NRx Pharmaceuticals, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
NRx Pharmaceuticals is a clinical-stage pharmaceutical company focused primarily on NRX-101, a fixed-dose combination of D-cycloserine and lurasidone for treatment-resistant bipolar depression with suicidality. The unaudited report covers the three months ended March 31, 2023, with comparative results for the three months ended March 31, 2022.
Following January 2023 FDA discussions, the Company broadened the intended NRX-101 population from acute suicidality primarily treated in hospitals to patients with subacute suicidal ideation and treatment-resistant bipolar depression treated in outpatient settings. The ongoing study was upgraded to a Phase 2b/3 trial with potential registrational use.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | None | None | No revenue in either period |
| Research and development expense | $3.7 million | $5.5 million | Down $1.8 million |
| General and administrative expense | $5.8 million | $10.2 million | Down $4.4 million |
| Total operating expenses | $9.4 million | $15.7 million | Down $6.3 million |
| Loss from operations | $(9.4) million | $(15.7) million | Improved by $6.3 million |
| Net loss | $(11.0) million | $(13.4) million | Improved by $2.4 million |
| Basic and diluted loss per share | $(0.16) | $(0.21) | Improved |
| Net cash used in operating activities | $(6.1) million | $(10.4) million | Improved by $4.3 million |
The Company had no meaningful operating margin because it generated no revenue and reported an operating loss. The net loss included a $1.8 million non-cash loss from the change in fair value of the convertible note. Q1 2022 benefited from a $2.1 million non-cash gain related to the Earnout Cash liability; that liability expired by December 31, 2022.
| Balance sheet metric | March 31, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $16.5 million | $20.1 million |
| Total assets | $21.8 million | $25.8 million |
| Convertible note payable and accrued interest | $12.2 million | $10.5 million |
| Total liabilities | $22.1 million | $18.4 million |
| Stockholders’ equity | $(0.3) million | $7.4 million |
Financing activities provided $2.5 million in Q1 2023 from a registered direct offering, compared with $23.0 million in Q1 2022. Investing activities used less than $0.1 million. Cash therefore declined by $3.5 million during the quarter, from $20.1 million to $16.5 million.
Material changes versus the prior comparable period
- Total operating expenses declined 40%, primarily because of lower ZYESAMI-related clinical development costs, legal and professional fees, insurance expense, and stock-based compensation.
- Net loss improved by $2.4 million, although the comparison was affected by non-cash fair-value items, including the absence of the $2.1 million Earnout Cash gain recognized in Q1 2022 and the $1.8 million convertible-note fair-value loss recognized in Q1 2023.
- Operating cash use decreased from $10.4 million to $6.1 million.
- On March 9, 2023, the Company issued 3,866,666 common shares and warrants for gross proceeds of approximately $2.9 million and net proceeds of approximately $2.5 million, increasing shares outstanding to 70,309,655 as of May 12, 2023.
- Convertible debt increased in carrying value to $12.2 million and was classified as current at March 31, 2023.
- Stockholders’ equity moved from $7.4 million of positive equity at year-end 2022 to a $0.3 million deficit at March 31, 2023.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected the ongoing NRX-101 Phase 2b/3 trial to be completed and generate top-line data in the fourth quarter of 2023.
- The independent Data Safety Monitoring Board reviewed safety and unblinded efficacy data for the first 50 participants and recommended continued enrollment, reporting no safety concerns and no futility signal.
- The Company planned a Phase 2 PTSD trial in the second half of 2023, subject to available resources and development progress.
- Management stated that it believed cash could support the ongoing clinical trial, but also stated that additional equity or debt financing or refinancing would be required to continue operations and meet debt obligations.
- The filing explicitly concludes that substantial doubt exists about the Company’s ability to continue as a going concern for at least twelve months from issuance of the financial statements.
- The Streeterville Capital note has a face amount of approximately $11.0 million, a 9% interest rate, an 18-month term, and monthly redemption rights of up to $1.0 million beginning May 4, 2023. Repayment may require cash or issuance of common stock, subject to conditions and limitations. Management stated that it would not have sufficient liquidity to support operations if required to make these payments in cash.
- The note permits accelerated stock-based redemptions under certain trading-volume or share-price conditions and contains default provisions that could make the balance immediately payable and increase the interest rate to as much as 18%, subject to applicable law.
- The Company was in compliance with the note and reported no events of default as of March 31, 2023.
- A GEM arbitration demand seeks approximately $1.9 million for an alleged commitment fee. The Company disputes that the fee is owed and intends to defend the claim.
- The Company completed manufacturing of clinical supplies and transferred manufacturing processes to expected commercial-stage production, potentially reducing future manufacturing and development costs.
- The Company has no current product revenue and may never become profitable. Its future depends on clinical success, regulatory approval, commercialization, and access to additional financing.
Important facts for investors to verify
- Cash runway relative to the $1.0 million monthly redemption rights and other debt obligations under the Streeterville note.
- Availability, timing, terms, and dilution impact of required additional equity, debt, licensing, or strategic financing.
- Enrollment progress, trial completion, fourth-quarter 2023 top-line timing, and statistical and safety results for the NRX-101 Phase 2b/3 study.
- FDA alignment on the broadened treatment-resistant bipolar depression indication, registration strategy, safety database, and any future Breakthrough Therapy planning meeting.
- Resolution and potential financial impact of the GEM arbitration demand.
- Whether manufacturing stability data and commercial-stage processes support the anticipated shelf life and eventual regulatory filing.
- Effects of non-cash fair-value adjustments on reported earnings and the sensitivity of the convertible note valuation to stock price, volatility, trading volume, and default assumptions.