60 DEGREES PHARMACEUTICALS INC
For the period ended Jun 30, 2024. Filed Aug 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 14, 2024
SXTP$0.59-35.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001213900-24-043323
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001213900-24-068673
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 119 current paragraphs.
52 unchanged; 26 reworded; 27 added; 11 removed; 2 previous and 14 current paragraphs rearranged.
Tables are not compared: 8 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
Overview
Current report
We are a specialty pharmaceutical company with a goal of using cutting-edge biological science and applied research to further develop and commercialize new therapies for the prevention and treatment of infectious diseases. We have successfully achieved regulatory approval of Arakoda® (“Arakoda”), a malaria preventative treatment that has been on the market since late 2019. Currently, 60P’s pipeline under development covers development programs for vector-borne, fungal, and viral diseases utilizing three of the Company’s future products: (i) new products that contain the Arakoda regimen of Tafenoquine; (ii) new products that contain Tafenoquine; and (iii) Celgosivir.
Current report
Following our initial public offering in July 2023, our initial strategic priority was to conduct a Phase IIB study that would have evaluated the potential of the Arakoda regimen of Tafenoquine to accelerate disease recovery in COVID-19 patients with low risk of disease progression. In October 2023, we made a decision to suspend this study. This was a consequence of advice previously received from the U.S. Food and Drug Administration (FDA), which we interpreted to mean that the Agency would not have granted clearance for the study to proceed unless we redesigned it to (i) enroll a patient population in which receipt of Paxlovid or Lagevrio would be medically contraindicated, or (ii) compare Tafenoquine to placebo in patients taking a “standard of care” regimen (defined by the FDA as Lagevrio or Paxlovid). The FDA’s position was somewhat surprising given that neither Paxlovid nor Lagevrio is indicated for treatment of COVID-19 in low-risk patients. We determined that conducting our study in an alternate population in the United States would be unfeasible, and that conducting an add-on-to standard of care study might not be Phase III enabling. Accordingly, the Company made a decision to pivot back to continue commercialization of Arakoda for malaria, and further evaluation of the Arakoda regimen of Tafenoquine for babesiosis and other diseases. We believe such an approach is both less risky and less expensive.
Current report
Moving forward, our general strategy to achieve profitability and grow shareholder value has three facets: (i) increase sales of Arakoda; (ii) conduct clinical trials to expand the number of patients who can use Tafenoquine for new indications in the future; and (iii) reposition small molecule therapeutics with good clinical safety profiles for new indications.
Current report
Business Developments
Current report
The following highlights significant business developments in our business during the quarter ended June 30, 2024.
Current report
Reverse Stock Split and Nasdaq Delisting Notice
Current report
In February 2024, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, our common stock had not maintained a minimum closing bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days, or until August 26, 2024 (the “Compliance Period”), to regain compliance with the Bid Price Rule. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for a minimum of 10 consecutive trading days, unless extended by Nasdaq under Nasdaq Rule 5810(c)(3)(H), prior to August 26, 2024. At the 2024 Annual Meeting of Stockholders in July 2024, our stockholders approved an amendment to our Certificate of Incorporation to effect reverse stock split of our common stock at a range of ratios between 1:5 to 1:12 inclusive, and on July 19, 2024, our Board of Directors approved the implementation of the reverse stock split at a ratio of 1:12 (the “Reverse Stock Split”). The Reverse Stock Split is effective as of August 12, 2024 (See Item 5 - Other Information; Subsequent Events).
Current report
As of the effective time of the Reverse Stock Split, every twelve (12) issued and outstanding shares of our common stock was automatically combined and converted into one (1) issued and outstanding share of common stock, with no change to the par value, reducing the number of shares of common stock outstanding from 21,219,937 shares to 1,768,337 shares. The Reverse Stock Split did not change the authorized number of shares of common stock or preferred stock. Proportional adjustments were made to the number of shares of common stock issuable upon exercise or conversion of our equity awards, warrants, and other equity instruments convertible into common stock, as well as the respective exercise prices, if applicable in accordance with the terms of the instruments. No fractional shares of common stock were issued in connection with the Reverse Stock Split and all fractional shares were rounded up to the nearest whole share with respect to outstanding shares of common stock. Unless otherwise noted, all references to numbers of shares of our common stock and per share information presented in this Quarterly Report on Form 10-Q have been retroactively adjusted, as appropriate, to reflect the Reverse Stock Split.
Current report
We cannot assure that the Reverse Stock Split will sufficiently increase our stock price and trade at a price that is equal to at least $1.00 per share for a period of 10 consecutive days prior to August 26, 2024. If we do not regain compliance with the Bid Price Rule during the Compliance Period, and we are not deemed eligible for an additional compliance period, our common stock may be subject to delisting.
Current report
Our stock continues to be listed on The Nasdaq Capital Market under the symbol “SXTP.” The notice from Nasdaq has no immediate effect on the listing or trading of our common stock on The Nasdaq Capital Market and does not affect our business, operations, or reporting requirements with the SEC.
