9 METERS BIOPHARMA, INC. [NMTR] Filings

10-Q 1 nmtr-20220930.htm 10-Q nmtr-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 001-37797

9 METERS BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)


Delaware						27-3948465
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

8480 Honeycutt Road, Suite 120

Raleigh, North Carolina 27615

(Address of principal executive offices, including zip code)

(919) 275-1933

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $0.0001 Par Value	NMTR	The Nasdaq Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

☐

Non-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 ☐ No ☒

As of November 3, 2022, the registrant had 12,955,481 shares of common stock, par value $0.0001 per share, issued and outstanding. On October 17, 2022, the Company effected a 1-for-20 reverse stock split. All share amounts and references to stock prices, except par value, have been retroactively restated to reflect the reverse split.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	3

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2022 and 2021	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38

ITEM 4.	CONTROLS AND PROCEDURES	38

PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	40

ITEM 1A.	RISK FACTORS	40

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	42

ITEM 4.	MINE SAFETY DISCLOSURES	42

ITEM 5.	OTHER INFORMATION	43

ITEM 6.	EXHIBITS	44

	SIGNATURES	46

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

9 METERS BIOPHARMA, INC.

Condensed Consolidated Balance Sheets


	September 30, 2022		December 31, 2021
Assets	(Unaudited)

Current assets:
Cash and cash equivalents	$	15,860,966	$	46,993,285

Prepaid expenses and other current assets	2,592,633		2,991,948

Total current assets	18,453,599		49,985,233

Restricted cash	23,536,576		—
Property and equipment, net	12,953		16,094
Right-of-use asset	126,500		166,618
Other assets	5,580		5,580
Total assets	$	42,135,208	$	50,173,525

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable	$	1,437,685	$	2,434,452
Accrued expenses	6,774,205		5,967,822
Current maturities of long-term convertible note, net	2,646,000		—
Derivative liability	1,945,000		—


Lease liability, current portion	59,930		54,796
Total current liabilities	12,862,820		8,457,070
Lease liability, net of current portion	67,530		113,142
Long-term convertible note, net of current portion	15,744,057		—
Total liabilities	28,674,407		8,570,212
Commitments and contingencies (Note 9)

Stockholders’ equity:
Preferred stock $0.0001 par value per share, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2022 (unaudited) and December 31, 2021	—		—
Common stock $0.0001 par value per share, 550,000,000 shares authorized as of September 30, 2022 (unaudited) and December 31, 2021, respectively; 12,955,481 and 12,911,771 shares issued and outstanding as of September 30, 2022 (unaudited) and December 31, 2021, respectively1	1,296		1,291
Additional paid-in capital1	214,136,684		210,442,689
Accumulated deficit	(200,677,179)		(168,840,667)
Total stockholders’ equity	13,460,801		41,603,313
Total liabilities and stockholders’ equity	$	42,135,208	$	50,173,525

1 Amounts have been retroactively restated to reflect the 1-for-20 reverse stock split

effected on October 17, 2022 (see Note 1)

See accompanying notes to these condensed consolidated financial statements.

9 METERS BIOPHARMA, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	6,298,501	$	6,049,444	$	22,213,456	$	14,947,036
Acquired in-process research and development	—		5,103,753		—		5,103,753
General and administrative	2,417,484		2,386,461		9,062,199		7,146,432

Total operating expenses	8,715,985		13,539,658		31,275,655		27,197,221

Loss from operations	(8,715,985)		(13,539,658)		(31,275,655)		(27,197,221)

Other income (expense):
Interest income, net	131,655		1,397		209,788		12,989
Interest expense	(847,341)		(1,970)		(847,645)		(47,188)

Change in fair value of derivative liability	77,000		—		77,000		7,000

Total other income (expense), net	(638,686)		(573)		(560,857)		(27,199)

Loss before income taxes	(9,354,671)		(13,540,231)		(31,836,512)		(27,224,420)
Income tax benefit	—		—		—		—

Net loss	$	(9,354,671)	$	(13,540,231)	$	(31,836,512)	$	(27,224,420)

Net loss per common share, basic and diluted1	$	(0.72)	$	(1.06)	$	(2.46)	$	(2.28)

Weighted-average common shares, basic and diluted1	12,955,481		12,714,238		12,939,310		11,926,510

1 Amounts have been retroactively restated to reflect the 1-for-20 reverse stock split

effected on October 17, 2022 (see Note 1)

See accompanying notes to these condensed consolidated financial statements.

