Shuttle Pharmaceuticals Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
Shuttle Pharmaceuticals is a development-stage biotechnology company focused on cancer therapies, including Ropidoxuridine (IPdR) for use with radiation therapy and a pipeline of HDAC inhibitors. The unaudited report covers the three and six months ended June 30, 2023, with comparative periods ended June 30, 2022.
- No products have generated revenue; the company remains dependent on financing, grants and other capital sources.
- Management reported that sufficient quantities of Ropidoxuridine active pharmaceutical ingredient had been completed for the planned Phase II trial.
Financial performance and position
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.47 million | $3.01 million |
| Net loss | $2.18 million | $3.16 million |
| Net loss per share | $0.15 | $0.23 |
| Cash used in operating activities | Not separately reported | $2.98 million |
- Six-month R&D expense was $1.94 million, including $600,000 in milestone payments to TCG GreenChem for IPdR development and manufacturing.
- Six-month interest expense was $1.33 million, including $1.01 million of debt-discount amortization.
- Operating margin and net margin are not meaningful because the company had no revenue.
- Cash and cash equivalents were $5.45 million at June 30, 2023, compared with $8.42 million at December 31, 2022. Marketable securities totaled $2.90 million, resulting in cash and marketable securities of approximately $8.35 million.
- Working capital was $7.95 million, compared with $7.60 million at year-end 2022.
- Total liabilities were $1.90 million, including $390,705 of net convertible notes, $955,725 of derivative liabilities and $390,808 of operating lease liabilities.
- Stockholders’ equity was $6.94 million, compared with $7.68 million at December 31, 2022; accumulated deficit increased to $12.05 million.
Material changes versus the prior comparable period
- Six-month R&D expense increased 412% to $1.94 million, primarily due to increased development activity funded by the 2022 IPO and the 2023 convertible note financing.
- Six-month general and administrative expense increased 1,134% to $281,918, primarily reflecting higher insurance, director fees, advertising and corporate filing costs.
- Total operating expenses increased 203% to $3.01 million, while the six-month net loss increased 147% to $3.16 million.
- Cash used in operating activities increased from $980,027 to $2.98 million.
- The company invested $2.97 million in marketable securities and received $80,000 from dispositions, resulting in $2.89 million of investing cash outflow.
- In January 2023, the company issued a $4.30 million convertible note and warrants for $3.935 million of gross proceeds and approximately $3.59 million of net proceeds. Principal and interest repayments during the six months were settled through the issuance of 1,878,909 common shares.
- Common shares outstanding increased from 13,603,129 at December 31, 2022 to 15,482,038 at June 30, 2023, primarily because of debt and interest conversions.
- Related-party notes and accrued interest totaling approximately $783,608 were repaid during the six months, leaving no related-party note principal or interest balance at June 30, 2023.
Guidance, outlook, risks and unusual items
- Management stated that existing cash and marketable securities were expected to fund planned operations through the second half of 2024. The filing also states that additional financing may be required and may dilute existing stockholders.
- The company expected written FDA responses from a Type B pre-IND meeting by September 18, 2023 and stated that it remained on track to commence a Ropidoxuridine Phase II clinical study in the fourth quarter of 2023. These are forward-looking statements and are not assurances of timing or success.
- The Alto convertible note has complex conversion, redemption and acceleration provisions, an effective interest rate of approximately 294%, and security interests in the company’s assets and intellectual property. The note matures in March 2025, subject to possible extension by the noteholder.
- Derivative liabilities totaled $955,725 at June 30, 2023 and were valued using Level 3 Monte Carlo models. A $1.68 million gain from changes in fair value reduced reported six-month other expense but was non-cash and subject to significant valuation assumptions.
- The company recognized a $433,807 six-month loss on settlement of convertible debt and a $104,245 finance fee related to the convertible financing.
- On July 17, 2023, Alto elected to convert $234,628, including $24,628 of interest, into 251,127 common shares.
- Management identified material weaknesses in internal control over financial reporting involving accounting for significant unusual transactions and the financial statement close and review process. Disclosure controls and procedures were therefore deemed ineffective as of June 30, 2023.
- Drug development remains subject to clinical, regulatory, manufacturing, financing, intellectual-property and commercialization risks. The filing reports no pending or threatened legal proceedings considered material.
Important facts for investors to verify
- Whether the planned Phase II trial began in the fourth quarter of 2023 and whether FDA feedback changed the development plan.
- The remaining repayment schedule, conversion activity, dilution potential and security interests associated with the Alto convertible note.
- Whether cash, marketable securities, grants and future financing are sufficient to fund operations beyond the company’s stated second-half 2024 runway.
- Progress toward remediation of the material weaknesses in internal control over financial reporting.
- The valuation assumptions and future volatility of the Level 3 derivative liabilities.
- Remaining TCG GreenChem milestone obligations, manufacturing completion and the company’s ability to fund clinical-scale production.