Ensysce Biosciences, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drugs. Lead programs include PF614, PF614-MPAR and nafamostat. The company has no approved products and has generated no product-sale revenue. This unaudited report covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial performance and liquidity
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Federal grant revenue | $490,472 | $1.28 million |
| Research and development expense | $1.64 million | $3.44 million |
| General and administrative expense | $1.14 million | $2.70 million |
| Loss from operations | $2.29 million | $4.86 million |
| Net loss attributable to common stockholders | $2.24 million | $4.43 million |
| Basic and diluted loss per share | $0.98 | $2.66 |
| Net cash used in operating activities | Not separately provided | $6.72 million |
There is no meaningful product-revenue margin because all reported revenue was from federal grants. Grant revenue increased 136% year over year in the second quarter and 58% for the six-month period. Operating expenses declined 62% in the quarter and 52% year to date, primarily because of lower external development costs, stock-based compensation, insurance costs and employee bonuses.
Cash and cash equivalents were $3.83 million at June 30, 2023, versus $3.15 million at December 31, 2022. Current assets were $5.86 million and current liabilities were $2.52 million. Total liabilities were $2.56 million, including $445,738 of financed directors’ and officers’ insurance premiums; the 2022 convertible notes were repaid during the first quarter. Accumulated deficit was $115.4 million.
Financing activities provided $7.40 million during the first six months, including $9.05 million net proceeds from the February and May offerings, offset by debt, insurance and offering-related payments. The company states that cash on hand is insufficient to fund operations through the end of the fourth quarter of 2023 without additional financing and that substantial doubt exists regarding its ability to continue as a going concern for the next 12 months.
Material changes versus the prior comparable period
- Second-quarter net loss attributable to common stockholders improved to $2.24 million from $8.00 million; six-month loss improved to $4.43 million from $9.67 million.
- Six-month operating cash burn declined to $6.72 million from $7.88 million, but remained substantially greater than cash at the beginning of the year.
- The company completed a February registered direct offering for approximately $3.0 million gross and a May offering for approximately $7.0 million gross. The May offering generated approximately $6.3 million net of placement fees and related costs.
- The May offering issued or supported warrants exercisable for up to approximately 3.6 million shares and reduced exercise prices of certain existing warrants to $3.64 per share.
- Outstanding shares increased to 2,669,792 at June 30, 2023 from 534,490 at December 31, 2022. Approximately 5.13 million additional shares were reserved for outstanding warrants.
- Fair value of convertible-note liabilities declined from $4.20 million at year-end 2022 to zero at June 30, 2023 following conversions, repayments and cash true-up payments. Liability-classified warrants were $47,696 at June 30, 2023.
Outlook, commentary, risks and unusual items
Management expects continued operating losses and elevated research and development spending as PF614, PF614-MPAR and nafamostat progress through clinical development. The company does not expect product-sale revenue for several years, if at all, and expects to require substantial additional equity, debt, grant or collaboration financing.
Remaining approved federal grant funding was approximately $3.2 million at June 30, 2023 and is expected to be used by August 2024, subject to grant milestones and conditions. The GEM share-subscription facility permits up to $60 million of gross proceeds but had not been used and may not be available before its July 2024 expiration.
- Clinical, regulatory and manufacturing outcomes for PF614, PF614-MPAR, nafamostat and other candidates remain uncertain.
- Additional financing may be unavailable or dilutive; failure to obtain funding could delay, reduce or terminate development programs.
- The company has substantial purchase commitments, estimated at $18.5 million, primarily for contract research and clinical development services, although many may be cancellable or adjustable.
- Disclosure controls were not effective at June 30, 2023 because of material weaknesses involving limited accounting personnel, technical accounting expertise and supervision and review.
- Fair-value changes in convertible notes and liability-classified warrants, warrant down-round provisions and equity offerings may cause significant noncash earnings volatility and dilution.
- No material pending litigation was reported, and no subsequent event requiring adjustment to the financial statements was identified.
Important facts for investors to verify
- Cash runway assumptions and the company’s ability to raise capital before the stated fourth-quarter 2023 funding shortfall.
- Status, enrollment, results and regulatory timelines for PF614, PF614-MPAR and nafamostat.
- Terms, availability and expiration restrictions of the GEM facility and remaining NIH/NIDA grant funding.
- Potential dilution from approximately 5.13 million outstanding warrants, pre-funded warrants and other equity awards.
- Progress in remediating material weaknesses in internal control over financial reporting.
- Actual obligations and cancellation rights associated with the reported $18.5 million of purchase commitments.