10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-31326

ELOXX PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

84-1368850

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

480 Arsenal Way

Watertown, Massachusetts 02472

(Address of principal executive offices) (Zip Code)

781-577-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

ELOX

The Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of May 10, 2023, the registrant had 2,166,356 shares of common stock, $0.01 par value per share, outstanding.

 

 


 

ELOXX PHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Special Note Regarding Forward-Looking Statements

 

3

 

 

 

 

 

 

 

Market and Industry Data

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Risk Factor Summary

 

4

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

5

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

 

5

 

 

 

 

 

 

 

Balance Sheets as of March 31, 2023 and December 31, 2022

 

5

 

 

 

 

 

 

 

Statements of Operations for the Three Months ended March 31, 2023 and 2022

 

6

 

 

 

 

 

 

 

Statements of Cash Flows for the Three Months ended March 31, 2023 and 2022

 

7

 

 

 

 

 

 

 

Statements of Stockholders’ Deficit for the Three Months ended March 31, 2023 and 2022

 

8

 

 

 

 

 

 

 

Notes to Financial Statements

 

10

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

23

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

23

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

24

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

24

 

 

 

 

 

Item 1A.

 

Risk Factors

 

24

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

53

 

 

 

 

 

Item 4.

 

Mine Safety Data

 

53

 

 

 

 

 

Item 5.

 

Other Information

 

53

 

 

 

 

 

Item 6.

 

Exhibits

 

54

 

 

 

 

 

 

 

SIGNATURES

 

57

 

 

2


 

Special Note Regarding Forward-Looking Statements

Eloxx Pharmaceuticals, Inc., together with its subsidiaries, is collectively referred to herein as “we,” “our,” “us,” “Eloxx” or the “Company.” Hyperlinks and web addresses are provided as a convenience and for informational purposes only. Eloxx bears no responsibility for the security or content of external websites.

This Quarterly Report on Form 10-Q, and information incorporated herein, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including without limitation statements regarding our ability to obtain the capital necessary to fund our operations and continue as a going concern; our strategy, future results of operations and financial position; future revenues, projected costs, prospects, plans and objectives of management; the timing and expectations surrounding regulatory communications; our relationship with third-parties; and the potential, safety, efficacy, and regulatory and clinical progress of our product candidates, prospective products, product approvals, as well as research and development costs, are forward-looking statements. Without limiting the foregoing, in some cases, you can identify forward-looking statements by terms such as “aim,” “may,” “will,” “would,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. No forward-looking statement is a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to those risks, uncertainties and assumptions identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report”).

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risks and uncertainties.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not rely upon forward-looking statements as predictions of future events. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Unless required by law, we will not undertake any obligation and we specifically disclaim any obligation to release publicly the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of events, whether or not anticipated. In that respect, we wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made.

MARKET AND INDUSTRY DATA

This Quarterly Report on Form 10-Q and the other documents incorporated herein by reference include statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and disclaim responsibility for its content. Furthermore, management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Quarterly Report on Form 10-Q under “Special Note Regarding Forward-Looking Statements” and Part II, Item 1A “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

 

3


 

RISK FACTOR SUMMARY

The following is a summary of the principal risks of an investment in our common stock. This summary does not list all the risks that we face. Additional discussion of the risks summarized below follow directly under the heading “Risk Factors” and should be carefully considered, together with other information in our 2022 Annual Report and our other filings with the SEC before making an investment decision regarding our common stock.

