CINGULATE INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this report. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this report, including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve risks and
uncertainties. You should review the "Risk Factors" section of our Annual Report
on Form 10-K for the year ended December 31, 2021 ("Form 10-K") for a discussion
of important factors that could cause actual results to differ materially from
the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.



Overview



We are a clinical stage biopharmaceutical company using our proprietary
Precision Timed ReleaseTM (PTRTM) drug delivery platform technology to build and
advance a pipeline of next-generation pharmaceutical products designed to
improve the lives of patients suffering from frequently diagnosed conditions
characterized by burdensome daily dosing regimens and suboptimal treatment
outcomes. We are initially focusing our efforts on the treatment of Attention
Deficit/Hyperactivity Disorder (ADHD). Our PTR platform incorporates a
proprietary Erosion Barrier Layer (EBL) designed to allow for the release of
drug substance at specific, pre-defined time intervals, unlocking the potential
for once-daily, multi-dose tablets. We believe there remains a significant,
unmet need within the current treatment paradigm for true once-daily ADHD
stimulant medications with lasting duration and a superior side effect profile
to better serve the needs of patients throughout their entire active-day.



Since inception in 2012, our operations have focused on developing our product
candidates, organizing and staffing our company, business planning, raising
capital, establishing our intellectual property portfolio and conducting
clinical trials. We do not have any product candidates approved for sale and
have not generated any revenue. We have funded our operations through public and
private capital raised. Cumulative capital raised from these sources, was
approximately $63.8 million as of June 30, 2022.



We have incurred significant losses since our inception. Our ability to generate
product revenue sufficient to achieve profitability will depend on the
successful development and commercialization of one or more of our product
candidates. Our net losses were $4.0 million and $1.4 million for the three
months ended June 30, 2022 and June 30, 2021, respectively and $9.0 million and
$2.8 million for the six months ended June 30, 2022 and June 30, 2021,
respectively. As of June 30, 2022, we had an accumulated deficit of $60.8
million.



We expect to continue to incur significant expenses and increasing operating
losses in the near term. We expect our expenses will increase substantially in
connection with our ongoing activities, as we:



  ? seek regulatory approval for CTx-1301;

? continue research and development activities for our existing and new product

    candidates, primarily for CTx-1301;

  ? manufacture supplies for our preclinical studies and clinical trials,
    primarily for CTx-1301;

  ? operate as a public company; and

  ? establish or outsource commercial infrastructure to support sales and
    marketing for our product candidates.




Our ability to generate product revenue will depend on the successful
development, regulatory approval and eventual commercialization of one or more
of our product candidates. Until such time as we can generate significant
revenue from product sales, if ever, we expect to finance our operations through
the sale of equity, debt financings, or other capital sources, including
potential collaborations with other companies or other strategic transactions.
Adequate funding may not be available to us on acceptable terms, or at all. If
we fail to raise capital or enter into such agreements as and when needed, we
may have to significantly delay, scale back or discontinue the development and
commercialization of our product candidates.



17






Debt Financing


We received $5.0 million of debt financing (the "WFIA Debt Financing") from
Werth Family Investment Associates LLC ("WFIA"). The promissory note, dated
August 9, 2022, in favor of WFIA is unsecured with interest accruing at 15% per
annum. Outstanding principal and all accrued and unpaid interest is due and
payable on August 8, 2025 unless accelerated due to an event of default.
Beginning April 1, 2023, WFIA has the right during the first five business days
of each calendar quarter to demand payment of all outstanding principal and
interest 120 days following notice to us. We may prepay the note, in whole or in
part, without premium or penalty; provided, that no amount repaid may be
reborrowed. See "Liquidity and Capital Resources" below.



WFIA owns 871,731 shares of our common stock and Peter J. Werth, a member of the
Company's Board of Directors and the manager of WFIA, owns 21,849 shares of our
common stock. Our Audit Committee and Board of Directors reviewed the terms of
the WFIA Debt Financing pursuant to our Policy and Procedures for Related Person
Transactions and determined that the WFIA Debt Financing is in our best interest
and the best interests of our stockholders. Due to the WFIA Debt Financing, our
Board of Directors determined that Mr. Werth is no longer an independent
director.



CTx-1301: We have designed our clinical program for CTx-1301
(dexmethylphenidate), our lead investigational asset for the treatment of ADHD,
based on U.S. Food and Drug Administration (FDA) feedback regarding our CTx-1301
initial Pediatric Study Plan (iPSP), and longstanding guidance on the expedited
approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic
Act.