Current report
At-the-Market Sales Agreement
Current report
On July 12, 2024, we filed a shelf registration statement on Form S-3 (File No. 333-280796) containing a (i) base prospectus covering the offering, issuance and sale by us of up to $15,000,000 of our common stock, preferred stock, warrants, debt securities and units and (ii) sales agreement prospectus (“Prospectus Supplement”) covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $1,253,603 (which amount was included in the $15,000,000 aggregate offering price set forth in the base prospectus) of our common stock that may be issued and sold under the At-The-Market Issuance Sales Agreement dated as of July 12, 2024 (the “ATM Agreement”), that we entered into with WallachBeth Capital LLC, as sales agent. The Prospectus Supplement was subsequently amended on July 22, 2024, July 24, 2024, July 26, 2024, and August 2, 2024, to increase the maximum aggregate offering price under the ATM Agreement to $1,774,640, $1,890,705, $2,190,416, and $2,295,192, respectively. Between July 19, 2024 and August 1], 2024, we sold a total of 677,819 shares pursuant to the ATM Agreement and Prospectus Supplement, as amended, and obtained proceeds of $1,994,583 (See Item 5 - Other Information; Subsequent Events).
Current report
Product Revenues - net of Discounts and Rebates, Cost of Revenues, Gross Profit (Loss), and Gross Margin
Current report
Derivative Expense
Current report
For the three months ended June 30, 2023, we recognized $399,725 of derivative expense in connection with the raising of $555,000 in net proceeds from our bridge funding in May 2023. We record derivative expense when the initial fair value of the related derivative liabilities exceeds the cash proceeds received. We did not record derivative expense for the three months ended June 30, 2024 as we did not complete any debt financing transactions during the period.
Current report
Other Income, net
Current report
Comparison of the Six Months Ended June 30, 2024, and 2023
Current report
Other Operating Revenues
Current report
Research and development costs increased during the six months ended June 30, 2024 when compared to the six months ended June 30, 2023. Research and development costs incurred during the six months ended June 30, 2023 consisted of initiation costs related to our Phase IIB COVID-19 clinical trial, which was later suspended in the fourth quarter of 2023. Direct COVID-19-related trial costs represent 1% of the total costs for the six months ended June 30, 2024 at $20,372 and 88% of the costs for the six months ended June 30, 2023 at $288,144. During the six months ended June 30, 2024, we recorded research and development expense of $2,625,000, representing 76% of the total costs, upon the delivery from Kentucky Technology, Inc. of their report on the potential development of SJ733 + tafenoquine. Pursuant to the services agreement executed in January 2023, we issued Kentucky Technology, Inc. 43,750 fully vested shares of our common stock, which payment was deferred and capitalized until the report was delivered. We also incurred $575,826 in costs related to our planned babesiosis trial for tafenoquine during the six months ended June 30, 2024 ($0 during the six months ended June 30, 2023).
Current report
For the six months ended June 30, 2024, our general and administrative expenses increased by 78.11% or $966,885 from the six months ended June 30, 2023. During the six months ended June 30, 2024, we incurred higher compensation expenses as a result of compensation arrangements with our directors, which came into effect in July 2023, as well as hired a new Chief Commercial Officer in February 2024. As such, we recognized $426,479 in compensation and related expenses during the six months ended June 30, 2024 ($76,396 for the six months ended June 30, 2023). Additionally, during the six months ended June 30, 2024, we incurred $229,975 in legal and professional fees, $277,473 of insurance expenses, $448,429 of investor outreach expenses, and $178,379 of advertising and promotion expenses (up from $92,877, $37,222, $221,447, and $75,665 for the six months ended June 30, 2023, respectively).
Current report
Interest Expense
Current report
Derivative Expense
Current report
For the six months ended June 30, 2023, we recognized $399,725 of derivative expense in connection with the raising of $555,000 in net proceeds from our bridge funding in May 2023. We record derivative expense when the initial fair value of the related derivative liabilities exceeds the cash proceeds received. We did not record derivative expense for the six months ended June 30, 2024 as we did not complete any debt financing transactions during the period.
Current report
During the six months ended June 30, 2024, we did not recognize a gain or loss on debt extinguishment ($839,887 loss recognized during the six months ended June 30, 2023). The decrease is related to the conversion of the cumulative outstanding debt pursuant to the Knight Debt Conversion Agreement which occurred in January 2023.
Current report
Other Income, net
Current report
Effect of Exchange Rate Changes on Cash
Removed paragraphs (11)
Previous report
Operating Expenses
Previous report
Research and Development
Previous report
General and Administrative Expenses
Previous report
Interest and Other Income (Expense), Net
Previous report
Operating Expenses
Previous report
Research and Development
Previous report
General and Administrative Expenses
Previous report
Interest and Other Income (Expense), Net
Previous report
The $839,887 loss on debt extinguishment for the three months ended March 31, 2023 relates to the conversion of the cumulative outstanding debt pursuant to the Knight Debt Conversion Agreement in January 2023. As previously discussed, a majority of our debt obligations were settled or converted into equity on the closing of our IPO in the third quarter of 2023. There were no extinguishments of debt during the three months ended March 31, 2024.
Previous report
Other Income
Previous report
Effect of Foreign Currency Translation on Cash
Reworded paragraphs (26)
Previous wording
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in certain of our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.
Current wording
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our unaudited consolidated condensed financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the other information set forth in certain of our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed herein and any other periodic reports filed and to be filed with the SEC.
