GRI BIOPAR You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes beginning on page F-1 of this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled "Item 1A. Risk Factors" and "Special Note Regarding Forward-Looking Statements" of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
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Overview
Historically, we have been primarily focused on the development and
commercialization of novel abuse-deterrent medications for CNS disorders. Our
lead investigational product candidate, ADAIR, was a proprietary,
abuse-deterrent oral formulation of immediate-release dextroamphetamine (the
main active ingredient in Adderall®), which was being developed for the
treatment of attention-deficit/hyperactivity disorder (ADHD) and narcolepsy. In
While assessing the best path forward for the ADAIR and ADMIR development
programs in relation to the results of the SEAL study, we engaged
After conducting a diligent and extensive process of evaluating strategic
alternatives and identifying and reviewing potential candidates for a strategic
acquisition or other transaction, which included the receipt of 15 formal merger
proposals from interested parties and careful evaluation and consideration of
those proposals, and following extensive negotiation with a number of possible
candidates, on
At the effective time of the Merger (the Effective Time), each share of common
stock of GRI,
Medice License Agreement
In
COVID-19
The global COVID-19 pandemic continues to present uncertainty and unforeseeable new risks to our operations and business plan. We have closely monitored recent COVID-19 developments, including the lifting of COVID-19 safety measures, the drop in vaccination rates, the implementation of, and reaction to, vaccine mandates, the spread of new strains or variants of the coronavirus (such as the Delta and Omicron variants), and supply chain and labor shortages. In light of these developments, the full impact of the COVID-19 pandemic on our business and operations remains uncertain and will vary depending on the pandemic's future impact on the third parties with whom we do business, as well as any legal or regulatory consequences resulting therefrom. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with most of its employees and consultants working remotely. We will continue to actively monitor the COVID-19 pandemic and may take further actions that alter its operations, including those that may be required by federal, state or local authorities, or that it determines are in the best interests of its employees and other third parties with whom we do business.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles
generally accepted in
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assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Marketable securities consist of debt securities that are designated as available-for-sale. Marketable debt securities are recorded at fair value and unrealized holding gains or losses are reported as a component of accumulated other comprehensive income (loss). The amortization of discounts and premiums on marketable securities is included in interest expense, net on the statements of operations and comprehensive loss.
Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold. An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis is determined to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the amortized cost basis, any adverse changes in the financial condition of the issuers and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Revenue Recognition
We account for revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. This standard applies to all contracts with customers with the exception of contracts that are within the scope of other standards, such as leases, insurance and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services.
We perform the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only recognize revenue when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be transferred to the customer.
To date, our revenues have been generated by a single license agreement (the
Medice License Agreement) with Medice (Note 13). The Medice License Agreement
included an exclusive license to develop, use, manufacture, market and sell
ADAIR throughout
Stock-based Compensation
We recognize expense for employee and non-employee stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation. ASC Topic 718 requires that such transactions be accounted for using a fair value-based method. The estimated fair value of the options is amortized over the vesting period, based on the fair value of the options on the date granted, and is calculated using the Black-Scholes option-pricing model. We account for forfeitures as incurred.
Estimating the fair value of option shares issued under the employee stock purchase plan requires the input of subjective assumptions, including the estimated fair value of our common stock, the expected life of the option, stock price volatility, the risk-free interest rate and expected dividends. The assumptions used in our Black-Scholes option-pricing model represent management's best estimates and involve a number of variables, uncertainties and assumptions and the application of management's judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.
These assumptions used in our Black-Scholes option-pricing model are estimated as follows:
•Expected Term. Due to the lack of sufficient company-specific historical data,
the expected term of employee options is determined using the "simplified"
method, as prescribed in
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•Expected Volatility. The expected volatility is based on historical volatilities of similar entities within our industry which were commensurate with the expected term assumption as described in SAB No. 107.
•Risk-Free Interest Rate. The risk-free interest rate is based on the interest
rate payable on
•Expected Dividends. The expected dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.
Leases
We account for leases in accordance with Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) and ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases (Topic 842): Targeted Improvements, both of which clarify and enhance the certain amendments made in ASU 2016-02. The ASUs increase transparency and comparability among entities by recognizing for all leases lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. We entered into one lease for manufacturing equipment for ADAIR which we determined was a finance lease.
Financial Operations Overview
Research and Development Expenses
Research and development expenses include personnel costs associated with research and development activities, including third party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred.
Our research and development expenses have consisted primarily of in-process research and development expenses, costs incurred in preparing for and conducting the development program for ADAIR, working on commercial manufacturing of ADAIR and developing formulations for ADMIR. Research and development costs are expensed as incurred. These expenses include:
•employee -related expenses, such as salaries, bonuses and benefits, consultant-related expenses such as consultant fees and bonuses, stock-based compensation, overhead related expenses and travel related expenses for our research and development personnel;
•expenses incurred under agreements with contract research organizations (CROs), as well as consultants that support the implementation of our clinical and non-clinical studies;
•manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch;
•formulation, research and development expenses related to ADMIR; and other products we may choose to develop; and
•costs for sponsored research.
We typically use our employee, consultant and infrastructure resources across our research and development programs. Although we track certain outsourced development costs by product candidate, we do not allocate personnel costs or other internal costs to specific product candidates.
Our research and development expenses have significantly decreased and will continue to decrease as we considers our future plans regarding the ADAIR and ADMIR programs and as a result of the proposed Merger.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and consulting related expenses for executives and other administrative personnel, professional fees and other corporate expenses, including legal and accounting fees, travel expenses, facilities-related expenses, and consulting services relating to our formation and corporate matters.