We will need substantial additional funding by September 2023. If we are unable to raise capital when needed, we would be forced to delay, reduce, or eliminate our product development programs or commercialization efforts.
Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock.
We are heavily dependent on the success of our lead product candidate, ELX-02. If ELX-02 does not achieve positive results during development or suffers any material development delays, it may adversely impact the commercial viability of ELX-02 and our business.
Our recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern.
Preclinical and clinical drug development is a lengthy and expensive process, with an uncertain outcome. Our preclinical and clinical programs may experience delays or may never advance, which would adversely affect ability to further advance clinical development, obtain regulatory approvals or commercialize our product candidates on a timely basis or at all, which could have an adverse effect on our business.
We and our collaborating partners may be subject, directly or indirectly, to federal and state healthcare fraud and abuse and false claims laws and regulations. If we or our collaborating partners are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our product candidates, including ELX-02 and ZKN-013, may cause adverse events or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
Even though we have received orphan drug designation from the FDA for ELX-02 for the treatment of cystic fibrosis, cystinosis, MPS I, and Rett syndrome, we may not be able to maintain the benefits of orphan drug designation or obtain orphan drug marketing exclusivity for ELX-02 or any of our other product candidates for Alport syndrome or other indications.
A Fast Track Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.
We may find it difficult to recruit and enroll patients in our clinical trials, which could cause significant delays in the completion of such trials or may cause us to abandon one or more clinical trials.
If we are unable to develop and commercialize our product candidates, our business will be adversely affected.
We have incurred significant operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or maintain profitability.
If we fail to adequately protect or enforce our intellectual property rights or secure rights to third party patents, the value of our intellectual property rights would diminish, and our business, competitive position and results of operations would suffer.
If we infringe on the rights of third parties, we could be prevented from selling products, forced to pay damages and required to defend against litigation which could result in substantial costs and may have a material adverse effect on our business, results of operations and financial condition.
Maintaining and improving our financial controls and the requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.

 

 

4


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Information

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

March 31,
2023

 

 

December 31,
2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,904

 

 

$

19,207

 

Restricted cash

 

 

261

 

 

 

261

 

Prepaid expenses and other current assets

 

 

1,238

 

 

 

661

 

Total current assets

 

 

6,403

 

 

 

20,129

 

Property and equipment, net

 

 

143

 

 

 

169

 

Operating lease right-of-use asset

 

 

654

 

 

 

825

 

Total assets

 

$

7,200

 

 

$

21,123

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,434

 

 

$

3,020

 

Accrued expenses

 

 

2,230

 

 

 

2,799

 

Current portion of long-term debt

 

 

1,536

 

 

 

3,980

 

Advances from collaboration partners

 

 

12,535

 

 

 

12,535

 

Current portion of operating lease liability

 

 

667

 

 

 

712

 

Derivative liabilities

 

 

58

 

 

 

45

 

Total current liabilities

 

 

19,460

 

 

 

23,091

 

Long-term debt, net of current portion

 

 

4,027

 

 

 

8,557

 

Operating lease liability

 

 

6

 

 

 

135

 

Total liabilities

 

 

23,493

 

 

 

31,783

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no
   shares issued or outstanding as of March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.01 par value per share, 500,000,000 shares authorized,
   
2,166,356 shares issued and outstanding as of March 31, 2023 and
   December 31, 2022

 

 

22

 

 

 

22

 

Additional paid-in capital

 

 

264,303

 

 

 

263,706

 

Accumulated deficit

 

 

(280,618

)

 

 

(274,388

)

Total stockholders’ deficit

 

 

(16,293

)

 

 

(10,660

)

Total liabilities and stockholders’ deficit

 

$

7,200

 

 

$

21,123

 

 

See accompanying notes to unaudited condensed consolidated financial statements

5


 

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

Three Months Ended
 March 31,

 

 

 

 

2023

 

 

2022

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

$

3,488

 

 

$

7,899

 

 

General and administrative

 

 

1,995

 

 

 

3,054

 

 

Total operating expenses

 

 

5,483

 

 

 

10,953

 

 

Loss from operations

 

 

(5,483

)

 

 

(10,953

)

 

Other expense, net

 

 

747

 

 

 

667

 

 

Net loss

 

$

(6,230

)

 

$

(11,620

)

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(2.88

)

 

$

(5.36

)

 

Weighted average number of shares of common stock
   used in computing net loss per share, basic and diluted

 

 

2,166,356

 

 

 

2,166,275

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements

6


 

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(6,230

)

 

$

(11,620

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

597

 

 

 

922

 

Depreciation

 

 

15

 

 

 

21

 

Amortization of operating lease right-of-use asset

 

 

171

 

 

 

177

 

Amortization of debt discount

 

 

120

 

 

 

124

 

Change in fair value of derivative liabilities

 

 

13

 

 

 

270

 

Loss on extinguishment of debt

 

 

406

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(577

)

 

 

(1,169

)

Accounts payable

 

 

(586

)

 

 

1,525

 

Accrued expenses

 

 

(569

)

 

 

434

 

Operating lease liabilities

 

 

(174

)

 

 

(175

)

Net cash used in operating activities

 

 

(6,814

)

 

 

(9,491

)