We have commenced study start-up activities for the CTx-1301 Phase 3,
fixed-dose, pediatric and adolescent safety and efficacy study, and anticipate
dosing of the first patient in late 2022. We have been experiencing delays in
the manufacturing and delivery of clinical supply for this study due to
operational resource issues at our contract manufacturing organization (CMO).
Manufacturing of the final two dosage strengths, which are necessary to dose the
first patient, is expected to begin in the second half of this year. Results
from the fixed-dose study are expected in the second half of 2023. In order to
meet the pharmacology requirement for the CTx-1301 New Drug Application (NDA)
submission, we plan to complete a food effect study in the fourth quarter of
2022. Assuming we receive positive clinical results from our Phase 3 trial and
food effect study, we still plan to submit the NDA for CTx-1301 in late 2023
under the Section 505(b)(2) pathway.



In addition to the studies mentioned above, we plan to initiate a dose optimization study in adults (Phase 3b) to assess onset and duration of efficacy in the second half of 2023. This trial of Phase 3b is complementary and not required for the CTx -1301 NDA Submission.



CTx-1302: We plan to initiate a Phase 1/2 bioavailability study in ADHD patients
for CTx-1302 (dextroamphetamine), our second investigational asset for the
treatment of ADHD, in 2023 and, if the results from this study are successful,
we plan to initiate pivotal Phase 3 clinical trials in all patient segments for
CTx-1302 in 2024 with results expected in 2025.



CTx-2103: We have embarked on a program to develop CTx-2103 (buspirone) for the
treatment of anxiety, which is the most common mental health concern in the U.S.
Furthermore, this trial extends the potential of the PTR platform where multiple
daily doses are required and the timing, style, and ratio of this medication
delivery is paramount. We initiated a human formulation study for CTx-2103 in
May 2022 at BDD Pharma in Glasgow, Scotland, UK. Results from the study are
expected by the end of August 2022.



As of June 30, 2022, we had cash and cash equivalents of $8.2 million. Based on
our operating plan and with the proceeds from the WFIA Debt Financing, we
believe that our cash and cash equivalents will enable us to fund our research
and development and general and administrative expenses through the first
quarter of 2023. In addition, in order to achieve the filing of our NDA for
CTx-1301 in late 2023 for potential FDA approval, we believe that we will need
approximately $16.5 million of additional capital. We will also need additional
capital to advance our other programs. We are evaluating alternatives to raise
additional capital, including equity and debt financing and non-dilutive
strategic collaborations in the U.S. and abroad. In addition, we continue to
evaluate commercial collaborations, which would provide us with more immediate
access to marketing, sales, market access and distribution infrastructure. See
"Liquidity and Capital Resources" below.



18





Impact of the COVID-19 pandemic



We are continuing to monitor the impact of the COVID-19 pandemic on our
business, the extent of which will depend on a number of factors, including, but
not limited to, the extent and severity of the impact on our service providers,
suppliers, contract research organizations and our preclinical and clinical
trials, all of which are uncertain and cannot be predicted.



While the full impact of the pandemic continues to evolve, the financial markets
have been subject to significant volatility that may adversely impact our
ability to enter into, modify, and negotiate favorable terms and conditions
relative to equity and debt financing initiatives. The uncertain financial
markets, disruptions in supply chains, mobility restraints, and changing
priorities as well as volatile asset values may also affect our ability to enter
into collaborations, joint ventures, and license and royalty agreements. The
outbreak and government measures taken in response to the pandemic have also had
a significant impact, both direct and indirect, on businesses and commerce, as
worker shortages have occurred; supply chains have been disrupted; facilities
and production have been suspended; and demand for certain goods and services,
such as medical services and supplies, have spiked, while demand for other goods
and services, such as travel, have fallen. We may face difficulties recruiting
or retaining patients in our ongoing and planned preclinical and clinical trials
if patients are affected by the virus or are fearful of traveling to our
clinical trial sites. We and our third-party CMOs, clinical research
organizations (CROs), and clinical sites may also face disruptions in procuring
items that are essential to our research and development activities, including,
for example, medical and laboratory supplies used in our clinical trials or
preclinical studies, in each case, that are sourced from abroad or for which
there are shortages because of ongoing efforts to address the outbreak.



