Statera Biopharma, Inc.
Q3 2021 Earnings Call Transcript

Published: 15 Nov 2021

[Operator:]

Good morning, ladies and gentlemen, and thank you for joining us for Statera Biopharma Inc's Third Quarter 2021 Financial Results Conference Call. Following the prepared remarks from the company, we will open the call for questions. I would now like to turn the call over to Statera's Executive Vice President of Investor Relations, Nichol Ochsner. Ma'am, you may now begin.

[Nichol Ochsner:]

Good afternoon everyone and thank you for joining the Statera Biopharma's 2021 third quarter financial results and corporate update call. Earlier this afternoon, Statera Biopharma issued a press release detailing the financial results for the three and nine months ended September 30, 2021, which we encourage listeners to read. The press release can be found in the Investors section for staterabiopharma.com, Statera also filed a 10-Q this afternoon, which is available on sec.gov. Before beginning today's call, I would like to make the following statements. Today we will be making certain forward-looking statements about operating metrics, future expectations, plans, events, and circumstances, including statements about our strategy, future operations and the development and effectiveness of our investigational drug candidates and our expectations regarding our capital allocation and cash resources. These statements are based on current expectations and you should not place undue reliance on these statements. Actual results may differ materially due to our risks and uncertainties, including those detailed in our most recent 10-K filing. Statera disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events or otherwise. With us on today's call is Michael K. Handley, President and CEO of Statera Biopharma Inc, who will provide an update on Statera's recent corporate and clinical achievements and the company's vision for the future. Mr. Peter Aronstam, Chief Financial Officer of Statera Biopharma, who will discuss the company's financial results; and Dr. Taunia Markvicka, Chief Operating Officer of Statera, who will discuss the company's clinical program. I'd now like to turn the call over to our CEO, Michael Handley. Michael, please go ahead.

[Michael K. Handley:]

Great. Thanks Nicole. Thanks everyone for joining our conference this afternoon, including all of you joining for the first time. Today, I'm speaking to you as CEO of Statera Biopharma. Just three months ago, we were known as Cytocom. Through the reverse merger with Cleveland BioLabs and the acquisition of the drug development company, ImQuest Life Sciences, we emerged as a publicly-traded company at the end of July, focused on developing the next generation of immune modulating agents, addressing autoimmune infectious disease, cancer and blood disorders, but our new company deserves a new name reflective of the company's core focus and identity. On September 1, 2021, we formally rebranded as Statera Biopharma with a new ticker symbol STAB. Our name Statera has taken from the Latin word balance. And this with our corporate tagline, restoring immune health, we're chosen to reflect the strategic focus of the company and of our pipeline. Statera is a clinical stage biopharmaceutical company at the forefront of developing the next generation of therapeutic agents focused on immune modulation and the restoration of immune homeostasis. In simple terms, you're driving the science, which demonstrates that an overactive or an underactive immune system can drive disease progression. We are focused on developing drugs to restore and rebalance the immune system to address autoimmune, blood disorders, infectious disease and cancer. With the recent merger, we have created one of the largest toll receptor platforms and since then we have not slowed down. Please advance to Slide 4. Our pipeline focus is initially targeting autoimmune disease with the STAT-201 program in pediatric Crohn's disease. We expect to expand into hematology with the STAT-600 program or entolimod, an oncology with the STAT-401 program in pancreatic cancer. Beyond our clinical programs, we're also working to develop new second generation assets to further support our growth strategy and deepen our pipeline. We are already screening this first round of second generation immunomodulatory compounds, harnessing the tools and capabilities of our ImQuest Life Sciences subsidiary to select those compounds most likely to succeed in preclinical and clinical trials. Statera is also establishing new research alliances. In August, we finalized a five year drug discovery agreement with La Jolla Institute of immunology, directed to research that will support the development of potential new immune-modulating agents targeting toll-like receptors for the treatment of cancer, infectious, autoimmune, and some chronic inflammatory diseases. The research will harness Statera's proprietary drug discovery and development platform technology. We are pleased to add this prestigious research center to the growing list of those involved in our development and clinical programs. Included on this list is Loma Linda University Health and Roswell Park Comprehensive Cancer Center in Buffalo, New York. Work is also underway to integrate the former ImQuest Life Sciences in Cleveland BioLab to organizations, as well as the subsidiaries and joint ventures with Statera. We're exploring opportunities to monetize non-core assets. In the meantime, we expect to achieve several clinical and corporate milestones over the next 12 to 18 months. Our ultimate goal is to change the way people think about immunotherapy. Statera has promising technology focused on delivering immune therapies that target toll-like immune receptors, a type of protein central to the immune response that plays a key role in fighting disease and restoring immune homeostasis. We believe Statera now has one of the largest platforms of toll-like receptors in the pharmaceutical industry with our toll-like receptor 4, toll-like receptor 9 antagonists and our toll-like receptor 5 agonists entolimod and GP532. We also plan to further strengthen the balance sheet to enable the growth and expansion of our pipeline. Our CFO, Peter Aronstam, will review our quarterly numbers and financing arrangements, including a credit facility and equity line-of-credit agreement. The company ended the third quarter with approximately $14.4 million in cash on hand and expects to strengthen our capital position by the end of the year to further grow our initiatives, fund business development plans and advanced development of our internal pipeline. With that as an intro, I'd like now to hand our call over to CFO, Peter Aronstam, who will discuss the third quarter of financial results. Peter?

