UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from _____________ to _____________
Commission file number:
CLENE INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer |
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| (Address of principal executive offices) | (Zip Code) |
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(Registrant’s telephone number, including area code)
| N/A |
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | The | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the Registrant’s common stock as of November 3, 2023 was
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2023
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Operating lease obligations, current portion | ||||||||
| Finance lease obligations, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Total current liabilities | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Finance lease obligations, net of current portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Convertible notes payable | ||||||||
| Common stock warrant liabilities | ||||||||
| Clene Nanomedicine contingent earn-out liability | ||||||||
| Initial Stockholders contingent earn-out liability | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $ par value: and shares authorized at September 30, 2023 and December 31, 2022, respectively; and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue: |
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| Product revenue |
$ | $ | $ | $ | ||||||||||||
| Royalty revenue |
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| Total revenue |
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| Operating expenses: |
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| Cost of revenue |
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| Research and development |
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| General and administrative |
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| Total operating expenses |
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| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
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| Other income (expense), net: |
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| Interest income |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on termination of lease |
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| Commitment share expense |
( |
) | ||||||||||||||
| Issuance costs for common stock warrant liability |
( |
) | ||||||||||||||
| Loss on initial issuance of equity |
( |
) | ||||||||||||||
| Change in fair value of common stock warrant liabilities |
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| Change in fair value of Clene Nanomedicine contingent earn-out liability |
( |
) | ||||||||||||||
| Change in fair value of Initial Stockholders contingent earn-out liability |
( |
) | ||||||||||||||
| Research and development tax credits and unrestricted grants |
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| Other income (expense), net |
( |
) | ||||||||||||||
| Total other income (expense), net |
( |
) | ( |
) | ||||||||||||
| Net loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
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| Income tax benefit |
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| Net loss |
( |
) | ( |
) | ( |
) | ( |
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| Other comprehensive loss: |
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| Unrealized gain (loss) on available-for-sale securities |
( |
) | ( |
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| Foreign currency translation adjustments |
( |
) | ( |
) | ( |
) | ( |
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| Total other comprehensive loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares used to compute basic and diluted net loss per share |
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See accompanying notes to the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
(Unaudited)
| Common Stock |
Additional Paid-In |
Accumulated |
Accumulated Other Comprehensive |
Total Stockholders’ |
||||||||||||||||||||
| Shares |
Amount |
Capital |
Deficit |
Income (Loss) |
Equity (Deficit) |
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| Balances at December 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Unrealized gain on available-for-sale securities |
— | |||||||||||||||||||||||
| Foreign currency translation adjustment |
— | |||||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at March 31, 2023 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||
| Issuance of equity-classified warrants |
— | |||||||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock awards |
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| Unrealized gain on available-for-sale securities |
— | |||||||||||||||||||||||
| Foreign currency translation adjustment |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at June 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Common stock issuance costs |
— | ( |
) | ( |
) | |||||||||||||||||||
| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock awards |
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| Unrealized loss on available-for-sale securities |
— | ( |
) | ( |
) | |||||||||||||||||||
| Foreign currency translation adjustment |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at September 30, 2023 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Balances at December 31, 2021 |
( |
) | ||||||||||||||||||||||
| Reclassification of common stock warrant liability to equity |
— | |||||||||||||||||||||||
| Exercise of stock options |
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| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Unrealized loss on available-for-sale securities |
— | ( |
) | ( |
) | |||||||||||||||||||
| Foreign currency translation adjustment |
— | |||||||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at March 31, 2022 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Exercise of stock options |
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| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock awards |
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| Unrealized loss on available-for-sale securities |
— | ( |
) | ( |
) | |||||||||||||||||||
| Offering costs |
— | ( |
) | ( |
) | |||||||||||||||||||
