PALISADE BIO, INC. annual report, FY2021

Palisade Bio, Inc. 2021 Form 10-K Summary

Business context and reporting period

Palisade Bio is a clinical-stage biopharmaceutical company developing oral therapies for gastrointestinal complications associated with intestinal mucosal-barrier disruption and digestive-enzyme leakage. The filing covers the fiscal year ended December 31, 2021; references to fourth-quarter results are included where disclosed.

The company’s lead candidate is LB1148, an oral liquid formulation containing tranexamic acid. LB1148 is being developed to accelerate return of bowel function and potentially reduce post-surgical intra-abdominal adhesions. The company has no approved products and has never generated product-sales revenue.

On April 27, 2021, Seneca Biopharma completed its merger with Leading BioSciences, changed its name to Palisade Bio, and effected a 1-for-6 reverse stock split. Leading BioSciences was treated as the accounting acquirer.

Financial performance and key metrics

Metric	2021	2020	Change
Revenue	$0	$0	No change
Research and development expense	$2.4 million	$3.1 million	Down 22%
In-process research and development expense	$30.1 million	—	Merger-related
General and administrative expense	$9.3 million	$6.2 million	Up 50%
Total operating expenses	$41.9 million	$9.3 million	Up 350%
Loss from operations	$41.9 million	$9.3 million	Higher loss
Other income, net	$15.2 million	$(1.0) million	Improved by $16.3 million
Net loss	$26.6 million	$10.3 million	Up 158%
Basic loss per share	$2.86	$3.72	Lower loss per share due primarily to share issuance
Net cash used in operating activities	$14.8 million	$4.8 million	Higher cash burn
Cash, cash equivalents and restricted cash at year-end	$10.5 million	$0.7 million	Up $9.8 million

Fourth-quarter cash research and development expense was approximately $0.7 million, and fourth-quarter cash general and administrative expense was approximately $2.6 million. The filing does not provide a complete fourth-quarter income statement or quarterly net loss.

The reported net loss was affected by significant non-cash and transaction-related items, including the $30.1 million merger-related in-process research and development charge, a $23.0 million gain from changes in warrant fair value, $3.2 million of warrant issuance losses, $2.4 million of interest expense, and a $1.9 million loss on issuance of Series 1 preferred stock.

Liquidity, debt and capital resources

Year-end cash and cash equivalents were $10.5 million, with an additional $26,000 of restricted cash.
Net cash used in operating activities was $14.8 million for 2021, including approximately $4.8 million of cash usage from changes in operating assets and liabilities.
Financing activities provided $24.6 million, including $19.9 million from Series 1 preferred stock, $5.2 million from common stock and warrants, and $1.3 million from senior secured debt issuance.
At December 31, 2021, total debt was $87,000, consisting of insurance-financing arrangements. The senior secured debt and other significant promissory notes were repaid or converted into equity during 2021.
Liability-classified warrants had a fair value of $2.7 million at year-end, compared with $1.8 million at December 31, 2020. The company had 7.2 million warrants outstanding at year-end.
Management stated that available cash was insufficient to fund the anticipated level of operations for the next 12 months and that additional financing would be required by the second half of 2022.
The company reported an accumulated deficit of $94.6 million and substantial doubt about its ability to continue as a going concern.

Material changes versus the prior comparable period

The merger materially changed the company’s corporate structure, capitalization and reported expenses. The $30.1 million in-process research and development charge was recognized in 2021 and did not recur in 2020.
Research and development expense declined because COVID-19 disrupted clinical-trial activity and the company conserved liquidity before and around the merger. Clinical trials resumed in the first quarter of 2022.
General and administrative expense increased because of public-company compliance, legal, accounting, insurance, investor-relations and staffing costs.
Cash resources increased substantially due to preferred-stock financing, common-stock and warrant issuance, and other financing activities, but operating cash burn also increased.
The company’s capital structure expanded substantially. Common shares outstanding were 14.2 million at December 31, 2021 and 18.2 million as of March 16, 2022; additional dilution may result from outstanding warrants, options and future financings.
In August 2021, Yuma Regional Medical Center invested approximately $5.2 million in common stock and received warrants.

