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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K.
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MD&A (Item 7)
6,564 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of financial condition and results of operations together with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Special Note Regarding Forward Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove , could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled “Risk Factors” under Part I, Item 1A in this Annual Report on Form 10-K.
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Management's discussion and analysis below takes into account the effects of the restatement described in Note 18 to the financial statements included in this annual report on Form 10-K.
Company Overview
We are a clinical-stage biotechnology company engaged in the discovery and development of targeted biotherapeutics to treat serious diseases and conditions with unmet medical needs, including neurodegenerative diseases, cancer, and autoimmune disorders. We believe we are the leader in the field of semaphorin 4D, or SEMA4D, biology and that we are the only company targeting SEMA4D as a potential treatment for neurodegenerative diseases, cancer, or autoimmune disorders. SEMA4D is an extracellular signaling molecule that regulates the activity of immune and inflammatory cells to sites of injury, cancer, or infection. We have used our SEMA4D antibody platform and our extensive knowledge of SEMA4D biology to develop our lead product candidate, pepinemab, an antibody that we believe utilizes novel mechanisms of action. We are focused on developing pepinemab for the treatment of Alzheimer’s disease, or AD, and as our resources allow also developing pepinemab for head and neck cancer, or HNSCC, and pancreatic cancer, or PDAC. Additionally, third party investigators have studied pepinemab in clinical trials in breast cancer, as well as in “window of opportunity” studies in other indications, including melanoma. We have developed multiple proprietary platform technologies and product candidates to address serious diseases or conditions that have a substantial impact on day-to-day functioning and for which treatment is not addressed adequately by available therapies.
Our lead platform technology is our SEMA4D antibody platform which includes our lead product candidate, pepinemab, which is currently in clinical development for the treatment of Alzheimer’s disease, HNSCC, pancreatic and breast cancer, through our efforts or through investigator-sponsored trials, or ISTs. Our additional product candidate VX5 is in an earlier stage of development and was selected using our ActivMAb platform. We believe our multiple platform technologies position us well for continued pipeline expansion and partnership opportunities going forward.
To date, we have generated a limited amount of revenue through the achievement of contractually stated milestones as well as the performance of services from collaboration agreements, including through our ActivMAb platform. We continue to incur significant development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since our inception, resulting in substantial doubt in our ability to continue as a going concern. We reported a net loss of $18.6 million and $20.3 million for the years ended December 31, 2024, and 2023, respectively. As of December 31, 2024, and December 31, 2023, we had cash and cash equivalents of $1.1 million and $1.5 million, respectively. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors, that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues, if any.
Our recurring net losses and negative cash flows from operations raised substantial doubt regarding our ability to continue as a going concern within one year after the issuance of our financial statements for the year ended December 31, 2024. Until we can generate sufficient revenue from the commercialization of our product candidates, we expect to finance our operations through the public or private sale of equity, debt financings or other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. To date, the Company has relied on equity and debt financing to fund its operations, in addition to capital contributions from noncontrolling interests and a limited amount of service revenue from collaboration agreements. During the years ended December 31, 2024, and 2023, we raised total proceeds of approximately $15.8 million and $16.6 million, respectively, net of commissions and discounts before expenses, from the financing activities discussed below.
Reverse stock splits
On September 22, 2023, we filed an amendment to our Amended and Restated Certificate of Incorporation, with the Secretary of State of the State of Delaware to effect a 1-for-15 reverse stock split of our outstanding common stock. The amendment was authorized by our stockholders on September 8, 2023, and was effective on September 25, 2023.
On February 14, 2024, we filed an amendment to our Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect a 1-for-14 reverse stock split of our outstanding common stock. The amendment was authorized by our stockholders on February 8, 2024, and was effective on February 19, 2024.
All share and per share amounts have been retroactively restated as if the reverse splits occurred at the beginning of the earliest period presented.
Equity Financings
On November 13, 2024, the Company entered into a securities purchase agreement pursuant to which the Company issued and sold to the purchasers named therein an aggregate of (i) 76,909 shares of the Company’s common stock at a price of $3.25 per Share and (ii) pre-funded warrants to purchase up to 584,646 shares of common stock at a price of $3.2499 per pre-funded warrant. The private placement closed on November 14, 2024, for aggregate gross proceeds to the Company of approximately $2.15 million.