| Foreign currency translation adjustment |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at June 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
| Issuance of common stock, net of issuance costs |
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| Stock-based compensation expense |
— | |||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock awards |
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| Unrealized gain on available-for-sale securities |
— | |||||||||||||||||||||||
| Foreign currency translation adjustment |
— | ( |
) | ( |
) | |||||||||||||||||||
| Net loss |
— | ( |
) | ( |
) | |||||||||||||||||||
| Balances at September 30, 2022 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, |
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| 2023 |
2022 |
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| Cash flows from operating activities: |
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| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Depreciation |
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| Non-cash lease expense |
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| Commitment share expense |
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| Issuance costs for common stock warrant liability |
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| Loss on initial issuance of equity |
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| Change in fair value of common stock warrant liabilities |
( |
) | ( |
) | ||||
| Change in fair value of Clene Nanomedicine contingent earn-out liability |
( |
) | ( |
) | ||||
| Change in fair value of Initial Stockholders contingent earn-out liability |
( |
) | ( |
) | ||||
| Stock-based compensation expense |
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| Gain on termination of lease |
( |
) | ||||||
| Loss on sale of marketable securities |
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| Accretion of debt discount |
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| Non-cash interest expense |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Inventory |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Accrued liabilities |
( |
) | ( |
) | ||||
| Operating lease obligations |
( |
) | ( |
) | ||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
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| Purchases of marketable securities |
( |
) | ||||||
| Proceeds from maturities of marketable securities |
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| Proceeds from sales of marketable securities |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Net cash provided by (used in) investing activities |
( |
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| Cash flows from financing activities: |
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| Proceeds from exercise of stock options |
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| Proceeds from at-the-market offering |
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| Payments of at-the-market offering commissions |
( |
) | ||||||
| Proceeds from issuance of common stock and warrants, net of offering costs |
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| Payments of finance lease obligations |
( |
) | ( |
) | ||||
| Proceeds from the issuance of notes payable |
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| Payments of notes payable issuance costs |
( |
) | ||||||
| Payments of notes payable modification fees |
( |
) | ||||||
| Payment of deferred offering costs |
( |
) | ||||||
| Net cash provided by financing activities |
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| Effect of foreign exchange rate changes on cash and restricted cash |
( |
) | ( |
) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
) | ||||||
| Cash, cash equivalents and restricted cash – beginning of period |
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| Cash, cash equivalents and restricted cash – end of period |
$ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets |
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| Cash and cash equivalents |
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| Restricted cash |
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| Cash, cash equivalents and restricted cash |
$ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: |
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| Common stock warrant liability recorded upon debt modification |
$ | $ | ||||||
| Common stock warrant liability recorded upon public stock offering |
$ | $ | ||||||
| Lease liability arising from obtaining right-of-use assets, leasehold improvements, and lease incentives |
$ | $ | ||||||
| Lease incentive realized |
$ | $ | ||||||
| Lease liability settled through termination of lease |
$ | $ | ||||||
| Reclassification of common stock warrant liability to permanent equity |
$ | $ | ||||||
| Purchases of property and equipment in accounts payable |
$ | $ | ||||||
| Supplemental cash flow information: |
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| Cash paid for interest expense |
$ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of the Business
Clene Inc. (the “Company,” “we,” “us,” or similar such references) is a clinical-stage pharmaceutical company pioneering the discovery, development, and commercialization of novel clean-surfaced nanotechnology therapeutics. We have developed an electro-crystal-chemistry drug development platform which enables production of concentrated, stable, highly active, clean-surfaced nanocrystal suspensions. We have multiple drug assets currently in development for applications primarily in neurology. Our efforts are currently focused on addressing the high unmet medical needs in central nervous system disorders including Amyotrophic Lateral Sclerosis (“ALS”), Multiple Sclerosis (“MS”), and Parkinson’s Disease (“PD”). Our patented electro-crystal-chemistry manufacturing platform further enables us to develop very low concentration dietary supplements to advance the health and well-being of broad populations. These dietary supplements can vary greatly and include nanocrystals of varying composition, shapes and sizes as well as ionic solutions with diverse metallic constituents. Dietary supplements are marketed and distributed through our wholly owned subsidiary, dOrbital, Inc., or through an exclusive license with 4Life Research LLC (“4Life”), a related party (see Note 15).
