Eterna Therapeutics Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed March 20, 2023. The filing identifies the registrant as Eterna Therapeutics Inc. (formerly Brooklyn ImmunoTherapeutics), not “Ernexa Therapeutics.” This is an annual report, not a standalone fourth-quarter report.
Business context
Eterna is a preclinical-stage biopharmaceutical company with no approved products and no product-sales revenue to date. Its strategy centers on sublicensing and partnering around an mRNA cell-engineering platform licensed from Factor Bioscience Limited, with internal product development not a near-term focus. The company reported more than 100 in-licensed patents. It discontinued plans to further develop IRX-2 after its Phase 2b INSPIRE trial failed to meet its primary endpoint.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $10.4 million | $12.7 million |
| General and administrative expense | $16.8 million | $14.7 million |
| Total operating expenses | $33.2 million | $113.7 million |
| Loss from operations | $33.2 million | $113.7 million |
| Net loss | $24.6 million | $122.5 million |
| Net loss per common share | $8.06 | $56.61 |
| Cash used in operating activities | $21.0 million | $23.5 million |
Gross margin and product margins are not applicable because the company had no product-sales revenue. FY2022 results included a $6.0 million non-cash impairment of IRX-2 in-process R&D and a $10.8 million gain from changes in fair value of warrant liabilities. FY2021 included an $80.5 million acquired IPR&D expense, $5.8 million in merger-related transaction costs and a $9.6 million loss on disposal of legacy NTN assets; these items make the year-over-year net-loss comparison less representative of underlying operating performance.
At year-end, cash and cash equivalents were $11.4 million, plus $4.1 million of restricted cash pledged for a lease letter of credit. Current assets were $13.7 million and current liabilities were $7.7 million. Total liabilities were $10.2 million, including lease, warrant and related-party liabilities; the filing reports no outstanding conventional borrowings at year-end. The company used $21.0 million of cash in operations and had an accumulated deficit of $165.3 million.
Management and the auditor stated that substantial doubt exists about Eterna’s ability to continue as a going concern. Management said available funds would not cover operations for the 12 months after the financial statements were issued; it had no committed financing arrangements and planned to seek equity, debt, partnership or licensing capital. No assurance was given that funding would be available on acceptable terms or at all.
Material changes and notable developments
- R&D expense declined $2.3 million, mainly because of lower license and clinical costs, partly offset by new Master Services Agreement (MSA) costs with Factor Bioscience. G&A rose $2.1 million, reflecting higher professional fees, settlements, insurance, headcount and severance, partly offset by lower stock compensation.
- In October 2022, the company changed its name to Eterna Therapeutics and effected a 1-for-20 reverse stock split. Its Nasdaq listing moved to the Capital Market in January 2023.
- Two 2022 private placements raised approximately $19.7 million in total net proceeds. The March financing generated approximately $11.0 million net; the December financing generated approximately $7.4 million net and included two warrants per share issued, with a $3.28 exercise price. The filing also describes restrictions on certain equity-line sales following the March financing.
- Eterna signed a roughly 45,500-square-foot Somerville sublease with approximately $63.0 million of base rent over ten years, plus operating costs. A $4.1 million cash-collateralized letter of credit restricted available cash. Rent commencement and lease recognition had not occurred by year-end; the company expected build-out completion in late 2023. The sublessor’s tenant-improvement allowance was approximately $8.6 million.
- A February 2023 Lineage Cell Therapeutics agreement, subsequent to year-end, paid Eterna a non-refundable $250,000 upfront fee and provides for potential cell-line customization fees, sublicense royalties and milestones. Lineage has an option to obtain an exclusive sublicense, subject to the agreement’s terms.
Outlook, risks and contingencies
Management’s near-term focus is licensing opportunities for its platform; the filing gives no quantitative revenue or earnings guidance. Future cash receipts depend on signing agreements and partners’ development and commercialization efforts. The company’s principal risks include dependence on Factor-licensed intellectual property, the need for substantial additional capital, early-stage technology and regulatory uncertainty, competition, and the possibility that partners fail to advance programs. The Factor license carries termination rights and requires Eterna to pay specified patent costs and share sublicense fees with Factor.
Internal controls over financial reporting and disclosure controls were deemed ineffective at December 31, 2022 because of a material weakness involving accounting staff’s technical proficiency in complex matters. A separate previously identified weakness concerning staffing, segregation of duties and control documentation was reported remediated. The company had amended prior-year filings to correct errors and was implementing additional review, training and accounting-advisor measures.
Two employment-related matters settled for an aggregate of approximately $0.5 million, and the company paid $1.2 million to settle a stockholder inspection dispute. Litigation involving former Novellus personnel remained active, including counterclaims and requests for advancement or indemnification; the company said potential future reimbursements were not then probable or reasonably estimable. The filing also identifies the Factor MSA and license arrangements as related-party transactions because CEO Matthew Angel holds leadership roles at Factor.
Important facts for investors to verify
- Cash runway, near-term financing needs, and whether new capital or licensing proceeds are secured.
- Cash available for operations versus the $4.1 million restricted lease collateral, and the cost and timing of the Somerville lease build-out and rent commencement.
- Terms, durability and termination conditions of the Factor license and MSA, including related-party oversight and future payment obligations.
- Progress, economics and exercise of the Lineage sublicense option, and whether any additional partnerships generate material cash.
- Remediation and testing of the remaining financial-reporting material weakness, given prior amended filings and late quarterly reporting.
- Developments in the active Novellus-related litigation and any resulting legal, advancement or settlement costs.