On March 28, 2024, we entered into a securities purchase agreement with Alzheimer’s Drug Discovery Foundation pursuant to which we sold shares of a newly designated series of convertible preferred stock, our Series A Preferred Stock, and warrants to purchase up to 229,057 shares of our common stock for an aggregate purchase price of $1.75 million.
On March 27, 2024, we entered into a securities purchase agreement pursuant to which we issued and sold 193,000 shares of our common stock in a public offering together with warrants to purchase up to 193,000 shares of common stock in a concurrent private placement at a combined price of $7.77 per share and accompanying warrant for an aggregate purchase price of approximately $1.5 million. Separately on March 27, 2024, we entered into a securities purchase agreement in a different form pursuant to which we sold 159,683 shares of common stock and warrants to purchase up to 159,683 shares of common stock in a private placement at a combined price of $7.77 per share and accompanying warrant for an aggregate purchase price of approximately $1.25 million. FCMI Parent Co. (“FCMI”), which is controlled by Albert D. Friedberg, the chairman of the Company’s board of directors, and Vaccinex (Rochester) L.L.C., which is majority owned and controlled by Dr. Maurice Zauderer, the Company’s President, Chief Executive Officer, and a member of our board of directors purchased shares of our common stock and accompanying warrants in the latter transaction.
On February 6, 2024, we entered into a securities purchase agreement pursuant to which we issued and sold 274,182 shares of our common stock together with warrants to purchase up to 274,182 shares of common stock at a combined price of $10.15 per share and accompanying warrant and (ii) pre-funded warrants to purchase up to 90,363 shares of common stock together warrants to purchase up to 90,363 shares of our common stock at a combined price of $10.1486 per pre-funded warrant and accompanying warrant, for aggregate gross proceeds of approximately $3.7 million. FCMI and Vaccinex (Rochester) L.L.C. purchased 118,227 and 29,557 shares of our common stock and accompanying warrants, respectively, in the February 2024 offering for an aggregate purchase price of $1.5 million.
On November 2, 2023, we entered into securities purchase agreements with certain investors from the August and September 2023 private placements, pursuant to which we issued and sold 37,694 warrants to purchase up to 37,694 shares of our common stock at a purchase price of $1.75 per warrant for aggregate gross proceeds of $70,000. Vaccinex (Rochester) L.L.C. purchased 9,768 warrants in the November warrant offering for a purchase price of $17,000.
On October 3, 2023, pursuant to our registration statement on Form S-1, as amended (File No. 333-274520), and a securities purchase agreement, as applicable, we issued and sold to certain investors (i) 542,857 shares of our common stock together with common warrants to purchase up to 542,857 shares of common stock and (ii) 142,857 pre-funded warrants to purchase up to 142,857 shares of common stock together with common warrants to purchase up to 142,857 shares of common stock, at a purchase price of $14.00 and $13.99, respectively, for aggregate gross proceeds of $9.6 million (“the October 2023 Offering”). FCMI and Vaccinex (Rochester) L.L.C. purchased 214,286 and 35,714 shares of our common stock and accompanying common warrants, respectively, in the October 2023 Offering for an aggregate purchase price of $3.5 million.
On September 20, 2023, we entered into a stock purchase agreement, pursuant to which we issued and sold 17,781 shares of our common stock at a purchase price of $32.76 per share for aggregate gross proceeds of $0.58 million (the "September 2023 Private Placement”). Vaccinex (Rochester) L.L.C. purchased 9,768 shares of the Company's common stock in the September 2023 Private Placement for a purchase price of $0.32 million.
On August 18, 2023, we entered into a stock purchase agreement, pursuant to which we issued and sold 14,953 shares of our common stock at a purchase price of $43.47 per share for aggregate gross proceeds of $0.65 million.