Clene Nanomedicine, Inc. (“Clene Nanomedicine”) became a public company on December 30, 2020 (the “Closing Date”) when it completed a reverse recapitalization (the “Reverse Recapitalization”) with Tottenham Acquisition I Limited (“Tottenham”), Tottenham’s wholly-owned subsidiary and our predecessor, Chelsea Worldwide Inc., and Creative Worldwide Inc., a wholly-owned subsidiary of Chelsea Worldwide Inc. On the Closing Date, Chelsea Worldwide Inc. changed its name to Clene Inc. and listed its shares of common stock, par value $
Going Concern
We incurred a loss from operations of $
We have incurred significant losses and negative cash flows from operations since our inception. We have not generated significant revenues since our inception, and we do not anticipate generating significant revenues unless we successfully complete development and obtain regulatory approval for commercialization of a drug candidate. We expect to incur additional losses in the future, particularly as we advance the development of our clinical-stage drug candidates, continue research and development of our preclinical drug candidates, and initiate additional clinical trials of, and seek regulatory approval for, these and other future drug candidates. We expect that within the next twelve months, we will not have sufficient cash and other resources on hand to sustain our current operations or meet our obligations as they become due unless we obtain additional financing. Additionally, pursuant to our term loan with Avenue Venture Opportunities Fund, L.P. (“Avenue”), we are required to maintain unrestricted cash and cash equivalents of at least $
To mitigate our funding needs, we plan to raise additional funding, including exploring equity financing and offerings, debt financing, licensing or collaboration arrangements with third parties, as well as utilizing our existing at-the-market facility and equity purchase agreement and potential proceeds from the exercise of outstanding warrants and stock options. These plans are subject to market conditions and reliance on third parties, and there is no assurance that effective implementation of our plans will result in the necessary funding to continue current operations. We have implemented cost-saving initiatives, including delaying and reducing certain research and development programs and commercialization efforts and elimination of certain staff positions. We have concluded that our plans do not alleviate the substantial doubt about our ability to continue as a going concern beyond one year from the date the condensed consolidated financial statements are issued.
The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As a result, the accompanying condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets and their carrying amounts, or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Clene Inc. and our wholly-owned subsidiaries, Clene Nanomedicine, Inc., a subsidiary incorporated in Delaware, Clene Australia Pty Ltd (“Clene Australia”), a subsidiary incorporated in Australia, Clene Netherlands B.V. (“Clene Netherlands”), a subsidiary incorporated in the Netherlands, and dOrbital, Inc., a subsidiary incorporated in Delaware, after elimination of all intercompany accounts and transactions. We have prepared the accompanying condensed consolidated financial statements in accordance with United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. The condensed consolidated financial statements have been prepared on the same basis as our audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The financial data and other information disclosed in the condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2023 and 2022 are unaudited.
Results of operations for the three and nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results for the entire fiscal year or any other period. The condensed consolidated financial statements for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities, and the reported amounts of expenses. We base our estimates on historical experience and various other assumptions that we believe to be reasonable. Actual results may differ from those estimates or assumptions. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience, and any changes in estimates will be recorded in future periods as they develop.
Risks and Uncertainties
We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on future financial condition, results of operations, or cash flows: ability to obtain additional financing; regulatory approval and market acceptance of, and reimbursement for, product candidates; performance of third-party contract research organizations (“CROs”) and manufacturers upon which we rely; protection of our intellectual property; litigation or claims against us based on intellectual property, patent, product, regulatory, or other factors; and our ability to attract and retain employees necessary to support our growth. The product candidates we develop require approvals from regulatory agencies prior to commercial sales. There can be no assurance that our current and future product candidates will receive the necessary approvals or be commercially successful. If we are denied approval or approval is delayed, it will have a material adverse impact on our business and our condensed consolidated financial statements.
The extent of the impact of the COVID-19 pandemic, including the resurgence of cases relating to the spread of new variants, on our business and operations is highly uncertain. While the COVID-19 pandemic has led to various research restrictions and led to pauses and early conclusion of one of our clinical trials, these impacts have been temporary and to date we have not experienced material business disruptions or incurred impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic. We are not aware of any specific related event or circumstance that would require us to revise the estimates reflected in our condensed consolidated financial statements. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, financial condition, results of operations, and cash flows, including planned future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.
Concentrations of Credit Risk
Financial instruments which potentially subject us to significant concentrations of credit risk consist primarily of cash. Our cash is held in financial institutions and amounts on deposit may at times exceed federally insured limits. We have not experienced any losses on our deposits of cash and do not believe that we are subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Cash and Cash Equivalents
We consider all short-term investments with original maturities of 90 days or less when purchased to be cash equivalents.
Restricted Cash
We classify cash as restricted when it is unavailable for withdrawal or use in our general operating activities. Restricted cash is classified as current and noncurrent on the condensed consolidated balance sheets based on the nature of the restriction. Our restricted cash balance includes contractually restricted deposits related to our corporate credit card.
Marketable Securities
Marketable securities are investments with original maturities of more than 90 days when purchased. We do not invest in securities with original maturities of more than one year. Marketable debt securities are considered available-for-sale, and are recorded at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income until realized. Realized gains and losses are included in other income (expense), net, on the basis of specific identification. The cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such amortization or accretion is included in other income (expense), net.
