Lexaria Bioscience Corp
For the period ended Feb 29, 2024. Filed Apr 9, 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.
Feb 29, 2024 · Filed Apr 9, 2024
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-11-30; filed 2024-01-12.
0001640334-24-000051
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-02-29; filed 2024-04-09.
0001640334-24-000589
Item 2. Results of Operations for the Period Ended February 29, 2024, and February 28, 2023The 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.
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Tables are not compared: 4 previous and 4 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.
Removed paragraphs (47)
Previous report
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Cautionary Note Regarding Forward-Looking Statements
Previous report
This quarterly report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact may be forward-looking statements. These statements relate to future events or our future financial performance. Any forward-looking statements are based on our present beliefs and assumptions as well as the information currently available to us. In some cases, forward-looking statements are identified by terminology such as “may”, “will”, “should”, “could”, “targets”, “goal”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in Item 1(A) in our annual report on Form 10-K, as filed with the Securities and Exchange Commission on November 20, 2023, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you not to place undue reliance on any forward-looking statements as they speak only as of the date on which such statements were made, and we undertake no obligation to update any forward-looking statement or to reflect the occurrence of an unanticipated event. New factors may emerge and it is not possible to predict all factors that may affect our business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Previous report
Our unaudited interim consolidated financial statements are stated in United States Dollars (“US$”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
Previous report
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in US dollars. All references to “common shares” and “shares” refer to the common shares in our capital stock, unless otherwise indicated. The terms “Lexaria” “we”, “us”, “our” and “Company” mean the Company and/or our subsidiaries, unless otherwise indicated.
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The following discussion should be read in conjunction with our condensed financial statements and accompanying notes in this quarterly report on Form 10-Q, and our audited financial statements with notes in our annual report on Form 10-K for the year ended August 31, 2023.
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Company Overview
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Lexaria’s DehydraTECH patented technology improves the delivery of bioactive compounds while promoting healthy ingestion methods, lowers overall dosing, and is highly effective in active molecule delivery available in a range of formats from oral ingestible to oral buccal/sublingual to topical products. DehydraTECH substantially improves the rapidity and quantity of Active Pharmaceutical Ingredients (“API”) transport to the blood plasma and brain using the body’s natural process for distributing fatty acids via the oral route. This technology extends across many categories beyond the primary pharmaceutical focus of the Company, from foods and beverages to cosmetic products and nutraceuticals.
Previous report
Lexaria is advancing several R&D activities in both preclinical and planned future clinical programs. During the quarter ended November 30, 2023, Lexaria completed a human pilot study to investigate whether DehydraTECH-enhanced Rybelsus™ could offer greater benefits than Rybelsus on its own. As noted in our press releases issued on November 27 and 28, 2023, our initial findings found that DehydraTECH-enhanced Rybelsus: sustained higher levels of semaglutide in blood; had faster achievement of peak drug delivery; had reduced side effects; sustained lower levels of blood glucose and lowered blood-glucose spike after eating.
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The Company continues to engage in small R&D projects and B2B formulation for third parties who are evaluating our technology for use in their products.
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Patents
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Our current patent portfolio includes patent family applications or grants pertaining to Lexaria’s method of improving bioavailability and taste, and the use of DehydraTECH as a delivery platform, orally or topically, for a wide variety of Active Pharmaceutical Ingredients (“APIs”) encompassing cannabinoids; fat soluble vitamins; NSAIDs pain medications; and nicotine and its analogs. The pending and granted patents also cover the manufacturing and processing methods used to combine fatty acids with active pharmaceutical ingredients. This includes heating and drying methods and use of excipients and substrates.
Previous report
The Company currently has several applications pending worldwide and due to the complexity of pursuing patent protection, the quantity of patent applications will vary continuously as each application advances or stalls. We continue to investigate national and international opportunities to investigate expansions and additions to our intellectual property portfolio. Patents have been filed specifically for the use of DehydraTECH with cannabinoids for the treatment of heart disease and hypertension to support our anticipated Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”), and for treatment of epilepsy.
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We will continue to seek beneficial acquisitions of intellectual property if and when we believe it is advisable to do so. Due to the inherent unpredictability of scientific discovery, it is not possible to predict if or how often such new applications might be filed or patents issued.
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Below we summarize Lexaria’s allowed/granted patents.