On May 12, 2023, pursuant to the March 2023 Stock Purchase Agreement, the Company issued and sold to certain investors 37,660 shares of its common stock at a purchase price of $78.5988 per share for aggregate gross proceeds of $2.96 million (the "May 2023 Private Placement”). FCMI purchased 31,960 shares of our common stock in the May 2023 Private Placement for a purchase price of $2.51 million. In May 2023, we also received $1.0 million through an award from the Alzheimer’s Drug Discovery Foundation in the form of an investment in our common stock.
On March 30, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) pursuant to which the Company issued and sold 23,693 shares of its common stock at a purchase price of $86.10 per share for aggregate gross proceeds of $2.04 million (“the March 2023 Private Placement”). Two of the investors in the March 2023 Private Placement were affiliated with directors or officers of the Company: FCMI and Vaccinex (Rochester) L.L.C. In addition, FCMI made a binding commitment in the Stock Purchase Agreement to purchase, on or prior to May 15, 2023, up to an additional $2.96 million of shares of the Company's common stock, less the aggregate purchase price of securities of the Company other than the shares sold by the Company to investors other than FCMI and its affiliates after the closing and on or prior to May 15, 2023, and subject to the terms and conditions of the Stock Purchase Agreement.
On March 27, 2020, we announced that we had entered into an open market sale agreement (the “Open Market Sale Agreement” or “ATM”) with Jefferies, LLC (“Jefferies”) and filed a prospectus supplement pursuant to which we were able to issue and sell up to $11.5 million of shares of our common stock from time. In September 2020, we filed a replacement prospectus supplement related to the Open Market Sale Agreement pursuant to which we may sell up to $113 million of shares of our common stock through Jefferies. On May 19, 2023, the Company filed a prospectus supplement under which the Company may offer and sell, from time to time, shares of its common stock having an aggregate offering price of up to $4,391,000 through the Open Market Sale Agreement SM . In 2024 and 2023, the Company sold 208 and 3,409 shares, respectively, through the Open Market Sale Agreement for proceeds of $2,077 and $0.3 million, respectively, net of commission. No further sales can be made pursuant to the Open Market Sale Agreement.
Inducement Transaction
On September 17, 2024, the Company entered into inducement letter agreements (the “Inducement Letter Agreements”) with holders (the “Holders”) of existing warrants to purchase up to an aggregate of 1,067,492 shares of the Company’s common stock, par value $0.0001 per share, originally issued to the Holders between October 2023 and March 2024 as public warrants or private placement warrants (the “Existing Warrants”). Pursuant to the Inducement Letter Agreements, the Holders agreed to exercise for cash the Existing Warrants at a reduced exercise price of $5.636 per share in consideration of the Company’s agreement to issue new unregistered common warrants (the “New Warrants”) to purchase up to 1,601,238 shares of common stock (the “New Warrant Shares”), which were issued and sold in a private placement at a price of $0.125 per New Warrant. Each New Warrant had an initial exercise price equal to $5.636 per share, was immediately exercisable, and expires September 18, 2029. Included in the exercise of the Existing Warrants were the public warrants issued in the Offering and the private placement warrants issued in the February 2024 SPA, which had not been reclassified to equity in March 2024. The Company revalued the Offering public warrants and the February 2024 SPA liability classified private placement warrants on September 17, 2024, resulting in a fair value of $0.2 million. The decrease in the fair value of the common stock warrant liability throughout the year resulted in an offsetting gain on common stock warrant liabilities in the Statements of Operations.
The exercise of the Existing Warrants resulted in the Company issuing 872,028 shares of common stock and, pursuant to terms of the Existing Warrants, the pre-funding of 195,464 shares of common stock underlying Existing Warrants where the applicable Holder would have exceeded a specified beneficial ownership limitation contained in the applicable Existing Warrant if shares of common stock had been issued.
The gross proceeds to the Company from the exercise of the Existing Warrants and the sale of the New Warrants are approximately $6.2 million, prior to deducting financial advisory fees and estimated transaction expenses. The closing of the transactions contemplated by the Inducement Letter Agreements occurred in part on September 18, 2024 and in part on September 19, 2024.
Debt Financings
On May 8, 2020, the Company received a loan of $1.1 million from Five Star Bank (the “PPP Loan”) under the Paycheck Protection Program established as a part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). On November 8 th , 2021, the Company received loan forgiveness of $876,171. The remaining balance of the loan will be paid in monthly installments of $6,334 through April 2025.
