Pasithea Therapeutics Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The unaudited filing covers a pre-revenue biotechnology company developing therapies for CNS disorders and other diseases. In Q1, the company discontinued its Clinics segment, including U.S. at-home and U.K. services and Los Angeles clinical operations.
Financial results and position
- Revenue: No revenue from continuing operations. Discontinued Clinics operations had no revenue in Q1 2023, versus $13,658 in Q1 2022.
- Expenses and losses: Continuing-operations operating expenses were $3.21 million: SG&A of $2.12 million and R&D of $1.10 million. Continuing-operations net loss was $3.27 million; including discontinued operations’ $272,000 loss, total net loss was $3.54 million. Basic and diluted loss per share was $0.13 from continuing operations and $0.01 from discontinued operations.
- Cash flow: Operating cash use was $3.20 million; investing cash use was $54,000; financing provided $264,000. Cash decreased $3.17 million to $29.91 million.
- Liquidity: Working capital was approximately $29.15 million, excluding discontinued-operation assets and liabilities. Management said available working capital should fund needs for at least 12 months from issuance of the statements. The company also said it will need significant additional funding and has no credit facility or committed capital source.
- Debt and obligations: Total liabilities were $2.91 million. Current note payable was $264,000, related to financing directors’ and officers’ insurance at 7.8% annual interest. Operating lease liabilities totaled approximately $465,000; the filing reports no other material debt facility.
- Margins: Continuing operations generated no revenue, so a continuing-operations gross margin is not applicable.
Changes versus Q1 2022
- Operating loss increased by $1.13 million to $3.21 million, primarily because R&D spending began: $1.10 million versus none in the prior-year quarter. SG&A was relatively flat, up 1.8% to $2.12 million.
- Total net loss increased to $3.54 million from $1.57 million. The comparison was also affected by warrant fair-value movements: Q1 2022 included $785,000 of income, while Q1 2023 recorded $47,000 of expense.
- Operating cash use increased to $3.20 million from $2.15 million. Cash at quarter-end was $29.91 million, compared with $50.23 million at March 31, 2022.
- The Clinics segment was classified as discontinued operations. Its Q1 loss was $272,000, compared with $326,000 in Q1 2022.
Outlook, risks and notable items
- The lead candidate, PAS-004, is a macrocyclic MEK inhibitor. Management planned to submit an IND in the second half of 2023, subject to completing cGMP manufacturing and finalizing toxicology work. It expected R&D costs to rise during 2023, primarily for PAS-004 manufacturing, regulatory and clinical development; SG&A was expected to remain relatively flat.
- Three additional programs were described as discovery-stage: PAS-003 for ALS, PAS-002 for MS and PAS-001 for schizophrenia. The company expects significant operating losses and increased expenses as it advances development, and does not yet generate product revenue.
- Management reported higher compensation and outside-service costs from inflation and expected inflation to remain a headwind through 2023.
- Funding needs depend on development progress, trials, manufacturing, regulatory work and other factors. If additional financing is unavailable on acceptable terms, the company may need to delay, reduce or stop development.
- The company was exploring options to dispose of property associated with discontinued Los Angeles operations. It reported no material legal proceedings and no material changes to the risk factors in its latest Form 10-K.
- Warrant liabilities are remeasured at fair value each reporting period, creating potential non-cash earnings volatility. The company also disclosed 15.36 million outstanding warrants and 2.18 million stock options at quarter-end.
Investor verification points
- Check progress against the planned PAS-004 IND submission, including completion of manufacturing and toxicology work.
- Monitor cash consumption, R&D spending and the stated 12-month liquidity assessment, as the company anticipates needing additional capital.
- Verify the costs and liabilities associated with winding down the Clinics segment and the outcome of the planned property disposition.
- Track warrant fair-value changes and potential dilution from outstanding warrants, options and other equity awards.