Shuttle Pharmaceuticals Holdings, Inc. — FY2023 Form 10-K Summary
Business context and reporting period
Shuttle Pharmaceuticals Holdings, Inc. is a clinical-stage pharmaceutical company developing radiation sensitizers and immune-regulating therapies for cancer. Its lead candidate, Ropidoxuridine (IPdR), is being developed for use with radiation therapy, principally in glioblastoma, with additional programs for sarcomas and rectal cancer. The company also has preclinical HDAC inhibitor candidates SP-1-161, SP-2-225 and SP-1-303.
The filing covers the fiscal year ended December 31, 2023, with comparative financial information for 2022. The company had no approved products or commercial product revenue and employed eight full-time employees as of the filing date.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense, net | $3.52 million | $1.15 million | +206% |
| General and administrative expense | $1.05 million | $0.54 million | +94% |
| Legal and professional expense | $1.33 million | $0.87 million | +53% |
| Total operating expenses | $5.89 million | $2.55 million | +131% |
| Net loss | $6.59 million | $3.03 million | +118% |
| Basic and diluted loss per share | $0.44 loss | $0.29 loss | Loss increased |
| Cash used in operating activities | $5.58 million | $2.71 million | +106% use |
| Cash used in investing activities | $2.83 million | $0 | New use |
| Cash provided by financing activities | $2.57 million | $10.62 million | -76% |
| Cash and cash equivalents at year-end | $2.58 million | $8.42 million | -69% |
Operating expenses increased primarily because the company accelerated research, manufacturing and clinical-development activities using IPO and convertible-note proceeds. Other expense was $0.70 million, including $2.48 million of interest expense and a $0.48 million loss on settlement of convertible debt, partly offset by a $2.22 million non-cash gain from changes in derivative liabilities.
Year-end current assets were $5.59 million, including $2.58 million of cash and $2.89 million of trading marketable securities. Current liabilities were $1.04 million, producing working capital of $4.55 million, down from $7.60 million in 2022. Total liabilities were $1.90 million and stockholders’ equity was $4.06 million.
Debt, financing and liquidity
- In January 2023, the company issued a $4.30 million convertible note and warrants for gross proceeds of approximately $3.94 million and net proceeds of approximately $3.59 million.
- The note matures March 11, 2025, bears stated interest of 5%, amortizes monthly and may be repaid in cash or, subject to conditions, common stock. The filing reports an effective interest rate of approximately 346% because of the note’s discounts, fees and embedded features.
- At December 31, 2023, the note had $2.25 million of outstanding principal and a net carrying value of approximately $0.73 million. During 2023, $1.93 million of principal and $0.29 million of accrued interest were settled through issuance of 2.38 million common shares.
- The note is secured by substantially all company assets and intellectual property and contains covenants and cash-payment requirements. Failure to satisfy equity conditions or other covenants could require cash repayment and materially pressure liquidity.
- Management stated that existing cash, marketable securities and financing proceeds are insufficient to fund operations and clinical trials through the next twelve months and are not expected to fund operations through March 2025 without additional capital.
- The company disclosed substantial doubt about its ability to continue as a going concern. Management planned a $4.5 million rights offering and had submitted applications for additional non-dilutive NIH SBIR funding.
Material changes versus the prior comparable period
- R&D spending increased by $2.37 million as the company advanced Ropidoxuridine manufacturing, formulation and clinical preparation and expanded preclinical work.
- Cash declined by $5.84 million despite the 2023 convertible-note financing, reflecting operating cash burn, investment of approximately $3.00 million in marketable securities and debt repayments.
- Common shares outstanding increased from 13.60 million at December 31, 2022 to 16.07 million at December 31, 2023, primarily because of stock settlement of convertible debt and interest.
- The company completed the Ropidoxuridine API manufacturing campaign, formulation and capsule production and submitted an IND application to the FDA in December 2023.
- The company corrected an immaterial prior-period classification error that reclassified $339,818 from R&D expense to general and administrative expense for 2022. The correction did not affect net loss, cash flow, earnings per share or working capital.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end, citing weaknesses involving complex financing transactions, segregation of duties, expense classification, documentation and information-technology general controls.
Guidance, outlook, risks and unusual items
In January 2024, after the reporting period, the FDA issued a “Safe to Proceed” letter for the Phase II Ropidoxuridine study in newly diagnosed IDH-wildtype glioblastoma with an unmethylated MGMT promoter. Management expected to begin the study in the second quarter of 2024, subject to site enrollment and available funding. The company also reported that the FDA recommended expanding the trial, which increased expected capital requirements.
In February 2024, the company entered into an agreement involving a potential $2.25 million unit purchase and a backstop arrangement in connection with a proposed $4.5 million rights offering. The units are expected to include common stock, warrants exercisable at $2.35 per share and an equity interest in Shuttle Diagnostics. The transaction was subject to offering and closing conditions; the filing does not establish that the full offering had closed by the filing date.
- The company has no product sales, no approved products and expects continuing losses and negative operating cash flow.
- Clinical trials may fail, be delayed, require additional capital or produce results insufficient for FDA approval.
- Regulatory approval, patient enrollment, manufacturing, third-party CRO performance and supply availability remain significant execution risks.
- The company relies on third-party manufacturers and service providers and owns no manufacturing facilities.
- Patent applications and issued patents may be challenged, invalidated, circumvented or insufficient to protect commercial products.
- Nasdaq granted the company until August 26, 2024 to regain compliance with the $1.00 minimum bid-price requirement. A reverse stock split may be required, and failure to regain compliance could result in delisting.
- Outstanding convertible debt, warrants, restricted stock units and potential future financings could create substantial dilution. The Alto investor also had an option to purchase up to an additional $10 million of convertible notes and warrants on substantially similar terms.
- The company disclosed no pending or threatened material legal proceedings and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether the proposed $4.5 million rights offering closed, the amount actually raised and the resulting dilution.
- Current cash, marketable securities, debt balances, required note payments and compliance with all convertible-note covenants.
- Whether the Phase II Ropidoxuridine trial commenced, the enrollment pace, trial expansion requirements and estimated remaining funding needs.
- FDA and clinical-trial developments, including safety, efficacy and regulatory requirements for any future NDA.
- Progress in remediating ineffective disclosure controls and material weaknesses in internal control over financial reporting.
- Nasdaq listing compliance and whether a reverse stock split or other action was required before August 26, 2024.
- Potential share issuance from convertible debt, warrants, restricted stock units and any subsequent financing.