The extent to which the COVID-19 pandemic may in the future impact our financial
condition, liquidity or results of operations is uncertain. While the pandemic
did not materially affect our financial results and business operations in the
quarter ended June 30, 2022, we are unable to predict the impact that COVID-19
may have on our financial position and operating results in future periods due
to numerous uncertainties. Management continues to actively monitor the
situation and the possible effects on our financial condition, operations,
suppliers, vendors, our workforce and the overall industry. For additional
information about risks and uncertainties related to the COVID-19 pandemic that
may impact our business, our financial condition or our results of operations,
see the "Risk Factors" section in our Form 10-K.



Components of operating results


Revenue



Since inception, we have not generated any revenue and do not expect to generate
any revenue from the sale of products in the near future. If our development
efforts for our product candidates are successful and result in regulatory
approval, or if we enter into collaboration or license agreements with third
parties, we may generate revenue in the future from a combination of product
sales or payments from collaboration of license agreements.



Operating Expenses


Research and development costs

Research and development expenses include costs incurred in the discovery and development of our product candidates and primarily include:

? expenses incurred under third-party agreements with CROs, and

sites, which have conducted or will conduct our clinical trials and part of our

preclinical activities;

? raw material costs, as well as the manufacturing cost of our materials used in

    clinical trials and other development testing;




19

? expenses, including salaries and benefits of employees engaged in research and

development activities;

? manufacturing equipment costs, depreciation and other allocated expenses;

    and

  ? fees paid for contracted regulatory services as well as fees paid to
    regulatory authorities including the FDA for review and approval of our
    product candidates.




We expense research and development costs as incurred. Costs for external
development activities are recognized based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors.
Payments for these activities are based on the terms of the individual
agreements, which may differ from the pattern of costs incurred, and are
reflected in our consolidated financial statements as prepaid or accrued costs.



Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase for the
foreseeable future as we continue clinical development for our product
candidates. As products enter later stages of clinical development, they will
generally have higher development costs than those in earlier stages of clinical
development, primarily due to the increased size and duration of later-stage
clinical trials. Historically, our research and development costs have primarily
related to the development of CTx-1301. As we advance CTx-1301, CTx-1302, and
CTx-2103, as well as identify any other potential product candidates, we will
continue to allocate our direct external research and development costs to the
products. We expect to fund our research and development expenses from our
current cash and cash equivalents and any future equity or debt financings, or
other capital sources, including potential collaborations with other companies
or other strategic transactions.



General and administrative expenses



General and administrative expenses consist primarily of salaries and related
costs for our employees in administrative, executive and finance functions.
General and administrative expenses also include professional fees for legal,
accounting, audit, tax and consulting services, insurance, office, and travel
expenses.


We expect that our general and administrative expenses will increase in the
future as we increase our general and administrative headcount to support our
growing operations including the potential commercialization of our product
candidates. We have experienced increased expenses associated with being a
public company, including costs of accounting, audit, legal, regulatory and tax
compliance services; director and officer insurance; and investor and public
relations costs.


Interest and other income (expenses), net

Interest and other income (expense), net, includes interest earned on our short-term investments and interest expense. The primary objective of our investment policy is liquidity and preservation of capital.



Interest expense to date has consisted primarily of interest expense on notes
payable to related parties, interest charged by certain vendors, financing
charge on insurance premiums and credit card interest. All related party notes
were paid in full in December 2021 with proceeds from our IPO.



Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with U.S.
generally accepted accounting principles (U.S. GAAP). The preparation of the
consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the consolidated financial statements and the reported amounts of
expenses during a reporting period. Actual results could differ from estimates.



While our significant accounting policies are described in more detail in Note 2
to our consolidated financial statements, we have identified several accounting
policies that are critical to the judgements and estimates used in the
preparation of our consolidated financial statements. These policies relate to
research and development costs and stock-based compensation. A discussion of
these policies can be found in the "Critical Accounting Policies and Significant
Judgments and Estimates" section of our Form 10-K.



There have been no changes in our application of critical accounting policies since December 31, 2021.