Previous wording
For the three months ended March 31, 2024 and 2023, our net cash used in operating activities was $1,140,438 and $412,678, respectively and the cash balance was $2,894,700 as of March 31, 2024 ($2,142,485 as of December 31, 2023). To date, we have funded our operations through debt and equity financings. Based on current internal projections, taking into consideration the net proceeds of approximately $1.9 million received in connection with the offering completed in January 2024, recent growth in Arakoda® sales, and preparatory clinical trial activities, we estimate that we will have sufficient funds to remain viable through October 31, 2024. We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure you that we will be able to raise additional capital on acceptable terms, or at all.
Current wording
For the six months ended June 30, 2024 and 2023, our net cash used in operating activities was $2,328,650 and $726,168, respectively and the cash balance was $1,576,602 as of June 30, 2024 ($2,142,485 as of December 31, 2023). To date, we have funded our operations through debt and equity financings. Based on current internal projections, taking into consideration the net proceeds of approximately $1.9 million received in connection with the offering completed in January 2024, an additional $2.0 million received through the ATM sales agreement under the S-3 filed that became effective on July 18, 2024, and recent growth in Arakoda sales, we estimate that we will have sufficient funds to remain viable through March 31, 2025, excluding the additional costs of [i] the Arakoda commercial pilot program, [ii] the variable cost of patient recruitment in our tafenoquine-babesiosis hospital study, and [iii] the cost of conducting the expanded access study for chronic babesiosis patients (currently being planned). We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure you that we will be able to raise additional capital on acceptable terms, or at all.
Previous wording
As of March 31, 2024, we had an accumulated deficit of $32,150,380. In their audit report for the fiscal year ended December 31, 2023, our auditors have expressed their concern as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate cash flows from operations and obtain financing.
Current wording
As of June 30, 2024, we had an accumulated deficit of $36,323,135. In their audit report for the fiscal year ended December 31, 2023, our auditors have expressed their concern as to our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate cash flows from operations and obtain financing.
Previous wording
To date, we have received the majority of our product revenues from sales of our Arakoda® product to the US Department of Defense (the “DoD”) and resellers in the U.S. and abroad. Foreign sales to both Australia and Europe are further subject to profit sharing agreements for boxes sold to customers. Currently, the procurement contract with the DoD has expired and DoD sales last happened in 2021. Sales to resellers in the US are subject to considerable discounts and rebates for services provided by our third-party logistics (“3PL”) partner and wholesalers and pharmacy benefit managers (“PBMs”).
Current wording
To date, we have received the majority of our product revenues from sales of our Arakoda product to the US Department of Defense (the “DoD”) and resellers in the U.S. and abroad. Foreign sales to both Australia and Europe are further subject to profit sharing agreements for boxes sold to customers. Currently, the procurement contract with the DoD has expired and DoD sales last occurred in 2021. Sales to resellers in the US are subject to considerable discounts and rebates for services provided by our third-party logistics (“3PL”) partner and wholesalers and pharmacy benefit managers (“PBMs”).
Previous wording
Our research revenues have historically been derived mostly from a single, awarded research grant in the amount of $4,999,814 at the beginning of December 2020 (with an additional $720,000 awarded February 26, 2021) from the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (which may be referred to as “JPEO”) to study Arakoda® in mild-to-moderate COVID-19 patients. A majority of the study was completed in 2021 with the planned lab data analysis and the submission of the final study report completed during the first nine months of 2022. Research revenue was recognized when research expenses against the JPEO grant were recognized at the end of each month. Research revenues do not exceed directly related research expenses for a given period as the grant did not cover additional research beyond the scope of COVID-19.
Current wording
Our research revenues have historically been derived mostly from a single, awarded research grant in the amount of $4,999,814 at the beginning of December 2020 (with an additional $720,000 awarded February 26, 2021) from the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (which may be referred to as “JPEO”) to study Arakoda in mild-to-moderate COVID-19 patients. A majority of the study was completed in 2021 with the planned lab data analysis and the submission of the final study report completed during the first nine months of 2022. Research revenue was recognized when research expenses against the JPEO grant were recognized at the end of each month. Research revenues do not exceed directly related research expenses for a given period as the grant did not include the general and administrative, overhead or profit components. We also earn research revenues from the Australian Tax Authority for research activities conducted in Australia.
Previous wording
Interest expense consists of interest accrued on our debt obligations and related amortization of debt discounts and deferred issuance costs. Other components of other income (expense) include changes in the fair value of financial instruments, gains and losses on extinguishments of debt, and other miscellaneous income (expense). We also earn interest income as a result of cash invested in Federal Deposit Insurance Corporation backed interest bearing accounts.
Current wording
Interest expense consists of interest accrued on our debt obligations and related amortization of debt discounts and deferred issuance costs. Other components of other income (expense), net include changes in the fair value of financial instruments, gains and losses on extinguishments of debt, and other miscellaneous income (expense). We also earn interest income as a result of cash invested in Federal Deposit Insurance Corporation backed interest bearing accounts.
