10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2022

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: 001-36620

 

ELEDON PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

20-1000967

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

19900 MacArthur Blvd., Suite 550

Irvine, California

 

92612

(Address of principal executive offices)

 

(Zip Code)

 

 

(949) 238-8090

Registrant’s telephone number, including area code

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

ELDN

 

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, a 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 August 10, 2022, there were 13,756,788 shares of the Registrant’s common stock outstanding.

 

 

CONFIDENTIAL


 

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. Any statements in this Quarterly Report on Form 10-Q about the Company’s future expectations, plans and prospects, including statements about its strategy, future operations, development of its product candidates, the review of strategic alternatives and the outcome of such review and other statements containing words such as “believes,” “anticipates,” “plans,” “expects,” “estimates,” “intends,” “predicts,” “projects,” “targets,” “could,” “may,” and similar expressions, constitute forward-looking statements, although not all forward-looking statements include such identifying words. Forward-looking statements include, but are not limited to statements regarding:

our product development plans, expectations for and the timing of commencement, enrollment, completion, data, and release of results of clinical trials for our product candidates;
our estimates regarding expenses, capital requirements and needs for additional financing;
our strategies with respect to our preclinical and clinical development programs;
our plans, strategy and timing to obtain and maintain regulatory approvals of our product candidates; and
expectations about our future financial performance or condition.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including the factors listed under “Risk Factor Summary” below. These risks and uncertainties, as well as other risks and uncertainties that could cause the Company’s actual results to differ significantly from the forward-looking statements contained herein, are described in greater detail in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

Any forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date hereof and not as of any future date, and the Company expressly disclaims any intent to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The market data and certain other statistical information used in this Quarterly Report are based on independent industry publications, governmental publications, reports by market research firms or other independent sources. Some data are also based on our good faith estimates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information.

 

2


 

RISK FACTOR SUMMARY

The following summarizes the principal factors that make an investment in the Company speculative or risky, all of which are more fully described in Part II, Item 1A, Risk Factors in this Quarterly Report on Form 10-Q. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described in our public filings when evaluating our business.

Our short operating history and the acquisition of Anelixis Therapeutics, Inc. in September 2020 may make it difficult to evaluate the success of our business to date and to assess our future viability.
We have incurred significant operating losses since our inception and expect that we will continue to incur losses over the next several years and may never achieve or maintain profitability.
Our product candidates are in the early stages of clinical development and may not be successfully developed. If we are unable to successfully develop and commercialize these or any other product candidate, or if we experience significant delays in doing so, our business will be materially harmed.
The ongoing COVID-19 pandemic and actions taken in response to it may result in additional disruptions to our business operations, which could have a material adverse effect on our business.
Unfavorable global economic conditions could have a material adverse effect on our business.
Drug development involves a lengthy and expensive process with an uncertain outcome, including failure to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the formulation and commercialization of our product candidates.
The results of nonclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, and there is a risk that additional nonclinical and/or clinical safety studies will be required by the U.S. Food and Drug Administration or similar regulatory authorities outside the United States or that subsequent studies will not match results seen in prior studies.
Delays or difficulties in the enrollment of patients in clinical trials could delay or prevent our receipt of necessary regulatory approvals and increase expenses for the development of our product candidates.
If serious adverse events or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of some of our product candidates.
We will require additional funding to be able to complete the development of our lead drug candidate. If we are unable to raise capital when needed, we may be forced to significantly alter our business strategy, substantially curtail our current operations, or liquidate and cease operations altogether.
Our future success depends on our ability to retain executives and key employees and to attract, retain and motivate qualified personnel in the future.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, or the approvals may be for a narrow indication, we may not be able to commercialize our product candidates, and our ability to generate revenue may be materially impaired.
Legislation regulating the pharmaceutical and healthcare industries may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
Our internal computer systems, or those of our third-party collaborators, service providers, contractors or consultants, may fail or suffer security breaches, disruptions, or incidents, which could result in a material disruption of our development programs or loss of data or compromise the privacy, security, integrity or confidentiality of sensitive information related to our business and have a material adverse effect on our reputation, business, financial condition or results of operations.
Even if any of our product candidates receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for commercial success.

