Brooklyn ImmunoTherapeutics, Inc. — Q1 2022 Form 10-Q
Entity note: The filing is for Brooklyn ImmunoTherapeutics, Inc. (Nasdaq: BTX), not Ernexa Therapeutics Inc. It covers the three months ended March 31, 2022; the report was signed June 30, 2022.
Business context
Brooklyn is a development-stage biopharmaceutical company focused on mRNA, gene-editing and cell therapies, and is also evaluating its IRX-2 cancer therapy program. It reported no product revenue in the quarter or the comparable 2021 period.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.782 million | $1.533 million |
| General and administrative expense | $4.514 million | $1.623 million |
| Total operating expenses | $6.296 million | $8.921 million |
| Net loss | $9.375 million | $18.522 million |
| Basic and diluted loss per share | $0.17 | $0.67 |
| Cash used in operating activities | $5.432 million | $3.430 million |
At March 31, 2022, cash was $23.5 million, total assets $35.376 million, total liabilities $18.065 million and stockholders’ equity $17.311 million. Current assets were $25.135 million and current liabilities $3.684 million. The filing reports no outstanding borrowings; liabilities included $13.315 million of warrant liabilities and $1.167 million of operating lease liabilities. Profit margins are not meaningful given the absence of revenue and continuing losses.
Cash increased $6.515 million during the quarter, principally reflecting $11.993 million of financing proceeds, partly offset by operating cash use and $0.046 million of property and equipment purchases. The March private placement generated approximately $12.0 million gross and $11.0 million net proceeds.
Changes versus the prior comparable period
- Net loss narrowed by $9.147 million, largely because Q1 2021 included a $9.598 million loss on the sale of NTN assets and $5.765 million of merger-related transaction costs. Q1 2022 instead included warrant-related expense and a loss on the NoveCite investment.
- Operating expenses decreased $2.625 million overall, despite R&D expense rising $0.249 million and G&A expense increasing $2.891 million. G&A included higher stock compensation, payroll, insurance, legal-related costs and fixed-asset disposal losses.
- Operating cash use increased by approximately $2.0 million year over year.
- Common shares issued and outstanding rose to 57.452 million from 52.021 million at year-end 2021, reflecting the private placement and other share activity. The placement also included warrants potentially exercisable for additional shares.
Outlook, risks and unusual items
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern. It said available cash and working capital were not expected to fund operations for the 12 months following issuance of the financial statements. Additional financing is required, with no assurance it will be available on acceptable terms or at all.
- Program outlook: Enrollment in the Phase 2b INSPIRE trial of IRX-2 was complete; top-line data were estimated for Q3 2022. Management planned to evaluate the IRX-2 strategy after reviewing results. It also described planned preclinical development of iPSC-derived cell therapies and continued gene-editing and cell-therapy development; no specific financial guidance was provided.
- Capital and dilution: The March PIPE included 5.5 million common shares, about 1.357 million pre-funded warrants and about 6.857 million common warrants. The warrants are accounted for as liabilities and remeasured at fair value, creating potential non-cash earnings volatility. A financing covenant restricted variable-rate equity issuance for one year, including use of the company’s equity line.
- Commitments and contingencies: The company owed Factor a $3.5 million license fee due in October 2022, in addition to milestone and potential royalty obligations. Litigation includes a former consultant’s arbitration claim seeking damages, and a potential stockholder suit related to the merger; the company said outcomes could not be predicted. It accrued $0.8 million for legal-related expenses in the quarter.
- Controls and filing: Management found disclosure controls ineffective due to material weaknesses, including insufficient accounting staffing and technical expertise and inadequate documented procedures. Accounting errors led to a late filing and amendments to prior-period financial statements. A $0.2 million estimated liquidated-damages expense was accrued after the late 10-Q filing temporarily prevented the PIPE investor from reselling registered securities.
- Other developments: The company completed a workforce reduction involving eight R&D employees, reported as 53% of the workforce at that time, and incurred about $0.5 million in severance and related costs. After quarter-end, CEO and President Howard Federoff resigned effective May 26, 2022; Matthew Angel was appointed interim CEO. The separation agreement provided cash and equity-related benefits.
- External risks: The filing cited potential effects of COVID-19, geopolitical instability including the Russia-Ukraine conflict, inflation, market disruption and supply-chain interruptions.
Important facts for investors to verify
- Whether subsequent financing was secured and whether liquidity was sufficient to support operations beyond the disclosed 12-month period.
- INSPIRE trial results and the company’s resulting IRX-2 strategy, as well as progress and funding needs for the cell and gene-editing programs.
- The terms, exercise, valuation and potential dilution from the PIPE warrants, and any further registration-rights damages.
- Payment of the $3.5 million Factor fee and the scale and timing of other license milestones or royalties.
- Developments in the disclosed legal matters, including any filed stockholder litigation or indemnification claims.
- Progress in remediating material weaknesses, the effects of the prior-period restatement, and whether subsequent filings were timely and reliable.