MIROMATRIX MEDICAL INC. References in this report (the "Quarterly Report") to "we," "us," "our" or the "Company" refer toMiromatrix Medical Inc. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this report including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 filed with theU.S. Securities and Exchange Commission ("SEC"). The Company's securities filings can be accessed on the EDGAR section of theSEC's website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a life sciences company pioneering a novel technology for bioengineering fully transplantable organs to help save and improve patients' lives. Founded in 2009, we are one of a small group of companies at the forefront of developing alternatives to human-donor organ transplants, and within this small group of companies there are important differences between the technologies being developed. Our proprietary technology is a scalable platform that uses a two-step method of decellularization and recellularization designed to remove the porcine cells from the organs obtained from pigs and replace them with unmodified human cells. Our initial development focus is on bioengineering livers and kidneys, and our technology platform is also applicable to bioengineering other organs, including hearts, lungs and pancreases. We have collaborations with theMayo Clinic ,Mount Sinai and theTexas Heart Institute , and have received strategic investments from Baxter, CareDx and DaVita.
Components of Our Results of Operations
Licensing Revenue
For the periods presented, all of our revenue consists of licensing revenue pursuant to our license agreement withReprise Biomedical, Inc. ("Reprise"). Revenue pursuant to this agreement is recognized at the later of (i) when the related sales occur after the minimum guarantee is satisfied, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Due to the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount. 17 Table of Contents Cost of Goods Sold
Cost of goods sold relates to our license agreement with the
Research and Development Expenses
Research and development expenses consist primarily of engineering, product development, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include payroll and related expenses, consulting expenses, laboratory supplies and amounts incurred under certain collaborative agreements. Expenditures for research and development activities are charged to operations as incurred.
We expect research and development expenses in absolute dollars to increase in the future as we develop our product candidates. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of new product development initiatives.
Regulatory and Clinical Expenses
Regulatory and clinical expenses include costs for developing our regulatory and clinical study strategies for our product candidates. These expenses include payroll and related expenses and consulting expenses. Over time we expect our regulatory and clinical expenses to increase in absolute dollars as we develop our product candidates and move through various regulatory processes. We expect our regulatory and clinical expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.
Quality Expenses
Quality expenses relate to costs of systems and procedures to develop a manufacturing facility that is compliant with Current Good Manufacturing Practices. These expenses include payroll and related expenses. We expect our quality expenses in absolute dollars to increase in future years as we continue to develop the process and systems needed to produce our product candidates.
General and Administrative Expenses
General and administrative expenses include costs for our executive, accounting, and human resources functions. Costs consist primarily of payroll and related expenses, professional service fees related to accounting, legal, insurance and other contract and administrative services and related infrastructure expenses.
We expect that our general and administrative expenses in absolute dollars will increase as we expand our headcount to support our growth.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents and
Interest Expense
Interest expense consists of interest under our loan agreements. See "- Liquidity and Capital Resources."
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Results of Operations
Three Months Ended September 30, 2022 Compared with Three Months Ended
September 30, 2021
Three Months Ended
September 30, Change
2022 2021 Dollar Percentage
Licensing revenue $ 12,395 $ 9,819 $ 2,576 26.2 %
Cost of goods sold 125,000 125,000 - -
Gross loss (112,605) (115,181) 2,576 (2.2)
Operating expenses:
Research and development 4,574,534 3,349,898 1,224,636 36.6
Regulatory and clinical 381,903 105,208 276,695 263.0
Quality 634,511 150,675 483,836 321.1General and administrative 2,052,731 1,487,654
565,077 38.0 Total operating expenses 7,643,679 5,093,435 2,550,244 50.1 Operating loss (7,756,284) (5,208,616) (2,547,668) 48.9 Interest income 143,555 766 142,789 18,640.9 Interest expense (15,325) (15,255) (70) 0.5 Research grants - 115,069 (115,069) (100.0)
Gain on debt extinguishment - 50,455
(50,455) (100.0) Net loss$ (7,628,054) $ (5,057,581) $ (2,570,473) 50.8 % Licensing Revenue
Licensing revenue was$12,395 for the three months endedSeptember 30, 2022 and$9,819 for the three months endedSeptember 30, 2021 , a decrease of$2,576 , or 26.2%. The licensing revenue is a result of the license agreement with Reprise. The remainder of minimum royalties due from Reprise for 2020 and 2021 have been deferred to 2022 and 2023, respectively. The remainder of minimum royalties due from Reprise for 2022 are due inJanuary 2023 . Due to the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount.