3


 

If our current product candidates, or a future product candidate receives marketing approval and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, the ability to market the product could be compromised.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
Our reliance on third parties for the manufacture of our product candidates for nonclinical and clinical trials, and for eventual commercialization, increases the risk that we will not have sufficient quantities of our product candidates or products at an acceptable cost and quality, which could delay, prevent or impair our development or commercialization efforts.
We depend on contract research organizations (“CROs”) and other contracted third parties to perform nonclinical and clinical testing and certain other research and development activities. As a result, the outcomes of the activities performed by these organizations will be, to a certain extent, beyond our control.
If we are unable to obtain and maintain intellectual property protection for our technology and products or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
Our stock price could be volatile, and the market price of our common stock may drop unexpectedly.
If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.
Provisions in our corporate charter and under Delaware law could make an acquisition of the Company more difficult and may prevent attempts by our stockholders to replace or remove our current management.

 

4


 

ELEDON PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED June 30, 2022

Table of Contents

 

 

 

 

Page

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements - Unaudited

 

6

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

 

6

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months and Six Months Ended June 30, 2022 and 2021

 

7

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021

 

8

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021

 

9

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

 

Item 2.

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

 

20

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

Item 4.

Controls and Procedures

 

28

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

29

 

 

 

 

Item 1A.

Risk Factors

 

29

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

49

 

 

 

 

Item 4.

Mine Safety Disclosures

 

49

 

 

 

 

Item 5.

Other Information

 

49

 

 

 

 

Item 6.

Exhibits

 

50

 

 

 

 

Signatures

 

52

 

5


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

June 30,
2022

 

 

December 31,
2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

70,460

 

 

$

84,833

 

Prepaid expenses and other current assets

 

 

2,328

 

 

 

3,513

 

Total current assets

 

 

72,788

 

 

 

88,346

 

Operating lease asset, net

 

 

581

 

 

 

768

 

Goodwill

 

 

48,648

 

 

 

48,648

 

In-process research and development

 

 

32,386

 

 

 

32,386

 

Other assets

 

 

303

 

 

 

400

 

Total assets

 

$

154,706

 

 

$

170,548

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,318

 

 

$

1,813

 

Current operating lease liability

 

 

287

 

 

 

369

 

Accrued expenses and other liabilities

 

 

1,671

 

 

 

2,219

 

Total current liabilities

 

 

3,276

 

 

 

4,401

 

Deferred tax liability

 

 

1,752

 

 

 

1,752

 

Non-current operating lease liability

 

 

299

 

 

 

400

 

Total liabilities

 

 

5,327

 

 

 

6,553

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Series X1 non-voting convertible preferred stock, $0.001 par value, 515,000 shares
   authorized;
117,970 and 108,070 shares issued and outstanding at June 30, 2022
   and December 31, 2021, respectively

 

 

 

 

 

 

Series X non-voting convertible preferred stock, $0.001 par value, 10,000 shares
   authorized;
6,204 shares issued and outstanding at June 30, 2022 and
   December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized at June 30, 2022
   and December 31, 2021;
13,756,788 and 14,306,788 shares issued and
   outstanding at June 30, 2022 and December 31, 2021, respectively

 

 

14

 

 

 

14

 

Additional paid-in capital

 

 

283,375

 

 

 

278,880

 

Accumulated deficit

 

 

(134,010

)

 

 

(114,899

)

Total stockholders’ equity

 

 

149,379

 

 

 

163,995

 

Total liabilities and stockholders’ equity

 

$

154,706

 

 

$

170,548

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

6


 

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(Unaudited)

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,743

 

 

$

4,242

 

 

$

12,378

 

 

$

9,895

 

General and administrative

 

 

3,540

 

 

 

3,729

 

 

 

6,764

 

 

 

7,081

 

Total operating expenses

 

 

9,283

 

 

 

7,971

 

 

 

19,142

 

 

 

16,976

 

Loss from operations

 

 

(9,283

)

 

 

(7,971

)

 

 

(19,142

)

 

 

(16,976

)

Other income/(expense), net

 

 

36

 

 

 

(1

)

 

 

31

 

 

 

4

 

Loss before income tax benefit

 

 

(9,247

)

 

 

(7,972

)

 

 

(19,111

)

 

 

(16,972

)

Income tax benefit

 

 

 

 

 

588

 

 

 

 

 

 

1,089

 

Net loss and comprehensive loss

 

$

(9,247

)

 

$

(7,384

)

 

$

(19,111

)

 

$

(15,883

)

Net loss per share, basic and diluted

 

$

(0.65

)

 

$

(0.50

)

 

$

(1.34

)

 

