Ensysce Biosciences, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Ensysce is a clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription medicines. Its lead candidates include PF614, PF614-MPAR™ and nafamostat. PF614 was in Phase 1b development, PF614-MPAR™ in Phase 1, and nafamostat was proceeding toward Phase 2. The company has no approved products and has not generated product-sales revenue.
This report covers the three months ended March 31, 2022, with comparative information for the three months ended March 31, 2021. The consolidated company includes Ensysce and its 79.2%-owned subsidiary, Covistat.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Federal grant revenue | $603,098 | $250,576 | +$352,522 |
| Research and development expense | $3.14 million | $0.28 million | +$2.86 million |
| General and administrative expense | $2.27 million | $0.49 million | +$1.78 million |
| Loss from operations | $(4.80) million | $(0.52) million | $(4.28) million |
| Net loss | $(0.95) million | $(0.91) million | $(0.04) million |
| Net loss attributable to common stockholders | $(1.67) million | $(0.91) million | $(0.76) million |
| Basic and diluted loss per share | $(0.06) | $(0.06) | Unchanged |
| Net cash used in operating activities | $(3.44) million | $(0.52) million | Higher use of $2.92 million |
Grant revenue consisted of $504,470 from the MPAR grant and $98,628 from the OUD grant. The company had no product revenue.
Cash and cash equivalents were $8.44 million at March 31, 2022, down from $12.26 million at December 31, 2021. Total assets were $12.37 million, compared with $16.42 million at year-end 2021. Total liabilities were $11.26 million, compared with $24.58 million at December 31, 2021. Stockholders’ equity increased to $1.11 million from a deficit of $8.16 million, primarily reflecting debt conversions, stock-based compensation and fair-value changes.
Outstanding debt was recorded at fair value of approximately $7.66 million at March 31, 2022, compared with $17.19 million of total debt at December 31, 2021, including financed insurance premiums. The 2021 Notes had a principal balance of $7.63 million and mature in 2023. The company also recorded $0.51 million of liability-classified warrants.
Material changes versus the prior comparable period
- Research and development expense increased substantially as the company advanced PF614 and PF614-MPAR™ preclinical and clinical programs.
- General and administrative expense rose due primarily to public-company legal, accounting and directors’ and officers’ insurance costs.
- Operating cash use increased to $3.44 million from $0.52 million.
- Other income of $3.85 million was driven by non-cash decreases in the fair value of convertible notes and liability-classified warrants, partly offset by a $1.70 million loss on debt conversions.
- The company converted $6.37 million of convertible notes into 4.71 million common shares during the quarter. The share count increased to 29.95 million outstanding at March 31, 2022, from 24.64 million at December 31, 2021.
- A $715,579 deemed dividend arose from down-round provisions in warrants, increasing the loss attributable to common stockholders.
- In the second quarter of 2022, the company issued an additional 4.51 million shares upon conversion of approximately $4.3 million of 2021 Notes.
Liquidity, outlook and risks
Management stated that existing cash resources are not sufficient to fund current planned operations for the 12 months following the filing without access to additional financing. The financial statements therefore identify substantial doubt about the company’s ability to continue as a going concern. Ensysce expects continuing losses, negative operating cash flow and increasing research and development expenses.
The company had approximately $4.1 million of remaining approved federal grant funding, expected to be utilized by December 31, 2022, subject to grant milestones and conditions. Its $60 million GEM share subscription facility is restricted while the 2021 Notes remain outstanding. Additional equity or debt financing may be unavailable or dilutive, and debt agreements may restrict future financing activities.
Material risks include clinical-trial failure or delay, regulatory non-approval, inability to demonstrate abuse- or overdose-deterrent benefits, reliance on CROs and contract manufacturers, intellectual-property challenges, competition, supply-chain and COVID-19 effects, loss of key personnel, Nasdaq listing compliance and the need for substantial additional capital. The company reported no material changes to the risk factors in its 2021 Form 10-K.
The company had approximately $15.8 million of open purchase orders and contractual obligations as of March 31, 2022, including commitments to CROs for multi-year research studies. No pending litigation was expected to have a material adverse effect on financial condition or results of operations.
Disclosure controls and procedures were deemed ineffective because of material weaknesses related to inadequate technical accounting expertise and insufficient supervision and review. Management reported a remediation plan but provided no assurance that remediation will be successful.
Important facts for investors to verify
- Whether the company obtains additional financing before cash resources are exhausted and whether the 2021 Notes continue to restrict the GEM facility.
- Current cash burn, remaining grant availability and the timing of expected clinical and preclinical expenditures.
- Terms and dilution effects of further note conversions, warrant down-round adjustments, equity issuances and stock-based awards.
- Clinical progress and safety, efficacy and abuse-deterrence data for PF614, PF614-MPAR™ and nafamostat.
- Whether the company remediates its material weaknesses and maintains compliance with Nasdaq listing requirements.
- The enforceability and likely cash impact of the reported $15.8 million of purchase commitments.