The following discussion of our financial condition, changes in financial
condition, plan of operations and results of operations should be read in
conjunction with (i) our audited consolidated financial statements as of
“Business”, included in this annual report. The discussion contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors.
We are a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies for the treatment of hematological malignancies and solid tumor indications. We developed our lead product candidates from our multiTAA-specific T cell technology, which is based on the manufacture of non-engineered, tumor-specific T cells that recognize multiple tumor associated antigens, or TAAs. MultiTAA-specific T cells are able to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. When infused into a cancer patient, the multiTAA-specific T cells are designed to kill cancer cells expressing the TAA targets and potentially recruit the patient's immune system to participate in the cancer killing process. We licensed the underlying technology for multiTAA-specific T cell therapy from BCM in
March 2018. BCM had utilized the therapy in seven exploratory clinical trials. In these studies, BCM treated over 150 patients suffering from a variety of cancers including lymphoma, multiple myeloma, acute myeloid leukemia, acute lymphoblastic leukemia, pancreatic cancer, breast cancer and various sarcomas. In those studies, BCM saw evidence of clinical benefit, expansion of infused cells, epitope spreading, and decreased toxicity compared to other cellular therapies.
We are advancing three product candidates as part of our multiTAA-specific T
cell program for:
1. autologous treatment of lymphoma, and selected solid tumors
2. allogeneic T cells for the treatment of acute myeloid leukemia, or AML
3. off-the-shelf products in various indications
Our current clinical development programs are:
? MT-401 for the treatment of post-transplant AML, currently in a Phase 2
patient in a Phase 2 clinical trial in 2023
? MT-601 for the treatment of pancreatic cancer, for which we have a cleared IND
from the FDA to initiate a Phase 1 trial in the fourth quarter of 2023
? MT-601 for the treatment of lymphoma, for which we have a cleared IND from the
FDA and initiated a Phase 1 trial in the first quarter of 2023
We believe that the simplicity of our manufacturing process allows additional modifications to expand multiTAA-specific T cell recognition of cancer targets. For example, we are currently analyzing the potential for a 12-antigen multiTAA-specific T cell therapy and assessing the potential for combination therapies for our multiTAA-specific T cell products. We have positioned ourselves to be in full control of our research and development and clinical manufacturing needs by establishing a fully validated, FDA registered, manufacturing facility. We believe that this has key advantages that distinguish us from our competitors, particularly because we are less reliant on contract manufacturing organizations, which are expensive and often have long lead times, shortages of skilled labor and a backlog of customers. 75 Table of Contents Reverse Stock Split On
May 24, 2022, we held our annual meeting of stockholders at which our stockholders approved a proposal to effect an amendment to our certificate of incorporation, as amended, to implement a reverse stock split at a ratio within a range between and including one-for three (1:3) and one-for-twelve (1:12) and a corresponding reduction in the total number of authorized shares of our common stock. On January 24, 2023, our board of directors approved the filing of a certificate of amendment to our amended and restated certificate of incorporation (the "Amendment") with the Secretary of State of the State of Delawareto affect the one-for-ten (1:10) Reverse Stock Split of our outstanding common stock and a reduction in the total number of authorized shares of our common stock from 300,000,000 to 30,000,000 (the "Shares Reduction"). The Amendment became effective at 5:00 p.m. Eastern Timeon January 26, 2023. Pursuant to the Amendment, at the effective time of the Amendment, every ten (10) shares of our issued and outstanding common stock was automatically combined into one (1) issued and outstanding share of common stock and the authorized shares of our common stock was reduce from 300,000,000 to 30,000,000, without any change in par value per share. The Reverse Stock Split affected all shares of our common stock outstanding immediately prior to the effective time of the Amendment. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise be entitled to receive a fractional share received a cash payment in lieu thereof. As a result of the Reverse Stock Split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued by us and outstanding immediately prior to the effective time of the Amendment, which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options and warrants and a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under our equity compensation plans immediately prior to the effective time of the Amendment were reduced proportionately. All share and per share amounts of common stock presented in this Annual Report on Form 10-K have been retroactively adjusted to reflect the one-for-10 (1:10) Reverse Stock Split.