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Research & Development
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Lexaria is advancing several R&D activities in both preclinical and clinical programs. Currently, our primary research programs are the investigation of cannabidiol (“CBD”) for the reduction of hypertension leading to an application under the FDA for an IND and the investigation of optimal formulations of DehydraTECH-enhanced glucagon-like peptide-1 (“GLP-1”) drugs. Other programs include DehydraTECH formulation development and testing with nicotine for oral pouches and prospective nicotine replacement therapy, human hormones, CBD for diabetes, dementia, seizures and others. From time to time the Company will engage in contract R&D for third parties who are interested in evaluating DehydraTECH in their products.
Previous report
During the quarter ended November 30, 2023, Lexaria incurred $574,491 (November 2022 - $829,489) in R&D expenditures. Specific R&D programs are in ongoing development and align to our financial ability to undertake each research phase for each API. Due to our expanding patent portfolio coverage, we continually examine accelerated timetable options for testing, research, and development of each API. Fiscal 2024 continues to highlight the direction of our research and development programs with confirmatory results from our ongoing programs. Our R&D programs are focused on three core business segments: pharmaceutical applications, reduced-risk non-combusted nicotine and CBD from hemp. Of these three, we do not expect to make any significant expenditures during fiscal 2024 on non-combusted nicotine R&D.
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Investigational New Drug
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The FDA provided Lexaria with a positive written response on August 10, 2022, from our pre-IND meeting regarding DehydraTECH-CBD for the treatment of hypertension. The FDA confirmed that it has agreed with Lexaria’s proposal to pursue a 505(b)(2) new drug application (“NDA”) regulatory pathway for our program. We continue working toward our IND filing which is anticipated to be in early 2024. We have selected InClin Inc. as our contract research organization (“CRO”) to perform the IND study which will be a Phase 1(b) study that we are designating HYPER-H23-1. We have completed manufacturing our IND drug product through our third-party contract manufacturer, in compliance with current Good Manufacturing Practice (“cGMP”) regulations as mandated by the FDA, which has completed its stability testing. Along with our CRO, we have begun certain administrative study start-up tasks associated with preparation to perform study HYPER-H23-1 when ready to be initiated following IND effectiveness. As noted in our press release of December 7, 2023, the necessary information required of our third party material supplier in order for Lexaria to submit its IND application with the FDA has now been provided and Lexaria anticipates submitting its IND application on or before January 31, 2024. Provided that the FDA does not issue any objections within 30 days after the IND application is submitted, Lexaria will be able to commence its IND Clinical Trial, subject to any required financing.
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GLP-1 Investigation
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During the quarter ended November 30, 2023, Lexaria commenced its investigations to examine DehydraTECH-enhanced GLP-1 drugs. The initial investigation was a pilot study with seven (7) healthy volunteers whereby four (4) volunteers were dosed with DehydraTECH-enhanced Rybelsus and three (3) volunteers were dosed with regular Rybelsus. As noted in our press releases issued on November 27 and 28, 2023, our initial findings found that DehydraTECH-enhanced Rybelsus: sustained higher levels of semaglutide in blood; had faster achievement of peak drug delivery; had reduced side effects; sustained lower levels of blood glucose and lowered blood-glucose spike after eating. In December 2023 the same volunteers returned for a second dose, but in the reverse order to effect a cross-over design. The results from the second dosing are expected to be disclosed in the first calendar quarter of 2024.
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Off-Balance Sheet Arrangements
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We have no 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 or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
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Critical Accounting Policies and Estimates
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Our consolidated financial statements and accompanying notes are prepared in accordance with US GAAP. These accounting principles require management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses during the periods reported. Based on information available to management at the time, these estimates, judgments and assumptions are considered reasonable. We believe that understanding the basis and nature of the estimates, judgments and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financials.
Previous report
For a discussion of our critical accounting estimates, please readNote 4, Estimates and Judgements, as found in the financial statements in our Annual Report on Form 10-K for the year ended August 31, 2023. There have been no material changes to the critical accounting estimates as previously disclosed in our 2023 Form 10-K.
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Funding Requirements
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We anticipate that our expenditures will increase in connection with our ongoing R&D program, specifically with respect to our animal and human clinical trials of our DehydraTECH formulations for the purposes of treating hypertension and our investigations with GLP-1 drugs. As we move forward with our IND application with the FDA, we anticipate that our expenditures will further increase and accordingly, we expect to incur increased operating losses and negative cash flows for the foreseeable future.
