NRx Pharmaceuticals, Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
NRx Pharmaceuticals is a clinical-stage pharmaceutical company with no commercial revenue. Its principal programs are NRX-100/NRX-101 for bipolar depression with suicidal ideation and ZYESAMI (aviptadil) for respiratory failure. The filing covers the three and six months ended June 30, 2022, with comparative periods in 2021. The financial statements are unaudited and reflect the company’s reverse recapitalization with NeuroRx completed on May 24, 2021.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $3.0 million | $4.7 million | $8.4 million | $7.6 million |
| General and administrative expense | $6.6 million | $12.5 million | $16.9 million | $14.6 million |
| Total operating expenses | $9.6 million | $17.1 million | $25.3 million | $42.7 million |
| Net loss | $7.0 million | $0.1 million | $20.4 million | $25.6 million |
| Net loss attributable to common stockholders per share | $0.11 | $6.13 | $0.32 | $7.27 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $25.2 million | $14.4 million |
Because the company has no revenue, gross profit and operating margins are not meaningful. Six-month operating cash burn was approximately $25.2 million. Cash and cash equivalents were $24.5 million at June 30, 2022, including $23.5 million in a money market account. Total assets were $32.4 million, total liabilities were $7.1 million, and stockholders’ equity was $25.4 million. The company had no note payable outstanding after repaying approximately $0.5 million of principal and accrued interest to Relief Therapeutics in April 2022.
Material changes versus the prior comparable period
- Q2 operating expenses decreased $7.5 million, or approximately 44%, primarily due to lower research and development spending and lower general and administrative costs.
- Q2 net loss increased to $7.0 million from $0.1 million because the prior-year period benefited from a $17.4 million noncash gain on warrant remeasurement. Q2 2022 included a $2.5 million noncash gain from reducing the Earnout Cash liability to zero.
- Six-month net loss improved by $5.2 million, largely because 2021 included a $21.4 million noncash GEM warrant settlement expense and $0.8 million of Relief Therapeutics reimbursement income.
- Six-month research and development expense increased $0.9 million, while general and administrative expense increased $2.3 million. The G&A increase was driven principally by higher legal, professional, accounting, insurance, and employee costs, partly offset by lower consulting and stock-based compensation expense.
- Cash declined $3.1 million during the first six months of 2022, as $25.2 million of operating cash use was partly offset by $22.1 million of financing proceeds.
- In February 2022, the company issued 7,824,727 common shares and options to purchase an additional 7,824,727 shares. Net proceeds were approximately $22.6 million, increasing the share count and potential dilution.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that existing funds, together with potential expenditure reductions, are expected to support operations for at least the next twelve months from issuance of the financial statements. The company remains dependent on additional equity or debt financing and may never become profitable.
- The company initiated a Phase II study of NRX-101 for bipolar depression with subacute suicidal ideation and behavior during Q2 2022, with enrollment underway. It planned to initiate a registrational study for acute suicidal ideation and behavior in the latter part of 2022. The filing does not provide a quantified commercial or financial forecast.
- The NIH stopped the Phase III ACTIV-3b Critical Care Study of ZYESAMI in May 2022 for futility. The company suspended development, is re-evaluating the respiratory franchise, and stated that it has no plans to invest further resources in ZYESAMI.
- The $100 million Earnout Cash obligation was reduced to zero at June 30, 2022 because management assessed the probability of the relevant milestones as de minimis. This produced a $4.6 million noncash gain for the six-month period. The estimate depends on unobservable assumptions and could change if circumstances change.
- There were 17.5 million warrants outstanding at June 30, 2022, in addition to 2.7 million stock options. These instruments represent substantial potential dilution; the filing states that the options and warrants were excluded from diluted loss per share because their effect was anti-dilutive.
- The company disclosed a material weakness in internal control over financial reporting related to ineffective review procedures for complex warrant transactions. The weakness resulted in a restatement to reclassify Substitute Warrants. Management was implementing additional review procedures.
- Relief Therapeutics sued the company alleging breaches of a collaboration agreement. NRx filed counterclaims seeking at least $185 million. Mediation had not resolved the dispute, and the company stated that it intends to defend and prosecute its claims.
- On August 12, 2022, after the quarter-end, GEM demanded arbitration for an alleged approximately $1.9 million commitment fee. NRx stated that the fee is not due and intends to defend its position.
- On July 12, 2022, Stephen Willard was appointed chief executive officer and director and received an award of 1,000,000 restricted shares vesting over approximately three years.
- The company disclosed ongoing related-party transactions involving technology support, consulting, family services, and PillTracker. It also was discussing an extension of its right to acquire certain excluded technology from Glytech after the original right expired in August 2022.
Most important facts for investors to verify
- Whether the $24.5 million cash balance and planned spending reductions are sufficient to fund operations for the stated twelve-month period, given six-month operating cash use of $25.2 million.
- Progress, enrollment, regulatory interactions, and funding requirements for the NRX-101 clinical programs.
- The effect of the ZYESAMI program suspension and the absence of planned further investment in the respiratory franchise.
- The resolution and potential financial exposure from the Relief Therapeutics litigation and GEM arbitration demand.
- Remediation of the material weakness and whether future filings contain additional warrant-accounting corrections.
- Potential dilution from 17.5 million outstanding warrants, 2.7 million stock options, the February private-placement options, and the 1.0 million restricted shares awarded to the new CEO.
- The company’s ability to obtain additional financing on acceptable terms and the resulting impact on existing shareholders.