Research and Development Expenses
To date, our research and development expenses have related primarily to the development of our clinical platform and the identification and development of our product candidates. Clinical and research and development expenses consist of expenses incurred in performing research and development activities, cost of our clinical trials, including compensation, share-based compensation expense and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of supplies, manufacturing expenses, fees paid to third parties and other outside expenses. Clinical costs are expensed as incurred. Costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
? per patient clinical trial costs;
? the number of patients that participate in the clinical trials;
? the number of sites included in the clinical trials;
? the length of time required to enroll eligible patients;
? the number of doses that patients receive;
? the drop-out or discontinuation rates of patients;
? potential additional safety monitoring or other studies requested by regulatory
? the duration of patient follow-up;
? the efficacy and safety profile of the product candidates; and
76 Table of Contents
? the ability to successfully manufacture patient doses.
In addition, the potential for success of each product candidate will depend on numerous factors, including clinical trial outcomes, acceptance by regulatory authorities, competition, manufacturing capability and commercial viability. We determine which programs to pursue and how much to fund each program in response to ongoing scientific assessments, competitive developments, clinical trial results, as well as an assessment of each product candidate's commercial potential. We anticipate our research and development costs will continue to increase over the next several years due to increased spending on the clinical development and manufacturing of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, insurance costs and professional fees for consultancy, accounting, audit and investor relations. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, and the potential commercialization of our product candidates.
We did not recognize any income tax expense for the years ended
Other Income (Expense)
Other income (expense), net consists of interest income and arbitration
Results of Operations For the Years Ended
The following table summarizes the results of our operations (rounded to the thousand except for per share amounts) for the years ended
December 31, 2022and 2021, together with the changes to those items: For the Years Ended December 31, 2022 2021 Change Revenues: Grant income $ 3,514,000 $ 1,242,000 $ 2,272,000183 % Related party service revenue 5,500,000 - 5,500,000 100 % Total revenues 9,014,000 1,242,000 7,772,000 626 % Operating expenses: Research and development 26,139,000 27,795,000 (1,656,000) (6) % General and administrative 12,820,000 12,925,000 (105,000) (1) % Total operating expenses 38,959,000 40,720,000 (1,761,000) (4) % Loss from operations (29,946,000) (39,478,000) 9,532,000 (24) % Other income (expense): Arbitration settlement (233,000) (2,407,000)
2,174,000 (90) % Interest income 248,000 6,000 242,000 4,033 % Net loss
$ (29,931,000) $ (41,879,000) $ 11,948,000(29) %
Net loss per share, basic and diluted
$ 1.89(35) % Weighted average number of common shares outstanding 8,351,000 7,651,000 700,000 9 % 77 Table of Contents Revenue
We did not generate any revenue during the years ended
2021, respectively, from the sales or licensing of our product candidates.
Institute of Texas
During the years ended
September 13, 2022, we received notice from the FDA that we had been awarded a $2.0 milliongrant from the FDA'sOrphan Products Grant program to support our Phase 2 clinical trial of MT-401 for the treatment of post-transplant AML. During the year ended December 31, 2022, we recognized $0.1 millionof revenue associated with the FDA grant. In April 2022, we entered into a binding services agreement, or the Service Agreement, with Wilson Wolf. Pursuant to the Services Agreement, Wilson Wolfmade a cash payment to us in the amount of $8.0 million, as consideration for certain training and research services. During the year ended December 31, 2022, we recognized $5.5 millionof revenue associated with the Services agreement.