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

11

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(11

)

Net cash provided by (used in) investing activities

 

 

11

 

 

 

(11

)

Cash flows from financing activities:

 

 

 

 

 

 

Repayment of term loan principal

 

 

(7,500

)

 

 

 

Proceeds from advances from collaboration partners

 

 

 

 

 

7,000

 

Net cash (used in) provided by financing activities

 

 

(7,500

)

 

 

7,000

 

Decrease in cash, cash equivalents and restricted cash

 

 

(14,303

)

 

 

(2,502

)

Cash, cash equivalents and restricted cash at the beginning of the period

 

 

19,468

 

 

 

42,567

 

Cash, cash equivalents and restricted cash at the end of the period

 

$

5,165

 

 

$

40,065

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash to condensed
   consolidated balance sheets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,904

 

 

$

39,768

 

Restricted cash

 

 

261

 

 

 

297

 

Total cash, cash equivalents and restricted cash

 

$

5,165

 

 

$

40,065

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow activities:

 

 

 

 

 

 

Cash paid for interest

 

$

430

 

 

$

297

 

 

See accompanying notes to unaudited condensed consolidated financial statements

7


 

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, except share data)

 

 

 

Common stock

 

 

 

 

 

Treasury stock

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
paid-in
capital

 

 

Shares

 

 

Amount

 

 

Accumulated
deficit

 

 

Total
stockholders'
deficit

 

Balance at December 31, 2022

 

 

2,166,356

 

 

$

22

 

 

$

263,706

 

 

 

 

 

$

 

 

$

(274,388

)

 

$

(10,660

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

597

 

 

 

 

 

 

 

 

 

 

 

 

597

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,230

)

 

 

(6,230

)

Balance at March 31, 2023

 

 

2,166,356

 

 

$

22

 

 

$

264,303

 

 

 

-

 

 

$

-

 

 

$

(280,618

)

 

$

(16,293

)

 

See accompanying notes to unaudited condensed consolidated financial statements

8


 

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in thousands, except share data)

 

 

 

Common stock

 

 

 

 

 

Treasury stock

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional
paid-in
capital

 

 

Shares

 

 

Amount

 

 

Accumulated
deficit

 

 

Total
stockholders'
equity

 

Balance at December 31, 2021

 

 

2,166,248

 

 

$

22

 

 

$

262,875

 

 

 

(10,535

)

 

$

(2,190

)

 

$

(238,323

)

 

$

22,384

 

Vesting of restricted stock units

 

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

922

 

 

 

 

 

 

 

 

 

 

 

 

922

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,620

)

 

 

(11,620

)

Balance at March 31, 2022

 

 

2,166,326

 

 

$

22

 

 

$

263,797

 

 

 

(10,535

)

 

$

(2,190

)

 

$

(249,943

)

 

$

11,686

 

 

See accompanying notes to unaudited condensed consolidated financial statements

9


 

ELOXX PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of the Business

Eloxx Pharmaceuticals, Inc., together with its subsidiaries (collectively “Eloxx” or the “Company”), is a clinical-stage biopharmaceutical company engaged in the science of ribosomal modulation. The Company is developing novel small molecule drug candidates from its library of unique Ribosome Modulating Agents (“RMAs”) and Eukaryotic Ribosomal Selective Glycosides (“ERSGs”), for the treatment of a subset of rare and ultra-rare diseases and cancers characterized by genetic mutations that cause defects in protein translation. Specifically, the Company is targeting restoration of functional proteins in patients with premature stop codon mutations and ribosomal mutations. Premature stop codons are point mutations that disrupt the stability of the impacted messenger RNA (mRNA) and the protein synthesis from that mRNA. Additionally, certain mutations of the ribosome disrupt normal protein translation and are drivers of a subset of cancers. On April 1, 2021, the Company acquired Zikani Therapeutics, Inc. (“Zikani”), a preclinical stage biopharmaceutical company engaged in the science of ribosome modulation, leveraging its innovative TURBO-ZMTM chemistry technology platform to develop novel ribosome modulating agents (“RMAs”). The TURBO-ZMTM platform is designed to enable rapid synthesis of novel macrolides that can be optimized to modulate the human, bacterial or viral ribosomes to treat rare diseases and cancers with certain ribonucleic acid (“RNA”) and ribosomal mutations.