Previous wording
Our product revenues - net of discounts and rebates were $105,674 for the three months ended March 31, 2024, as compared to $17,172 for the three months ended March 31, 2023. For the three months ended March 31, 2024, our U.S. pharmaceutical distributor accounted for 99% of our total net product sales and Kodatef sales to our Australian distributor accounted for 1% of total net product sales ((112%) and 212% for the three months ended March 31, 2023, respectively). Domestic, commercial product sales are primarily driving increased sales volume during the period.
Current wording
Our product revenues - net of discounts and rebates were $124,972 for the three months ended June 30, 2024, as compared to $59,532 for the three months ended June 30, 2023. For the three months ended June 30, 2024, our U.S. pharmaceutical distributor accounted for 92% of our total net product sales and Kodatef sales to our Australian distributor accounted for 7% of total net product sales (100% and 0% for the three months ended June 30, 2023, respectively). Domestic, commercial product sales are primarily driving increased sales volume during the period.
Previous wording
We offer discounts and rebates to the civilian U.S. supply chain distribution channel. We record sales when our 3PL partner transfers boxes into their title model. Discounts and rebates offered to our 3PL partner amount to 12% along with a $5,500 fixed monthly fee that started in 2023. The product is then transferred usually to one of the three large U.S. pharmaceutical distributors where rebates are 10%. Lastly, we have relationships with several large PBMs that allow patients to purchase Arakoda® at a discount. The rebate associated with PBMs ranges from 30 to 41.25% depending on the amount of coverage provided. For the three months ended March 31, 2024, discounts and rebates were $94,869 compared to $25,499 for the three months ended March 31, 2023.
Current wording
We offer discounts and rebates to the civilian U.S. supply chain distribution channel. We record sales when our 3PL partner transfers boxes into their title model. Discounts and rebates offered to our 3PL partner amount to 12% along with a $5,500 fixed monthly fee that started in 2023. The product is then transferred usually to one of the three large U.S. pharmaceutical distributors where rebates are 10%. Lastly, we have relationships with several large PBMs that allow patients to purchase Arakoda at a discount. The rebate associated with PBMs ranges from 30 to 41.25% depending on the amount of coverage provided. For the three months ended June 30, 2024, discounts and rebates were $106,755 compared to $22,151 for the three months ended June 30, 2023.
Previous wording
Arakoda® entered the U.S. civilian supply chain in the third quarter of 2019. For the three months ended March 31, 2023, 183 boxes were sold to pharmacies and dispensaries. Sales volume increased by 458% to 1,022 boxes sold to pharmacies and dispensaries for the three months ended March 31, 2024. Based on IQVIA data, this growth in sales volume appears to be driven primarily by organic growth in the Lyme disease community, whose prescribers utilize Arakoda® for treatment of babesiosis. The sales volume growth to pharmacies and dispensaries ties more closely to the growth in discounts and rebates previously discussed than our reported sales to our 3PL.
Current wording
Arakoda entered the U.S. civilian supply chain in the third quarter of 2019. For the three months ended June 30, 2023, 335 boxes were sold to pharmacies and dispensaries. Sales volume increased by 288% to 1,301 boxes sold to pharmacies and dispensaries for the three months ended June 30, 2024. Based on IQVIA data, this growth in sales volume appears to be driven primarily by organic growth in the Lyme disease community, whose prescribers utilize Arakoda for treatment of babesiosis. The sales volume growth to pharmacies and dispensaries ties more closely to the growth in discounts and rebates previously discussed than our reported sales to our 3PL.
Previous wording
Kodatef sales to our distributor Biocelect in Australia for the three months ended March 31, 2024 were $1,004 ($36,438 for the three months ended March 31, 2023). Sales to Biocelect are currently subject to a profit share distribution once the original transfer price has been recouped. The most recent sale of boxes to Biocelect reached profit share at the end of Q1 2024. Biocelect reported 270% year-over-year growth, the equivalent of 665 boxes sold for the three months ended March 31, 2024, compared to 179.5 boxes for the three months ended March 31, 2023. As of March 31, 2024, Biocelect’s unsold inventory that remains subject to profit share was the equivalent of 1,549 boxes. While growth in Australia is similarly positive to that in the US, Biocelect has achieved that growth by competing directly with Malarone in terms of price in their market for the approved antimalarial prophylaxis indication. As of March 31, 2024, $1,004 of profit share was due to us ($0 as of December 31, 2023).
Current wording
Kodatef sales to our distributor Biocelect in Australia for the three months ended June 30, 2024 were $9,002 ($0 for the three months ended June 30, 2023). Sales to Biocelect are currently subject to a profit share distribution once the original transfer price has been recouped. The most recent sale of boxes to Biocelect reached profit share at the end of Q1 2024. Biocelect reported 1,414% year-over-year growth for the quarter, the equivalent of 410 boxes sold for the three months ended June 30, 2024, compared to 29 boxes for the three months ended June 30, 2023. As of June 30, 2024, Biocelect’s unsold inventory that remains subject to profit share was the equivalent of 1,139 boxes. While growth in Australia is similarly positive to that in the US, Biocelect has achieved that growth by competing directly with Malarone in terms of price in their market for the approved antimalarial prophylaxis indication. As of June 30, 2024, $9,002 of profit share was due to us ($0 as of December 31, 2023).