Inventory
Inventory is stated at historic cost on a first-in first-out basis. Our inventory consisted of $
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Property and equipment consist of laboratory and office equipment, computer software, and leasehold improvements. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets, which are
We capitalize costs to obtain or develop computer software for internal use, including development costs incurred during the software development stage and costs to obtain software for access and conversion of historical data. We also capitalize costs to modify, upgrade, or enhance existing internal-use software that result in additional functionality. We expense costs incurred during the preliminary project stage, training costs, data conversion costs, and maintenance costs.
Debt
When debt is issued and a derivative is required to be separated (e.g., bifurcated conversion option) or another separate freestanding financial instrument (e.g., warrant) is issued, costs and fees incurred are allocated to the instruments issued (or bifurcated) in proportion to the allocation of proceeds. When some portions of the costs and fees relate to a bifurcated derivative or freestanding financial instrument that is being subsequently measured at fair value, those allocated costs are expensed immediately. Debt discounts, debt premiums, and debt issuance costs related to debt are recorded as deductions that net against the principal value of the debt and are amortized to interest expense over the contractual term of the debt using the effective interest method.
Convertible Debt
In accordance with ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, when we issue notes with conversion features, we evaluate if the conversion feature is freestanding or embedded. If the conversion feature is embedded, we do not separate the conversion feature from the host contract for convertible notes that are not required to be accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in-capital. Consequently, we account for a convertible note as a single liability measured at its amortized cost, and we account for a convertible preferred stock as a single equity instrument measured at its historical cost, as long as no other features require separation and recognition as derivatives. If the conversion feature is freestanding, or is embedded and meets the requirements to be separated, we account for the conversion feature as a derivative under ASC 815, Derivatives and Hedging (“ASC 815”). We record the derivative instrument at fair value at inception, and subsequently re-measure to fair value at each reporting period and immediately prior to the extinguishment of the derivative instrument, with any changes recorded in the condensed consolidated statements of operations and comprehensive loss.
Leases
At inception of a contract, we determine if a contract meets the definition of a lease. We determine if the contract conveys the right to control the use of an identified asset for a period of time. We assess throughout the period of use whether we have both of the following: (i) the right to obtain substantially all of the economic benefits from use of the identified asset, and (ii) the right to direct the use of the identified asset. This determination is reassessed if the terms of the contract are changed. Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments less any lease incentives received. At the lease commencement date, the discount rate implicit in the lease is used to discount the lease liability if readily determinable. If not readily determinable or leases do not contain an implicit rate, our incremental borrowing rate is used as the discount rate. Our policy is to not record leases with an original term of twelve months or less within the condensed consolidated balance sheets and we recognize lease expense for these short-term leases on a straight-line basis over the lease term.
Certain lease agreements may require us to pay additional amounts for taxes, insurance, maintenance, and other expenses, which are generally referred to as non-lease components. Such variable non-lease components are treated as variable lease payments and recognized in the period in which the obligation for these payments is incurred. Variable lease components and variable non-lease components are not measured as part of the right-of-use asset and liability. Only when lease components and their associated non-lease components are fixed are they accounted for as a single lease component and are recognized as part of a right-of-use asset and liability. Total contract consideration is allocated to the fixed lease and non-lease component. This policy election applies consistently to all asset classes under lease agreements.
Leases may contain clauses for renewal at our option. Payments to be made in option periods are recognized as part of the right-of-use lease assets and lease liabilities when it is reasonably certain that the option to extend the lease will be exercised, or is not at our option. We determine whether the reasonably certain threshold is met by considering contract-, asset-, market-, and entity-based factors. Operating lease expense, which is recognized on a straight-line basis over the lease term, and the amortization of finance lease right-of-use assets, which are included in property and equipment and depreciated, are included in research and development or general and administrative expenses consistent with the leased assets’ primary use. Accretion on the liabilities for finance leases is included in interest expense.
Contingent Earn-Out Liabilities
In connection with the Reverse Recapitalization, certain Clene Nanomedicine stockholders are entitled to receive additional shares of Common Stock (the “Clene Nanomedicine Contingent Earn-out”) as follows: (i)
In accordance with ASC 815, the Contingent Earn-outs are not indexed to our own stock and therefore were accounted for as a liability at the Reverse Recapitalization date and are subsequently remeasured to fair value at each reporting date with changes recorded as a component of other income (expense), net.