$

(1.07

)

Weighted-average common shares outstanding, basic and diluted

 

 

14,265,905

 

 

 

14,815,731

 

 

 

14,299,969

 

 

 

14,823,348

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


 

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series X1 Non-Voting Convertible Preferred Stock

 

 

Series X Non-Voting Convertible Preferred Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance as of December 31, 2021

 

 

108,070

 

 

$

 

 

 

6,204

 

 

$

 

 

 

14,306,788

 

 

$

14

 

 

$

278,880

 

 

$

(114,899

)

 

$

163,995

 

Cancellation of common stock in connection
   with exchange for X
1 non-voting convertible
   preferred stock

 

 

9,900

 

 

 

 

 

 

 

 

 

 

 

 

(550,000

)

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,494

 

 

 

 

 

 

4,494

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,111

)

 

 

(19,111

)

Balance as of June 30, 2022

 

 

117,970

 

 

$

 

 

 

6,204

 

 

$

 

 

 

13,756,788

 

 

$

14

 

 

$

283,375

 

 

$

(134,010

)

 

$

149,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2022

 

 

117,970

 

 

$

 

 

 

6,204

 

 

$

 

 

 

13,756,788

 

 

$

14

 

 

$

281,067

 

 

$

(124,763

)

 

$

156,318

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,308

 

 

 

 

 

 

2,308

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,247

)

 

 

(9,247

)

Balance as of June 30, 2022

 

 

117,970

 

 

$

 

 

 

6,204

 

 

$

 

 

 

13,756,788

 

 

$

14

 

 

$

283,375

 

 

$

(134,010

)

 

$

149,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

108,070

 

 

$

 

 

 

 

 

$

 

 

 

15,160,397

 

 

$

15

 

 

$

270,974

 

 

$

(80,393

)

 

$

190,596

 

Cancellation of common stock in connection
   with exchange for preferred stock

 

 

 

 

 

 

 

 

6,204

 

 

 

 

 

 

(344,666

)

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock in connection
   with exchange for warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(509,117

)

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,808

 

 

 

 

 

 

3,808

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,883

)

 

 

(15,883

)

Balance as of June 30 2021

 

 

108,070

 

 

$

 

 

 

6,204

 

 

$

 

 

 

14,306,614

 

 

$

14

 

 

$

274,783

 

 

$

(96,276

)

 

$

178,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2021

 

 

108,070

 

 

$

 

 

 

6,204

 

 

$

 

 

 

14,306,614

 

 

$

14

 

 

$

272,749

 

 

$

(88,892

)

 

$

183,871

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,034

 

 

 

 

 

 

2,034

 

Net loss and other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,384

)

 

 

(7,384

)

Balance as of June 30 2021

 

 

108,070

 

 

$

 

 

 

6,204

 

 

$

 

 

 

14,306,614

 

 

$

14

 

 

$

274,783

 

 

$

(96,276

)

 

$

178,521

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

8


 

ELEDON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months
Ended June 30,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(19,111

)

 

$

(15,883

)

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

 

 

 

 

 

 

Amortization of operating lease asset

 

 

187

 

 

 

90

 

Stock-based compensation

 

 

4,494

 

 

 

3,808

 

Deferred tax liabilities

 

 

 

 

 

(1,089

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

1,282

 

 

 

(53

)

Accounts payable and accrued expenses

 

 

(1,042

)

 

 

609

 

Operating lease liability

 

 

(183

)

 

 

(94

)

Net cash used in operating activities

 

 

(14,373

)

 

 

(12,612

)

Financing activities

 

 

 

 

 

 

Offering costs in connection with PIPE transaction

 

 

 

 

 

(450

)

Net cash used in financing activities

 

 

 

 

 

(450

)

Net change in cash and cash equivalents

 

 

(14,373

)

 

 

(13,062

)

Cash and cash equivalents at beginning of period

 

 

84,833

 

 

 

114,195

 

Cash and cash equivalents at end of period

 

$

70,460

 

 

$

101,133

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Common stock exchanged for X1 preferred stock

 

$

1

 

 

$

 

Common stock exchanged for warrants

 

$

 

 

$

1

 

Increase in operating lease asset and liability due to lease modification

 

$

 

 

$

219

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

9


 

ELEDON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Description of Business

Eledon Pharmaceuticals, Inc. (formerly Novus Therapeutics, Inc.) is a clinical stage biopharmaceutical company focused on developing life-changing, targeted medicines for persons living with an autoimmune disease, requiring an organ or cell-based transplant, or living with amyotrophic lateral sclerosis (“ALS”). Unless otherwise indicated, references to the terms “Eledon,” “our,” “us,” “we”, or the “Company” refer to Eledon Pharmaceuticals, Inc. and its wholly owned subsidiaries, on a consolidated basis.

