ADHERA THERAPEUTICS: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

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Overview



The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is intended to provide information necessary to understand
our audited consolidated financial statements for the two-year period ended
December 31, 2020 and highlight certain other information which, in the opinion
of management, will enhance a reader's understanding of our financial condition,
changes in financial condition and results of operations. In particular, the
discussion is intended to provide an analysis of significant trends and material
changes in our financial position and the operating results of our business
during the year ended December 31, 2020, as compared to the year ended December
31, 2019. This discussion should be read in conjunction with our consolidated
financial statements for the two-year period ended December 31, 2020 and related
notes included elsewhere in this annual report on Form 10-K. These historical
financial statements may not be indicative of our future performance. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains a number of forward-looking statements, all of which are
based on our current expectations and could be affected by the uncertainties and
risks described throughout this filing, particularly in "Item 1A. Risk Factors."



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Corporate Overview



Nature of Business



Adhera Therapeutics, Inc. and its wholly-owned subsidiaries, MDRNA Research,
Inc. ("MDRNA"), Cequent Pharmaceuticals, Inc. ("Cequent"), Atossa Healthcare,
Inc. ("Atossa"), and IThenaPharma, Inc. ("IThena") (collectively "Adhera," the
"Company," "we," "our," or "us"), is an emerging specialty biotech company that,
to the extent that resources and opportunities become available, is
strategically evaluating its focus including a return to a drug discovery and
development company, and a departure from active commercialization and promotion
of hypertension treatment options in the U.S. market.



During 2020, to the extent that resources have been available, we have been
working with our advisors to restructure our company and to identify potential
strategic transactions to enhance the value of our company as such opportunities
arise, including potential transactions and capital raising initiatives
involving the assets relating to our legacy RNA interference programs, as well
as business combination transactions with operating companies. There can be no
assurance that we will be successful at identifying any such transactions, that
we will continue to have sufficient resources to actively attempt to identify
such transactions, or that such transactions will be available upon terms
acceptable to us or at all. If we do not complete any significant strategic
transactions, or raise substantial additional capital, in the immediate future,
it is likely that we will discontinue all operations and seek bankruptcy
protection.



Furthermore, we were evaluating all strategic options to out-license and/or
divest our existing commercial assets, including any assets that we currently
hold relating to Prestalia as well as our DyrctAxess platform, which is designed
to offer enhanced efficiency, control and access to the information necessary to
empower patients, physicians and manufacturers to achieve optimal care. On
January 4, 2021, the Company's licensing agreement for the sale and marketing of
Prestalia in the US was terminated by Servier and all potential out-licensing
activities related to divesting the asset were discontinued.



Background



On November 15, 2016, Adhera entered into an Agreement and Plan of Merger with
IThenaPharma, Inc., a Delaware corporation, IThena Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of IThena ("Merger Sub"), and
a representative of the stockholders of IThena (the "Merger Agreement"),
pursuant to which, among other things, Merger Sub merged with and into IThena,
with IThena surviving as a wholly-owned subsidiary of Adhera (such transaction,
the "Merger"). As a result of the Merger, the former holders of IThena common
stock immediately prior to the completion of the Merger owned approximately 65%
of the issued and outstanding shares of Adhera common stock immediately
following the completion of the Merger.



Adhera was incorporated under the laws of the State of Delaware under the name
Nastech Pharmaceutical Company on September 23, 1983, and IThena was
incorporated under the laws of the State of Delaware on September 3, 2014.
IThena is deemed to be the accounting acquirer in the Merger, and thus the
historical financial statements of IThena will be treated as the historical
financial statements of our company and will be reflected in our quarterly and
annual reports for periods ending after the effective time of the Merger.
Accordingly, beginning with our Annual Report on Form 10-K for the fiscal year
ended December 31, 2016, we started to report the results of IThena and Adhera
and their respective subsidiaries on a consolidated basis.



Subsequent to the Merger, we executed on our strategy to become a commercial
stage pharmaceutical company by acquiring Prestalia from Symplmed
Pharmaceuticals LLC in June 2017. Prestalia is an FDA-approved and marketed
anti-hypertensive drug. Prestalia is an FDC of perindopril arginine, which is an
ACE inhibitor, and amlodipine besylate, which is a calcium-channel blocker and
is indicated as a first line therapy for hypertension control. The acquisition
of Prestalia transitioned our company from a clinical stage company to a
commercial organization. We re-introduced Prestalia into the U.S. market in June
2018, with continued promotion through December 2019, at which time we
terminated our business operations, including the commercialization of
Prestalia.