The Company is headquartered in Watertown, Massachusetts, with additional operations in Israel and Australia.

Liquidity and Going Concern

The Company has a history of net losses and negative cash flows from operating activities since inception and, as of March 31, 2023, had an accumulated deficit of $280.6 million. The Company expects to continue to incur net losses and negative cash flows from its operations for the foreseeable future. The Company has not generated revenue from the sale of any product or service and does not expect to generate significant revenue unless it obtains marketing approval for and commercializes one or more of its product candidates currently in development. Successful transition to profitable operations is dependent upon achieving a level of revenue adequate to support the Company’s cost structure.

The Company has financed its operations primarily from the sale of equity securities and to a lesser extent, loans and grants. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital to fund its operations. In addition, as disclosed in Note 6, in September 2021, the Company entered into the Hercules Term Loan (as defined below) for an aggregate principal amount of up to $30.0 million of which $12.5 million had been funded as of December 31, 2022 and effective March 7, 2023, the Company and Hercules agreed to amend the terms of the agreement, and the Company repaid $7.5 million of principal. The Hercules Term Loan Agreement contains customary affirmative and negative covenants, which among others further described in Note 6, require the Company to maintain at all times a minimum qualified cash balance net of qualified accounts payable (as defined in the Hercules Term Loan Agreement). On March 7, 2023, the minimum qualified cash balance debt covenant was decreased from $10.0 million to $2.25 million as of March 7, 2023, and may be further reduced to $0 if the Company has raised $20.0 million in equity investments prior to May 31, 2023.

As of March 31, 2023, the Company was in compliance with all debt covenants. However, the inherent uncertainties described above may impact the Company’s ability to remain in compliance with these covenants over the next 12 months. If the Company breaches its financial covenants and fails to secure a waiver or forbearance from the third-party lender, such breach or failure could accelerate the repayment of the outstanding borrowings under the Hercules Term Loan Agreement or the exercise of other rights or remedies the third-party lender may have under applicable law. No assurance can be provided a waiver or forbearance will be granted or the outstanding borrowings under the Hercules Term Loan Agreement, will be successfully refinanced on terms that are acceptable to the Company.

The Company believes that its cash and cash equivalents of $4.9 million at March 31, 2023 will not be sufficient to maintain its current and planned operations for at least the next 12 months following the filing of this Quarterly Report on Form 10-Q. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business. However, based on the Company’s current working capital, anticipated operating expenses and net losses and the uncertainties surrounding its ability to raise additional capital as needed, as discussed below, the Company believes that these conditions, in aggregate, raise substantial doubt about its ability to continue as a going concern for one year after the date these condensed consolidated financial statements are issued.

Management intends to fund future operations through private or public debt or equity financing transactions and may seek additional capital through arrangements with strategic partners or from other sources. The availability of sufficient

10


 

funding to alleviate the conditions that raise substantial doubt are not within management’s control and cannot be assessed as being probable of occurring. If the Company is unable to obtain adequate financing, it will evaluate options, which may include reducing or deferring operating expenses, which may have a material adverse effect on the Company’s operations and future prospects.

2. Basis of Presentation and Significant Accounting Policies

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted, as permitted by such rules and regulations. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the interim periods ended March 31, 2023 and 2022.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “2022 Annual Report”).

The significant accounting policies used in the preparation of these condensed consolidated financial statements are consistent with those described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, in the Company’s 2022 Annual Report.

Reverse Stock Split

On December 1, 2022, the Company effected a 1-for-40 reverse stock split of its common stock (the “Reverse Stock Split”). As further described below, at a special meeting of stockholders held on November 30, 2022 (the “Special Meeting”), the stockholders of the Company approved a proposal to authorize the Company’s Board of Directors, in its discretion following the Special Meeting to amend the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to effect a reverse stock split of all of the outstanding shares of the Company’s common stock, par value $0.01 per share, at a ratio ranging from any whole number between 1-for-2 and 1-for-40, as determined by the Company’s Board of Directors in its discretion. On November 30, 2022, following the Special Meeting, the Company’s Board of Directors approved the Reverse Stock Split at a ratio of 1-for-40. On December 1, 2022, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment to amend the Company’s Certificate of Incorporation to effect the Reverse Stock Split. The Reverse Stock Split became effective at 5:00 p.m., Eastern Time, on December 1, 2022.

