Ensysce Biosciences, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Ensysce is a clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drugs. Its lead programs include PF614, a Phase 2 extended-release TAAP oxycodone prodrug, PF614-MPAR, in Phase 1b, and nafamostat, progressing toward Phase 2. The company has no approved products and has generated no product revenue. This report covers the three months ended March 31, 2024, and was filed May 10, 2024.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Federal grant revenue | $305,722 | $789,635 | $(483,913) |
| Research and development expense | $778,904 | $1,796,015 | $(1,017,111) |
| General and administrative expense | $1,369,782 | $1,554,855 | $(185,073) |
| Total operating expenses | $2,148,686 | $3,350,870 | $(1,202,184) |
| Loss from operations | $(1,842,964) | $(2,561,235) | Improved $718,271 |
| Interest expense | $(1,248,065) | $(1,497) | Increased $1,246,568 |
| Net loss | $(3,116,563) | $(2,191,806) | Worsened $924,757 |
| Net loss attributable to common stockholders | $(3,116,779) | $(2,196,174) | Worsened $920,605 |
| Basic and diluted loss per share | $(0.55) | $(2.08) | Share count increased materially |
- Revenue consisted entirely of federal grant reimbursements; there was no product revenue. Grant revenue declined primarily because the MPAR grant ended in December 2023.
- Net cash used in operating activities was $3.4 million, compared with $3.6 million in Q1 2023.
- Financing activities provided $5.7 million, primarily from warrant exercises and the February 2024 warrant inducement.
- Cash and cash equivalents were $3.4 million at March 31, 2024, versus $1.1 million at December 31, 2023. Total assets were $5.1 million.
- Current liabilities were $1.6 million, including $246,000 of notes payable and accrued interest. Net debt related primarily to the 2023 Notes and financed insurance totaled $246,000.
- Stockholders’ equity was $3.4 million at March 31, 2024, compared with a deficit of $651,000 at year-end 2023, reflecting equity issuances and warrant-related financing.
Material changes versus the prior comparable period
- Operating expenses declined 36%, led by a $1.0 million reduction in research and development spending associated with PF614 and PF614-MPAR.
- Despite improved operating results, net loss increased because Q1 2024 included $1.2 million of interest expense from amortization of discounts and issuance costs on the 2023 Notes, compared with minimal interest expense in Q1 2023.
- In February 2024, holders exercised warrants for approximately $4.7 million in gross proceeds at a reduced exercise price. Ensysce issued replacement Series A and Series B warrants and placement-agent warrants.
- During the quarter, 1.3 million warrants were exercised and 745,521 shares were issued upon conversion of approximately $1.2 million of convertible notes. Common shares outstanding increased from approximately 3.1 million at December 31, 2023, to approximately 7.3 million at March 31, 2024, before considering shares held in abeyance.
- The company had 11.0 million warrants outstanding at March 31, 2024, creating substantial potential dilution relative to the reported 7.3 million shares outstanding.
Guidance, outlook, risks and unusual items
- Management expects continuing operating losses and does not expect product sales revenue for several years, if at all. No quantitative revenue or earnings guidance was provided.
- Remaining funding under approved federal grants was approximately $1.9 million at March 31, 2024, expected to be used by August 31, 2024.
- Management stated that existing cash resources, without additional financing, were sufficient to fund current planned operations into the third quarter of 2024. The filing states that substantial doubt exists regarding the company’s ability to continue as a going concern for the following 12 months.
- Additional capital is expected to be required through equity, debt, grants, collaborations or other strategic transactions. Financing may be unavailable or dilutive and may restrict corporate activities.
- Open purchase orders and contractual obligations totaled an estimated $17.6 million at March 31, 2024, principally for contract research and clinical development activities, although many arrangements may be cancelled or adjusted before performance.
- The 2023 Notes had scheduled maturities in April and May 2024. A board member’s remaining note was subject to a forbearance agreement entered into April 25, 2024, extending the forbearance period to April 25, 2025.
- Key risks include clinical-trial failure or delay, regulatory non-approval, manufacturing and third-party service-provider dependence, intellectual-property challenges, competition, inability to raise capital, Nasdaq listing compliance and potential material dilution.
- Disclosure controls and procedures were reported effective as of March 31, 2024, with no material changes to internal control over financial reporting.
Important facts for investors to verify
- Availability, terms and timing of additional financing and the company’s actual cash runway.
- Repayment, conversion or restructuring of the 2023 Notes and any related obligations after March 31, 2024.
- Clinical progress and regulatory milestones for PF614, PF614-MPAR and nafamostat.
- Actual utilization and renewal or expiration status of the remaining federal grant funding.
- Potential dilution from approximately 11.0 million outstanding warrants, stock options and other equity-linked instruments.
- Whether the $17.6 million of purchase commitments will be incurred, cancelled or rescheduled.
- Nasdaq listing compliance and any subsequent corporate actions affecting the share count or capital structure.