Eterna Therapeutics Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. The company was formerly Brooklyn ImmunoTherapeutics, Inc.; it changed its name and ticker from BTX to ERNA effective October 17, 2022. Share and per-share amounts in the filing reflect a 1-for-20 reverse stock split effective October 16, 2022. Financial statements are unaudited.
Business context and financial performance
Eterna is a development-stage biopharmaceutical company focused on mRNA, gene-editing and cell therapies, including iPSC-based programs. It reported no product revenue. Consequently, revenue-based margins are not meaningful.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $4.963 million | $1.491 million | $8.430 million | $8.456 million |
| General and administrative expense | $3.341 million | $4.247 million | $14.060 million | $10.451 million |
| Operating loss | $8.304 million | $86.276 million | $28.480 million | $105.210 million |
| Net loss | $7.316 million | $85.986 million | $20.090 million | $114.593 million |
| Net loss attributable to common stockholders | $7.316 million | $85.986 million | $20.098 million | $114.601 million |
| Net loss per share, basic and diluted | $2.49 | $34.03 | $7.04 | $56.79 |
At September 30, cash was $13.254 million, total current assets $15.852 million and current liabilities $7.467 million. Total assets were $20.926 million; total liabilities $12.113 million; stockholders’ equity $8.813 million. Accumulated deficit was $160.799 million. The filing reports no conventional funded debt; it reports operating lease liabilities of $2.752 million and finance lease liabilities of $9,000. Nine-month operating cash use was $15.541 million, investing cash use $176,000 and financing cash provided $11.986 million. Cash declined $3.731 million to $13.254 million.
Material changes versus comparable periods
- Q3 net loss was substantially lower than in 2021, principally because 2021 included an $80.538 million noncash charge for acquired Novellus in-process research and development. Nine-month 2022 results included a $5.990 million noncash impairment of IRX-2 IPR&D, versus the $80.538 million 2021 charge.
- Q3 R&D expense rose $3.472 million, mainly reflecting $3.699 million of Factor Master Services Agreement (MSA) expense. Nine-month R&D expense was nearly flat year over year.
- Nine-month G&A expense increased $3.609 million, including severance, higher insurance and a $772,000 impairment of the San Diego lease asset; lower professional fees and stock compensation partly offset the increase.
- Nine-month net loss benefited from a $10.493 million gain from the change in fair value of warrant liabilities. This noncash gain should not be read as operating improvement. The period also included a $932,000 loss on the NoveCite investment and $1.166 million of other expense, including PIPE-related fees and registration-rights damages.
- Cash used in operations improved by $1.115 million year over year, while financing cash inflows were much lower than in 2021. The 2022 financing included approximately $12.0 million gross proceeds from a March PIPE transaction.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. It stated that cash and working capital were insufficient for the 12 months following issuance of the financial statements and that additional capital is needed. No financing arrangement was assured.
- Post-quarter liquidity impact: An October 2022 sublease for approximately 45,500 square feet in Somerville, Massachusetts requires $4.1 million of cash collateral for a letter of credit, restricting working capital. The filing gives different first-year monthly base-rent figures in different sections—approximately $0.5 million in the note and $0.4 million in MD&A—so the amount is not clear from the filing text.
- Development outlook: Management described plans to develop mRNA, gene-editing and cell-therapy candidates, initially emphasizing preclinical development and manufacturing work for iPSC-derived programs, and to seek strategic partners. The filing gives no quantified development or financial guidance.
- IRX-2: The Phase 2 INSPIRE trial did not meet its primary endpoint of event-free survival at two years. Although certain subgroups favored IRX-2 and no new safety signals were reported, the company said it currently has no plans to further develop the candidate and wrote off its $5.990 million carrying value.
- Related-party arrangements: Under the MSA, Factor Bioscience Inc. provides research support for an initial $5.0 million over 12 months, followed by $0.4 million monthly until termination. Eterna’s interim CEO is also Factor’s chairman and CEO. A related Factor Limited license-fee obligation of $3.5 million was conditionally waived in connection with the MSA; Eterna recognized R&D expense and a corresponding liability.
- Other subsequent event: Eterna entered an option agreement with Exacis, a related party, for a $0.3 million fee to negotiate a potential exclusive license. Any additional license payments depend on execution of a definitive agreement.
- Legal and operating risks: The company disclosed ongoing arbitration and litigation, including claims by a former consultant seeking substantial damages and disputes involving former Novellus personnel. Outcomes are uncertain. COVID-19-related disruption to development, trials and supply chains also remains a stated risk.
- Reporting controls: Management concluded disclosure controls were not effective due to material weaknesses, including insufficient accounting staffing, inadequate documentation and technical accounting deficiencies. The company had filed its Q1 2022 10-Q late and amended its 2021 10-K to correct prior financial-statement errors.
Most important facts for investors to verify
- Cash runway and access to financing, including restrictions on use of the Lincoln Park equity purchase agreement following the PIPE transaction.
- The actual cash available after the $4.1 million restricted-cash deposit and the definitive rent, commencement and other obligations under the Somerville sublease.
- Timing, scope and funding of planned preclinical programs, and whether strategic partnerships or licensing arrangements materialize.
- Terms, duration and governance of the related-party Factor MSA and the conditional waiver of the $3.5 million license-fee obligation.
- Progress in remediating material weaknesses, and whether future filings are timely and financial reporting controls become effective.
- Exposure and potential outcomes from disclosed legal matters, plus any additional obligations tied to the Novellus-Factor license milestones.