Operating expenses incurred during the fiscal year ended
December 31, 2022were $39.0 millioncompared to $40.7 millionin the prior year. Significant changes and expenditures in operating expenses are outlined as follows:
Research and Development Expense
Research and development expenses decreased by 6% to
$26.1 millionfor the year ended December 31, 2022, compared to $27.8 millionfor the year ended December 31, 2021.
The decrease of
o decrease of
o decrease of
o decrease of
Mayo license agreements, described below,
o decrease of
o decrease of
o increase of
number of research and development personnel,
o increase of
o increase of
the termination of the Mayo license agreements, described below.
Included in research and development expenses are expenses related to agreements
November 2018and February 2020, we entered in Sponsored Research Agreements with BCM, which provided for the conduct of research for us by credentialed personnel at BCM's Center for Cell and Gene Therapy. During the years ended December 31, 2022and 2021, we incurred $0and $0.03 millionof expenses related to these agreements, respectively. 78
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September 2019, we entered in a Clinical Supply Agreement with BCM, which provided for BCM to provide to us multi tumor antigen specific products. During the years ended December 31, 2022and 2021, we incurred $0.7 millionand $1.2 millionrelated to this agreement, respectively. In October 2019, we entered in a Workforce Grant Agreement with BCM, which provided for BCM to provide to us manpower costs of projects for manufacturing, quality control testing and validation run activities. During the years ended December 31, 2022and 2021, we incurred $0.4 millionand $1.1 millionrelated to this agreement, respectively.
provided for BCM to provide to us investigator-initiated research studies.
During the years ended
October 2022, we and Mayo Foundation for Medical Education and Research, or Mayo, mutually agreed to terminate the (i) Patent and Know-How License Agreement dated March 25, 2012, the (ii) License and Assignment Agreement dated July 21, 2015, and the (iii) License and Assignment Agreement effective May 4, 2016, which we collectively refer to as the License Agreements, in accordance with and subject to the terms of those agreements, pursuant to which Mayo granted the Company license grants to patent rights, know-how and materials in each of the License Agreements (as defined therein) that were directed to our peptide-based immunotherapeutic vaccine programs. Under the terms of the termination, the License Agreements are of no further force or effect. All license grants under the License Agreements are terminated and all rights therein revert to Mayo. We also will assign Mayo all of the INDs covered under the License Agreements, including any interest in any clinical trials relating to any IND.
General and Administrative Expenses
General and administrative expenses decreased by 1% to
$12.8 millionfor the year ended December 31, 2022from $12.9 millionduring the prior period. The decrease in general and administrative expenses of $0.1 millionmainly comprised the following:
o increase of
o increase of
o increase of
o decrease of
o decrease of
o termination of our office lease at
o decrease of
August 2022, we implemented changes to our organizational structure as part of an operational cost reduction plan to conserve our available capital by reducing headcount in our general and administrative function by approximately 23.5%, including the separation of the Company's Chief Financial Officer.
Other Income /(Expense)
An arbitration proceeding was brought against us before the
Financial Industry Regulatory Authority, Inc., or FINRAby a broker seeking to be paid compensation for two financing transactions that occurred in 2018, a warrant conversion and a private placement, each brokered by another broker. The broker's claims were based on a placement agent agreement for a private placement it brokered in 79
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2017, under which it alleged it was entitled to compensation for the 2018 transactions. The
FINRApanel found in favor of the broker and awarded the broker $2.4 millionfor compensation, interest and attorney fees. As of December 31, 2021, we recorded an accrual of $2.4 millionin accrued liabilities on our consolidated balance sheet and a $2.4 millioncharge to other expenses. On September 17, 2021, the broker filed a petition to confirm the FINRAarbitration award in the Supreme Court of New York for the County of New York. We removed the case to the United States District Court for the Southern District of New Yorkon September 27, 2021. On October 22, 2021, we filed a motion in federal court to vacate the award. On March 9, 2022, we were notified that our motion to vacate the award was denied and the broker was awarded an additional $0.1 millionin interest. Post judgment interest accrued at 1.02% until the judgment was paid. We paid the $2.5 millionjudgment on March 24, 2022. On January 4, 2023, we were notified that the broker was awarded an additional $0.1 millionin attorneys' fees, which we recorded to other expenses during fiscal year ending December 31, 2022. We paid the $0.1 millionon January 9, 2023. Interest Income Interest income was $0.2 millionand $6,000for the years ended December 31, 2022and 2021, respectively, and was attributable to interest income relating to funds that are held in U.S. Treasurynotes and U.S.government agency-backed securities. Net Loss The decrease in our net loss during the year ended December 31, 2022compared to the year ended December 31, 2021was due to higher grant income and related party service revenue, cost reductions in our research and development activities and moderate stabilization of our clinical trial activities. We anticipate that we will continue to incur net losses in the future as we continue to invest in research and development activities, including clinical development of our multiTAA T cell product candidates.