Previous report
Through November 30, 2023, we have funded our operations primarily through the proceeds from the sale of common stock. The Company has consistently incurred recurring losses and negative cash flows from operations, including net losses of $1,185,038 and $1,769,306 for the three months ended November 30, 2023, and 2022, respectively.
Previous report
The continuation of Lexaria as a going concern depends on raising additional capital and/or attaining and maintaining profitable operations. The accompanying financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations. The recurring losses from operations and net capital deficiency raise substantial doubt about the Company’s ability to continue as a going concern within one year following the date that these consolidated financial statements are issued.
Previous report
On September 28, 2023, the Company entered into a securities purchase agreement with a single healthcare-focused institutional investor to purchase, as at October 3, 2023, 889,272 shares of common stock and 729,058 pre-funded warrants in a registered direct offering. In a concurrent private placement, the Company also sold to the investor, warrants to purchase up to 1,618,330 shares of common stock. The combined effective offering price for each share of common stock (or pre-funded warrant in lieu thereof) and accompanying warrant was $0.97 (to note the pre-funded warrants were issued at a price of $0.9699 and have an exercise price of $0.0001). The warrants will become exercisable six months from issuance, expire five and a half years from the issuance date, and have an exercise price of $0.97 per share.
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The net proceeds to the Company from the registered direct offering and concurrent private placement totaled $1.25 million, after deducting placement agent fees and other estimated offering expenses payable by the Company.
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To date all of the pre-funded warrants have been exercised, resulting in an issuance by the Company of an aggregate 729,058 common shares for gross proceeds of approx. 73 dollars.
Previous report
During the quarter ended November 30, 2023, the Company issued an aggregate 601,661 common shares pursuant to the exercise of warrants that were issued under our May 11, 2023, financing, at an exercise price of $0.95 per share for gross proceeds of $571,578 of which $33,250 was being held in Lexaria’s trust account with the warrant agent at November 30, 2023.
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Working Capital
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Previous wording
Our net loss for the three months ended for the respective items are summarized as follows:
Current wording
Our net loss for the six months ended for the respective items are summarized as follows:
Previous wording
Fees from intellectual property licensing increased by $81,555 while B2B sales decreased by $23,712 with other sales lower by $4,300 year-over year.
Current wording
Fees from intellectual property licensing increased by $209,680 while B2B sales decreased by $24,912 with other sales lower by $6,250 year-over year due mainly to an increase in minimum fees earned within our licensee contract and reducing the emphasis on pursuit of B2B clients as we move toward pharmaceuticals.
Previous wording
Expenditures on R&D decreased by $254,998 year-over-year for the period ended November 30, 2023, as the company has completed the manufacturing of its DehydraTECH-CBD drug to treat hypertension and has completed other various studies in the areas of prospective nicotine replacement therapy, CBD for diabetes and seizures. In addition, the Company encountered a delay with respect to its anticipated hypertension-relate IND application filing. Lexaria continues with applied research and development programs in our pharmaceutical division with our primary focus being on FDA approval for a DehydraTECH-CBD drug to treat hypertension and optimization of DehydraTECH formulations of GLP-1 drugs.
Current wording
Expenditures on R&D decreased by $705,397 year-over year for the period ended February 29, 2024, due mainly to the completion of the manufacturing of its DehydraTECH-CBD drug to treat hypertension and the completion of various R&D studies in the areas of prospective nicotine replacement therapy, CBD for diabetes and seizures. Lexaria continues with applied development and programs in our pharmaceutical division with our primary focus being on optimization of DehydraTECH formulations of GLP-1 drugs as well as advancing our DehydraTECH-CBD drug to treat hypertension.
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In the three months ended November 30, 2023, consulting fees and salaries decreased by $95,453, primarily due to the negotiation of reduced fees and the cancellation of contracts with certain consultants, as well as the loss of two permanent full-time employees.
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In the six months ended February 29, 2024, consulting fees and salaries decreased by $195,712, primarily due to the negotiation of reduced fees and the completion of work or cancellation of contracts with certain consultants, as well as the loss of two permanent full-time employees.
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Our legal and professional fees increased by $84,302 during the period compared to the same prior year period. The current period expenditures are higher due to increased patent filings and the utilization of additional legal advisory services. The increase also reflects increased accounting and legal fees related to financing activities in the quarter.
