Quoin Pharmaceuticals Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the filing does not provide standalone fourth-quarter results. Financial statements are prepared under U.S. GAAP. Quoin became the holding company for Quoin Pharmaceuticals, Inc. following the October 28, 2021 business combination, accounted for as a reverse recapitalization.
Business context
Quoin is a development-stage specialty pharmaceutical company focused on rare and orphan diseases, with no approved products and no revenue to date. Its lead candidate, QRX003, is a once-daily topical lotion being developed for Netherton Syndrome. Other programs include QRX003 for additional rare skin conditions, QRX004 for dystrophic epidermolysis bullosa, and QRX006 for an undisclosed rare skin disease.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.56 million | $244,000 |
| General and administrative expense | $4.50 million | $1.43 million |
| Total operating expenses | $6.06 million | $1.67 million |
| Other expenses | $15.40 million | $425,000 |
| Net loss | $21.46 million | $2.10 million |
| Net cash used in operating activities | $5.72 million | $1.34 million |
| Cash at year-end | $7.48 million | $324,000 |
Product margins are not applicable because the company had no product sales. The 2021 loss included $12.78 million of warrant-liability expense, $1.25 million of debt fair-value expense, $1.09 million of interest expense, and $275,000 of financing expense. These financing-related charges drove much of the year-over-year increase in net loss; operating expenses also rose as development activity and public-company costs increased.
At December 31, 2021, total assets were $9.36 million, total liabilities were $8.70 million, and shareholders’ equity was $657,000. Current assets were $8.50 million and current liabilities were $8.70 million, implying negative working capital of approximately $202,000. The balance sheet included $4.72 million due to officers, $1.69 million of accrued expenses, and a $374,000 warrant liability. The 2020 and 2021 convertible notes had converted into equity by the merger closing; no convertible notes payable remained at year-end.
2021 financing activities provided $13.50 million, including approximately $10.10 million net proceeds from the October private placement. The company reported 3,354,650,799 ordinary shares outstanding at year-end. Each ADS represents 400 ordinary shares.
Changes, outlook, and risks
- Development: QRX003 had not been tested in Netherton Syndrome patients by year-end. The company submitted an IND to the FDA in March 2022 and a briefing document to the EMA; these are post-period developments, and neither agency’s acceptance or clearance to proceed was assured in the filing.
- Funding outlook: Management expected expenses to rise substantially in 2022 as QRX003 development advanced. As of the filing date, management expected approximately $9.5 million from exercise of a Series C warrant, or equivalent funding under an investor commitment if specified exercise conditions were not met, and said resources should fund the business plan for at least one year from issuance of the financial statements. A proposed bank line of credit was still under negotiation, not closed, and potentially conditional on further equity funding and clinical milestones. Additional financing will be needed; availability and terms are uncertain.
- Warrants and dilution: The primary financing included warrants with a $3.98 exercise price, including Series A, B, and C warrants issued in March 2022. Exercise depended on contractual conditions; additional warrants could be issued upon full exercise of Series C. Future equity financing and option awards may materially dilute existing holders.
- Licensing commitments: The Skinvisible license carries a single-digit royalty on applicable net sales and a $5 million regulatory-approval milestone. A $250,000 license acquisition liability remained unpaid at year-end; the company said it was renegotiating payment. The license could terminate if clinical testing did not commence by the contractual deadline of December 31, 2022, subject to stated exceptions.
- Contingencies and unusual items: A former Polytherapeutics owner sought $666,667 under a consulting agreement, alleging nonpayment; the company stated no services had been provided, believed it had defenses, and reported no lawsuit filed as of the financial-statement issuance date. The auditor identified warrant fair-value measurement and contracted R&D cost recognition as critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an internal-control attestation.
- Principal risks: The company has a limited operating history, recurring losses, no commercial products, and dependence on additional capital. Key execution risks include clinical safety and efficacy, regulatory approval, rare-disease patient recruitment, third-party manufacturing and supply, intellectual-property protection, and COVID-19-related disruption. The company also disclosed possible Nasdaq continued-listing risk and potential share dilution.
Most important facts for investors to verify
- Whether the Series C warrant conditions were met and whether the anticipated $9.5 million funding was received; confirm the resulting cash runway and any bank financing.
- Current cash burn, clinical-development spending, and updated cash and working-capital position after December 31, 2021.
- FDA and EMA status for QRX003, trial initiation and enrollment plans, and any clinical or safety data; no patient safety data were available in this filing.
- Fully diluted share count, warrant and option terms, potential additional warrants, and the effects of future financing on ownership.
- Status of the unpaid Skinvisible liability, license rights and deadlines, and the Polytherapeutics claim or any subsequent legal proceedings.