[Peter Aronstam:]

Thanks very much, Mike. As Mike just pointed out, this is the first time we're speaking to the investors and the analysts from Statera as a newly emerge company. So, before I go into more detail about the numbers that we filed in the 10-K, 10-Q today, let me briefly describe how the rules for accounting for the mergers requires us to present those numbers. You'll read in the 10-K, for example, that the accounting survivor under the mergers was old Cytocom. You'll also read that the surviving legal entity was old CBLI, even though as Mike has mentioned, it changed the same back to Cytocom immediately after the merger, and then later on change the name to the Statera. So, what do those accounting terms mean when we speak about accounting or legal survivor? And what do they mean to us for the results that we presented in the 10-Q today? I'd like you now go through these numbers and to keep in mind three things. First. when you look at the income statement or the P&L that's the statement of the accounting survivor. So, you're looking in the P&L at old Cytocom. And what you are seeing there in the P&L is the results for all of 2020 and 2021 through to the end of June for old Cytocom only. So, there's no revenues or expenses included in those periods for ImQuest or old CBLI. Keep in mind that the merger with ImQuest only closed at the end of June this year. And as Mike also mentioned, the merger with CBLI only closed at the end of July. So, for the three months end it September 30, 2021, the P&L combines the results of Cytocom with the results for those other companies, only from the closing dates of each merger to the end of September. So, for those of you who like to perform comparisons in relation to prior periods, please keep in mind that those comparisons will really only become meaningful when we get to, and when we report the third quarter of 2022. You'll also see in the 10-Q the term accounting survivor, what that means from a balance sheet perspective, is the assets and liabilities presented up to the merger date for those of Cytocom only. So that's the assets and liabilities only not the equity accounts. Assets and liabilities of old CBLI and ImQuest only added to the sheet from their respective merger dates. And then the third thing to keep in mind is that because CBLI is the surviving legal entity, its bylaws and its articles is registered with the State of Delaware, provide the merger. So that means for reporting that the statement of equity shown in the balance sheet authorized and issued common stock, the authorized and issue preferred stock is that of both CBLI and old Cytocom fully merged only for all periods in the report. So that's why, for example, if you were an old Cytocom investor, you don't see any references in the equity section to the preferred shares issued by old Cytocom in 2020 and 2021. All of those old Cytocom shares were exchanged in the merger for common shares in old CBLI. And you now see them reported in the equity section as Statera common shares. If there's any questions about this merger accounting, we'll be happy to take them at the end of the formal presentation. Turning now to the next slide, Slide Number 6 in the presentation, let me just talk very briefly about the results reported for the nine months and the three months in the 10-Q. The company reported revenues of $236,000 in the quarter ended September 30, 2021. All of those revenues were derived from research services provided by ImQuest to its customers. Their customer revenues was approximately $116,000, which means that they and made a gross profit of $120,000 or approximately 51%. And as I just mentioned a few minutes ago we reported no revenues in the same period of 2020 because the merger with ImQuest only became effective at the end of June 2021. I just want to point out this in the slide also that ImQuest recognizes revenues when it delivers its final research reports to its customers, even if it is collected cash in advances, delivery or other reports. For, cash received the full delivery is shown on the balance sheet as deferred revenue. And if you look at our September 30, 2021 balance sheet, you'll see that we reported deferred revenue of approximately $506,000 in this manner. And that indicates to since the beginning of July in total ImQuest has collected approximately three quarters of a $1 million from its client. So just keep in mind you the sum of the revenues plus the deferred revenues almost three quarters of a $1 million is indicative of ImQuest’s currently quarterly revenue run rate. As I explained earlier when you compare expenses for research and development and G&A in the third quarter of 2021 against the same quarter of 2020, please keep in mind the 2020 numbers reflect spending only for old Cytocom. The 2021 third quarter includes ImQuest for the full three months, old CBLI expenses were included only since August the 28, 2021. So, turning now to research and development expenses, you'll see that they decreased from $4.4 million for the three months ended September 30, 2020 to $3.4 million for the three months ended September 30, 2021, a decrease of just under $1 million or 21.6%. And the decrease was primarily attributable to one time patent expenses totaling, approximately $3.8 million that were incurred in 2020 arising from the transfer of intellectual privacy to old Cytocom by its previous parent company, Immune Therapeutics. Debt reduction and expenses was offset by increased spending on R&D programs for the three months ended September 30, 2021. And that increase of $3.4 million compared to a $0.5 million for the same