Liquidity and Capital Resources
We have not generated any revenues from the sales or licensing of our product candidates since inception and only have limited revenue associated with grants. We have financed our operations primarily through public and private offerings of our stock and debt including warrants and the exercise thereof.
The following table sets forth our cash, cash equivalents and restricted cash
and working capital as of
December 31, December
2022 2021 Cash, cash equivalents and restricted cash
$ 11,782,000 $ 43,497,000Working capital $ 8,837,000 $ 33,081,000Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022and 2021: For the Years Ended December 31, 2022 2021 Net cash provided by (used in): Operating activities $ (26,972,000) $ (27,280,000)Investing activities (4,945,000) (3,131,000) Financing activities 202,000 52,556,000 Net (decrease) increase in cash, cash equivalents and restricted cash $ (31,715,000) $ 22,145,000Operating Activities Net cash used in operating activities during the year ended December 31, 2022was $27.0 million. The use of cash primarily related to our net loss of $29.9 millionand a $5.8 milliondecrease from changes in assets and liabilities. This was in addition to $5.3 millionof 80
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$2.8 millionof depreciation expense, $0.9 millionof right-of-use asset amortization and lease liability accretion and a $0.3 milliongain on lease termination. Net cash used in operating activities during the year ended December 31, 2021was $27.3 million. The use of cash primarily related to our net loss of $41.9 millionand a $5.5 millionincrease from changes in assets and liabilities. This was in addition to $6.0 millionof stock-based compensation, $2.1 millionof depreciation expense and $1.0 millionof right-of-use asset amortization and lease liability accretion. Investing Activities
Net cash used in investing activities was
$4.9 millionand $3.1 millionfor the purchase of property and equipment and construction in progress for the years ended December 31, 2022and 2021, respectively. This included the purchase of $1.5 millionand $1.6 millionof property and equipment as well as $3.5 millionand $1.6 millionfor the purchase of construction in progress for the years ended December 31, 2022and 2021 respectively. Purchases of property and equipment for the year ended December 31, 2022were predominantly comprised of laboratory equipment along with $0.1 millionof computers, software and equipment and $0.1 millionof furniture and fixtures. $3.5 millionof purchases in construction in progress related to a second modular cleanroom and the continued buildout of our manufacturing facility. Purchases of property and equipment for the year ended December 31, 2021were comprised of $1.0 millionin laboratory equipment, $0.2 millionof computers, software and equipment and $0.3 millionof furniture and fixtures and $0.1 millionof leasehold improvements. $1.6 millionof purchases in construction in progress related to a second modular cleanroom and the continued buildout of our manufacturing facility. Financing Activities Net cash provided by financing activities was $0.2 millionand $52.6 millionduring the years ended December 31, 2022and 2021, respectively. primarily due to the net proceeds received from sales from the ATM Agreement (as defined below) in 2022 and the underwritten public offering in 2021.
