ADHERA THERAPEUTICS: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)
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, 2020and 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, 2020and 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." -29- 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 Servierand 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 Delawarecorporation, IThena Acquisition Corporation, a Delawarecorporation 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 Delawareunder the name Nastech Pharmaceutical Companyon September 23, 1983, and IThena was incorporated under the laws of the State of Delawareon 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 LLCin 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. -30- Results of Operations
Comparison of the completed year
Net SalesNet sales was approximately $252,000for the year ended December 31, 2019and represented revenues from the sale of Prestalia®, net of discounts. No net sales were recorded for the year ended December 31, 2020due to the termination of our commercial operations related to the sale of Prestalia® in December 2019.
Cost of Sales Cost of sales was approximately
$409,000for the year ended December 31, 2019and represented cost of sales from the sale of Prestalia®. No cost of sales was recorded for the year ended December 31, 2020due to the termination of our commercial operations related to the sale of Prestalia® in December 2019.
Operating expenses were
$2.0 millionfor the year ended December 31, 2020, a decrease of approximately $9.1 millioncompared to the same period in 2019. The following table summarizes our operating expenses for the years ended December 31, 2020and 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, 2020were primarily related to regulatory costs incurred for maintaining the Prestalia® NDA. General and Administrative
General and administrative expenses decreased by approximately
$3.5 millionfor 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, 2020were 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
$70,000for the year ended December 31, 2020primarily 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.
The loss on depreciation of
-31- Other Expenses The following table summarizes other expenses for the year
December 31, 2020and 2019: Year Ended December 31, December 31, Change (in thousands) 2020 2019 Inc/(Dec) Interest expense $ (1,336 )$ (662 ) $ 674Other 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
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)
Negative working capital as of
December 31, 2020was approximately $14.8 millionas compared to negative working capital of approximately $9.9 millionas of December 31, 2019. As of December 31, 2020, current assets were approximately $1,000and related to cash and cash equivalents. As of December 31, 2019, current assets were approximately $420,000, including approximately $370,000in prepaids and other assets, and $50,000in cash and cash equivalents. As of December 31, 2020, current liabilities were approximately $14.8 millionan increase of approximately $4.5 millionfrom December 31, 2019primarily due to an increase in accounts payable and accrued expenses and dividends of approximately $2.0 million, an increase of approximately $1.0 millionfor issuance of notes payable net of issuance costs, and approximately $1.5 millionin 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, 2020and 2019: Year Ended December 31, December 31, (in thousands) 2020 2019
Net cash used in operating activities $ (588)
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 millionduring 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 millionof non-cash interest and the amortization of debt issuance and discount costs related to our 2020 term loans. -32-
Net cash used in operating activities was approximately
$8.7 millionduring 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 millionof 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
Net cash provided by financing activities
Net cash provided by financing activities of approximately
$539,000during the year ended December 31, 2020was primarily due to the issuance of approximately $650,000in promissory notes off set by debt issuance costs of $114,000. Net cash provided by financing activities of approximately $4.9 millionduring the year ended December 31, 2019was primarily due to the issuance of approximately $5.7 millionin 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 millionand 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 millionand 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. -33-
Off-balance sheet arrangements
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.
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