20






Results of Operations


Comparison of the three months ended June 30, 2022 and June 30, 2021

The following table summarizes our operating results for the three months ended June 30, 2022 and June 30, 2021:


                                               Three Months ended                               %
                                                    June 30,                Increase         Increase
(in thousands)                                2022            2021         (Decrease)       (Decrease)
Operating Expenses:
Research and development                   $     2,178     $      794     $      1,384            174.3 %
General and administrative                       1,870            629            1,241            197.3 %
Loss from operations                            (4,048 )       (1,423 )         (2,625 )          184.5 %
Interest and other income (expense), net             8             (9 )    
        17            188.9 %
Net Loss                                   $    (4,040 )   $   (1,432 )   $     (2,608 )          182.1 %



Research and development costs

The following table summarizes our research and development expenses for the three months ended June 30, 2022 and June 30, 2021:


                                               Three Months ended                                %
                                                    June 30,                 Increase         Increase
(in thousands)                               2022              2021         (Decrease)       (Decrease)
Clinical operations                       $       693       $       56     $        637            NM
Drug manufacturing and formulation                801              353     
        448            126.9 %
Personnel expenses                                654              359              295             82.2 %
Regulatory costs                                   30               26                4             15.4 %

Total research and development expenditure $2,178 $794 $1,384

            174.3 %




Research and development (R&D) expenses were $2.2 million for the three months
ended June 30, 2022, an increase of $1.4 million or 174.3% from the three months
ended June 30, 2021. This increase was related to increased development activity
as we prepare for a Phase 3 clinical trial for CTx-1301. Manufacturing clinical
supply began in the first quarter of 2022 and continued through the second
quarter and study start-up activities have been occurring since late 2021. In
addition, the Company added clinical and manufacturing personnel in late 2021 in
anticipation of the increased development activity.



21





General and administrative expenses

The following table summarizes our general and administrative (G&A) expenses for the three months ended June 30, 2022 and June 30, 2021:


                                           Three Months ended                                %
                                                June 30,                 Increase         Increase
(in thousands)                           2022              2021         (Decrease)       (Decrease)
Personnel expenses                    $       546       $      314     $        232             73.9 %
Legal and professional fees                   401              107              294            274.8 %
Occupancy                                     118              111                7              6.3 %
Insurance                                     670               38              632            NM
Other                                         135               59               76            127.3 %
Total general and administrative
expenses                              $     1,870       $      629     $      1,241            197.1 %




Total G&A expenses were $1.9 million for the three months ended June 30, 2022,
an increase of $1.2 million or 197.1% from the three months ended June 30, 2021.
The overall increase in G&A expenses is the result of operating as a public
company in 2022 as compared to operating as a private company in 2021. Personnel
expenses increased by $0.3 million as legal and accounting personnel were added
in late 2021, insurance costs increased by $0.6 million which relates to the
directors and officers insurance policy, and legal and professional fees
increased by $0.3 million which relates to increased investor and public
relations fees, board compensation fees and audit fees.



Interest and other income (expenses)

The following table summarizes interest and other income (expenses) for the three months ended June 30, 2022 and June 30, 2021:


                                                  Three Months ended                                    %
                                                       June 30,                    Increase          Increase
(in thousands)                                 2022                 2021   

(Decrease) (Decrease) Interest and other income (expense), net $8 $(9) $17

            188.9 %




Total interest and other income (expense), net primarily relates to interest and
dividends earned on invested balances during the three months ended June 30,
2022 and relates to interest incurred on outstanding notes payable during the
three months ended June 30, 2021. All notes payable were paid in full in
December 2021 with proceeds from our IPO.



Comparison of the six months ended June 30, 2022 and June 30, 2021

The following table summarizes our operating results for the six months ended June 30, 2022 and June 30, 2021:


                                               Six Months ended                                %
                                                   June 30,                Increase         Increase
(in thousands)                                2022           2021         (Decrease)       (Decrease)
Operating Expenses:
Research and development                   $    4,941     $    1,356     $      3,585            264.4 %
General and administrative                      4,117          1,397            2,720            194.7 %
Loss from operations                           (9,058 )       (2,753 )         (6,305 )          229.0 %
Interest and other income (expense), net           14            (13 )     
       27            207.7 %
Net Loss                                   $   (9,044 )   $   (2,766 )   $     (6,278 )          227.0 %




22





Research and development costs



The following table summarizes our R&D for the six months ended June 30, 2022
and June 30, 2021:



                                               Six Months ended                                %
                                                   June 30,                Increase         Increase
(in thousands)                               2022            2021         (Decrease)       (Decrease)
Clinical operations                       $     1,501     $       77     $      1,424            NM
Drug manufacturing and formulation              2,154            600       
    1,554            259.0 %
Personnel expenses                              1,237            658              579             88.0 %
Regulatory costs                                   49             21               28            133.3 %
Total research and development expenses   $     4,941     $    1,356     $ 
    3,585            264.4 %




R&D expenses were $4.9 million for the six months ended June 30, 2022, an
increase of $3.6 million or 264.4% from the six months ended June 30, 2021. This
increase was related to increased development activity as we prepare for a Phase
3 clinical trial for CTx-1301. Manufacturing clinical supply began in the first
quarter of 2022 with continued activity in the second quarter and study start-up
activities have been occurring since late 2021. In addition, the Company added
clinical and manufacturing personnel in late 2021 in anticipation of the
increased development activity.