As a result of the Reverse Stock Split, every 40 shares of the Company’s common stock issued or outstanding were automatically reclassified into one validly issued, fully-paid and non-assessable new share of common stock, subject to the treatment of fractional shares as described below, without any action on the part of the holders. Proportionate adjustments will be made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, and warrants exercisable for shares of common stock, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements. The common stock issued pursuant to the Reverse Stock Split remain fully paid and non-assessable. The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock.

No fractional shares were issued in connection with the Reverse Stock Split. Stockholders of record who would otherwise have been entitled to receive fractional shares as a result of the Reverse Stock Split received a cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing sales price per share of the common stock (as adjusted for the Reverse Stock Split) on The Nasdaq Capital Market on November 30, 2022, the last trading day immediately preceding the effective time of the Reverse Stock Split.

All share and per share amounts in the accompanying financial statements, related footnotes, and management’s discussion and analysis have been adjusted retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented. Effective December 2, 2022, trading of the Company’s common stock on The Nasdaq Capital Market commenced on a split-adjusted basis, under the existing trading symbol “ELOX.”

11


 

Recent Accounting Pronouncements

Although the FASB has issued several ASUs for which adoption dates are pending, the Company does not expect any to have any impacts on its consolidated financial statements.

 

3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,
2023

 

 

December 31, 2022

 

Research and development

 

$

307

 

 

$

366

 

Insurance

 

 

672

 

 

 

93

 

Other

 

 

259

 

 

 

202

 

Total

 

$

1,238

 

 

$

661

 

 

4. Property and Equipment

Property and equipment, net consisted of the following (in thousands):

 

 

March 31,
2023

 

 

December 31, 2022

 

Computers and software

 

$

26

 

 

$

26

 

Office furniture and equipment

 

 

15

 

 

 

15

 

Laboratory equipment

 

 

233

 

 

 

251

 

Leasehold improvements

 

 

57

 

 

 

57

 

 

 

 

331

 

 

 

349

 

Less accumulated depreciation and amortization

 

 

(188

)

 

 

(180

)

Property and equipment, net

 

$

143

 

 

$

169

 

 

Depreciation expense was $15 thousand and $21 thousand for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023, the Company sold property and equipment for $11 thousand and recognized an immaterial gain on sale of assets.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

March 31,
2023

 

 

December 31, 2022

 

Research and development expenses

 

$

1,576

 

 

$

1,544

 

Payroll and other employee-related expenses

 

 

144

 

 

 

750

 

Professional services

 

 

215

 

 

 

225

 

Interest on debt

 

 

81

 

 

 

146

 

Other

 

 

214

 

 

 

134

 

Total

 

$

2,230

 

 

$

2,799

 

 

 

6. Debt

Hercules Term Loan

On September 30, 2021, the Company entered into a Loan and Security Agreement, dated as of September 30, 2021 (the “Hercules Loan Agreement”) with Hercules Capital, Inc. (“Hercules” or the “Lender”).

The Hercules Term Loan Agreement provided for term loans in an aggregate principal amount of up to $30.0 million, comprised of (i) a tranche 1 advance of $12.5 million (the “Tranche 1 Advance”), (ii) a tranche 2 advance of $7.5 million (the “Tranche 2 Advance”) and (iii) a tranche 3 advance of $10.0 million (the “Tranche 3 Advance”) (collectively, the “Term

12


 

Loan Advances”). The Tranche 1 Advance under the Hercules Term Loan Agreement was funded on September 30, 2021. The Tranche 2 Advance was to be available at the Company’s election until August 15, 2022, subject to the Company's achievement of certain milestone events relating to data from the clinical trials. The Company did not meet the requirements for the Tranche 2 Advance and such funding will, therefore, not be available to the Company. The Tranche 3 Advance is available subject to approval by the Lenders’ investment committee in its sole discretion up to April 1, 2023, and, provided that if the Company receives net cash proceeds of equity investment of at least $35.0 million prior to June 30, 2023, such date shall be extended to October 1, 2023.

As security for its obligations, the Company granted Hercules a continuing security interest in substantially all of the assets of the Company, subject to certain customary exceptions, including for intellectual property.

Any outstanding principal on the Term Loan Advances will accrue interest at a floating rate equal to the greater of (i) 9.50% per annum and (ii) the sum of 6.25% plus the prime rate, as published in The Wall Street Journal. As of March 31, 2023 and December 31, 2022, the interest rate was 14.25% and 13.75%, respectively.