period in 2020. Please refer to the 10-Q that we filed earlier today after looking for specific pages – as you look at pages 24 to 27, where you'll find more detail about the 2021 R&D spending by indication or by disease. You'll see that most of the 2021 spending was on Crohn's research followed by post-acute COVID and then pancreatic cancer. Turning quickly to our G&A expenses. They increased from $1.8 million in the three months ended September 30, 2020 to $6.3 million for the three months ended September 30, 2021. And that was an increase of $4.5 million or 253% year-over-year. Most of the increase is attributable to growth in headcount. Also in 2020, old Cytocom was a private company and the cost of going public and being public through the merger added significantly to our G&A expenses in 2021. The three-month period ended September 30, 2021, Statera posted a net loss from operations of $12.7 million or $0.47 per share compared to a net loss of $5.7 million or $1.84 per share for the same period last year. And that loss also included accrual for legal settlement. We accrued $1.8 million for that and interest in other share related expenses of $707,000. Please callers if you could just flip through the Slide 7, so continue on Slide 7 when we reported old CBLI's June 30, 2021 financial position back in August, we referenced the fact that Statera had become partly to two financing arrangements entered into by old Cytocom before the merger. So the first financing arrangement was the loan agreement we closed in April, 2021 with Avenue Venture Opportunities Fund. And we described one of the loan terms in detail in an August filing and we've repeated some of them in this 10-Q. In May, 2021, we drew down the full $15 million of the loan from Avenue. We were required to put 5 million of the proceeds in our escrow account and the 10 million balance became available to us immediately for general operation. The 5 million with still in escrow will be released to us when we meet the conditions of the agreement and particularly the issuance of an additional equity in excess of $20 million. The second financing arrangement that we have announced previously was an equity line of credit, which we entered into the May of 2021 with GEM Global Yield LLC. Another – under the GEM deal, the company may sell from time to time up to $75 million in shares of its common stock at a price equal to 90% of the recent trading price of the company's common stock. I just want you all to be aware that the availability of the whole $75 million is subject to certain conditions, including being subject to a NASDAQ rule with no single shareholder may own or control more than 19.99% of the company stock. And at the time we reported and filed the 10-K today, we have not yet used the GEM facility. So as Mike mentioned earlier at September 30, 2021, we had cash, cash equivalent and restricted cash on hand of $14.4 million. And that represents an increase of $13.8 million since the end of our last fiscal year December 31, 2020. The increase in cash was caused partly through the cash contributed to the merge company by CBLI and ImQuest plus the cash we raised from Avenue Ventures last May. And then it was offset by the net cash we used in operations. And as you'll see from the 10-Q, we used $20.1 million in operations for the first nine months in the September 30, 2021. So the time we're speaking to you this evening, we're presenting or sorry, we're finalizing our budget for 2022. Budget spending is not absolutely committed. And we can modulate it under current conditions to execute only on our key objectives and potentially to acquire assets opportunistically. Given however that we would prefer to receive all of the budget objectives and that our ability to cover budget spending for the next year only from our existing equity line would be dependent on our stock performance over the next couple of quarters. We determined that it would be prudent to have in place by year end additional binding commitments to give us more capital. And to that end, we have engaged in discussions with three new investors and two existing investors to obtain new debt and equity commitments aggregating up to $60 million. We're also currently in discussion for the potential sale or out licensing of drug candidates or entering other strategic transactions to raise capital to fund the final budgets. We'll announce specifics of these transactions as soon as we have these, sorry, as soon as we have binding commitments from the other parties. So with that description of the income statement, the balance sheets and the cash flow position for the company at the end of September, I'd like to return the call to Michael Handley.

[Michael K. Handley:]

Great. Thank you, Peter. As I stated earlier, Statera is well positioned to become the leader in the field of immune modulation. Last month we received Institutional Review Board or IRB approval to conduct a Phase 1 pilot study at Loma Linda University Health Center to evaluate one of our drugs STAT-205 as a treatment – potential treatment for acute COVID-19. Loma Linda has started screening patients for the study and the first patient is expected to be treated this month. And we expect to have preliminary data readouts in mid-2022. In the meantime, we are aggressively advancing our clinical program in pediatric Crohn's disease and anticipate site activation by the end of the year and enrollment in this pivotal Phase 3 trial to start next year. To discuss these and our other clinical programs, I'd like to turn the call over Dr. Taunia Markvicka, our Chief Operating Officer. Taunia?