Cost of Goods Sold
Cost of goods sold was
Research and Development
Research and development expenses were$4,574,534 for the three months endedSeptember 30, 2022 and$3,349,898 for the three months endedSeptember 30, 2021 , an increase of$1,224,636 , or 36.6%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of$329,908 , consulting expense increase of$418,906 and lab supply increase of$399,335 . Regulatory and Clinical
Regulatory and clinical expenses were
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Quality
Quality expenses were $634,511 for the three months ended September 30, 2022 and
$150,675 for the three months ended September 30, 2021 , an increase of $483,836 ,
or 321.1%. The increase was primarily due to a lab supply increase of $330,617
and consulting expense increase of $134,362 .
General and Administrative
General and administrative expenses were$2,052,731 for the three months endedSeptember 30, 2022 and$1,487,654 for the three months endedSeptember 30, 2021 , an increase of$565,077 , or 38.0%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of$340,134 , office expense increase of$168,024 , and depreciation expense increase of$149,868 . The increase was partially offset by consulting expense decrease of$73,184 , insurance expense decrease of$52,109 and legal and accounting expense decrease of$44,752 . Interest Income
Interest income was$143,555 for the three months endedSeptember 30, 2022 and$766 for the three months endedSeptember 30, 2021 , an increase of$142,789 . The increase was primarily due toU.S. Treasury securities purchased during the second quarter of 2022 with cash received from our initial public offering ("IPO").
Interest Expense
Interest expense was$15,325 for the three months endedSeptember 30, 2022 and$15,255 for the three months endedSeptember 30, 2021 , a decrease of$70 , or 0.5%. Research Grants Research grants were$0 for the three months endedSeptember 30, 2022 and$115,069 for the three months endedSeptember 30, 2021 . The decrease in research grants was primarily due to decreases in pre-clinical contracting, resulting in lower grant funds.
Gain on Debt Extinguishment
The Company recognized a gain on the extinguishment of debt of$50,455 for the three months endedSeptember 30, 2021 related to the forgiveness of our loan under theSmall Business Administration's Paycheck Protection Program. 20
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Nine Months EndedSeptember 30, 2022 Compared with Nine Months EndedSeptember 30, 2021 Nine Months Ended September 30, Change 2022 2021 Dollar Percentage Licensing revenue$ 23,115 $ 25,066 $ (1,951) (7.8) % Cost of goods sold 375,000 375,000 - - Gross loss (351,885) (349,934) (1,951) 0.6 Operating expenses: Research and development 13,569,434 7,698,786 5,870,648 76.3 Regulatory and clinical 1,156,535 292,169 864,366 295.8 Quality 1,592,778 322,719 1,270,059 393.5 General and administrative 6,513,748 2,836,850 3,676,898 129.6 Total operating expenses 22,832,495 11,150,524 11,681,971 104.8 Operating loss (23,184,380) (11,500,458) (11,683,922) 101.6 Interest income 205,403 851 204,552 24,036.7 Interest expense (35,015) (601,292) 566,277 (94.2)
Amortization of discount on note - (62,638) 62,638 (100.0) Change in fair value of derivative - 246,962
(246,962) (100.0) Research grants - 393,034 (393,034) (100.0) Equity loss in affiliate - (223,633) 223,633 (100.0)
Gain on sale of equity investment - 1,983,912
(1,983,912) (100.0) Gain on debt extinguishment - 568,505 (568,505) (100.0) Net loss$ (23,013,992) $ (9,194,757) $ (13,819,235) 150.3 % Licensing Revenue
Licensing revenue was$23,115 for the nine months endedSeptember 30, 2022 and$25,066 for the nine months endedSeptember 30, 2021 , an increase of$1,951 , or 7.8%. The licensing revenue is a result of the licensing agreement with Reprise. The remainder of minimum royalties due from Reprise for 2020 and 2021 have been deferred to 2022 and 2023, respectively. The remainder of minimum royalties due from Reprise for 2022 are due inJanuary 2023 . Due to the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount.
Cost of Goods Sold
Cost of goods sold was
Research and Development
Research and development expenses were$13,569,434 for the nine months endedSeptember 30, 2022 and$7,698,786 for the nine months endedSeptember 30, 2021 , an increase of$5,870,648 , or 76.3%. The increase was primarily due to lab supply increase of$2,551,888 , headcount increase which resulted in an increase in payroll expenses of$1,543,323 , contract pre-clinical cost increase of$632,372 , consulting expense increase of$792,193 and depreciation expense increase of$277,662 .
Regulatory and Clinical
Regulatory and clinical expenses were$1,156,535 for the nine months endedSeptember 30, 2022 and$292,169 for the nine months endedSeptember 30, 2021 , an increase of$864,366 , or 295.8%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of$577,700 , as well as an increase in regulatory consulting and contracting expense of$202,568 . 21 Table of Contents Quality Quality expenses were$1,592,778 for the nine months endedSeptember 30, 2022 and$322,719 for the nine months endedSeptember 30, 2021 , an increase of$1,270,059 , or 393.5%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of$414,730 , lab supply increase of$521,564 and consulting expense increase of$320,741 .