On March 7, 2023, the Company entered into an amendment (the "Hercules Amendment") to repay $7.5 million of the outstanding principal of the Hercules Term Loan, extend the interest only period until September 1, 2023, canceled the prepayment penalty for the March principal repayment and any future early principal repayments, and reduced the qualified cash balance from $10.0 million to $2.25 million effective as of March 7, 2023. The qualified cash balance may be further reduced to $0 if the Company has raised $20.0 million in equity investments prior to May 31, 2023. In accordance with the Hercules Loan Amendment, the Company will be required to make principal payments on the outstanding balance of the Term Loan Advances beginning on September 1, 2023, in 31 equal monthly installments, plus interest. Any amounts outstanding under the Term Loan Advances, if not repaid sooner, are due and payable on April 1, 2025 (the “Maturity Date”). On any date that the Company partially repays the outstanding obligations, the Company shall pay the Lenders a charge equal to 6.55% of the original principal amount. The Hercules Amendment removed this prepayment premium for both the March 7, 2023 principal repayment and for any future early prepayments of principal. The Hercules Amendment was accounted for as debt modification under ASC 470-50, Debt: Modifications and Extinguishments, with a partial debt extinguishment. The Company recognized a loss on debt extinguishment of $0.4 million related to the remaining unamortized debt discount as of the effective date of the Hercules Amendment during the three months ended March 31, 2023.

The Hercules Loan Agreement contains customary affirmative and negative covenants which, among other things, requires the Company to maintain at all times a minimum qualified cash balance plus qualified accounts payable (as defined) and limits the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make certain distributions, (iii) dispose of its assets, grant liens or encumber its assets or (iv) fundamentally alter the nature of its business. These covenants are subject to a number of exceptions and qualifications. The Company was in compliance with all debt covenants at March 31, 2023.

The Hercules Loan Agreement also contains customary events of default, including the Company’s failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or a breach of the covenants. Upon the occurrence of an event of default, Hercules may, among other things, accelerate the Company’s obligations under the Hercules Loan Agreement.

As of March 31, 2023, the carrying value of the outstanding loan consists of $5.0 million in principal less an unamortized debt discount of $0.3 million. The debt issuance costs and the final maturity payment of $0.8 million, have been recorded as a debt discount, which are being accreted to interest expense through the maturity date of the loan. Interest expense relating to the loan for the three months ended March 31, 2023 and 2022 was $0.5 million and $0.4 million, respectively. Interest expense is calculated using the effective interest method and is inclusive of non-cash amortization of the debt discount. As of March 31, 2023, the effective interest rate was 18.9%.

The Company’s scheduled future principal payments for the long-term debt are as follows (in thousands):

13


 

 

 

 

At March 31,

 

 

 

2023

 

Principal payments

 

 

 

2023

 

$

906

 

2024

 

 

2,988

 

2025

 

 

1,106

 

Total future principal payments

 

 

5,000

 

Less unamortized discount

 

 

(256

)

Carrying value of long-term debt

 

 

4,744

 

Less current portion of long-term debt

 

 

(1,536

)

Final fee due at maturity in 2025

 

 

819

 

Long-term portion

 

$

4,027

 

 

 

7. Advances From Collaboration Partners, Legal and Other Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. The Company is currently unaware of any material pending legal proceedings to which it is a party or of which its property is the subject. The Company accounts for its contingent liabilities in accordance with ASC Topic 450, “Contingencies”.