Previous wording
Cost of Revenues, Gross Loss, and Gross Margin
Current wording
Cost of Revenues, Gross Profit (Loss), and Gross Margin
Previous wording
Cost of revenues was $65,437 for the three months ended March 31, 2024, as compared to $73,120 for the three months ended March 31, 2023. While net product sales increased over the same periods, the decrease in cost of goods sold is primarily attributable to the fixed part of cost of goods. As sales volume has increased, the gross margin has improved as the variable cost of goods of each unit sold is substantially less than the sales price. Due to these factors, the Gross Margin % increased significantly from (325.81%) to 43.81%.
Current wording
Cost of revenues was $89,564 for the three months ended June 30, 2024, as compared to $183,977 for the three months ended June 30, 2023. While net product sales increased over the same periods, the decrease in cost of goods sold is primarily attributable to the fixed part of cost of goods. As the sales volume has increased, the gross margin has improved as the variable cost of goods of each unit sold is substantially less than the sales price. Additionally, write-downs for expired inventory were significantly higher during the three months ended June 30, 2023 at $111,220, as compared to $16,684 during the three months ended June 30, 2024. Due to these factors, the Gross Margin % increased significantly from (209.04%) for the three months ended June 30, 2023 to 28.33% for the three months ended June 30, 2024.
Previous wording
The research revenues earned by us were $29,631 for the three months ended March 31, 2024, as compared to $4,292 for the three months ended March 31, 2023. Our research revenues for the periods presented consist entirely of projected research revenues from the Australian Tax Authority for research activities conducted in Australia.
Current wording
The research revenues earned by us were $728 for the three months ended June 30, 2024, as compared to $3,116 for the three months ended June 30, 2023. Our research revenues for the periods presented consist primarily of projected research revenues from the Australian Tax Authority for research activities conducted in Australia.
Previous wording
Research and development costs increased during the three months ended March 31, 2024 when compared to the three months ended March 31, 2023. Research and development costs incurred during the three months ended March 31, 2023 consisted of initiation costs related to our Phase IIB COVID-19 clinical trial, which was then suspended in the fourth quarter of 2023. As such, we incurred $940 of COVID-19-related trial costs for the three months ended March 31, 2024 ($105,527 for the three months ended March 31, 2023). We incurred $186,091 in costs related to our planned babesiosis trial for tafenoquine during the three months ended March 31, 2024 ($0 during the three months ended March 31, 2023).
Current wording
Research and development costs increased during the three months ended June 30, 2024 when compared to the three months ended June 30, 2023. Research and development costs incurred during the three months ended June 30, 2023 consisted of initiation costs related to our Phase IIB COVID-19 clinical trial, which was later suspended in the fourth quarter of 2023. Direct COVID-19-related trial costs represent 1% of the costs for the three months ended June 30, 2024 at $19,432 and 90% of the costs for the three months ended June 30, 2023 at $182,887. During the three months ended June 30, 2024, we recorded research and development expense of $2,625,000, representing 85% of the total costs, upon the delivery from Kentucky Technology, Inc. of their report on the potential development of SJ733 + tafenoquine. Pursuant to the services agreement executed in January 2023, we issued Kentucky Technology, Inc. 43,750 fully vested shares of our common stock, which payment was deferred and capitalized until delivery of the report. We also incurred $389,735 in costs related to our planned babesiosis trial for tafenoquine during the three months ended June 30, 2024 ($0 during the three months ended June 30, 2023).
Previous wording
For the three months ended March 31, 2024, our general and administrative expenses increased by 38.72% or $300,120 from the three months ended March 31, 2023. During the three months ended March 31, 2024, we incurred higher compensation expenses as a result of compensation arrangements with our directors, which came into effect in July 2023. Pursuant to these arrangements, we recognized $49,500 in cash compensation to our directors during the three months ended March 31, 2024 ($0 for the three months ended March 31, 2023). Additionally, during the three months ended March 31, 2024, we incurred $208,005 in audit, legal and professional fees, $147,920 of insurance expenses, and $104,064 of sales, advertising and promotion expenses (up from $80,750, $21,093, and $36,604 for the three months ended March 31, 2023, respectively).
Current wording
For the three months ended June 30, 2024, our general and administrative expenses increased by 144.07% or $666,765 from the three months ended June 30, 2023. During the three months ended June 30, 2024, we incurred higher compensation expenses as a result of compensation arrangements with our directors, which came into effect in July 2023, as well as hired a new Chief Commercial Officer in February 2024. As such, we recognized $236,520 in compensation and related expenses during the three months ended June 30, 2024 ($76,396 for the three months ended June 30, 2023). Additionally, during the three months ended June 30, 2024, we incurred $145,504 in legal and professional fees, $137,252 of insurance expenses, $266,266 of investor outreach expenses, and $74,315 of advertising and promotion expenses (up from $89,127, $16,129, $56,908, and $39,061 for the three months ended June 30, 2023, respectively).
Previous wording
For the three months ended March 31, 2024, we recognized $1,402 of interest expense ($1,141,429 for the three months ended March 31, 2023). The decrease in interest expense is the result of the settlement or conversion of a majority of our outstanding debt obligations upon the closing of our initial public offering (“IPO”) on July 14, 2023. Cash paid for interest expense was $2,193 and $2,193 for the three months ended March 31, 2024 and March 31, 2023, respectively.