We incur costs associated with being a public company, including expenses
related to services associated with maintaining compliance with The Nasdaq
Capital Market and
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Table of Contents Other Income
Other income consists of income recognized as a result of the extinguishment of the promissory note issued to us under the Paycheck Protection Program (PPP) as a result of the forgiveness of the note.
Revaluation of Derivative Instruments
In
Warrant Liability, Change in Fair Value and Warrant Conversion
We evaluated the warrants issued in connection with the
Interest Income (Expense), net
Interest income (expense), net, consists of interest earned on our cash, cash equivalents and marketable securities held with institutional banks, the amortization of discounts and accretion of premiums on marketable securities and interest expense on our finance lease of equipment utilized in the commercial scale manufacturing of ADAIR.
Recently Issued Accounting Pronouncements
We consider the applicability and impact of all ASUs. ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the financial statements.
On
On
Emerging Growth Company Status
Vallon is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and may remain an emerging growth company for up to five years. For so long as Vallon remains an emerging growth company, Vallon is permitted and intends to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
•reduced disclosure about its executive compensation arrangements;
•no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and
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•exemption from the auditor attestation requirement in the assessment of its internal control over financial reporting.
Vallon has taken advantage of reduced reporting requirements in this Annual
Report and may continue to do so until such time that we are no longer an
emerging growth company. Emerging growth companies can delay adopting new or
revised accounting standards until such time as those standards apply to private
companies. Therefore, Vallon may not be subject to the same new or revised
accounting standards as other public companies that are not emerging growth
companies. Vallon will remain an emerging growth company until the earliest of
(a) the last day of the fiscal year in which it has total annual gross revenues
of
Results of Operations
Comparison of the Years Ended
The following table sets forth our results of operations for the year ended
Year Ended December 31,
2022 2021
Operating expenses:
Research and development $ 1,170 $ 5,187
General and administrative 5,758 4,072
Total operating expenses 6,928 9,259
Loss from operations (6,928) (9,259)
Other income - 61
Change in fair value of derivative liability - (89)
Change in warrant liability 384 -
Loss on warrant conversion (506) -
Interest expense, net 26 (16)
Net loss $ (7,024) $ (9,303) Research and Development Expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Other Income
In
Revaluation of Derivative Liability
During the year ended
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IPO. The embedded derivative liability was remeasured and removed from the
balance sheet, resulting in an
Change in Fair Value of Warrant Liability and Loss on Warrant Conversion
In
The
The change in fair value of
Interest Income (Expense), net
Interest income, net, was
Liquidity and Capital Resources
Since inception, we have incurred losses and expect to continue to incur losses
for the foreseeable future. We incurred net losses of
We have financed our working capital requirements to date through the issuance
of common stock, convertible notes, short-term promissory notes, and a PPP
promissory note. As of
The following table summarizes our cash flows for the periods indicated (in
thousands):
Year Ended
December 31,
2022 2021
Net cash provided by (used in):
Operating activities $ (7,135) $ (8,312)
Investing activities 3,782 (3,842)
Financing activities 3,432 15,747
Net increase in cash and cash equivalents
Cash Flows from Operating Activities
For the years ended
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Cash Flows from Investing Activities
Net cash provided by investing activities was
Cash Flows from Financing Activities
Net cash provided by financing activities was
2021 Convertible Note Financing
In
Future Funding Requirements
To date, we have not generated any revenue from the sale of any products.
Substantially all of our revenue to date has been generated by the Medice
license agreement from which we received a
Although we have entered into the Merger Agreement and intend to consummate the transaction, there is no assurance that we will be able to successfully consummate the proposed merger on a timely basis, or at all. If, for any reason, the merger is not completed, we will reconsider our strategic alternatives and could pursue one or more of the following courses of action:
•Dissolve and liquidate our assets. If, for any reason, the merger is not consummated and we are unable to identify and complete an alternative strategic transaction like a merger or potential collaborative, partnering or other strategic arrangements for our assets, or continue to operate our business due to the inability to raise additional funding, we may be required to dissolve and liquidate our assets. In such case, there can be no assurances as to the amount or timing of available cash left to distribute to our stockholders, if any, after paying our debts and other obligations and setting aside funds for reserves.
• Pursue potential collaborative, partnering or other strategic arrangements for our assets, including a sale or other divestiture.
• Continue to operate our business. Although presently not anticipated, we could elect to continue to operate our business and pursue licensing or partnering transactions. Based on our prior assessment, this would require a significant amount of time, financial resources, human capital and we would be subject to all the risk and uncertainties involved in the development of product candidates. In such instance, there is no assurance that we could raise sufficient capital to support these efforts, that our development efforts would be successful or that we could successfully obtain the regulatory approvals required to market any product candidate we pursued.
• Pursue another strategic transaction like the proposed merger.
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Our ability to continue as a going concern is dependent on raising capital from the sale of our common stock and/or obtaining debt financing. Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to the closing of the Merger or the terms and timing of any other strategic alternatives including a merger or business combination, asset acquisitions or sales, collaborations or licensing arrangements. Our ability to remain a going concern is wholly dependent upon our ability to continue to obtain sufficient capital to fund our operations.
Despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us when needed or that we may be able to secure funding from any other sources. In the event that we are not able to secure funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether, or file for bankruptcy.
If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any equity or debt financing may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to other parties' rights to develop or commercialize our drug candidates that we would prefer to retain. Therefore, there is substantial doubt about our ability to continue as a going concern. We expect to continue to incur expenses and operating losses at least for the foreseeable future as we evaluate future plans for the ADAIR and ADMIR programs as well as our strategic alternatives.
See the "Risk Factors" section of this Annual Report for additional risks associated with our substantial capital requirements.
Contractual Obligations and Other Commitments
We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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