Cystic Fibrosis Foundation

During 2019, the Company received a funding award (the “2019 CFF Award”) from the Cystic Fibrosis Foundation (“CFF”) for up to $3.6 million and entered into an agreement relating to the award, which agreement was amended in December 2020 and March 2022. Payment of award amounts are subject to the achievement of certain milestones in connection with the Company’s global cystic fibrosis development program. The Company will be required to repay amounts received from the CFF (or specified multiples of such amounts) in certain circumstances, including as royalties on net sales, and, in the event of a disposition of the underlying asset (as defined in the agreement), in which case the Company would be obliged to use up to 5% of the amounts received from the disposition to repay up to three times the award amount. The funding provided to the Company is accounted for as an advance from a collaboration partner within the scope of ASC Topic 730, “Research and Development.” In March 2022, the Company entered into an agreement with the CFF to amend the 2019 CFF Award to provide for up to an additional $15.9 million to fund the ongoing global Phase 2 clinical development of ELX-02 in cystic fibrosis (the “2022 CFF Amendment”). The Company received $8.5 million during the year ended December 31, 2022, which were recorded as Advances from collaboration partners in the accompanying condensed consolidated financial statements. As of March 31, 2023 and December 31, 2022, the Company had received cumulative total payments of $11.9 million related to the 2019 CFF Award, which are recorded as Advances from collaboration partners in the accompanying consolidated financial statements. In September 2022, the CFF determined not to continue funding this program and the remaining $7.4 million of the award under the 2022 CFF Amendment will not be available to the Company under the current development program. Upon successful commercialization of ELX-02 or any derivative products thereof, the Company will pay the CFF royalties up to 6% of net sales based on the actual amount of funding from the CFF and potential sales milestones. In addition, the 2022 CFF Agreement includes an embedded derivative arising from a provision that upon the occurrence of a change of control or sale or license of funded assets (each a disposition event), the Company would be required to pay the CFF 10% of the consideration received for the disposition event up to three times the amount of funds received from the CFF under the 2022 CFF Agreement.

In May 2021, the Company received an additional award from the CFF (the “2021 CFF Award”) for up to $2.6 million to help identify optimized oral RMAs for further development in the treatment of cystic fibrosis patients with nonsense mutations. Payment of award amounts are subject to the achievement of certain milestones in connection with the Company’s oral RMA cystic fibrosis development program. The Company will be required to repay amounts received from the CFF (or specified multiples of such amounts) in certain circumstances, including as royalties on net sales (with royalties capped at eight times the award amount received, the "Royalty Cap"), and, in the event of a disposition of the underlying asset. The funding provided to the Company is accounted for as an advance from a collaboration partner within the scope of ASC Topic 730, “Research and Development.” As of March 31, 2023 and December 31, the Company had received cumulative total payments of $0.6

14


 

million under this award, which are recorded as Advances from collaboration partners in the accompanying consolidated financial statements. The 2021 CFF Award includes an embedded derivative arising from a provision that upon the occurrence of a change of control or sale or license of funded assets (each a disposition event) the Company would be required to pay the CFF 20% of the consideration received for the disposition event, and 10% for a sale or license event, up to eight times the amount of funds received from the CFF under the 2021 CFF Agreement.

The Company estimated the fair value of the embedded derivatives to be $58 thousand and $45 thousand as of March 31, 2023 and December 31, 2022, respectively, and has recognized these amounts on the consolidated balance sheets as derivative liabilities with the corresponding change in value of $13 thousand expense recognized as the change in fair value of derivative liabilities in other expense, net, in the consolidated statements of operations for the three months ended March 31, 2023.

 

8. Stockholders’ Deficit

ATM Program

On September 30, 2021, we entered into a Sales Agreement with SVB Leerink, LLC (“SVB Leerink”) pursuant to which the Company may offer and sell up to $50.0 million of shares of its common stock (the “ATM Shares”) from time to time, through an “at the market offering” program (the “ATM Program”), under which SVB Leerink will act as sales agent. Pursuant to the Sales Agreement, the Company will set the parameters for the sale of ATM Shares, including the number of ATM Shares to be issued, the time period during which sales are requested to be made, limitations on the number of ATM Shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Company is not obligated to make any sales of Shares under the ATM Program and has not sold any shares as of March 31, 2023.

 

9. Stock-Based Compensation

Summary of Stock Option Activity

Transactions related to stock options awarded to employees and directors during the three months ended March 31, 2023 were as follows:

 

 

 

Shares

 

 

Weighted
average
exercise
price

 

 

Weighted
average
remaining
contractual
life (years)

 

 

Aggregate
intrinsic
value

 

Options outstanding at December 31, 2022

 

 

249,403

 

 

$

105.87

 

 

 

8.12

 

 

$

3

 

Granted

 

 

195,895

 

 

 

4.27

 

 

 

 

 

 

 

Forfeited

 

 

(15,638

)

 

 

22.41

 

 

 

 

 

 

 

Options outstanding at March 31, 2023

 

 

429,660

 

 

$

62.59

 

 

 

6.77

 

 

$

10

 

Options exercisable at March 31, 2023