Current wording
For the three months ended June 30, 2024, we recognized $3,621 of interest expense ($1,099,656 for the three months ended June 30, 2023). The decrease in interest expense is the result of the settlement or conversion of a majority of our outstanding debt obligations upon the closing of our IPO in July 2023. Cash paid for interest expense was $2,193 and $2,193 for the three months ended June 30, 2024 and June 30, 2023, respectively.
Previous wording
For the three months ended March 31, 2023, we recognized a $339,052 gain related to the change in fair value of the promissory note with Knight, which was measured at fair value on a recurring basis beginning in January 2023. Upon the closing of the IPO, the promissory note converted into equity shares in full satisfaction of the outstanding principal and accrued interest. As such, the debt is no longer outstanding and hence we recorded a $0 change in fair value for the three months ended March 31, 2024.
Current wording
For the three months ended June 30, 2023, we recognized a $1,064,849 loss related to the change in fair value of the promissory note with Knight, which was measured at fair value on a recurring basis beginning in January 2023. Upon the closing of the IPO, the promissory note converted into equity shares in full satisfaction of the outstanding principal and accrued interest. As such, the debt is no longer outstanding and hence we recorded a $0 change in fair value for the three months ended June 30, 2024.
Previous wording
For the three months ended March 31, 2024, we recognized $20,262 in other income compared to $591 for the three months ended March 31, 2023. As a result of the IPO, we now earn interest income as certain cash proceeds are invested in Federal Deposit Insurance Corporation backed interest bearing accounts. During the three months ended March 31, 2024, we recognized interest income of $21,888 ($1,985 during the three months ended March 31, 2023).
Current wording
For the three months ended June 30, 2024, we recognized $19,684 in other income compared to $730 for the three months ended June 30, 2023. As a result of the IPO, we now earn interest income as certain cash proceeds are invested in Federal Deposit Insurance Corporation backed interest bearing accounts. During the three months ended June 30, 2024, we recognized interest income of $20,669 ($0 during the three months ended June 30, 2023).
Previous wording
During the three months ended March 31, 2024, we recognized $10,789 in service revenue in association with the final payment from the United States Army Medical and Materiel Development Activity (USAMMDA) for storing Arakoda® purchases ($0 for the three months ended March 31, 2023). The revenue for the three months ended March 31, 2024 is related to the final resolution of storage fees payable from the USAMMDA. As the contract ended on August 31, 2022, additional storage revenue is not expected in the near future.
Current wording
During the six months ended June 30, 2024, we recognized $10,789 in service revenue in association with the final payment from the United States Army Medical and Materiel Development Activity (USAMMDA) for storing Arakoda purchases ($0 for the six months ended June 30, 2023). The revenue for the six months ended June 30, 2024 is related to the final resolution of storage fees payable from the USAMMDA. As the contract ended on August 31, 2022, additional storage revenue is not expected in the near future.
Previous wording
For the three months ended March 31, 2024, we recognized a gain on the change in fair value of derivative liabilities of $1,780,847 compared to a loss of ($5,134) for the three months ended March 31, 2023. For the three months ended March 31, 2024, derivative liabilities include the contingent milestone payment due to Knight upon a future sale of Arakoda® or a Change of Control. We use a Monte-Carlo simulation model to estimate the fair value of this derivative liability, which uses assumptions such as the timing and probability of discrete potential exit scenarios, forward interest rate curves, and discount rates based on implied and market yields. The fair value is inversely related to the net present value of future investments into the Company and anticipated timing to profitability within our budget models. For the three months ended March 31, 2023, derivative liabilities consisted of bridge shares, certain warrants, and embedded conversion features in our convertible notes.
Current wording
For the six months ended June 30, 2024, we recognized a gain on the change in fair value of derivative liabilities of $1,739,746 compared to a gain of $2,834 for the six months ended June 30, 2023. For the six months ended June 30, 2024, derivative liabilities include the contingent milestone payment due to Knight upon a future sale of Arakoda or a Change of Control. The fair value of the contingent milestone payment is inversely related to the net present value of future investments in the Company and anticipated timing to profitability within our budget models. For the six months ended June 30, 2023, derivative liabilities consisted of bridge shares, certain warrants, and embedded conversion features in our convertible notes. We use a probability-weighted discounted cash flow model or a Monte Carlo simulation model to estimate the fair value of these instruments.
Previous wording
Net cash used in operating activities was $1,140,438 for the three months ended March 31, 2024, as compared to $412,678 for the three months ended March 31, 2023. Our net cash used in operating activities increased, primarily due to higher general and administrative expenses at $1,075,134 for the three months ended March 31, 2024 ($775,014 for the three months ended March 31, 2023), primarily due to higher audit, legal, and professional fees, insurance expenses, and advertising and promotion costs, as discussed above. In addition, we incurred higher research and development costs at $337,182 for the three months ended March 31, 2024 ($123,994 for the three months ended March 31, 2023), primarily related to launch activities for our tafenoquine-babesiosis trial.