Financial Overview
Revenue
To date, we have not generated any revenue from product sales. During the years ended December 31, 2024, and 2023, we have generated a limited amount of revenue through the achievement of contractually stated milestones as well as grants, and the performance of services from collaboration agreements.
Our ability to generate revenue and become profitable depends on our ability to successfully obtain marketing approval of and commercialize our product candidates. We do not expect to generate product revenue in the foreseeable future as we continue our development of, and seek regulatory approvals for, our product candidates, and potentially commercialize approved products, if any.
Operating Expenses
Research and Development. Research and development expenses consist primarily of costs for our clinical trials and activities related to regulatory filings, employee compensation-related costs, supply expenses, equipment depreciation and amortization, consulting and other miscellaneous costs. The following table sets forth the components of our research and development expenses and the amount as a percentage of total research and development expenses for the periods indicated.
Year Ended December 31,
(in thousands)
(in thousands)
Clinical trial costs
Wages, benefits, and related costs
Preclinical supplies and equipment depreciation
Consulting, non-clinical trial services, and other
Total research and development expenses
Our current research and development activities primarily relate to the clinical development in the following indications:
Alzheimer’s Disease. We initiated a randomized, placebo-controlled, multi-center phase 1/2a clinical study of pepinemab in AD, or the SIGNAL-AD trial, in 2021. This trial is based on evidence from the SIGNAL clinical trial in HD that showed treatment with pepinemab reduced cognitive decline and induced a sharp increase in glucose metabolism in the brain during HD disease progression as detected by conventional FDG-PET imaging. Previous studies in AD have shown that decline in glucose metabolism correlates with cognitive decline. In April 2023, we reached our enrollment target for the Phase 1b/2 SIGNAL-AD study evaluating pepinemab as a potential treatment for people with mild dementia due to AD. As of June 6, 2024, the last patient completed their last visit in the SIGNAL-AD Phase 1b/2 study of pepinemab treatment for Alzheimer’s disease. SIGNAL-AD topline data was reported by Eric Siemers, MD, Principal Investigator of the SIGNAL-AD trial at the Alzheimer's Association International Conference in Philadelphia on July 31, 2024. Additional efficacy data for SIGNAL-AD was reported by Elizabeth Evans, PhD, Senior VP Discovery and Translational Research and Chief Operating Officer on October 31, 2024, at the Clinical Trials on Alzheimer’s Disease Conference in Madrid, Spain.
Cancer Studies. We and others have shown that SEMA4D, the target of pepinemab, is highly expressed in head and neck cancer where it impedes recruitment and activation of cytotoxic T cells that can attack the tumor while also inducing differentiation of myeloid derived suppressor cells that inhibit any remaining tumoricidal immune activity. Head and neck cancer is, therefore, a cancer in which immunotherapy with pepinemab in combination with a checkpoint inhibitor such as KEYTRUDA could be uniquely effective. We have entered into a collaboration with Merck, Sharp & Dohme, who is supplying KEYTRUDA, for first-line treatment of head and neck cancer patients and have analyzed interim data from the first 36 patients in the study. In a similar arrangement, we are collaborating with Merck KGaA (EMD Serono in the U.S.), who is supplying Bavencio, another checkpoint inhibitor, for combination with pepinemab in pancreatic cancer. Pepinemab is also being evaluated by third parties in investigator-sponsored trials, or ISTs, for breast cancer, and in multiple “window of opportunity” studies in additional cancer indications, in collaboration with the Emory University Cancer Center, in the neoadjuvant setting for melanoma and head and neck cancer. A key observation has been that pepinemab in combination with checkpoint inhibitors, nivolumab and/or ipilimumab, induces Tertiary Lymphoid Structures (TLS) in tumors and that mature TLS correlate with positive treatment outcomes.