The Company’s lead compound in development is tegoprubart, an anti-CD40L antibody with high affinity for CD40 ligand, a well-validated biological target with broad therapeutic potential.

On September 14, 2020, Eledon acquired Anelixis Therapeutics, Inc. (“Anelixis”), a privately held clinical stage biotechnology company developing a next generation anti-CD40L antibody as a potential treatment for organ and cellular transplantation, autoimmune diseases, and neurodegenerative diseases. The Company has continued to maintain its corporate headquarters in Southern California and has research and development facilities in the Boston, Massachusetts area.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and Article 8 of Regulation S-X requirements as set forth by the Securities and Exchange Commission (“SEC”) for interim financial information and reflect all adjustments and disclosures, which are, in the opinion of management, of a normal and recurring nature, and considered necessary for a fair presentation of the financial information contained herein. Pursuant to these rules and regulations, the unaudited condensed consolidated financial statements do not include all information and notes necessary for a complete presentation of results of operations and comprehensive loss, financial position, and cash flows in conformity with GAAP.

The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and accompanying notes of Eledon for the year ended December 31, 2021 included in the Annual Report on Form 10-K filed by the Company with the SEC on March 24, 2022. The results of operations and comprehensive loss for the three and six months ended June 30, 2022 are not necessarily indicative of results expected for the full fiscal year or any other future period.

Principles of Consolidation

Eledon, a Delaware corporation, owns 100% of the issued and outstanding common stock or other ownership interest in Anelixis Therapeutics, LLC, a Delaware corporation, and Otic Pharma, Ltd., a private limited company organized under the laws of the State of Israel (“Otic”). Otic owns 100% of the issued and outstanding common stock or other ownership interest in its U.S. subsidiary, Otic Pharma, Inc.

The functional currency of the Company’s foreign subsidiary is the U.S. Dollar; however, certain expenses, assets and liabilities are transacted at the local currency. These transactions are translated from the local currency into U.S. Dollars at exchange rates during or at the end of the reporting period. The activities of the Company’s foreign subsidiary are not significant to the condensed consolidated financial statements.

All significant intercompany accounts and transactions among the entities have been eliminated from the condensed consolidated financial statements.

10


 

Liquidity and Financial Condition

The Company has experienced recurring net losses and negative cash flows from operating activities since its inception. The Company recorded a net loss of $9.2 million and $19.1 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, the Company had cash and cash equivalents of $70.5 million, working capital of $69.5 million and an accumulated deficit of $134.0 million. Due to continuing research and development activities, the Company expects to continue to incur net losses into the foreseeable future. In order to continue these activities, the Company will need to raise additional funds through public or private debt and equity financings or strategic collaboration and licensing arrangements. The Company’s ability to raise additional capital in the equity and debt markets is dependent on a number of factors, including, but not limited to, the market demand for the Company’s common stock, which itself is subject to a number of development and business risks and uncertainties, as well as the uncertainty that the Company would be able to raise such additional capital at a price or on terms that are favorable to the Company. If the Company issues equity or convertible debt securities to raise additional funding, its existing stockholders may experience dilution, it may incur significant financing costs, and the new equity or convertible debt securities may have rights, preferences and privileges senior to those of its existing stockholders. If the Company issues debt securities to raise additional funding, it would incur additional debt service obligations, it could become subject to additional restrictions limiting its ability to operate its business, and it may be required to further encumber its assets.

At the time of issuance of the condensed consolidated financial statements for the three and six months ended June 30, 2022, the Company’s management performed an analysis and concluded that the Company had sufficient cash resources to meet its anticipated cash needs through at least the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make informed estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The most significant estimates in the Company’s consolidated financial statements relate to stock-based compensation, accruals for liabilities, impairment of long-lived assets, including goodwill, and other matters that affect the consolidated financial statements and related disclosures. Actual results could differ materially from those estimates under different assumptions or conditions and the differences may be material to the consolidated financial statements.