General and administrative expenses



The following table summarizes our G&A expenses for the six months ended June
30, 2022 and June 30, 2021:



                                           Six Months ended                                %
                                               June 30,                Increase         Increase
(in thousands)                           2022            2021         (Decrease)       (Decrease)
Personnel expenses                    $     1,229     $      595     $        634            106.6 %
Legal and professional fees                 1,048            371              677            182.5 %
Occupancy                                     246            212               34             16.0 %
Insurance                                   1,343             79            1,264            NM
Other                                         251            140              111             79.3 %
Total general and administrative
expenses                              $     4,117     $    1,397     $      2,720            194.7 %




Total G&A expenses were $4.1 million for the six months ended June 30, 2022, an
increase of $2.7 million or 194.7% from the six months ended June 30, 2021. The
overall increase in G&A expenses is the result of operating as a public company
in 2022 as compared to operating as a private company in 2021. Personnel
expenses increased by $0.6 million as legal and accounting personnel were added
in late 2021, insurance costs increased by $1.3 million which relates to the
directors and officers insurance policy, and legal and professional fees
increased by $0.7 million which relates to increased investor and public
relations fees, board compensation fees and audit fees.



Interest and other income (expenses)

The following table summarizes interest and other income (expenses) for the six months ended June 30, 2022 and June 30, 2021:


                                                 Six Months ended                                   %
                                                     June 30,                  Increase          Increase
(in thousands)                                2022              2021          (Decrease)        (Decrease)
Interest and other income (expense), net   $        14       $       (13 ) 
 $          27            207.7 %




Total interest and other income (expense), net primarily relates to interest and
dividends earned on invested balances during the six months ended June 30, 2022
and relates to interest incurred on outstanding notes payable during the six
months ended June 30, 2021. All notes payable were paid in full in December
2021
with proceeds from our IPO.



23






Cash Flows



                                                        Six Months ended
                                                            June 30,
                                                        2022         2021
Net cash (used in) operating activities               $ (8,277 )   $ (3,224 )
Net cash (used in) investing activities                    (13 )        (89 )

Net cash (used in) provided by financing activities (7 ) 3,160 Net decrease in cash and cash equivalents

             $ (8,297 )   $   (153 )



Cash flow from operating activities



Net cash used in operating activities was $8.3 million for the six months ended
June 30, 2022. Cash used in operating activities was primarily due to the use of
funds in our operations to develop our product candidates resulting in a net
loss of $9.0 million, prior to the effects of two noncash items, stock-based
compensation expense of $0.4 million and depreciation of $0.2 million. Changes
in operating assets and liabilities included a decrease in miscellaneous
receivables resulting from the receipt in early 2022 of a significant portion of
the payroll and research and development tax credits owed to us, and a decrease
in accrued liabilities resulting from the final payments made on the second
manufacturing press which were accrued at the end of 2021.



Net cash used in operating activities was $3.2 million for the six months ended
June 30, 2021. Cash used in operating activities was primarily due to the use of
funds in our operations to develop our product candidates resulting in a net
loss of $2.9 million, offset primarily by depreciation. Changes in operating
assets and liabilities included a decrease in accounts payable and accrued
expenses of $0.3 million mainly due to the timing of payments to our service
providers.


Cash flow from investing activities



Net cash used in investing activities for both the six months ended June 30,
2022 and June 30, 2021 was related to the purchase of equipment to support
our
research and development.


Cash flow from financing activities

Net cash used in financing activities during the six months ended June 30, 2022 related to principal payments on finance lease obligations.

Net cash flow generated by financing activities during the six months ended June 30, 2021
was primarily related to proceeds from the issuance of $1.6 million equity units of CTx.

Cash and capital resources


Sources of Liquidity


On August 10, 2022we received $5.0 million under WFIA debt financing.