Clinical progress, outlook and management commentary

Topline Phase 2 data from a bowel-resection study showed a 1.1-day improvement in median return of bowel function for LB1148 versus placebo: 2.77 days versus 3.83 days, with a hazard ratio of 1.886 and p=0.0008.
A prior Phase 2 cardiovascular-surgery study reported approximately 30% faster return of normal bowel function versus placebo, with nominally shorter ICU and hospital stays.
A pooled, small-sample analysis reported fewer observed adhesions with LB1148 than placebo and reductions in adhesion extent and severity. The company characterizes these results as preliminary.
The U.S. PROFILE-US Phase 2 study was amended to emphasize reduction of intra-abdominal adhesions and was expected to enroll up to 200 patients.
The company planned to initiate a global Phase 3 trial in the second half of 2022, targeting approximately 400 to 600 patients undergoing planned bowel resection.
LB1148 received FDA Fast Track designation for postoperative gastrointestinal dysfunction associated with pediatric cardiovascular surgery and for reduction of adhesions following abdominal and pelvic surgery. Fast Track designation does not assure approval.
The company intends to pursue a 505(b)(2) NDA strategy, relying partly on published literature and prior FDA findings regarding tranexamic acid. The FDA could require additional studies or a different regulatory pathway.
Regulatory uncertainty remains regarding whether polyethylene glycol 3350 in LB1148 could be treated as an active ingredient, potentially triggering fixed-combination requirements and additional clinical or nonclinical studies.
COVID-19 affected trial enrollment, site activation and supply availability. Management believed supply or supply plans were sufficient for clinical and nonclinical needs through 2022, but further disruption remained possible.
The company expects operating losses and negative operating cash flow to continue and does not provide a clear revenue or profitability forecast.

Risks, contingencies and unusual items

Continuation of the business depends heavily on successful development, regulatory approval and commercialization of LB1148.
Additional financing is required; failure to obtain financing could force the company to delay, reduce or eliminate development programs or cease operations.
The company relies on third-party contract research organizations, manufacturers and suppliers, with no internal manufacturing facilities and no long-term commercial supply agreement disclosed.
The company had a material weakness in internal control over financial reporting involving financial close and reporting controls, segregation of duties, journal entries and account reconciliations. Management also identified a material weakness related to fair-value calculations for options during the second quarter of 2021.
The company faces competition from alvimopan, including generic versions, for return of bowel function, as well as adhesion-barrier products and other medical interventions.
LB1148 may carry risks associated with tranexamic acid, including thrombosis and hypersensitivity, and future trials may not reproduce earlier positive results.
The company relies on intellectual-property licenses and must satisfy diligence, milestone, royalty and other obligations. Failure to comply could result in loss of important rights.
In January 2022, the company issued an additional warrant for up to 2.25 million common shares at an exercise price of $1.10 in connection with a waiver and amendment agreement with Altium Growth Fund. In February and March 2022, additional Altium warrants were cashlessly converted into common shares.
The sale of legacy NSI-189 assets generated gross proceeds of approximately $0.4 million. The filing states that no CVR distribution was required because the applicable threshold was not met; remaining CVRs may expire without value.

Investor verification checklist

Verify the company’s post-filing cash balance, quarterly cash burn and the timing and terms of any 2022 financing.
Review the going-concern disclosure and determine whether subsequent financing resolved or reduced the stated liquidity risk.
Track enrollment, timing, design and results of the PROFILE-US study and planned Phase 3 trial.
Assess whether FDA feedback resolves the 505(b)(2) strategy and the classification of polyethylene glycol in LB1148.
Reconcile common shares, preferred shares, options and warrants outstanding, including the January 2022 warrant and subsequent cashless exercises.
Monitor remediation of the material weaknesses in internal control over financial reporting.
Evaluate the reliability and statistical significance of the small-sample adhesion data and whether confirmatory trials support the proposed indication.