Eterna Therapeutics Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; compared with FY2022. The filing identifies the registrant as Eterna Therapeutics Inc., not “Ernexa Therapeutics Inc.” The filing was signed March 14, 2024.
Business context
Eterna is a preclinical-stage life sciences company focused on an mRNA cell-engineering platform licensed exclusively from Factor Bioscience Limited. The platform includes mRNA delivery, gene editing and cell reprogramming technologies. Management’s near-term strategy is to pursue strategic partnerships and out-licensing; the company says it does not currently plan to develop product candidates internally. IRX-2, its former clinical candidate, was discontinued after its Phase 2b INSPIRE trial failed to meet its primary endpoint in 2022.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $68,000 | $0 |
| Cost of revenue / gross loss | $236,000 / $(168,000) | $0 / $0 |
| Research and development expense | $5.92 million | $10.39 million |
| General and administrative expense | $14.59 million | $16.84 million |
| Operating loss | $(21.14) million | $(33.22) million |
| Net loss | $(21.67) million | $(24.58) million |
| Net loss per common share | $(4.08) | $(8.06) |
| Net cash used in operating activities | $(20.41) million | $(20.98) million |
Revenue arose from cell-line customization work for Lineage Cell Therapeutics; the company also received a $0.3 million non-refundable option fee, which remained deferred until the option is exercised or expires. The $68,000 reported revenue was more than offset by direct costs and the Factor royalty, resulting in a gross loss. The net loss narrowed year over year, partly because FY2022 included a $5.99 million non-cash IRX-2 impairment and a larger warrant fair-value gain; FY2023 still recorded substantial operating losses.
At December 31, 2023, cash and cash equivalents were $7.58 million, plus $4.10 million of restricted cash collateralizing the Somerville lease letter of credit. Current assets were $9.60 million and current liabilities $6.57 million. Stockholders’ equity was $2.23 million, below Nasdaq’s stated $2.5 million equity threshold; the company also reported it did not meet the alternative continued-listing standards described in the filing.
Convertible notes had $16.50 million aggregate principal issued by year-end, but were reported at $6.77 million net of debt discount and issuance costs. The notes bear 6% or 12% interest and generally mature in 2028; a further $1.4 million note closing occurred in January 2024. The company reported $18.2 million outstanding, including accrued interest, as of the filing date. Operating lease liabilities totaled $35.07 million at year-end. The Somerville sublease has an approximately 10-year term and estimated base rent of $63 million over its term, plus parking and operating expenses; expected base rent in 2024 was approximately $0.5 million per month.
Changes, financing and unusual items
- R&D expense declined $4.47 million, primarily reflecting lower MSA, payroll, stock compensation and clinical-trial costs after the IRX-2 trial ended; professional fees increased.
- G&A expense declined $2.25 million, mainly from lower professional fees, headcount-related costs and insurance, partly offset by increased Somerville occupancy costs. Management expects occupancy expense to rise substantially in 2024.
- Financing cash flow was $16.56 million in FY2023, primarily from convertible-note proceeds. The company raised $8.7 million in July and received $7.8 million at the December 2023 closing; the remaining $1.4 million was received in January 2024. It also sold approximately 214,000 shares under its Lincoln Park equity purchase agreement for about $0.3 million gross proceeds.
- The December 2023 financing repriced certain existing warrant exercise prices to $1.43 per share and included warrants to purchase millions of shares. The filing describes substantial potential dilution from outstanding warrants, convertible notes, options and future equity sales.
- The company acquired Exacis intellectual property in 2023 and expensed $460,000 as in-process R&D because it had no alternative future use. The acquisition also included contingent share consideration tied to market-capitalization thresholds and a potential share of future licensing proceeds.
Outlook, risks and contingencies
Going concern: Management states that available cash is insufficient to fund operations for the 12 months following issuance of the financial statements. The auditor’s report also highlights substantial doubt about the company’s ability to continue as a going concern. Aside from the remaining availability under the Lincoln Park agreement, Eterna reported no committed capital arrangements and gave no assurance that further financing or partnership proceeds will be available. Failure to raise funds could require expense reductions, restructuring, bankruptcy or cessation of operations.
Key risks: Dependence on Factor’s licensed IP and continuing license obligations; limited revenue and ongoing losses; uncertain ability to secure partners or financing; novel-technology, clinical and regulatory uncertainty; patent protection and ownership disputes; and dilution and note repayment/default risks. The Factor license requires a 20% share of sublicense fees, patent-related cost coverage and, beginning September 2024, monthly maintenance payments of approximately $0.4 million. The license expires in November 2027 unless its renewal condition is met.
The company disclosed ongoing litigation involving Novellus-related claims and a separate trademark and unfair-competition suit brought by eTheRNA; it could not predict the outcome of the latter. Certain potential legal advances or reimbursements in the Novellus matter were not considered probable or reasonably estimable. Previously disclosed Westman and Govender matters were settled, with aggregate settlement expense of approximately $0.5 million recognized in 2022 and paid in 2023.
Controls: Management concluded that disclosure controls were ineffective at year-end due to an unremediated material weakness involving technical accounting proficiency for complex matters. Remediation efforts include stronger transaction reviews, staff training and external accounting advice; effectiveness had not yet been established. No material cybersecurity incident was reported through the filing date.
Clinical context: INSPIRE outcomes favored IRX-2 in certain predefined subgroups, but the trial missed its two-year event-free-survival primary endpoint; no new safety signals were observed. Eterna has no active company-sponsored clinical program disclosed in this filing.
Important facts for investors to verify
- Cash runway and financing availability, including any subsequent use of the remaining Lincoln Park commitment and the January 2024 note proceeds.
- Cash interest obligations, note terms and potential conversion or cash-repurchase exposure, alongside the large warrant and option overhang.
- Ability to meet Nasdaq listing requirements and the status and effectiveness of material-weakness remediation.
- Somerville lease cash obligations, occupancy-cost increases and the release schedule for restricted cash collateral.
- Progress toward commercial partnerships, sublicense economics and the cost and continuation of the Factor license.
- Developments in the disclosed litigation and any changes to contingent liabilities or other commitments.
- The filing’s financial statements show $7.58 million unrestricted cash plus $4.10 million restricted cash; confirm that these are not conflated when assessing immediately available liquidity.