Ensysce Biosciences, Inc. annual report, FY2023

Ensysce Biosciences, Inc. — 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 14, 2024. The filing provides annual results; it does not provide a separate fourth-quarter financial table.

Business context

Ensysce is a clinical-stage pharmaceutical company developing abuse- and overdose-resistant prescription drugs. Its lead programs are PF614, a TAAP extended-release oxycodone prodrug, and PF614-MPAR, which combines PF614 with nafamostat for overdose protection. The company has no approved products, no product-sale revenue, and relies on grants, equity financings and convertible debt.

PF614 completed a Phase 2 efficacy study in December 2023; management expected Phase 3 studies to begin in mid-2024.
PF614-MPAR completed the Part B portion of its Phase 1 study in 2023 and received FDA Breakthrough Therapy designation in January 2024.
Nafamostat is advancing toward Phase 2 development, although it is not currently the company’s primary focus.

Financial performance and liquidity

Metric	2023	2022	Change
Federal grant revenue	$2.23 million	$2.52 million	Down $0.29 million
Research and development expense	$7.59 million	$19.84 million	Down $12.25 million
General and administrative expense	$5.36 million	$6.91 million	Down $1.55 million
Total operating expenses	$12.95 million	$26.75 million	Down $13.80 million
Loss from operations	$(10.72) million	$(24.22) million	Improved $13.50 million
Net loss	$(10.63) million	$(24.21) million	Improved $13.58 million
Net loss attributable to common stockholders	$(10.63) million	$(25.09) million	Improved $14.46 million
Basic and diluted loss per share	$(4.69)	$(139.42)	Improved, partly due to higher share count
Net cash used in operating activities	$(10.78) million	$(17.89) million	Improved $7.11 million
Net cash provided by financing activities	$8.76 million	$8.77 million	Approximately flat

Grant revenue represented the company’s reported revenue in 2023. It declined because of the timing of eligible research activities. The company does not expect meaningful product-sale revenue for several years, if at all.

Cash and cash equivalents were $1.12 million at December 31, 2023, versus $3.15 million at December 31, 2022.
Total assets were $2.71 million and total liabilities were $3.36 million, resulting in total stockholders’ deficit of $0.65 million.
Accumulated deficit was $121.6 million.
Debt at year-end had a net carrying value of $0.85 million, consisting primarily of the 2023 Notes and financed insurance. The 2023 Notes had $1.84 million of principal and matured in April and May 2024.
Open purchase orders and contractual obligations totaled an estimated $17.9 million at year-end, although many could be canceled, rescheduled or adjusted before performance.
Remaining approved federal grant funding totaled $2.2 million and was expected to be used by August 2024.

Material changes versus 2022

R&D expense fell 62%, primarily because of the timing of external costs for PF614 and PF614-MPAR programs.
G&A expense fell 22%, reflecting lower stock-based compensation, insurance, legal and consulting costs and no employee bonuses.
The company raised net proceeds of approximately $9.05 million from the February and May 2023 offerings and approximately $1.61 million from the 2023 Notes.
The 2022 Notes were satisfied in the first quarter of 2023, including $0.6 million of cash true-up payments.
In October and November 2023, the company issued $1.84 million of senior secured convertible notes for approximately $1.70 million of purchase price and issued warrants for approximately 3.77 million shares at a $1.5675 exercise price.
Outstanding common shares increased from approximately 0.53 million at year-end 2022 to 3.15 million at year-end 2023 after the March 2023 one-for-twelve reverse stock split and subsequent equity, note-conversion and warrant transactions. The company reported 7.33 million shares outstanding as of March 8, 2024, reflecting subsequent issuances.
Total warrants outstanding were approximately 8.48 million shares at December 31, 2023, creating substantial potential dilution.

Guidance, outlook and management commentary

Management stated that existing cash was expected to fund planned operations into the third quarter of 2024, without additional financing. This estimate is subject to significant uncertainty.
The company expects continued operating losses, elevated development spending and a need for substantial additional financing.
Management expected PF614 Phase 3 development to begin in mid-2024 following an End-of-Phase 2 FDA meeting held January 30, 2024.
The GEM equity facility permits potential drawdowns of up to $60 million, but the company had not used the facility and may not be able to use it before expiration. Drawdowns are subject to Nasdaq listing, registration, trading-volume and other conditions and would be dilutive.
February 2024 subsequent events included repayment or conversion of approximately $1.7 million of 2023 Notes, exercise of approximately 1.3 million related warrants for approximately $2.1 million, and a warrant exercise transaction that generated approximately $4.7 million of gross proceeds before expenses.
The company’s common stock faced a Nasdaq listing deficiency related to the $2.5 million stockholders’ equity requirement. Nasdaq granted continued listing through May 13, 2024, subject to compliance efforts.

Key risks, contingencies and unusual items

The auditor’s report and management disclosures identify substantial doubt about the company’s ability to continue as a going concern. The financial statements do not include adjustments that could result if the company cannot continue operations.
The company has no commercial products or product-sale revenue and depends on successful clinical development, regulatory approval, commercialization and future financing.
PF614 and PF614-MPAR remain investigational. Clinical results may not be replicated in later-stage trials, and FDA approval, abuse-deterrent labeling and Breakthrough Therapy benefits are not assured.
PF614 contains oxycodone and will be subject to Schedule II controlled-substance requirements, DEA quotas, security, recordkeeping and manufacturing restrictions.
The company relies on CROs and CMOs and does not own manufacturing facilities. It stated that it did not have a binding written agreement with Purisys for certain PF614 manufacturing services.
Debt and financing arrangements are secured by substantially all of the company’s assets, including intellectual property, and include conversion, redemption, warrant and potential dilution provisions.
Patent ownership records and assignments for certain patent families, including abuse-resistant amphetamine applications, had not been fully updated or obtained.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. However, the company was not required to obtain an auditor attestation because it is a smaller reporting company.
No material legal proceedings were reported as of the filing date. The company reported no known cybersecurity incident that had materially affected, or was reasonably likely to materially affect, its business.

Important facts for investors to verify

Actual cash balances, financing proceeds and cash use following December 31, 2023, including the February 2024 warrant exercise and 2023 Note repayments.
Whether the company regained or maintained Nasdaq’s stockholders’ equity and other listing requirements by the applicable deadlines.
The status, design, funding and initiation of PF614 Phase 3 trials and the regulatory pathway for PF614 and PF614-MPAR.
Current debt maturities, conversions, repayments, collateral obligations and any waivers or amendments to the 2023 Notes.
The fully diluted share count, including approximately 8.48 million year-end warrants, subsequent warrant exercises, new warrants and outstanding options.
Availability and remaining term of the GEM facility and whether financing restrictions permit any drawdown.
Remaining federal grant eligibility, required milestones and the timing of expected grant reimbursements.
Whether the reported $17.9 million of purchase commitments will require cash settlement and how those obligations compare with available liquidity.