Cash and Cash Equivalents

Cash represents cash deposits held at financial institutions. The Company considers all liquid investments purchased with an original maturity of three months or less and that can be liquidated without prior notice or penalty to be cash equivalents. The carrying value of cash equivalents approximates their fair value due to the short-term maturities of these instruments. Cash equivalents are held for the purpose of meeting short-term liquidity requirements, rather than for investment purposes. The Company had $9.2 million of cash equivalents at June 30, 2022 and December 31, 2021.

Concentration of Credit Risk and Other Risks and Uncertainties

As of June 30, 2022 and December 31, 2021, all of the Company’s long-lived assets were located in the United States.

Financial instruments that are subject to concentration of credit risk consist primarily of cash equivalents. The Company’s policy is to invest cash in institutional money market funds to limit the amount of credit exposure. At times, the Company maintains cash equivalents in short‑term money market funds and it has not experienced any losses on its cash equivalents.

The Company’s products will require approval from the U.S. Food and Drug Administration (“FDA”) and foreign regulatory agencies before commercial sales can commence. There can be no assurance that its products will receive any of these required approvals. The denial or delay of such approvals may impact the Company’s business in the future. In addition, after the approval by the FDA, there is still an ongoing risk of adverse events that did not appear during the product approval process.

The Company is subject to risks common to companies in the pharmaceutical industry, including, but not limited to, new technological innovations, clinical development risk, establishment of appropriate commercial partnerships, protection

11


 

of proprietary technology, compliance with government and environmental regulations, uncertainty of market acceptance of products, product liability, the volatility of its stock price and the need to obtain additional financing.

Our facilities and equipment, including those of our suppliers and vendors, may be affected by natural or man-made disasters. Our administrative office is based in Irvine, California and we manage all our research and development activities through third parties that are located throughout the world. We have taken precautions to safeguard our facilities, equipment and systems, including insurance, health and safety protocols, and off-site storage of computer data. However, our facilities and systems, as well as those of our third-party suppliers and vendors, may be vulnerable to earthquakes, fire, storm, health emergencies, including the ongoing COVID-19 pandemic or other future health crises, power loss, telecommunications failures, physical and software break-ins, software viruses and similar events which could cause substantial delays in our operations, damage or destroy our equipment or inventory, and cause us to incur additional expenses and delay research and development activities. In addition, the insurance coverage we maintain may not be adequate to cover our losses in any circumstance and may not continue to be available to use on acceptable terms, or at all.

Reportable Segments

Operating segments under GAAP are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The CODM is the Company’s Chief Executive Officer and the Company has determined that it operates in one business segment, which is the development of products for therapeutic medicines selectively targeting critical pathways associated with the underlying molecular pathogenesis for patients with severe inflammation and autoimmune diseases.

Research and Development Expenses

Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services and non-cash stock-based compensation. Research and development costs are expensed as incurred. Amounts due under contracts with third parties may be either fixed fee or fee for service, and may include upfront payments, monthly payments and payments upon the completion of milestones or receipt of deliverables. Non-refundable advance payments under agreements are capitalized and expensed as the related goods are delivered or services are performed.

The Company contracts with third parties to perform various clinical trial activities in the on-going development of potential products. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to its vendors. Payments under the contracts depend on factors such as the achievement of certain events, successful enrollment of patients, and completion of portions of the clinical trial or similar conditions. The Company’s accrual for clinical trials is based on estimates of the services received and efforts expended pursuant to contracts with clinical trial centers and clinical research organizations. These contracts may be terminated by the Company upon written notice and the Company is generally only liable for actual effort expended by the organizations to the date of termination, although in certain instances the Company may be further responsible for termination fees and penalties, as well as reasonable shutdown costs. The Company estimates its research and development expenses and the related accrual as of each balance sheet date based on the facts and circumstances known to the Company at that time. There have been no material adjustments to the Company’s prior‑period accrued estimates for clinical trial activities during the three and six months ended June 30, 2022.

Net Loss Per Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, preferred stock, convertible notes and accrued interest, stock options, warrants and restricted stock units (“RSUs”) are considered to be potentially dilutive securities and are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss per share was the same for the periods presented due to the Company’s net loss position. Basic weighted average shares outstanding for the three and six months ended June 30, 2022 include 509,117 shares underlying warrants to purchase common shares. As the shares underlying these warrants can be issued for little

12


 

consideration (an exercise price per share equal to $0.001 per share), these shares are deemed to be issued for purposes of basic earnings per share.

 

 

 

For the Three Months
Ended June 30,