Huntington’s Disease. We have currently paused our research efforts for HD. We evaluated pepinemab for the treatment of HD in our Phase 2 SIGNAL trial. Topline data for this trial, consisting of 265 subjects, was reported in late September 2020. Although the study did not meet its prespecified primary endpoints, it provided important new information, including evidence of cognitive benefit and a reduction in brain atrophy and increase in brain metabolic activity in patients with manifest disease symptoms. An improved study design would focus on patients with early signs of cognitive or functional deficits since they appeared to derive the greatest treatment benefit.
We expense research and development costs as incurred. We record costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment. We do not allocate employee related costs, depreciation, rental and other indirect costs to specific research and development programs because these costs are deployed across multiple of our product programs under research and development.
Results of Operations
The following table set forth our results of operations for the periods presented (in thousands):
Year Ended December 31,
Revenue
Costs and expenses:
Research and development
General and administrative
Total costs and expenses
Loss from operations
Interest expense
Loss on settlement of warrants
Financing costs - warrant liabilities
Change in fair value of warrant liabilities
Change in fair value of derivative asset
Other (expense) income, net
Loss before provision for income taxes
Provision for income taxes
Net loss attributable to Vaccinex, Inc.
Comparison of the Years Ended December 31, 2024 and 2023
Operating Expenses
Year Ended December 31,
$ Change
% Change
(in thousands)
Research and development
General and administrative
Total operating expenses
Research and Development. Research and development expenses in the year ended December 31, 2024, decreased by $4.0 million, or 24%, compared to the year ended December 31, 2023. This decrease was primarily attributable to a reduction in head count, completion of the SIGNAL-AD trial, and a pause of the head and neck clinical trials.
General and Administrative. General and administrative expenses consist primarily of the necessary costs associated with maintaining the Company's daily operations and administration of the Company's business. General and administrative expenses in the year ended December 31, 2024, decreased by $0.1 million, or 1%, compared to the year ended December 31, 2023. This decrease was attributable to increased legal and patent related services.
Liquidity and Capital Resources
To date, we have not generated any revenue from product sales. During the years ended December 31, 2024, and 2023, we have generated a limited amount of revenue through the achievement of contractually stated milestones as well as grants, and the performance of services from collaboration agreements, including through our ActivMAb platform. Since our inception in 2001, we have relied on public and private sales of equity and debt financing to fund our operations, in addition to capital contributions from noncontrolling interests and limited-service revenue from collaboration agreements, and to some degree, grant money. We are not a party to any material off-balance sheet arrangements as defined in the rules and regulations of the SEC.
In 2024 the Company received aggregate gross proceeds of approximately $15.8 million from (i) private placements of 510,774 shares of common stock, 675,009 pre-funded warrants and 717,228 warrants to purchase shares of common stock (ii) a public offering of 193,000 shares of common stock (iii) sale of 10 shares of our Series A Preferred Stock, and warrants to purchase up to 229,057 shares of our common stock, and (iv) exercise of warrants.
During the year ended December 31, 2023, the Company received aggregate net proceeds of approximately $16.6 million from (i) private placements of shares of common stock, pre-funded warrants and warrants to purchase shares of common stock (ii) a public
offering of shares of common stock, and (iii) through an award from the Alzheimer’s Drug Discovery Foundation in the form of an investment in our common stock.
Series A Preferred Stock
On March 28, 2024, we sold shares of a newly designated series of our preferred stock, the Series A Preferred Stock. Our Series A Preferred Stock is convertible at the election of the holder at any time after the public announcement by the Company of top-line data from its SIGNAL-AD Alzheimer’s disease study (the “Data Release”) into shares of common stock at a conversion price equal to the greater of (a) $7.77 per share of common stock and (b)(i) the volume weighted average price of the common stock for the last three trading days prior to delivery of the conversion notice if the common stock is traded on a trading market or if its prices are reported on OTCQB or OTCQX, (ii) the most recent bid price of the common stock if it is then traded on The Pink Open Market, or (iii) in all other cases the fair market value of the common stock as determined by an independent appraiser, which conversion right is subject to termination on the last full day preceding the proposed effective date for exercise of the Company’s redemption right or the date fixed for redemption upon a Deemed Liquidation Event (generally defined to include certain fundamental transactions involving the company including a merger or sale of substantially all of the Company’s assets) or on a liquidation, dissolution or winding up of the Company.