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Results of Operations


Comparison of the completed year December 31, 2020 at the end of the year December 31, 2019



Net Sales



Net sales was approximately $252,000 for the year ended December 31, 2019 and
represented revenues from the sale of Prestalia®, net of discounts. No net sales
were recorded for the year ended December 31, 2020 due to the termination of our
commercial operations related to the sale of Prestalia® in December 2019.

Cost of Sales



Cost of sales was approximately $409,000 for the year ended December 31, 2019
and represented cost of sales from the sale of Prestalia®. No cost of sales was
recorded for the year ended December 31, 2020 due to the termination of our
commercial operations related to the sale of Prestalia® in December 2019.

Operating Expenses


Operating expenses were $2.0 million for the year ended December 31, 2020, a
decrease of approximately $9.1 million compared to the same period in 2019. The
following table summarizes our operating expenses for the years ended December
31, 2020 and 2019:



                                                                Year Ended
(in thousands)                          December 31, 2020       December 31, 2019         Change
Sales and marketing                    $               839     $             5,260     $      (4,421 )
General and administrative                           1,198                   4,713            (3,515 )


Amortization                                             _                      70               (70 )
Impairment of intangibles and other
assets                                                   _                   1,116            (1,116 )
Total operating expenses               $             2,037     $            11,159     $      (9,122 )




Sales and Marketing



Sales and marketing expenses decreased by approximately $4.4 million, primarily
due to the termination of our commercial operations related to the sale of
Prestalia® in December 2019. Sales and marketing expenses for the year ended
December 31, 2020 were primarily related to regulatory costs incurred for
maintaining the Prestalia® NDA.



General and Administrative


General and administrative expenses decreased by approximately $3.5 million for
the year ended December 31, 2020, as compared to the year ended December 31,
2019, primarily due to the termination of our commercial operations related to
the sale of Prestalia® in December 2019. General and administrative expenses for
the year ended December 31, 2020 were primarily related to personnel related
expenses and other consulting fees incurred to maintain our public company
regulatory obligations.



Amortization Expense



Amortization of intangible assets decreased by approximately $70,000 for the
year ended December 31, 2020 primarily due to the write-off of intangibles in
2019, as a result of our decision to divest assets that no longer align with our
strategic objectives.


Good will and depreciation of intangible assets

The loss on depreciation of $ 1.1 million for the year ended December 31, 2019, was the result of our strategic decision to discontinue the sale, marketing and marketing of Prestalia®.


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Other Expenses



The following table summarizes other expenses for the year December 31, 2020 and
2019:



                                                   Year Ended
                                 December 31,       December 31,        Change
(in thousands)                       2020               2019           Inc/(Dec)
Interest expense                $       (1,336 )   $         (662 )   $       674
Other income                                45                  -             (45 )
Amortization of debt discount             (438 )                -          
  438
Total other expense, net        $       (1,729 )   $         (662 )   $     1,067

Total other net expenses for the year ended December 31, 2020 increased by about $ 1.0 million compared to the year ended December 31, 2019. The increase is primarily attributable to accrued interest, amortization of debt issuance costs and debt discounts, resulting from the issuance of promissory notes in 2020.

Liquidity and capital resources


Working Capital



                                December 31,       December 31,
(in thousands)                      2020               2019           Change
Current assets                 $            1     $          420     $   (419 )
Current liabilities                    14,774             10,307        4,467

Working capital (shortfall) ($ 14,773)($ 9,887)($ 4,886)




Negative working capital as of December 31, 2020 was approximately $14.8 million
as compared to negative working capital of approximately $9.9 million as of
December 31, 2019. As of December 31, 2020, current assets were approximately
$1,000 and related to cash and cash equivalents. As of December 31, 2019,
current assets were approximately $420,000, including approximately $370,000 in
prepaids and other assets, and $50,000 in cash and cash equivalents.



As of December 31, 2020, current liabilities were approximately $14.8 million an
increase of approximately $4.5 million from December 31, 2019 primarily due to
an increase in accounts payable and accrued expenses and dividends of
approximately $2.0 million, an increase of approximately $1.0 million for
issuance of notes payable net of issuance costs, and approximately $1.5 million
in accrued dividends for our Series E and F Preferred stock.



Cash Flows and Liquidity



The following table summarizes cash flows for the year ended December 31, 2020
and 2019:



                                                       Year Ended
                                             December 31,       December 31,
(in thousands)                                   2020               2019

Net cash used in operating activities $ (588) ($ 8,738)
Net cash used in investing activities

                    -                  -
Net cash provided by financing activities              539              4,870
(Decrease)/Increase in cash                 $          (49 )   $       (3,868 )

Net cash used in operating activities

Net cash used in operating activities was approximately $0.6 million during the
year ended December 31, 2020. This was primarily due to a net loss of
approximately $3.8 million, partially offset by changes in operating assets and
liabilities and non-cash charges including approximately $1.7 million of
non-cash interest and the amortization of debt issuance and discount costs
related to our 2020 term loans.