Future Capital Requirements
To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. On
March 16, 2021, the Company issued an aggregate of 3,228,286 shares of its common stock, for net proceeds of $52.6 million, pursuant to an underwritten public offering. In August 2021, the Company received notice of a Product Development Researchaward totaling approximately $13.1 millionfrom the CPRIT to support the Company's Phase 2 clinical trial of MT-401. The CPRIT award is intended to support the adjuvant arm of the Company's Phase 2 clinical trial evaluating MT-401 when given as an adjuvant therapy to patients with acute myeloid leukemia following a hematopoietic stem cell transplant. The primary objectives of the adjuvant arm of the trial are to evaluate relapse-free survival after MT-401 treatment when compared with a randomized control group. Through the date of this filing, the Company has received $4.8 millionof funds from the CPRIT grant. The Company recorded $3.4 millionof grant income related to the CPRIT grant as revenue for the year ended December 31, 2022. 81
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April 21, 2022, the Company entered into a binding Services Agreement, dated April 12, 2022(see Note 9), with Wilson Wolf. Mr. John Wilsonis a member of the Company's board of directors and is serving as the CEO of Wilson Wolf, therefore Wilson Wolfis a related party. Wilson Wolfis in the business of creating products and services intended to simplify and expedite the transition of cell therapies and gene-modified cell therapies to mainstream society. Pursuant to the Services Agreement, Wilson Wolfmade a cash payment to the Company in the amount of $8.0 million. For the year ending December 31, 2022, the Company recognized $5.5 millionof revenue pursuant to the Services Agreement and at December 31, 2022, the Company recorded $2.5 millionof related party deferred revenue on its consolidated balance sheet. On September 13, 2022, the Company received notice from the FDA that it had awarded the Company a $2.0 milliongrant from the FDA'sOrphan Products Grant program to support the Company's Phase 2 clinical trial of MT-401 for the treatment of post-transplant AML. The Company recorded $0.1 millionof grant income related to the FDA grant as revenue for the year ended December 31, 2022and at December 31, 2022, the Company recorded $0.1 millionof grant income receivable. On March 13, 2023, the Company received $0.1 millionof funds from the FDA grant. As of December 31, 2022, we had working capital of $8.8 million, compared to working capital of $33.1 millionas of December 31, 2021. Operating expenses incurred during the fiscal year ended December 31, 2022were $39.0 millioncompared to $40.7 millionin the prior year. Based on our revised clinical and research and development plans and our revised timing expectations related to the progress of our programs, we expect that our cash and cash equivalents as of December 31, 2022will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:
? initiate or continue clinical trials of our product candidates;
continue the research and development of our product candidates and seek to
? discover additional product candidates; seek regulatory approvals for our
product candidates if they successfully complete clinical trials;
? continue development of our manufacturing capabilities and our manufacturing
establish sales, marketing and distribution infrastructure and scale-up
? manufacturing capabilities to commercialize any product candidates that may
receive regulatory approval;
? evaluate strategic transactions we may undertake; and
enhance operational, financial and information management systems and hire
? additional personnel, including personnel to support development of our product
candidates and, if a product candidate is approved, our commercialization
Because all of our product candidates are in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider new collaborations or selectively partner our technology. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing stockholders' common stock. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact 82
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our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us. We may also be required to pay damages or have liabilities associated with litigation or other legal proceedings involving our company. In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic on our operations. Further, the COVID-19 pandemic, decades-high inflation and concerns about an economic recession in
the United Statesor other major markets has resulted in, among other things, volatility in the capital markets that may have the effect of reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction due to these factors could materially affect our business and the value of
our common stock. ATM Agreement In
August 2021, we entered into a Controlled Equity OfferingSM Sales Agreement, or the ATM Agreement, with Cantor Fitzgerald & Co.and RBC Capital Markets, LLC, or the Sales Agents, pursuant to which we can offer and sell, from time to time at our sole discretion through the Sales Agents, shares of our common stock having an aggregate offering price of up to $75.0 million. Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-258687), which the SECdeclared effective on August 19, 2021; however, our use of the shelf registration statement on Form S-3 will be limited for so long as we are subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the registration statement and in accordance with the ATM agreement. The Sales Agents will be entitled to compensation under the Sales Agreement at a commission rate equal to 3.0% of the gross sales price per share sold under the ATM Agreement, and we have provided each of the Sales Agents with indemnification and contribution rights. During the year ended December 31, 2022, we sold 60,651 shares of our common stock under the ATM Agreement for net proceeds of $0.2 million.