[Taunia Markvicka:]

Thank you, Mike. So turning to Slide 9, you can see that Statera is well positioned to further the development of our clinical stage pipeline and continues to expand our capabilities to support the breadth of our toll receptor pipeline. As Mike mentioned, we've initiated a Phase 1 pilot program at Loma Linda to evaluate the safety, tolerability and pharmacokinetics of STAT-205 and patients with acute COVID-19 infection. STAT-205 is an immune modulator designed to decrease elevated inflammatory responses associated with viral infection and inhibit viral replication. The study is targeted for PK biomarker and safety analysis, and rolling up to 24 patients. It represents an important step for Statera and potentially also millions of people who have become infected with COVID-19 and highly contagious variants, as well as those struggling with post-acute COVID syndrome or PACS. Statera is considering a study under the existing IND to evaluate STAT-205 safety and its ability to improve disease progression, or resolve long-term symptoms. Now turning to Slide 10; during 2022 we see several more clinical trials getting underway. Following a productive into Phase 2 meeting with FDA earlier this year, we anticipate enrolling patients in a Phase 3 clinical trial for our lead drug candidate STAT-201 for the treatment of pediatric patients with Crohn's Disease. Studies show that because the signs and symptoms of the disease are unpredictable and patients living with Crohn's endure significant burdens not only physically, but also emotionally and economically, and this can be even more challenging for children and their parent. Statera continues to evaluate Cleveland BioLabs development pipeline. And we see a tremendous opportunity for entolimod in the next generation GP532 based on the potential that toll-like receptor 5 agonists in hematology, specifically for the treatment of neutropenia and anemia in cancer patients. These are common and sometimes life-threatening conditions facing cancer patients when chemotherapy and radiation treatments disrupts the body's production of white blood cells or red blood cells. As many as 50% of cancer patients will develop anemia or reduction in their red blood cells at a point at some point, and as many as 60,000 patients are hospitalized with neutropenia every year. We believe in entolimod could become a critical component of the treatment regimen for cancer patients. We have reinitiated discussions with the FDA in order to establish the development program in oncology and hematology and discussions are underway with the leading academic institution or PI to investigate a study with entolimod. We will provide more information at a later date as things become more firmed up. And then of course, there's the pancreatic cancer program. Pancreatic cancer is a devastating disease, now counted as the third leading cause of cancer death behind lung and colon cancer. We are developing STAT-401 as an adjunct to the standard of care therapy to extend the duration of disease remission in patients with pancreatic cancer. The FDA granted previously STAT-401 orphan drug designation. In August this year, the company received feedback following a Type C meeting with U.S. regulators regarding STAT-401 and our plans for clinical development. We have established an advisory panel of oncology experts and are initiating – establishing drug supply for clinical studies. And we now expect to be able to initiate a clinical program, a Phase 1b2 clinical trial during the first half of 2022. With that I'd like to hand the call back to Mike.

[Michael K. Handley:]

Great. Thank you, Taunia. As I said earlier, these are exciting times for Statera and we look forward to building upon the current momentum throughout the remainder of 2021 and into 2022. I would now like to take any questions and joining me for the Q&A portion of this call is our Chief Financial Officer, Peter Aronstam; our Chief Operating Officer, Dr. Taunia Markvicka; and our VP of Finance, Chris Zosh. With that, I'll now open the call to any of your questions.

[Q -:]

[Operator:]

Since there are no further questions at this time, I'll now turn the call back over to Michael Handley for closing remarks.

[Michael K. Handley:]

Great. Thank you. As we've discussed, Statera is gearing up to hit on all cylinder. We have achieved a great deal during the past year, which we are very proud of and we're working hard to maintain that momentum. In the coming months, we expect to achieve multiple milestones generating value for our shareholders as we intend to advance our clinical stage programs and pursue further research alliances. By this time next year, we can be treating patients in clinical trials, exploring three investigative immune modulating programs across multiple indications, including a Phase 3 pivotal trial. We will continue to execute our growth strategy, and we look forward to providing periodic updates. I'd like to thank all of our employees for their dedication and loyalty and hard work. And as always, I want to thank our stakeholders and shareholders for their continued support. I appreciate your time and attention today, and I would like to extend my sincere wishes and good help to all. Thank you.

[Operator:]

This concludes today's conference call. Thank you all for joining. You may now disconnect.