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Net cash used in operating activities was approximately $8.7 million during the
year ended December 31, 2019. This was primarily due to the net loss of
approximately $12.0 million, partially offset by changes in operating assets and
liabilities and non-cash charges including approximately $0.7 million of
interest and the amortization of debt issuance costs related to our term loan.



Net cash used in investing activities

No cash was used or provided by investing activities during the years ended December 31, 2019 or 2020.

Net cash provided by financing activities

Net cash provided by financing activities of approximately $539,000 during the
year ended December 31, 2020 was primarily due to the issuance of approximately
$650,000 in promissory notes off set by debt issuance costs of $114,000.



Net cash provided by financing activities of approximately $4.9 million during
the year ended December 31, 2019 was primarily due to the issuance of
approximately $5.7 million in promissory notes off set by debt issuance costs of
$0.7 million.


We will need to raise additional operating capital in calendar year 2021 in order to maintain our operations, restructure the company and achieve our business plan. Without additional sources of cash and / or the postponement, reduction or elimination of significant planned spending, we may not have the cash resources to continue operating thereafter.


Going Concern



The accompanying consolidated financial statements have been prepared on the
basis that we will continue as a going concern, which contemplates realization
of assets and the satisfaction of liabilities in the normal course of business.
At December 31, 2020, we had a significant accumulated deficit of approximately
$44.6 million and negative working capital of approximately $14.8 million. For
the year ended December 31, 2020, we had a loss from operations of approximately
$2.0 million and negative cash flows from operations. Our operating activities
consume the majority of our cash resources. We have incurred recurring losses
and negative cash flows from operations since inception we have funded our
operating losses through the sale of common stock, preferred stock, warrants to
purchase common stock, convertible notes and secured promissory notes.



In addition, to the extent that we continue our business operations, we
anticipate that we will continue to have negative cash flows from operations, at
least into the near future. However, we cannot be certain that we will be able
to obtain such funds required for our operations at terms acceptable to us or at
all. If we are unable to obtain additional financing in the future, there may be
a negative impact on the financial viability of our company. We plan to increase
working capital by managing our cash flows and expenses, divesting development
assets and raising additional capital through private or public equity or debt
financing. There can be no assurance that such financing or partnerships will be
available on terms which are favorable to our company or at all. While our
management believes that it has a plan to fund ongoing operations, there is no
assurance that its plan will be successfully implemented. Failure to raise
additional capital through one or more financings, divesting development assets
or reducing discretionary spending could have a material adverse effect on our
ability to achieve our intended business objectives. These factors raise
substantial doubt about our ability to continue as a going concern.



Future Financing



We will require substantial additional funds on an immediate basis to continue
our business operations. We have, in the past, raised additional capital to
supplement our commercialization, clinical and pre-clinical development and
operational expenses. We will need to raise additional funds through equity
financing, debt financing, strategic alliances, or other sources, which may
result in significant further dilution in the equity ownership of our shares or
in further encumbrances being placed on our assets. There can be no assurance
that additional financing will be available when needed or, if available, that
it can be obtained on commercially reasonable terms, or that it will be
sufficient for us to successfully engage in any of our planned business
operations, including re-starting the drug development and discovery programs
relating to our legacy RNA interference assets. If we are not able to obtain
additional financing on a timely basis, or generate significant capital from the
out-licensing and/or divestiture of existing assets, we will not be able to meet
our other obligations as they become due and will be forced to scale down or
even cease our operations altogether.



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Off-balance sheet arrangements

From December 31, 2020, we did not have any significant off-balance sheet arrangements, as defined in point 303 (a) (4) (ii) of the SEC SK regulation.

Accounting policies and critical estimates



In preparing the financial statements, we make estimates and assumptions that
have an impact on the assets, liabilities, revenue, and expenses reported. These
estimates can also affect supplemental information disclosed by us, including
information about contingencies, risk, and financial condition. We believe,
given current facts and circumstances, that our estimates and assumptions are
reasonable, adhere to GAAP, and are consistently applied. Inherent in the nature
of an estimate or assumption is the fact that actual results may differ from the
estimates, and estimates may vary as new facts and circumstances arise. Our
significant accounting policies are more fully described in the notes to our
financial statements included herein for the period ended December 31, 2020.



New and recently adopted accounting statements

All new and recently adopted accounting pronouncements are further described in Note 2 to our financial statements included herein for the year ended.
December 31, 2020.

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