General and Administrative
General and administrative expenses were$6,513,748 for the nine months endedSeptember 30, 2022 and$2,836,850 for the nine months endedSeptember 30, 2021 , an increase of$3,676,898 , or 129.6%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of$1,718,601 , insurance expense increase of$523,972 , office expense increase of$517,406 , depreciation expense increase of$446,555 , stockholder expense increase of$113,750 , legal and accounting expense increase of$103,507 and consulting expense increase of$17,841 . These increases can primarily be attributed to the cost of being a public company.
Interest Income
Interest income was$205,403 for the nine months endedSeptember 30, 2022 and$851 for the nine months endedSeptember 30, 2021 , an increase of$204,552 . The increase was primarily due toU.S. Treasury securities purchased during the second quarter of 2022 with cash received from the IPO.
Interest Expense
Interest expense was$35,015 for the nine months endedSeptember 30, 2022 and$601,292 for the nine months endedSeptember 30, 2021 , a decrease of$566,277 , or 94.2%. The decrease was primarily due to the interest expense on the$6,000,000 convertible promissory note issued toCheshire MD Holdings, LLC ( the "Cheshire Note") being converted to equity inJune 2021 , and therefore there was no interest expense related to the Cheshire Note in 2022 compared to 2021.
Amortization of Discount on Note
Amortization expense related to the Cheshire Note was$0 for the nine months endedSeptember 30, 2022 and$62,638 for the nine months endedSeptember 30, 2021 . The decrease was due to the Cheshire Note being converted to equity inJune 2021 , and therefore there was no amortization expense related to the Cheshire Note in 2022 compared to 2021.
Change in Fair Value of Derivative
The fair value of the embedded derivative related to the Cheshire Note was$0 for the nine months endedSeptember 30, 2022 and$246,962 for the nine months endedSeptember 30, 2021 . The decrease in the change in fair value of the embedded derivative was due to the Cheshire Note being converted to equity
inJune 2021 . Research Grants Research grants were$0 for the nine months endedSeptember 30, 2022 and$393,034 for the nine months endedSeptember 30, 2021 . The decrease in research grants was primarily due to decreases in pre-clinical contracting, resulting in lower grant funds. Equity Loss in Affiliate Equity loss in affiliate was$0 for the nine months endedSeptember 30, 2022 and$223,633 for the nine months endedSeptember 30, 2021 . The Company sold its remaining ownership interest in Reprise inMarch 2021 , eliminating the need to record any such losses for future periods, including the nine months ended
September 30, 2022 . 22 Table of Contents
Gain on Sale of
The Company recognized a gain of
Gain on Debt Extinguishment
The Company recognized a gain on the extinguishment of debt of
Liquidity and Capital Resources
We have incurred net losses since our inception. For the three months ended
We expect to incur additional losses in the near future, and we expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue to develop our bioengineered organs, as we conduct clinical trials and other studies for our bioengineered organs, seek regulatory clearances or approvals for Miroliver and Mirokidney, continue preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and to invest in our infrastructure to support our future manufacturing and other activities. We expect to incur additional costs associated with operating as a public company inthe United States . The timing and amount of our operating expenditures will depend largely on our ability to, among other things:
? advance clinical development of our product candidates;
manufacture, or have manufactured on our behalf, our preclinical and clinical
? materials and develop processes for commercial manufacturing of any product
candidates that may receive regulatory approval;
? seek regulatory approvals for any product candidates that successfully complete
clinical trials;
establish a sales, marketing, medical affairs and distribution infrastructure
? to commercialize any product candidates for which we may obtain marketing
approval and intend to commercialize on our own;
? establish collaborations to commercialize any product candidates for which we
may obtain marketing approval but do not intend to commercialize on our own;
expand our operational, financial and management systems and hire additional
personnel, including personnel to support our clinical development, quality
? control, research and development, manufacturing and commercialization efforts,
our general and administrative activities and our operations as a public
company; and
? obtain new intellectual property and maintain, expand and protect our
intellectual property portfolio.