Current wording
Net cash used in operating activities was $2,328,650 for the six months ended June 30, 2024, as compared to $726,168 for the six months ended June 30, 2023. Our net cash used in operating activities increased, primarily due to higher general and administrative expenses at $2,204,694 for the six months ended June 30, 2024 ($1,237,809 for the six months ended June 30, 2023), primarily due to higher compensation and related expenses, legal and professional fees, insurance expenses, investor outreach expenses, and advertising and promotion expenses, as discussed above. In addition, we incurred $575,826 in initiation costs related to our planned babesiosis trial for tafenoquine during the six months ended June 30, 2024 ($0 during the six months ended June 30, 2023).
Previous wording
Net cash used in investing activities was $9,814 for the three months ended March 31, 2024, as compared to $3,292 for the three months ended March 31, 2023. The increase in cash used in investing activities is primarily due to cash paid of $9,088 for capitalized website development costs for the three months ended March 31, 2024 associated with enhancements to the functionality of our corporate website ($0 for the three months ended March 31, 2023), partially offset by lower capitalized patent costs of $726 for the three months ended March 31, 2024 ($3,292 for the three months ended March 31, 2023).
Current wording
Net cash used in investing activities was $140,373 for the six months ended June 30, 2024, as compared to $21,419 for the six months ended June 30, 2023. The increase in cash used in investing activities is primarily due to cash paid for purchases of computer and lab equipment totaling $90,000 during the six months ended June 30, 2024 ($0 during the six months ended June 30, 2023), as well as cash paid of $22,075 for capitalized website development costs for the six months ended June 30, 2024 associated with enhancements to the functionality of our corporate website ($6,000 for the six months ended June 30, 2023), and capitalized patent costs of $28,298 for the six months ended June 30, 2024 ($15,419 for the six months ended June 30, 2023).
Previous wording
Net cash provided by financing activities was $1,903,291 for the three months ended March 31, 2024, as compared to $182,388 for the three months ended March 31, 2023. The increase in net cash provided by financing activities is largely attributable to net proceeds of $1,914,495 in connection with our common stock and warrant offering received on January 31, 2024. Cash provided by financing activities for the three months ended March 31, 2023 was due to advances from related parties totaling $200,000, partially offset by deferred offering costs paid prior to our IPO of $17,612.
Current wording
Net cash provided by financing activities was $1,902,426 for the six months ended June 30, 2024, as compared to $503,456 for the six months ended June 30, 2023. The increase in net cash provided by financing activities is largely attributable to net proceeds of $1,914,513 in connection with our common stock and warrant offering received on January 31, 2024, partially offset by payment of offering costs. Cash provided by financing activities for the six months ended June 30, 2023 was primarily related to the gross cash value raised from the bridge financing on May 8, 2023 of $650,000, partially offset by deferred offering costs paid prior to our IPO of $146,544.
Previous wording
Our foreign operations were small relative to U.S. operations for the three months ended March 31, 2024 and March 31, 2023, thus effects of foreign currency translation have been minor.
Current wording
Our foreign operations were small relative to U.S. operations for the six months ended June 30, 2024, and 2023, thus effects of foreign exchange rate changes on cash have been minor.
Previous wording
We regularly monitor our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value, and record write-downs for inventory that has expired, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected sales requirements. We charge any write-downs of inventories to Cost of Revenues in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Current wording
We regularly monitor our inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value, and record write-downs for inventory that has expired, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected sales requirements. We charge any write-downs of inventories to Cost of Revenues in the Consolidated Condensed Statements of Operations and Comprehensive Loss.
Previous wording
We analyze all financial instruments with features of both liabilities and equity under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 480, (“ASC 480”), Distinguishing Liabilities from Equity and FASB ASC Topic No. 815, Derivatives and Hedging (“ASC 815”). Derivative liabilities are adjusted to reflect fair value at each reporting period, with any increase or decrease in the fair value recorded in the results of operations (other income/expense) as change in fair value of derivative liabilities. We use a Monte Carlo Simulation Model to determine the fair value of these instruments.
Current wording
We analyze all financial instruments with features of both liabilities and equity under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 480, (“ASC 480”), Distinguishing Liabilities from Equity and FASB ASC Topic No. 815, Derivatives and Hedging (“ASC 815”). Derivative liabilities are adjusted to reflect fair value at each reporting period, with any increase or decrease in the fair value recorded in the results of operations (other income/expense) as change in fair value of derivative liabilities. We use a probability-weighted discounted cash flow model to estimate the fair value of these instruments.
Rearranged current paragraphs (14)
Current report — wording carried from elsewhere
For the three months ended June 30, 2024, we recognized a loss on the change in fair value of derivative liabilities of $1,101 compared to a gain of $7,968 for the three months ended June 30, 2023. For the three months ended June 30, 2024, derivative liabilities include the contingent milestone payment due to Knight upon a future sale of Arakoda or a Change of Control. For the three months ended June 30, 2023, derivative liabilities consisted of bridge shares, certain warrants, and embedded conversion features in our convertible notes. We use a probability-weighted discounted cash flow model or a Monte Carlo simulation model to estimate the fair value of these instruments.