Stock Purchase Agreement
December 12, 2022, we entered into a purchase agreement, or the Purchase Agreement, with Lincoln Park Capital Fund, LLC, or Lincoln Park, which provides that, upon the terms and subject to the conditions of the agreement, we have the right, but not the obligation, to sell to Lincoln Park up to $25,000,000of shares of our common stock, or the Purchase Shares, from time to time over a 24-month term, at a variable price with certain market-based terms as defined in the agreement. The purchase agreement does not exhibit any of the characteristics for liability classification under ASC Topic 480, Distinguishing Liabilities from Equity. During the year ended December 31, 2022, we did not sell any shares of our stock under the Purchase Agreement. In January 2023, Lincoln Park was issued 180,410 shares of stock as a commitment fee at a value of $0.5 million. Going Concern
We have no sources of revenue to provide incoming cash flows to sustain our
future operations. As outlined above, our ability to pursue our planned business
activities is dependent upon our successful efforts to raise additional capital.
These factors raise substantial doubt regarding our ability to continue as a going concern within one year after the date that the financial statements are issued. Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in conformity with
U.S.GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses in the periods presented. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under 83 Table of Contents
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of expenses that are not readily apparent from other sources. Actual results could differ from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic and the COVID-19 control responses.
Property and Equipment
Leasehold improvements, furniture, equipment and software are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining lease term.
Property and equipment – Construction in Progress
June 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. In connection with the manufacturing facility, the Company has incurred costs pursuant to an agreement with a vendor to design, engineer, build and install modular cleanrooms in a manufacturing facility. The facility's construction was completed during December 2020, and a certificate of occupancy was delivered to the Company in January 2021, and as such was placed into service in January 2021. All costs associated with the buildout were recorded as either manufacturing equipment and/or leasehold improvements and amortized over the estimated useful life of the asset and/or leasehold lease. During the third and fourth quarters of 2021, and in connection with the Company's manufacturing facility in Houston, Texas, the Company incurred $2.2 millionof costs pursuant to an agreement with a vendor to build and eventually install a second modular cleanroom. Such costs were recorded in fixed assets - construction in progress on the balance sheet as of December 31, 2021. Upon completion and installation of the modular cleanroom in 2022, all costs associated with the buildout, including $1.9 millionof costs incurred during the first quarter of 2022, were recorded as manufacturing equipment and amortized over the estimated useful life.
Impairment Testing of Long-Lived Assets and Right-Of-Use Assets
Management reviews long-lived assets (including property and equipment) and right-of-use assets for assets under operating leases for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets is determined by first grouping the long-lived assets at the lowest level for which there are identifiable cash flows, and then comparing the carrying value of each asset group to its forecasted undiscounted cash flows. If the evaluation of the forecasted cash flows indicates that the carrying value of the assets is not recoverable, an impairment charge is recognized for the amount in excess of the carrying amount over its fair value. The Company performed a test for recoverability related to its manufacturing facility in
Houston, Texasat December 31, 2022and concluded that the carrying value of its long-lived assets was recoverable.
The Company incurs stock-based compensation expense related to the issuance of common stock and stock options. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility and expected option life: Expected Term - The expected life of stock options was estimated using the "simplified method," as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual
life of each grant.
Expected Volatility – The Company computes stock price volatility over expected
terms based on its historical common stock trading prices.
Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S.
