Pasithea Therapeutics Corp. annual report, FY2022

Pasithea Therapeutics Corp. — FY 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; filed March 30, 2023. This is an annual report, not a standalone fourth-quarter report. Pasithea is a development-stage biotechnology company with Therapeutics and Clinics segments. It discontinued Clinics operations before the filing date.

Financial performance and position

Metric	FY 2022	FY 2021
Revenue	$486,559	$15,062
Cost of services	$113,195	$17,275
Gross margin	$373,364	$(2,213)
Research and development	$2,665,427	None reported
Selling, general and administrative	$12,524,258	$4,505,200
Operating loss	$(14,816,321)	$(4,507,413)
Net loss	$(13,936,452)	$(2,173,521)
Basic and diluted loss per share	$(0.55)	$(0.21)
Net cash used in operating activities	$(14,561,921)	$(3,174,058)

All FY 2022 revenue came from Clinics; Therapeutics generated no revenue. The reported gross margin reflects the Clinics business and is not a product margin.
Cash was $33.1 million at year-end, down from $53.0 million. Working capital was $32.2 million, versus $52.9 million a year earlier. Management said available working capital was expected to meet needs for 12 months from the financial-statement issuance date, while also stating the company depends on additional equity and/or debt funding to execute development plans.
Cash used in investing activities was $2.1 million, including $1.8 million for acquired intangible assets; financing activities used $3.2 million, principally the Camac share repurchase. No conventional borrowings are identified in the supplied filing text. Year-end liabilities included $0.9 million of lease liabilities and $0.14 million of warrant liabilities.
Total assets were $45.2 million and stockholders’ equity was $42.5 million. Accumulated deficit was $19.4 million.

Material changes versus FY 2021

Net loss increased by $11.8 million; operating loss increased by $10.3 million. SG&A rose $8.0 million, or 178%, reflecting public-company costs, legal and shareholder-campaign expenses, personnel, insurance, board and audit costs, and Clinics marketing. R&D began in 2022, totaling $2.7 million.
Other income fell by $1.5 million, mainly due to approximately $1.0 million of litigation-settlement costs and a smaller gain from warrant remeasurement. A $1.85 million non-cash gain from the change in fair value of warrant liabilities partially offset operating costs in 2022.
Revenue rose to $486,559 from $15,062 as U.S. Clinics operations expanded, particularly at-home services in New York. Those operations, along with U.K. services, were subsequently discontinued; Los Angeles clinic operations were also discontinued, and the company was exploring disposal of related property.
Two acquisitions expanded the pipeline: Alpha-5, acquired in June for shares and warrants, added the PAS-003 program; AlloMek, acquired in October for shares, warrants and cash, added PAS-004. The AlloMek transaction also included up to $5.0 million in milestone payments and contingent sales-based earn-outs.

Outlook, risks and unusual items

PAS-004: Management planned to file an FDA IND in the second half of 2023 after GMP manufacturing and toxicology work, then begin a Phase 1 study in healthy volunteers if the IND is accepted. A Phase 2 NF1 proof-of-concept study was contemplated as early as the second half of 2024, conditional on positive Phase 1 safety results. These are plans, not assurances.
Management expected R&D expense to increase in 2023, primarily for PAS-004 manufacturing and clinical development, and SG&A to decrease as acquisition, shareholder-campaign and Clinics-related costs abate. It also expected inflation to continue pressuring costs during 2023.
Pipeline programs PAS-003 (ALS), PAS-002 (MS) and PAS-001 (schizophrenia) remained at discovery stage. The filing describes early preclinical findings; no human clinical efficacy or safety results are reported. PAS-004’s proposed benefits over existing MEK inhibitors are hypotheses requiring clinical validation.
Key risks include further financing needs and dilution, clinical and regulatory failure or delay, dependence on third-party manufacturers and research providers, and competition. PAS-004 relied on a single contract manufacturer at the time of filing.
On January 19, 2023, Nasdaq notified the company that its share price failed the $1.00 minimum bid-price requirement; the initial compliance deadline was July 18, 2023. A reverse split was identified as a possible option, and delisting remained a risk if compliance was not regained.
The Camac shareholder dispute was settled in December 2022. The company repurchased 3,205,282 shares for approximately $3.2 million and agreed to reimburse expenses; the filing reports approximately $1.0 million of litigation-settlement expense in FY 2022. Prof. Lawrence Steinman, executive chairman, had been a 20% owner of Alpha-5, making that acquisition a related-party transaction.
Management assessed disclosure controls and internal control over financial reporting as effective at year-end. The independent auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.

Important facts for investors to verify

Cash runway assumptions and financing needs against planned PAS-004 manufacturing and trial costs, including any financing raised after the filing.
Whether the PAS-004 IND was submitted and accepted, and subsequent clinical, manufacturing and toxicology milestones.
Whether Clinics shutdown and property disposition were completed, and whether any remaining costs, liabilities or regulatory matters arose.
Nasdaq bid-price compliance status and any reverse-stock-split or delisting developments after the stated deadline.
Acquisition-related contingent payments, earn-outs, acquired intangible-asset valuations and potential impairment assumptions.
Potential dilution from outstanding warrants and options: 15.36 million warrants and 1.30 million options were outstanding at December 31, 2022; the warrants’ exercise prices ranged from $1.88 to $6.25.