Sources of Liquidity
To date, we have primarily financed our operations through equity and debt financings, as well as research grants and our IPO. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements throughDecember 2023 . As ofSeptember 30, 2022 , we had cash and cash equivalents of$5,537,818 and short-term investments of$26,003,087 . We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Until such time, if ever, as we can generate substantial revenue from sales of our bioengineered organs, we expect to finance our cash needs through a combination of equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or 23
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declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, curtail or discontinue our product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves. Debt Financing InJanuary 2012 , we signed a promissory note with the University for$405,559 . The promissory note bears interest at 3% per annum, compounded monthly. The note is scheduled to mature onDecember 31, 2022 and is unsecured. We are required to make monthly principal and interest payments of$7,737 until the note is paid in full. In connection with the promissory note, we issued the University warrants to purchase 80,000 shares of our common stock at an exercise price of$1.69 . As ofSeptember 30, 2022 andDecember 31, 2021 , the principal outstanding on this loan was$15,417 and$83,849 , respectively. InMay 2015 , we entered into a loan agreement with theMinnesota Department of Employment & Economic Development under which we borrowed$250,000 . The loan was unsecured and did not bear interest. The loan was due in a lump sum payment onApril 1, 2022 . As ofSeptember 30, 2022 andDecember 31, 2021 , the balance outstanding on this loan was$0 and$250,000 . InJanuary 2019 , we issued the University a promissory note in the amount of$385,997 in satisfaction of our minimum royalty obligation under the license agreement with the University for the year endedDecember 31, 2018 . The note bears interest at 6% per annum, compounded annually, and is due onJanuary 31, 2025 . In addition, we issued the University a 10-year warrant to purchase 20,587 shares of our common stock at an exercise price of$3.75 per share. As of bothSeptember 30, 2022 andDecember 31, 2021 , the principal outstanding on this
loan was$385,997 . Initial Public Offering InJune 2021 , we completed our IPO through which we issued and sold 5,520,000 shares of common stock at$9.00 per share. In connection with the IPO, we raised$44,528,060 , after deducting the underwriting discount and offering expenses payable by us. Equity Distribution Agreement OnJuly 1, 2022 , we entered into an Equity Distribution Agreement withPiper Sandler & Co. ("Piper Sandler"). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as the sales agent, shares of our common stock having an aggregate offering price of up to$50.0 million . We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to a Registration Statement on Form S-3, filed with theSEC onJuly 1, 2022 and declared effective onJuly 11, 2022 (the "Registration Statement"). We did not issue any shares under the Equity Distribution Agreement in the nine months endedSeptember 30, 2022 .
Registration Statement
We filed the Registration Statement with theSEC onJuly 1, 2022 which was declared effective onJuly 11, 2022 . The Registration Statement registered the offer and sale of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt securities and an indeterminate number of warrants to purchase common stock, preferred stock, and various series of debt securities and/or warrants to purchase any of such securities, having an aggregate initial offering price of$200.0 million . 24 Table of Contents Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2022 2021 Net cash (used in) provided by: Operating activities$ (20,627,352) $ (8,211,019) Investing activities (26,882,187) 552,311 Financing activities 235,826 65,301,991
Net (decrease) increase in cash and cash equivalents
$ 57,643,283 Operating Activities
Net cash used in operating activities consisted of net losses adjusted for certain non-cash items and changes in operating assets and liabilities.
During the nine months endedSeptember 30, 2022 , net cash used in operating activities was$20,627,352 and reflected (i) the net loss of$23,013,992 , (ii) net non-cash usage items of$1,573,431 , including$853,130 of stock-based compensation,$817,792 of depreciation and amortization expense, amortization of premium/discount on investments of$23,038 and$758 of loss on disposal of property and equipment, partially offset by non-cash interest income of$121,287 , and (iii) a net cash outflow from changes in balances of operating assets and liabilities of$813,209 . During the nine months endedSeptember 30, 2021 , net cash used in operating activities was$8,211,019 and reflected (i) the net loss of$9,194,757 , (ii) net non-cash items of$2,035,234 , including a gain on sale of equity investment of$1,983,912 , paycheck protection program loan forgiveness of$568,505 , and the change in fair value of embedded derivative of$246,962 , partially offset by stock-based compensation of$384,299 , an equity loss in affiliate of$223,633 , amortization of discount on note of$62,638 and depreciation and amortization expense of$93,575 and (iii) a net cash inflow from changes in balances of operating assets and liabilities of$3,018,972 .
Investing Activities
During the nine months ended
During the nine months endedSeptember 30, 2021 , net cash provided by investing activities was$552,311 and reflected proceeds from the sale of Reprise stock of$2,000,000 , partially offset by construction in process purchases of$1,166,129 and property and equipment purchases of$281,560 .
Financing Activities
During the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$235,826 and was primarily the result of proceeds from stock warrant exercises of$414,098 and proceeds from stock option exercises of$363,671 , partially offset by payments on long-term debt of$318,432 , payments on offering costs of$182,899 and payments on financing lease obligations of$40,612 . During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$65,301,991 and was primarily the result of net proceeds from the IPO of$44,593,686 , net proceeds from sales of Series C Preferred Stock of$19,891,670 , proceeds related to stock option exercises of$803,480 , proceeds from financing lease obligations of$87,567 and proceeds from stock warrant exercises of$8,975 , partially offset by payments on long-term debt of$61,303 and payments on financing lease obligations of$22,084 . 25
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