additional ZYESAMI-related costs and filed a lawsuit on October 6, 2021 alleging breaches of the collaboration agreement. The company disputed the claims, planned mediation in January 2022, and disclosed potential counterclaims.
- The merger created contingent obligations of up to $100.0 million in Earnout Cash and 25.0 million Earnout Shares if specified regulatory milestones were achieved by December 31, 2022. The Earnout Cash liability was valued at $26.3 million at September 30, 2021.
- On October 20, 2021, after quarter-end, the company issued 4.0 million common shares to shareholders of a planned BriLife vaccine joint venture. The company was to hold 60% of the venture and the other shareholders 40%.
- The filing states that disclosure controls were effective at a reasonable assurance level, but the company checked “No” regarding having filed all required Exchange Act reports during the preceding twelve months.
Most Important Facts to Verify
- Cash-burn rate, remaining liquidity and the timing and terms of any required financing.
- Potential cash obligations and dilution from the $100.0 million earnout, 25.0 million earnout shares, outstanding warrants, options and private-placement options.
- Status and potential financial impact of the Relief Therapeutics litigation and any related funding or reimbursement claims.
- Regulatory consequences of the FDA’s November 2021 ZYESAMI EUA denial and the evidentiary basis and timing for any planned NDA or accelerated approval filing.
- Clinical progress, funding requirements and definitive licensing arrangements for the BriLife vaccine program.
- Nature and recurrence risk of the large non-cash merger, settlement, consulting and deemed-dividend items when assessing underlying cash operating performance.