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Our legal and professional fees increased by $163,755 during the period compared to the same prior year period due to increased patent filings and the utilization of additional legal advisory services. The increase also reflects increased accounting and legal fees related to financing activities in the period.
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Our other general and administrative expenses decreased overall by $225,612 during the period ended November 30, 2023, over the same period last year. Advertising and promotion were down by $223,026 in the current period as we scaled back our efforts to bring the results of the Company’s R&D programs to the attention of various industry sectors and to the scientific and investment communities. That decrease was partially offset by the impact of an extensive fact sheet marketing campaign and travel expenses.
Current wording
Our other general and administrative expenses decreased overall by $282,094 during the period ended February 29, 2024, over the same period last year. Advertising and promotion decreased by $232,035 as we scaled back our efforts to bring the results of the Company’s R&D programs to the attention of various industry sectors and to the scientific and investment communities.
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Net cash used in operating activities was approximately $1.18 million for the three months ended November 30, 2023, compared with $1.23 million during the same period in 2022. The decrease relates primarily to a lower net loss ($584,268), largely offset by a lower unrealized loss on marketable securities ($24,413) and lower stock-based compensation expense ($14,823), as well as increases in working capital ($485,419).
Current wording
Net cash used in operating activities was approximately $1.8 million for the six months ended February 29, 2024, compared with $2.5 million during the same period in 2023. The decrease relates primarily to a lower net loss of $1.2 million as we completed manufacturing of our DehydraTECH-CBD drug to treat hypertension and the completion of various R&D studies in the areas of prospective nicotine replacement therapy, CBD for diabetes and seizures, largely offset by as the net increase in working capital $521,972.
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Net cash used in investing activities during the three months ended November 30, 2023, compared to the three months ended November 30, 2022 increased by $5,184 over 2022 due to increased spending on acquisitions of intellectual property, partially offset by decreased equipment additions.
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Net cash used in investing activities during the six months ended February 29, 2024, compared to the six months ended February 28, 2023, increased by $29,490 due to increased spending on prosecution of intellectual property.
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Net cash from financing activities during the three months ended November 30, 2023, totaled $1,819,370, compared to net cash flows from financing activities for the three months ended November 30, 2022 of zero. The increase relates to proceeds from the sale of common share/warrant units ($1,247,719) and warrant exercises ($571,578).
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Net cash from financing activities during the six months ended February 29, 2024, was $5,272,206. The increase relates to net proceeds from the sale of common share and warrant of $4,208,731 and warrant exercises of $1,063,475.
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We have incurred net losses of approximately $6.7 million and $7.4 million respectively in the past two fiscal years. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and related expenditures, the receipt of additional payments related to the out-licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter.
Current wording
Since inception, the Company has incurred significant operating and net losses. Net losses attributable to shareholders were $1.8 million and $3.1 million for the six months ended February 29, 2024, and February 28, 2023, respectively. As of February 29, 2024, we had an accumulated deficit of $47.6 million. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and corporate expenditures, additional revenues received from the licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into. The recurring losses and negative net cash flows raise substantial doubt as to the Company’s ability to continue as a going concern.
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The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern. As of November 30, 2023, the Company had cash on hand of approximately $2 million to settle $125,000 in current liabilities. We have performed a review of our cash flow forecast and have concluded that funds on hand, combined with those expected from executed license agreements, will be sufficient to meet the Company's financial obligations for the twelve-month period following the filing of these consolidated financial statements on Form 10-Q.
Current wording
The Company has evaluated whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern. As of February 29, 2024, the Company had cash and cash equivalents of approximately $4.7 million to settle $81,717 in current liabilities. We have performed a review of our cash flow forecast and have concluded that our existing cash, combined with those expected from executed license agreements, will be sufficient to meet the Company's financial obligations for the twelve-month period following the filing of these consolidated financial statements on Form 10-Q.
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We have performed a review of our cash flow forecast and have concluded that funds on hand, combined with those expected from executed license agreements, will be sufficient to meet the Company's financial obligations for the twelve-month period following the filing of these consolidated financial statements on Form 10-Q. Accordingly, based on this review, management believes that any substantial doubt in the Company’s ability to continue as a going concern has been alleviated.
Previous report — wording carried elsewhere
Results of Operations for the Period Ended November 30, 2023, and 2022