Eterna Therapeutics Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The filing identifies the registrant as Eterna Therapeutics Inc. (Nasdaq: ERNA). Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context
Eterna is a preclinical life-sciences company focused on mRNA cell engineering technologies, with more than 100 in-licensed patents. Management says its near-term focus is deploying the platform through strategic partnerships; it is not presently pursuing product development. The company has no product-sales revenue. Its reported revenue came from Lineage Cell Therapeutics under an option and cell-line customization arrangement.
Financial highlights
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $51,000 | $0 | $51,000 | $0 |
| Cost of revenue / gross loss | $120,000 / $(69,000) | $0 / $0 | $170,000 / $(119,000) | $0 / $0 |
| Research and development | $1.457 million | $4.963 million | $4.710 million | $8.430 million |
| General and administrative | $3.979 million | $3.341 million | $10.081 million | $14.060 million |
| Net loss | $(5.591) million | $(7.316) million | $(15.515) million | $(20.090) million |
| Net loss per common share | $(1.03) | $(2.49) | $(2.94) | $(7.04) |
| Cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(15.747) million | $(15.541) million |
Gross margin was negative because reported cost of revenue exceeded the small amount of revenue. Operating losses improved year over year, while Q3 G&A rose, primarily with occupancy costs for the Somerville facility. Nine-month R&D and G&A fell, reflecting lower headcount and stock-based compensation, reduced Factor Bioscience charges, and lower professional fees; the comparison also includes a $5.990 million IPR&D impairment in 2022.
At September 30, 2023, cash and cash equivalents were $4.551 million, with a further $4.095 million restricted as collateral for a lease letter of credit. Total assets were $52.248 million and total liabilities $48.686 million; stockholders’ equity was $3.562 million. Current assets were $7.031 million against current liabilities of $9.626 million. Convertible notes had $8.715 million principal outstanding and a $3.452 million net carrying value after discount and issuance costs. Operating lease liabilities totaled $36.147 million.
Material changes and transactions
- Loss for the nine months narrowed by $4.575 million from 2022, but operating cash use remained substantial and increased by $0.206 million.
- The July 2023 financing provided approximately $8.7 million principal in five-year convertible notes bearing 6% interest, plus warrants for approximately 6.1 million shares. Net financing cash proceeds were approximately $8.5 million. Notes convert at an initial $2.86 per share at holders’ option; warrants are exercisable at $2.61 per share. No notes had converted by September 30.
- The company sold approximately 214,000 shares under its Lincoln Park equity purchase arrangement during the nine months, including commitment shares, for approximately $0.3 million gross proceeds. The filing reports approximately 2.86 million shares remaining available under the arrangement.
- The Exacis asset acquisition was recorded as $0.460 million of IPR&D expense. It includes potential market-cap-related share consideration and a contingent right to 20% of certain licensing proceeds, capped at $45 million.
- The Somerville sublease covers about 45,500 square feet through 2033. Rent starts November 29, 2023, at about $0.5 million monthly in the first year, with 3% annual increases. The filing records $34.2 million of lease liabilities at commencement and describes an $8.6 million tenant-improvement allowance.
Outlook, risks and unusual items
Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern and that available cash and working capital are not expected to fund operations for the 12 months following issuance of the financial statements. Additional capital is required; apart from the SEPA, the company reported no arrangements for that funding and gave no assurance it can raise funds on acceptable terms or at all. No quantitative operating guidance was provided.
Management expects continuing operating losses and says future funding needs depend on partnership and licensing terms, development costs, clinical and regulatory progress, and other factors. Failure to secure financing could force delays or reductions in development activity; additional equity or convertible debt could dilute stockholders, and partnerships could require giving up rights on unfavorable terms.
The Somerville commitment creates significant long-term occupancy costs; $4.095 million of cash was restricted for the lease letter of credit. Convertible-note covenants and potential cash redemption obligations present additional liquidity and financing risks. Potential dilution is also material: 10.807 million warrants were outstanding at quarter-end, compared with 5.410 million common shares outstanding, before considering other potential shares.
Legal matters include Westman and Sowyrda claims and counterclaims, including employment-related claims, and a trademark and unfair-competition lawsuit filed by eTheRNA entities. The company says it cannot predict the outcome of the latter matter; possible legal expense advances or reimbursements in the former matters were not considered probable or reasonably estimable. No related loss amount is clearly stated in the filing.
Disclosure controls and procedures were reported ineffective due to a material weakness tied to insufficient technical accounting proficiency in complex matters. Remediation actions include enhanced review controls, accounting training, and use of an accounting adviser; management says the weakness is not remediated until controls operate effectively for a sufficient period and are tested.
Important facts for investors to verify
- Cash runway and the timing, availability, and terms of additional financing, given the explicit going-concern warning and quarterly cash burn.
- How much of the reported cash is restricted and when the $4.095 million collateral requirement may decline; confirm the expected timing and use of tenant-improvement reimbursements.
- The complete convertible-note and warrant terms, including covenants, redemption triggers, conversion or exercise limits, and potential dilution.
- Whether Lineage exercises its sublicense option, whether customization milestones are achieved, and the timing and amount of any related revenue. Only $51,000 of revenue was recognized through September 30.
- Progress and potential cost of the Somerville buildout, lease commencement payments, and long-term lease obligations.
- Developments in the disclosed litigation and the status and testing of controls remediation.