The Series A Preferred Stock is non-voting, has no mandatory redemption, and carries an annual 5% cumulative dividend, increasing by 2% each year, which dividend rate shall not exceed 12%. The Series A Preferred Stock will also participate on an as-converted basis in any regular or special dividends paid to holders of our common stock.
In addition, the Series A Preferred Stock has a liquidation preference equal to the greater of (i) $175,000 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock (the “Original Share Price”), plus any accrued but unpaid dividends thereon, whether or not declared, together with any other dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event.
The Company also agreed that so long as the Series A Preferred Stock is outstanding, the Company will not, without the written consent of the holders of 50.1% of the Series A Preferred Stock, (i) amend, alter, or repeal any provision of the Company’s certificate of incorporation or bylaws in a manner adverse to the Series A Preferred Stock or (ii) until March 29, 2026, incur any indebtedness for borrowed money in excess of $1.0 million.
The Company has the right to redeem the Series A Preferred Stock at a price equal to the Original Share Price per share at any time after a public announcement of an increase in pepinemab-treated patients relative to placebo-treated patients, with statistical significance having a p-value of less than or equal to 0.05, in the change of the FDG-PET standard uptake value ratio for brain metabolism between baseline and month 12 as assessed by [18F]fluorodeoxyglucose (FDG)-PET in the resting state following administration of 40 mg/kg pepinemab or placebo, as applicable, as described in the protocol for the Company’s SIGNAL-AD Alzheimer’s disease study and the associated Statistical Analysis Plan, provided that (i) the holder is not in possession of any material nonpublic information that was provided by the Company or any of its directors, directors, employees, agents, or affiliates and (ii) there is an effective resale registration statement on file covering the underlying common stock.
The holders of outstanding shares of Series A Preferred Stock have no voting rights with respect to such shares of Series A Preferred Stock on any matter presented to the Company’s stockholders, except as required by law or as specifically set forth in the Certificate of Designation of Series A Preferred Stock.
Operating Capital Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party research services and amounts due to vendors for research supplies. As of December 31, 2024, and 2023, our principal source of liquidity was cash and cash equivalents in the amount of $1.1 million and $1.5 million, respectively. Given our projected operating requirements, our existing cash and cash equivalents and marketable securities, we will seek to complete an additional financing transaction or transactions in order to continue operations.
Since our inception in 2001, we have incurred significant net losses and negative cash flows from operations. For the years ended December 31, 2024, and 2023, we reported a net loss of $18.6 million and $20.3 million, respectively. As of December 31, 2024, and December 31, 2023, we had an accumulated deficit of $358.6 million and $339.9 million, respectively. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates. We are subject to risks associated with the development of new
biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors, that may adversely affect our business.
Our recurring net losses and negative cash flows from operations, as well as forecast of continued losses and negative cash flows from operations, raised substantial doubt regarding our ability to continue as a going concern within one year after the issuance of our financial statements for the year ended December 31, 2024. Until we can generate sufficient revenue from the commercialization of our product candidates, we expect to finance our operations through the public or private sale of equity, debt financing or other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. Our cash and cash equivalents were $1.1 million and total current assets were $2.5 million at December 31, 2024, which the Company is projecting will be insufficient to sustain its operations through one year following the date that the financial statements are issued. Please see Note 2 to the financial statements included in this annual report on Form 10-K for a description of our capital raising activities in 2024.
Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates or cease operations. If we raise additional funds through the issuance of additional debt or equity securities it could result in dilution to our existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock and could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.
Financing strategies we may pursue include, but are not limited to, the public or private sale of equity, debt financing or funds from other capital sources, such as government or grant funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. There can be no assurances additional capital will be available to secure additional financing, or if available, that it will be sufficient to meet our needs on favorable terms. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates. If we raise additional funds through the public or private sale of equity or debt financings, it could result in dilution to our existing stockholders or increased fixed payment obligations and these securities may have rights senior to those of our common stock and could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Year Ended December 31,
As restated
(in thousands)
Cash used in operating activities
Cash used in investing activities
Cash provided by financing activities
Operating Activities. We have historically experienced negative cash flows as we have developed our product candidates and continued to expand our business. Our net cash used in operating activities primarily results from our net loss adjusted for non-cash expenses and changes in working capital components as we have continued our research and development and is influenced by the timing of cash payments for research related expenses. Our primary uses of cash from operating activities are compensation and related-expenses, employee-related expenditures, third-party research services and amounts due to vendors for research supplies. Our cash flows from operating activities will continue to be affected principally by the extent to which we increase spending on personnel, research and development and other operating activities as our business grows.