Since our inception in 2012 through June 30, 2022, we have not generated any
revenue and have incurred significant operating losses and negative cash flow
from our operations. Based on our current operating plan and with the proceeds
from the WFIA Debt Financing, we expect our cash and cash equivalents will be
sufficient to fund our operating expenses and capital expenditure requirements
through the first quarter of 2023. In addition, in order to achieve the filing
of our NDA for CTx-1301 in late 2023 for potential FDA approval, we believe that
we will need approximately $16.5 million of additional capital. We will also
need additional capital to advance our other programs. However, it is difficult
to predict our spending for our product candidates prior to obtaining FDA
approval. Moreover, changing circumstances may cause us to expend cash
significantly faster than we currently anticipate, and we may need to spend more
cash than currently expected because of circumstances beyond our control.



24





Our policy is to invest any cash in excess of our immediate requirements in
investments designed to preserve the principal balance and provide liquidity
while producing a modest return on investment. Accordingly, our cash equivalents
are invested primarily in money market funds which provide a minimal return.



We expect to continue to incur substantial additional operating losses for at
least the next several years as we continue to develop our product candidates
and seek marketing approval and, subject to obtaining such approval, the
eventual commercialization of our product candidates. If we obtain marketing
approval for our product candidates, we will incur significant sales, marketing
and outsourced manufacturing expenses. In addition, we expect to incur
additional expenses to add operational, financial and information systems and
personnel, including personnel to support our planned product commercialization
efforts. We also expect to incur significant costs to comply with corporate
governance, internal controls and similar requirements applicable to us as
a
public company.


Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:


  ? the cost and timing of manufacturing the clinical supply of our product
    candidates;

? the initiation, progress, timing, costs and results of clinical trials for our

    product candidates;

  ? the clinical development plans we establish for each product candidate;

? the number and characteristics of product candidates we are developing or may

    in-license;

  ? the terms of any collaboration agreements we may choose to execute;

? the outcome, timing and cost of meeting regulatory requirements established by

the FDA or other comparable foreign regulatory authorities;

? the cost of filing, prosecuting, defending and enforcing our patent claims and

    other intellectual property rights;

  ? the cost of defending intellectual property disputes, including patent
    infringement actions brought by third parties against us;

? the cost and schedule for implementing commercial scale manufacturing

Activities; and

? the cost of establishing or outsourcing sales, marketing and distribution

capabilities for any product candidates for which we may receive regulatory information

approval in regions where we choose to market our products on our own.




To continue to grow our business over the longer term, we plan to commit
substantial resources to research and development, including clinical trials of
our product candidates, and other operations and potential product acquisitions
and in-licensing. We have evaluated and expect to continue to evaluate a wide
array of strategic transactions as part of our plan to acquire or in-license and
develop additional products and product candidates to augment our internal
development pipeline. Strategic transaction opportunities that we may pursue
could materially affect our liquidity and capital resources and may require us
to incur additional indebtedness, seek equity capital or both. In addition, we
may pursue development, acquisition or in-licensing of approved or development
products in new or existing therapeutic areas or continue the expansion of our
existing operations. Accordingly, we expect to continue to opportunistically
seek access to additional capital to license or acquire additional products,
product candidates or companies to expand our operations, or for general
corporate purposes. Strategic transactions may require us to raise additional
capital through one or more public or private debt or equity financings or could
be structured as a collaboration or partnering arrangement. We have no
arrangements, agreements, or understandings in place at the present time to
enter into any acquisition, in-licensing or similar strategic business
transaction. In addition, we continue to evaluate commercial collaborations,
which would provide us with more immediate access to marketing, sales, market
access and distribution infrastructure.



25





If we raise additional funds by issuing equity securities, our stockholders will
experience dilution. Debt financing, if available, would result in increased
fixed payment obligations and may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. Any debt
financing or additional equity that we raise may contain terms, such as
liquidation and other preferences that are not favorable to us or our existing
stockholders. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish valuable
rights to our technologies, future revenue streams or product candidates or to
grant licenses on terms that may not be favorable to us.



Contractual Obligations



The following summarizes our contractual obligations as of June 30, 2022 that
will affect our future liquidity. Based on our current operating plan, we plan
to satisfy the obligations identified below with cash and cash equivalents
as of
June 30, 2022.



