Ensysce Biosciences, Inc. — Form 10-Q Summary
Business context and reporting period
Clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drugs. Lead programs include PF614, PF614-MPAR, and nafamostat. PF614 was in Phase 2, PF614-MPAR in Phase 1b, and nafamostat was advancing toward Phase 2 as of September 30, 2023. The Company has no approved products and has generated no product sales revenue. The filing covers the three and nine months ended September 30, 2023, with comparative periods in 2022.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 | ||
|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |
| Federal grant revenue | $0.4 million | $0.3 million | $1.7 million | $1.1 million |
| Research and development expense | $1.9 million | $4.8 million | $5.4 million | $13.4 million |
| General and administrative expense | $1.2 million | $1.7 million | $3.9 million | $5.7 million |
| Loss from operations | $(2.7) million | $(6.2) million | $(7.6) million | $(18.0) million |
| Net loss | $(2.7) million | $(9.9) million | $(7.1) million | $(18.7) million |
| Net loss attributable to common stockholders | $(2.7) million | $(9.9) million | $(7.1) million | $(19.6) million |
| Basic and diluted loss per share | $(0.87) | $(61.58) | $(3.32) | $(140.90) |
Grant revenue is not product revenue. Traditional revenue and profitability margins are not meaningful because the Company has no commercial product sales and remains loss-making.
- Cash and cash equivalents were $1.5 million at September 30, 2023, down from $3.1 million at December 31, 2022.
- Net cash used in operating activities was $9.0 million for the first nine months of 2023, compared with $14.6 million in 2022.
- Net cash provided by financing activities was $7.3 million, primarily from the February and May 2023 offerings, partially offset by debt and insurance-financing repayments.
- Net decrease in cash during the first nine months was $1.7 million.
- Total assets were $3.2 million and total liabilities were $2.1 million at September 30, 2023.
- Notes payable and accrued interest were $0.4 million, consisting solely of financed directors’ and officers’ insurance premiums. The 2022 convertible notes were satisfied in March 2023.
- Stockholders’ equity was $1.2 million, compared with a deficit of $4.0 million at December 31, 2022, primarily reflecting equity offerings and conversions of convertible notes.
- Accumulated deficit was $118.1 million at September 30, 2023.
Material changes versus the prior comparable period
- Federal grant revenue increased 56% to $1.7 million for the first nine months, reflecting the timing of eligible research activities.
- Research and development expense declined 60% for the first nine months, primarily because of timing changes in external clinical and preclinical costs for PF614 and PF614-MPAR.
- General and administrative expense declined 31%, mainly because of lower stock-based compensation, insurance, legal and consulting costs, and no employee bonus expense in 2023.
- Net loss attributable to common stockholders improved by $12.4 million for the first nine months. The prior-year period included significant non-cash and financing-related charges, including convertible-note issuance and conversion losses and warrant-related items.
- The Company raised approximately $3.0 million gross in February 2023 and approximately $7.0 million gross in May 2023. The May offering also resulted in substantial warrant issuance and repricing of certain existing warrants.
- Shares outstanding increased substantially during the period, from approximately 0.5 million at December 31, 2022 to 2.9 million at September 30, 2023, before additional subsequent issuances and potential warrant dilution.
Guidance, outlook, risks and unusual items
- Management expects continuing operating losses and does not expect product-sale revenue in the near future, if at all.
- Management stated that cash on hand was insufficient to fund operations through the end of the first quarter of 2024 without additional financing. The financial statements contain substantial doubt about the Company’s ability to continue as a going concern.
- On October 23, 2023, the Company entered into a financing arrangement for up to $1.7 million of convertible notes, subject to closings and conditions, with warrants for up to 3.8 million shares in aggregate. The first closing included $0.6 million of principal for $0.6 million of purchase price and warrants for approximately 1.3 million shares; a $0.2 million secured note was also issued to a board member.
- The October notes mature six months after issuance, bear 6% interest, are convertible at $1.5675 per share, and require monthly cash redemptions beginning 90 days after issuance unless converted. The notes are secured by substantially all of the Company’s assets, including intellectual property.
- The Company had approximately $17.8 million of open purchase orders and contractual commitments at September 30, 2023, including multi-year CRO commitments, although many may be cancellable or adjustable.
- Remaining funding under federal grants totaled approximately $2.7 million and was expected to be utilized by August 2024. The remaining OUD Grant milestone involves identifying an R-methadone-TAAP clinical candidate meeting specified criteria.
- The Company has not drawn on its GEM share subscription facility, which expires July 1, 2024, and may be unable to use it before expiration because of contractual restrictions and other conditions.
- Nasdaq notified the Company in June 2023 that it had regained compliance, but the filing states that its bid price fell below the $1 minimum in late October and early November 2023, creating renewed delisting risk.
- Disclosure controls and procedures were not effective as of September 30, 2023 because of material weaknesses related to insufficient technical accounting expertise and limited supervision and review personnel.
- Clinical, regulatory, manufacturing, intellectual-property, financing, dilution, counterparty and market-acceptance risks could materially delay or prevent commercialization.
Most important facts for investors to verify
- Whether the second closing under the October 2023 secured financing occurred and whether the Company can meet the required note redemptions.
- Current cash, cash burn and financing runway after the October financing and any subsequent capital raises.
- Whether Nasdaq minimum-bid-price and other listing requirements remain satisfied.
- Clinical progress, funding requirements and regulatory status of PF614, PF614-MPAR and nafamostat.
- The actual amount and enforceability of the reported $17.8 million purchase and contractual commitments.
- The dilution impact of approximately 4.9 million warrants outstanding at September 30, 2023, plus warrants issued under the October financing and subsequent incentive-plan awards.
- Progress in remediating the material weaknesses in internal control over financial reporting.