Current report — wording carried from elsewhere
Product Revenues - net of Discounts and Rebates
Current report — wording carried from elsewhere
Our product revenues - net of discounts and rebates were $230,646 for the six months ended June 30, 2024, as compared to $76,704 for the six months ended June 30, 2023. For the six months ended June 30, 2024, our U.S. pharmaceutical distributor accounted for 95% of our total net product sales and Kodatef sales to our Australian distributor accounted for 4% of total net product sales (29% and 71% for the six months ended June 30, 2023, respectively). Domestic, commercial product sales are primarily driving increased sales volume during the period.
Current report — wording carried from elsewhere
We offer discounts and rebates to the civilian U.S. supply chain distribution channel. We record sales when our 3PL partner transfers boxes into their title model. Discounts and rebates offered to our 3PL partner amount to 12% along with a $5,500 fixed monthly fee that started in 2023. The product is then transferred usually to one of the three large U.S. pharmaceutical distributors where rebates are 10%. Lastly, we have relationships with several large PBMs that allow patients to purchase Arakoda at a discount. The rebate associated with PBMs ranges from 30 to 41.25% depending on the amount of coverage provided. For the six months ended June 30, 2024, discounts and rebates were $201,624 compared to $47,649 for the six months ended June 30, 2023.
Current report — wording carried from elsewhere
Arakoda entered the U.S. civilian supply chain in the third quarter of 2019. For the six months ended June 30, 2023, 516 boxes were sold to pharmacies and dispensaries. Sales volume increased by 350% to 2,323 boxes sold to pharmacies and dispensaries for the six months ended June 30, 2024. Based on IQVIA data, this growth in sales volume appears to be driven primarily by organic growth in the Lyme disease community, whose prescribers utilize Arakoda for treatment of babesiosis. The sales volume growth to pharmacies and dispensaries ties more closely to the growth in discounts and rebates previously discussed than our reported sales to our 3PL.
Current report — wording carried from elsewhere
Kodatef sales to our distributor Biocelect in Australia for the six months ended June 30, 2024 were $10,006 ($0 for the six months ended June 30, 2023). Sales to Biocelect are currently subject to a profit share distribution once the original transfer price has been recouped. The most recent sale of boxes to Biocelect reached profit share at the end of Q1 2024. Biocelect reported 514% year-over-year growth, the equivalent of 1,075 boxes sold for the six months ended June 30, 2024, compared to 209 boxes for the six months ended June 30, 2023. As of June 30, 2024, Biocelect’s unsold inventory that remains subject to profit share was the equivalent of 1,139 boxes. While growth in Australia is similarly positive to that in the US, Biocelect has achieved that growth by competing directly with Malarone in terms of price in their market for the approved antimalarial prophylaxis indication. As of June 30, 2024, $9,002 of profit share was due to us ($0 as of December 31, 2023).
Current report — wording carried from elsewhere
Cost of Revenues, Gross Profit (Loss), and Gross Margin
Current report — wording carried from elsewhere
Cost of revenues was $155,001 for the six months ended June 30, 2024, as compared to $257,097 for the six months ended June 30, 2023. While net product sales increased over the same periods, the decrease in cost of goods sold is primarily attributable to the fixed part of cost of goods. As the sales volume has increased, the gross margin has improved as the variable cost of goods of each unit sold is substantially less than the sales price. Additionally, write-downs for expired inventory were significantly higher during the six months ended June 30, 2023 at $116,611, as compared to $17,325 during the six months ended June 30, 2024. Due to these factors, the Gross Margin % increased significantly from (235.18%) for the six months ended June 30, 2023 to 35.80% for the six months ended June 30, 2024.
Current report — wording carried from elsewhere
The research revenues earned by us were $30,359 for the six months ended June 30, 2024, as compared to $7,408 for the six months ended June 30, 2023. Our research revenues for the periods presented consist primarily of projected research revenues from the Australian Tax Authority for research activities conducted in Australia.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, we recognized $5,023 of interest expense ($2,241,085 for the six months ended June 30, 2023). The decrease in interest expense is the result of the settlement or conversion of a majority of our outstanding debt obligations upon the closing of our IPO in July 2023. Cash paid for interest expense was $4,386 and $4,386 for the six months ended June 30, 2024 and June 30, 2023, respectively.
Current report — wording carried from elsewhere
Change in Fair Value of Derivative Liabilities
Current report — wording carried from elsewhere
Change in Fair Value of Promissory Note
Current report — wording carried from elsewhere
For the six months ended June 30, 2023, we recognized a $725,797 loss related to the change in fair value of the promissory note with Knight, which was measured at fair value on a recurring basis beginning in January 2023. Upon the closing of the IPO, the promissory note converted into equity shares in full satisfaction of the outstanding principal and accrued interest. As such, the debt is no longer outstanding and hence we recorded a $0 change in fair value for the six months ended June 30, 2024.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, we recognized $39,946 in other income compared to $1,321 for the six months ended June 30, 2023. As a result of the IPO, we now earn interest income as certain cash proceeds are invested in Federal Deposit Insurance Corporation backed interest bearing accounts. During the six months ended June 30, 2024, we recognized interest income of $42,557 ($0 during the six months ended June 30, 2023).
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
We also earn research revenues from the Australian Tax Authority for qualified research activities conducted in Australia.
Previous report — wording carried elsewhere
Three Months Ended March 31, 2024, and 2023