Treasuryzero-coupon issues with an equivalent remaining term. 84 Table of Contents Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models. The Company amortizes the fair value of the awards expected to vest on a straight-line basis over the requisite service period of the awards. The Company recognizes fair value of stock options granted to nonemployees as stock-based compensation expense over the period in which the related services are received as if the Company had paid cash for those services. Forfeitures are accounted for as incurred.
Grant Income represents funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development activities performed by the Company. In applying the provisions of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), we determined that grants and awards are out of the scope of ASC 606 because the funding entities do not meet the definition of a "customer", as defined by ASC 606, as there is not considered to be a transfer of control of goods or services. With respect to each grant or award, the Company determines if it has a collaboration in accordance with ASC Topic 808, Collaborative Arrangements ("ASC 808"). To the extent the grant or award is within the scope of ASC 808, the Company recognizes the award upon achievement of certain milestones as credits to research and development expenses. For grant and awards outside the scope of ASC 808, the Company applies ASC 606 by analogy, and revenue is recognized when the Company incurs expenses related to the grants for the amount the Company is entitled to under the provisions of the contract.
trial of MT-401.
The Company determined that the CPRIT Contract is not in the scope of ASC 808 or ASC 606. In accordance with ASC 730-20-25-8, the financial risk associated with the research and development has been transferred to CPRIT, because repayment of the grant depends solely on the results of research and development having future economic benefit. The Company accounts for this arrangement as a contract to perform research and development for others and applies ASC 606 by analogy. The Company recognizes grant income when amounts eligible for reimbursement are determinable and have been incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured or already received. The classification of costs incurred related to grants is based on the nature of the activities performed by the Company. Grant Income is recognized when the related costs are incurred. Restricted cash received from grants in advance of incurring qualifying costs is recorded as deferred revenue and recognized as revenue when qualifying costs are incurred. Qualifying grant income earned in advance of cash received from grants is recognized as revenue and recorded as other receivable. During the fourth quarter of 2021, the Company received
$2.4 millionadvancement of funds in relation to the CPRIT grant. The Company recorded $3.4 millionof grant income related to the CPRIT grant as revenue for the year ended December 31, 2022.
December 31, 2022, the Company recorded $2.3 millionof grant income receivable, which represented grant income earned in advance of the next tranche of funds to be received from CPRIT. In January 2023, the Company received $2.4 millionfrom CPRIT. On September 13, 2022, the Company received notice from the FDA that it had awarded the Company a $2.0 milliongrant from the FDA'sOrphan Products Grant program to support the Company's Phase 2 clinical trial of MT-401 for the treatment of post-transplant AML. The Company recorded $0.1 millionof grant income related to the FDA grant as revenue for the year ended December 31, 2022and at December 31, 2022, the Company recorded $0.1 millionof grant income receivable. On March 13, 2023, the Company received $0.1 millionof funds from the FDA grant.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. 85 Table of Contents
Tax Loss and Credit Carryforwards
December 31, 2022, we have approximately $135.2 millionof federal and $38.5 millionof state net operating loss carryforwards that may be available to offset future taxable income, if any. The federal net operating loss carryforwards of $41.6 million, if not utilized, will expire between 2029 and 2037. The federal net operating loss carryforwards of $93.6 milliongenerated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. The state net operating loss carryforwards of $21.9 million, if not utilized, will begin to expire in 2035. The state net operating loss carryforwards of $16.6 milliongenerated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. Any change in ownership greater than 50% under Section 382 of the Internal Revenue Code places significant annual limitations on the use of such net operating loss carryforwards. At December 31, 2022and 2021, we recorded a 100% valuation allowance against our deferred tax assets of approximately $41.4 millionand $36.4 million, respectively, as our management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards, an adjustment to valuation allowance against our deferred tax assets would increase net income in the period in which we make such a determination.
Inflation affects the cost of raw materials, goods and services that we use. In recent years, inflation has been modest. However, fluctuations in energy costs and commodity prices can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, it is management's belief that the effects on future revenues and operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government-imposed regulations.
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