Brooklyn ImmunoTherapeutics, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; filed April 15, 2022. The request metadata names Ernexa Therapeutics Inc., but the supplied filing identifies Brooklyn ImmunoTherapeutics, Inc. (Nasdaq: BTX) as the registrant.
Business context
Brooklyn is a clinical-stage biopharmaceutical company developing IRX-2, a cytokine-based cancer therapy, and pursuing cell-therapy and gene-editing programs. In March 2021, it completed a reverse merger with Brooklyn LLC, changed its name from NTN Buzztime, Inc., and sold the legacy NTN business. In July, it acquired Novellus, Inc. and Novellus, Ltd., and obtained a 25% interest in NoveCite, Inc.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $12.705 million | $3.951 million |
| Acquired in-process R&D expense | $80.538 million | None |
| General and administrative expense | $14.724 million | $3.297 million |
| Total operating expenses | $113.552 million | $26.488 million |
| Net loss | $122.306 million | $26.531 million |
| Net loss per common share | $2.82 | $1.51 |
| Net cash used in operating activities | $23.488 million | $8.101 million |
The company reported no product sales, so a product gross margin is not applicable. The 2021 loss included the $80.538 million acquired IPR&D charge, a $9.648 million loss on disposal of NTN assets, and $5.765 million in transaction costs. R&D expense rose partly because of license payments, clinical-trial spending, headcount, and stock compensation; G&A increased with transaction, public-company, compensation, and insurance costs.
At year-end, cash was $16.985 million, current assets $18.766 million, and current liabilities $3.677 million. Total liabilities were $25.927 million, including $19.930 million of contingent consideration tied to potential future IRX-2 royalties and $2.723 million of operating lease liabilities. The company repaid $410,000 of notes plus accrued interest in December and had no loan or PPP balances outstanding at year-end. It reported a $159.703 million accumulated deficit. The auditor cited substantial doubt about the company’s ability to continue as a going concern; management said available resources were insufficient for the twelve months after the financial statements’ issuance.
Material changes and capital
- Lincoln Park stock sales generated $54.1 million gross proceeds through April 12, 2022 ($20.0 million under the first agreement and $34.1 million under the second); the company reported $52.0 million net proceeds. The second agreement had remaining availability, but further issuance was barred for one year after the March 2022 PIPE closing.
- The July Novellus acquisition had approximately $124.0 million stated consideration: $22.8 million cash and about 7.022 million shares valued at $102.0 million under the acquisition agreement. The acquisition was accounted for as an asset acquisition; substantially all acquired value was expensed as IPR&D.
- On March 9, 2022, a PIPE generated approximately $11 million net proceeds, in exchange for units comprising common shares or pre-funded warrants and common warrants.
- Results are not fully comparable: the March reverse merger was accounted for as a reverse acquisition, and the legacy NTN business was sold. The 2021 statements also include the Novellus acquisition and its large IPR&D charge.
Outlook, risks, and unusual items
- INSPIRE, a randomized Phase 2b trial of IRX-2 in oral-cavity squamous cell carcinoma, was fully enrolled; top-line results were estimated for the third quarter of 2022. IRX-2 was not approved for marketing. Management also anticipated further study readouts and was pursuing development and commercialization partners.
- Management expected continued losses and negative cash flows and said substantial additional capital was needed. It identified potential equity, debt, grants, and collaborations as funding sources, without assurance financing would be available on acceptable terms.
- COVID-19 had slowed enrollment in some studies and could disrupt trials, operations, and supply. Other risks include clinical or regulatory failure, manufacturing and supply constraints, competition, dependence on third parties, intellectual-property challenges, and uncertain reimbursement.
- After year-end, the company reduced its workforce by eight employees (53% of the workforce at that time), estimating approximately $500,000 in severance and termination costs. It said the reduction was intended to align staffing and focus capital on cell and gene editing while continuing IRX-2 through INSPIRE.
- A former consultant’s claims, including alleged promises of 7% equity and a $500,000 salary, were sent to arbitration; the company could not assess the outcome. Emerald had threatened potential merger-related litigation, and the company could not predict whether suit would be filed or its result. Several earlier merger-related shareholder actions were dismissed.
- Management concluded disclosure controls were ineffective at December 31, 2021 because of a material weakness involving insufficient accounting personnel and incomplete control documentation. Remediation plans included hiring accounting staff and developing written procedures; the company hired a controller in early 2022.
Investor facts to verify
- Whether INSPIRE results and subsequent regulatory plans support further development of IRX-2.
- Cash runway after the PIPE, expected operating costs, restrictions on equity financing, and any additional funding secured.
- Progress, costs, and milestones for Novellus/Factor programs, and the economics and governance of the 25% NoveCite investment.
- Resolution or developments in the consultant arbitration and potential Emerald claims, including any indemnification exposure.
- Remediation of the disclosed material weakness and whether disclosure controls become effective.