During the year ended December 31, 2024, operating activities used $16.2 million in cash, primarily as a result of our continued efforts of discovery and development of targeted biotherapeutics to treat serious diseases and conditions with unmet medical needs resulting in a net loss of $18.6 million.
During the year ended December 31, 2023, operating activities used $21.4 million in cash, primarily as a result of our continued efforts of discovery and development of targeted biotherapeutics to treat serious diseases and conditions with unmet medical needs without any product revenue, resulting in a net loss of $20.3 million.
Investing Activities. Cash used in investing activities during the year ended December 31, 2024, and 2023, respectively, resulted from capital expenditures to purchase property and equipment.
Financing Activities. During the year ended December 31, 2024, the Company received aggregate net proceeds of approximately $15.8 million from (i) private placements of 510,774 shares of common stock, 675,009 pre-funded warrants and 717,228 warrants to purchase shares of common stock (ii) a public offering of 193,000 shares of common stock (iii) sale of 10 shares of our Series A Preferred Stock, and warrants to purchase up to 229,057 shares of our common stock, and (iv) exercise of warrants. During the year ended December 31, 2023, the Company received aggregate net proceeds of approximately $16.6 million from (i) private placements of shares of common stock, pre-funded warrants and warrants to purchase shares of common stock (ii) a public offering of shares of common stock, and (iii) through an award from the Alzheimer’s Drug Discovery Foundation in the form of an investment in our common stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. Our significant accounting policies are described in Note 2 Summary of Significant Accounting Policies included in Part IV, Item 16 of this Form 10-K. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgment and estimates.
Research and Development Expenses
Research and development expenses represent costs associated with developing our proprietary drug candidates, our collaboration agreements for such drugs, and our ongoing clinical studies.
Clinical trial costs are a significant component of our research and development expenses. We have a history of contracting with third parties that perform various clinical trial activities on our behalf in the ongoing development of our drug candidates. Expenses related to clinical trials are accrued based on our estimates of the actual services performed by the third parties for the respective period. If the contracted amounts are revised or the scope of a contract is revised, we will modify the accruals accordingly on a prospective basis and will do so in the period in which the facts that give rise to the revision become reasonably certain.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance included in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging ("ASC 815"). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent reporting period end date while the warrants are outstanding.
Warrants that meet all the criteria for equity classification are required to be recorded as a component of additional paid-in capital at the time of issuance, or when the conditions for equity classification are met, and are not remeasured. Warrants that do not meet the required criteria for equity classification are classified as liabilities. The Company adjusts such warrants to fair value at each reporting period until the warrants are exercised or expire. Any change in fair value is recognized in the Company’s statements of operations and comprehensive loss.
Convertible Preferred Stock
In March 2024, the Company issued shares of a newly designated series of convertible preferred stock (see Note 9). The convertible preferred stock contained embedded redemption features requiring bifurcation and separate accounting apart from the convertible preferred stock host instrument. The Company recorded the fair value of the embedded redemption features as a derivative
asset on the Company’s balance sheets in accordance with ASC Topic 815, Derivatives and Hedging . See Note 4 for the key inputs used in the fair value measurements of the derivative asset.
Recent Accounting Pronouncements Not Yet Adopted
For a discussion of recent accounting pronouncements that we have not yet adopted, see Note 2 to our financial statements.
Recently Adopted Accounting Pronouncements
For a discussion of recent accounting pronouncements that we have adopted, see Note 2 to our financial statements.
Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk.
Not applicable for smaller reporting companies.
Item 8. Financial Statement s and Supplementary Data.
The financial information required by Item 8 is contained in Item 15 of Part IV of this Annual Report on Form 10-K.