Common Stock Warrants
We account for common stock warrants as either equity-classified instruments or liability-classified instruments based on an assessment of the warrant terms and applicable authoritative guidance. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our Common Stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and, for liability-classified warrants, at each reporting period end date while the warrants are outstanding.
Grant Funding
We may submit applications to receive grant funding from governmental and non-governmental entities. We account for grants by analogizing to the grant accounting model under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance (“IAS 20”). We recognize grant funding without conditions or continuing performance obligations, including certain research and development tax credits, as other income in the condensed consolidated statements of operations and comprehensive loss. We accrue certain research and development tax credits receivable in other current assets (see Note 4) in an amount equal to the qualifying expenses incurred in each period multiplied by the applicable reimbursement percentage and we recognize other income in the condensed consolidated statements of operations and comprehensive loss. After submission of our tax returns, we receive a cash refund of certain research and development tax credits and relieve the receivable.
We recognize grant funding with conditions or continuing performance obligations as a reduction in research and development expenses in the period during which the related qualifying expenses are incurred and as the conditions or performance obligations are fulfilled. Any amount received in advance of fulfilling such conditions or performance obligations is recorded in accrued liabilities (see Note 6) if the conditions or performance obligations are expected to be met within the next twelve months. We recognized grant funding of $
Foreign Currency Translation and Transactions
Our functional currency is the U.S. dollar. Clene Australia determined its functional currency to be the Australian dollar and Clene Netherlands determined its functional currency to be the Euro. We use the U.S. dollar as our reporting currency for the condensed consolidated financial statements. The results of our non-U.S. dollar based functional currency operations are translated to U.S. dollars at the average exchange rates during the period. Our assets and liabilities are translated using the current exchange rate as of the balance sheet date and stockholders’ equity is translated using historical rates. Adjustments resulting from the translation of the condensed consolidated financial statements of our foreign functional currency subsidiaries into U.S. dollars are excluded from the determination of net loss and are accumulated in a separate component of stockholders’ equity. We also incur foreign exchange transaction gains and losses for purchases denominated in foreign currencies. Foreign exchange transaction gains and losses are included in other income (expense), net, as incurred.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The only elements of other comprehensive loss in any periods presented were translation of foreign currency denominated balances of Clene Australia and Clene Netherlands to U.S. dollars for consolidation and unrealized gain (loss) on available-for-sale securities.
Segment Information
We have determined that our chief executive officer is the chief operating decision maker (“CODM”). Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CODM in making decisions regarding resource allocation and assessing performance. We view our operations and manage our business in two operating segments, which are our reportable segments: (1) the development and commercialization of novel clean-surfaced nanotechnology therapeutics (“Drugs”), and (2) the development and commercialization of dietary supplements (“Supplements”).
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in our tax returns. Deferred tax assets and liabilities are determined based on the differences between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
We account for uncertainty in income taxes recognized in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the condensed consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, which are considered appropriate as well as the related net interest and penalties.
Stock-Based Compensation
We account for stock-based compensation arrangements using a fair value-based method for costs related to all share-based payments including stock options and stock awards. Stock-based compensation expense is recorded in research and development and general and administrative expenses based on the classification of the work performed by the grantees. The fair value is recognized over the period during which a grantee is required to provide services in exchange for the option award and service-based stock awards, known as the requisite service period (usually the vesting period), on a straight-line basis. For stock awards with market conditions, the fair value is recognized over the period based on the expected milestone achievement dates as the derived service period (usually the vesting period), on a straight-line basis. For stock awards with performance conditions, the grant-date fair value of these awards is the market price on the applicable grant date, and compensation expense will be recognized when the conditions become probable of being satisfied. We recognize a cumulative true-up adjustment once the conditions become probable of being satisfied as the related service period had been completed in a prior period. We elect to account for forfeitures as they occur, rather than estimating expected forfeitures. We determine the fair value of each share of Common Stock underlying stock-based awards using a Black-Scholes option pricing model based on the closing price of our Common Stock as reported by Nasdaq on the date of grant. The fair value of stock awards with market conditions are determined using a Monte Carlo valuation model.
