Eterna Therapeutics Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Eterna is a preclinical-stage life-sciences company developing mRNA cell-engineering technologies, with a near-term emphasis on strategic licensing and partnerships. It reported no product-sales revenue.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | No product-sales revenue; $250,000 Lineage option fee recorded as deferred revenue | — |
| Operating expenses | $5.316 million | $6.296 million |
| Net loss | $5.416 million | $9.375 million |
| Basic and diluted loss per share | $1.06 | $3.50 |
| Cash used in operating activities | $6.049 million | $5.432 million |
| Cash and cash equivalents | $5.397 million | $11.446 million at Dec. 31, 2022 |
| Restricted cash | $4.095 million | $4.095 million at Dec. 31, 2022 |
| Total assets | $15.108 million | $22.279 million at Dec. 31, 2022 |
| Total liabilities | $7.728 million | $10.172 million at Dec. 31, 2022 |
Operating expenses fell 16%, mainly because of lower payroll, stock compensation, occupancy and professional costs. The net loss narrowed by $3.959 million, also reflecting substantially lower warrant remeasurement and investment losses and the absence of the prior-year private-placement costs and liquidated damages. Cash used in operations nevertheless increased, driven in part by payments of severance and accrued litigation costs. Margins are not meaningful given the absence of product-sales revenue.
At quarter-end, current assets were $6.515 million and current liabilities were $5.406 million. Related-party amounts due were approximately $2.518 million in total, and recorded operating lease liabilities were $1.009 million. The company reported no conventional borrowings in the supplied filing text.
Material developments and outlook
- Going concern: Management concluded that substantial doubt exists about Eterna’s ability to continue as a going concern, stating that available cash and working capital were insufficient for the 12 months following issuance of the financial statements. It expects to need additional capital and gave no assurance it can obtain financing on acceptable terms.
- Somerville sublease: Eterna has restricted $4.1 million as collateral for a letter of credit. The 45,500-square-foot, 10-year sublease carries approximately $63 million of base rent over its term, plus other expenses. It had not commenced as of March 31, 2023; the filing anticipated construction completion in Q4 2023. An $8.6 million tenant-improvement allowance is specified.
- Lineage agreement: Lineage paid a nonrefundable $250,000 option fee, which remained deferred at quarter-end. Potential customization fees, license fees, milestones, royalties and sublicensing fees depend on future activity or option exercise; the filing provides no assurance these additional amounts will be earned.
- Potential financing: An April 2023 agreement gives Lincoln Park a conditional commitment to purchase up to $10 million of common stock at Eterna’s discretion. It is subject to purchase limits and other terms, so it is not equivalent to cash already raised. The filing states purchases could begin after the conditions were satisfied on April 25, 2025.
- Exacis asset purchase: In April 2023, Eterna acquired substantially all of Exacis’s intellectual property assets for 69,343 locked-up shares, with possible additional share issuances and payments tied to future market capitalization and licensing proceeds. The filing describes related relationships involving Eterna’s CEO and a director.
- Related-party licensing: Eterna replaced its prior Factor license agreement in February 2023. It generally owes Factor 20% of sublicense fees before the initial license expiry and 30% during a conditional renewal term, as well as specified patent-related costs. The CEO also leads Factor Bioscience.
- Litigation and controls: Disputes involving former Novellus employees include counterclaims and requests for advancement or indemnification of legal expenses; future amounts were not considered probable or reasonably estimable. Management reported disclosure controls were ineffective because of a material weakness involving technical accounting proficiency. Remediation was ongoing. The CFO resigned effective May 4, 2023.
Most important facts for investors to verify
- Cash runway and whether Eterna obtains financing sufficient to address the disclosed going-concern uncertainty; confirm actual Lincoln Park availability, timing, restrictions and dilution.
- Progress and economics of the Lineage option, including whether customization work or a sublicense occurs and when deferred fees can be recognized.
- Sublease commencement, construction and tenant-improvement costs, restricted-cash release schedule, and the company’s capacity to meet long-term rent obligations.
- Potential dilution from outstanding warrants, options, the Lincoln Park facility and contingent Exacis consideration; the filing lists 4.713 million warrants outstanding at March 31, 2023.
- Developments in the Novellus litigation and any resulting legal expenses or indemnification obligations, as well as remediation and testing of the material weakness.
- Reconcile the filing’s stated Lincoln Park commencement date and conditions with subsequent disclosures, and verify the post-quarter share count and Exacis transaction accounting.