We entered into a patent and know-how licensing agreement with BDD Pharma
Limited in August 2018. See the "Business - Material Agreements" section of our
Form 10-K for a description of this agreement. We may be required to pay BDD
Pharma certain amounts in connection with clinical trial and regulatory
milestones. The first milestone payment of $250,000 will likely become due in
the next twelve months based on the dosing of the first patient in the Phase 3
fixed-dose pediatric and adolescent safety and efficacy study for CTx-1301. This
payment is accrued in our June 30, 2022 financial statements.



We entered into an agreement with a CRO for the Phase 3 fixed-dose pediatric and
adolescent safety and efficacy study for CTx-1301, in which we plan to dose the
first patient in late 2022. We also entered into agreements with a CMO and other
third parties for manufacture of the Phase 3 clinical supply of CTx-1301. These
contracts do not contain any minimum purchase commitments and are cancelable by
us upon prior written notice. Payments due upon cancellation consist only of
payments for services provided or expenses incurred, including noncancelable
obligations of our service providers, up to the date of cancellation and in some
cases, wind-down costs. The exact amount of such obligations is dependent on the
timing of termination and the terms of the related agreement and are not known.



Going Concern



Since inception we have been engaged in organizational activities, including
raising capital and research and development activities. We have not generated
revenues and have not yet achieved profitable operations, nor have we ever
generated positive cash flow from operations. There is no assurance that
profitable operations, if achieved, could be sustained on a continuing basis. We
are subject to those risks associated with any pre-clinical stage pharmaceutical
company that has substantial expenditures for research and development. There
can be no assurance that our research and development projects will be
successful, that products developed will obtain necessary regulatory approval,
or that any approved product will be commercially viable. In addition, we
operate in an environment of rapid technological change and is largely dependent
on the services of our employees and consultants. Further, our future operations
are dependent on the success of our efforts to raise additional capital. These
uncertainties raise substantial doubt about our ability to continue as a going
concern for one year after the issuance date of our financial statements. The
accompanying consolidated financial statements have been prepared on a going
concern basis. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern, which contemplates the continuation of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. We
have incurred a net loss for the three and six-month periods ended June 30, 2022
and June 30, 2021 and had accumulated losses of $60.8 million since inception to
June 30, 2022. We anticipate incurring additional losses until such time, if
ever, that we can generate significant revenue from our product candidates
currently in development. Our sources of capital have included private capital
raises in various classes of units of CTx prior to the Reorganization Merger,
the issuance of equity securities in connection with our IPO and the WFIA Debt
Financing. Additional financings will be needed by us to fund our operations, to
complete development of and to commercially develop our product candidates.
There is no assurance that such financing will be available when needed or
on
acceptable terms.



26





Recently issued accounting standards

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on
Financial Instruments which significantly changes the way entities recognize
impairment of many financial assets by requiring immediate recognition of
estimated credit losses expected to occur over their remaining life, instead of
when incurred. In November 2018, the FASB issued ASU 2018-19, Codification
Improvements to Topic 326, Financial Instruments-Credit Losses, which amends
Subtopic 326-20 (created by ASU 2016-13) to explicitly state that operating
lease receivables are not in the scope of Subtopic 326-20. Additionally, in
April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326,
Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments; in May 2019, the FASB issued ASU 2019-05,
Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief; in
November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326,
Financial Instruments-Credit Losses; and in March 2020, the FASB issued ASU
2020-03, Codification Improvements to Financial Instruments, to provide further
clarifications on certain aspects of ASU 2016-13. The changes (as amended) are
effective for the Company for annual and interim periods in fiscal years
beginning after December 15, 2022. The Company does not expect the adoption of
ASU 2016-13 to have a material effect on its consolidated financial statements.



JOBS Act



On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS
Act, was signed into law. The JOBS Act contains provisions that, among other
things, reduce certain reporting requirements for an "emerging growth company".
As an "emerging growth company," we are electing to take advantage of the
extended transition period afforded by the JOBS Act for the implementation of
new or revised accounting standards, and as a result, we will comply with new or
revised accounting standards on the relevant dates on which adoption of such
standards is required for emerging growth companies.



Subject to certain conditions set forth in the JOBS Act, as an "emerging growth
company," we are not required to, among other things, (i) provide an auditor's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose certain executive
compensation-related items such as the correlation between executive
compensation and performance and comparisons of the chief executive officer's
compensation to median employee compensation. These exemptions will apply until
the fifth anniversary of the completion of our IPO or until we no longer meet
the requirements for being an "emerging growth company," whichever occurs first.

© Edgar Online, source Previews

Comments are closed.