Note 3. Cash, Cash Equivalents, and Marketable Securities
Available-for-Sale Securities
Available-for-sale securities as of September 30, 2023, which had contractual maturities within 90 days and were classified within cash equivalents in the condensed consolidated balance sheets, were as follows:
| September 30, 2023 | ||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | ||||||||||||
| Money market funds | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Available-for-sale securities as of December 31, 2022, which had contractual maturities within one year, were as follows:
| December 31, 2022 | ||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized | Gross Unrealized | Fair Value | ||||||||||||
| Commercial paper | $ | $ | $ | ( | ) | $ | ||||||||||
| Corporate debt securities | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
Proceeds from the sale and maturity of marketable securities held as available-for-sale were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Proceeds from maturities of marketable securities | $ | $ | $ | $ | ||||||||||||
| Proceeds from sales of marketable securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Realized gains and losses included in earnings from the sale of available-for-sale securities were insignificant. As of September 30, 2023 and December 31, 2022, we did have any allowance for credit losses or impairments of available-for-sale securities.
Note 4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of September 30, 2023 and December 31, 2022 were as follows:
| September 30, |
December 31, |
|||||||
| (in thousands) |
2023 |
2022 |
||||||
| Research and development tax credits receivable |
$ | $ | ||||||
| Metals to be used in research and development |
||||||||
| Other |
||||||||
| Total prepaid expenses and other current assets |
$ | $ | ||||||
Note 5. Property and Equipment, Net
Property and equipment, net, as of September 30, 2023 and December 31, 2022 were as follows:
| September 30, |
December 31, |
|||||||
| (in thousands) |
2023 |
2022 |
||||||
| Lab equipment |
$ | $ | ||||||
| Office equipment |
||||||||
| Computer software |
||||||||
| Leasehold improvements |
||||||||
| Construction in progress |
||||||||
| Less accumulated depreciation |
( |
) | ( |
) | ||||
| Total property and equipment, net |
$ | $ | ||||||
Depreciation expense recorded in research and development expense and general and administrative expense for the three and nine months ended September 30, 2023 and 2022 was as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| General and administrative |
$ | $ | $ | $ | ||||||||||||
| Research and development |
||||||||||||||||
| Total depreciation expense |
$ | $ | $ | $ | ||||||||||||
Note 6. Accrued Liabilities
Accrued liabilities as of September 30, 2023 and December 31, 2022 were as follows:
| September 30, |
December 31, |
|||||||
| (in thousands) |
2023 |
2022 |
||||||
| Accrued compensation and benefits |
$ | $ | ||||||
| Accrued CRO and clinical fees |
||||||||
| Other |
||||||||
| Total accrued liabilities |
$ | $ | ||||||
Note 7. Leases
We lease laboratory and office space and certain laboratory equipment under non-cancellable operating and finance leases. The carrying value of our right-of-use lease assets is substantially concentrated in our real estate leases, while the volume of lease agreements is primarily concentrated in equipment leases. We expect that, in the normal course of business, the existing leases will be renewed or replaced by similar leases.
Operating Leases
Operating leases primarily consist of real estate leases for office and laboratory space. We have
As of September 30, 2023 and December 31, 2022, our operating lease obligations had a weighted-average discount rate of
Finance Leases
Assets recorded under finance lease obligations and included in property and equipment as of September 30, 2023 and December 31, 2022 were as follows:
| September 30, |
December 31, |
|||||||
| (in thousands) |
2023 |
2022 |
||||||
| Lab equipment |
$ | $ | ||||||
| Work in process |
||||||||
| Total |
||||||||
| Less accumulated depreciation |
( |
) | ( |
) | ||||
| Net |
$ | $ | ||||||
As of September 30, 2023 and December 31, 2022, our finance lease obligations had a weighted-average interest rate of
Maturity Analysis of Lease Obligations
The maturity analysis of our finance and operating lease obligations as of September 30, 2023 was as follows:
| (in thousands) |
Finance Leases |
Operating Leases |
||||||
| 2023 (remainder) |
$ | $ | ||||||
| 2024 |
||||||||
| 2025 |
||||||||
| 2026 |
||||||||
| 2027 |
||||||||
| 2028 |
||||||||
| Thereafter |
||||||||
| Total minimum lease payments |
||||||||
| Less amount representing interest/discounting |
( |
) | ( |
) | ||||
| Present value of minimum lease payments |
||||||||
| Less lease obligations, current portion |
( |
) | ( |
) | ||||
| Lease obligations, net of current portion |
$ | $ | ||||||
Components of Lease Cost
The components of finance and operating lease costs for the three and nine months ended September 30, 2023 and 2022 were as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Finance lease costs: |
||||||||||||||||
| Amortization |
$ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities |
||||||||||||||||
| Operating lease costs |
||||||||||||||||
| Short-term lease costs |
||||||||||||||||
| Variable lease costs |
||||||||||||||||
| Total lease costs |
$ | |||||||||||||||