9 METERS BIOPHARMA, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


Three and Nine Months Ended September 30, 2022
	Common Stock Shares1	Common Stock Amount1		Additional Paid-in Capital1		Accumulated Deficit		Total
Balance as of December 31, 2021	12,911,776	$	1,292	$	210,442,688	$	(168,840,667)	$	41,603,313

Share-based compensation	—	—		690,000		—		690,000



Net loss	—	—		—		(11,351,739)		(11,351,739)
Balance as of March 31, 2022	12,911,776	1,292		211,132,688		(180,192,406)		30,941,574
Issuance of common stock	43,705	4		499,996		—		500,000


Share-based compensation	—	—		1,774,000		—		1,774,000






Net loss	—	—		—		(11,130,102)		(11,130,102)
Balance as of June 30, 2022	12,955,481	1,296		213,406,684		(191,322,508)		22,085,472






Share-based compensation	—	—		730,000		—		730,000
Net loss	—	—		—		(9,354,671)		(9,354,671)
Balance as of September 30, 2022	12,955,481	$	1,296	$	214,136,684	$	(200,677,179)	$	13,460,801


Three and Nine Months Ended September 30, 2021
	Common Stock Shares1	Common Stock Amount1		Additional Paid-in Capital1		Accumulated Deficit		Total
Balance as of December 31, 2020	10,231,454	$	1,023	$	164,202,357	$	(132,061,267)	$	32,142,113
Share-based compensation	—	—		422,000		—		422,000
Exercise of warrants	581,709	58		6,856,970		—		6,857,028
Exercise of stock options	3,084	—		75,903		—		75,903


Net loss	—	—		—		(5,431,079)		(5,431,079)
Balance as of March 31, 2021	10,816,247	1,081		171,557,230		(137,492,346)		34,065,965
Issuance of common stock	1,725,000	173		34,499,827		—		34,500,000
Stock issuance costs	—	—		(2,901,123)		—		(2,901,123)
Share-based compensation	—	—		937,000		—		937,000
Exercise of warrants	56,705	6		668,433		—		668,439
Exercise of stock options	13,848	1		120,738		—		120,739




Net loss	—	—		—		(8,253,110)		(8,253,110)
Balance as of June 30, 2021	12,611,800	1,261		204,882,105		(145,745,456)		59,137,910
Issuance of common stock	125,861	13		2,718,574		—		2,718,587

Exercise of warrants	33,930	3		399,964		—		399,967
Exercise of stock options	5,000	1		30,063		—		30,064

Share-based compensation	—	—		525,000		—		525,000
Net loss	—	—		—		(13,540,231)		(13,540,231)
Balance as of September 30, 2021	12,776,591	$	1,278	$	208,555,706	$	(159,285,687)	$	49,271,297

1 Amounts have been retroactively restated to reflect the 1-for-20 reverse stock split

effected on October 17, 2022 (see Note 1)

See accompanying notes to these condensed consolidated financial statements.

9 METERS BIOPHARMA, INC.

Unaudited Condensed Consolidated Statements of Cash Flows


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(31,836,512)	$	(27,224,420)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	3,194,000		1,884,000


Amortization of debt discount	500,351		43,983

Depreciation	5,983		4,657

Change in fair value of derivative liabilities	(77,000)		(7,000)

Non-cash payment of milestone fees	500,000		—
Acquired in-process research and development	—		2,610,588


Changes in operating assets and liabilities, net of acquisitions:
Prepaid expenses and other assets	399,315		(1,869,438)
Accounts payable	(996,767)		(63,567)
Accrued expenses and other liabilities	806,023		3,114,077
Accrued interest	—		(488)
Net cash used in operating activities	(27,504,607)		(21,507,608)
Cash flows from investing activities
Purchase of property and equipment	(2,842)		(9,848)
Maturity of restricted deposit	—		75,000
Purchase of in-process research and development, net of assets acquired	—		(2,493,165)
Net cash used in investing activities	(2,842)		(2,428,013)
Cash flows from financing activities
Borrowings from convertible notes	21,000,000		—
Payments of convertible notes	—		(58,199)
Payments of debt issuance costs	(1,088,294)		—
Proceeds from the exercise of stock options	—		226,706
Proceeds from issuance of common stock and warrants	—		34,500,000

Payment of offering costs	—		(2,901,123)
Proceeds from exercise of warrants	—		7,925,434
Net cash provided by financing activities	19,911,706		39,692,818
Net (decrease) increase in cash, cash equivalents and restricted cash	(7,595,743)		15,757,197
Cash, cash equivalents and restricted cash as of beginning of period	46,993,285		37,851,388
Cash, cash equivalents and restricted cash as of end of period	$	39,397,542	$	53,608,585

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	346,990	$	569

Supplemental disclosure of non-cash financing activities


Non-cash issuance of common stock with asset acquisition and merger	$	—	$	2,610,588
Issuance of common stock for payment of milestone fees	$	—	$	108,000
Non-cash addition of derivative liability	$	2,022,000	$	—
Reconciliation to condensed consolidated balance sheets:
Cash and cash equivalents	$	15,860,966	$	53,608,585
Restricted cash included in noncurrent assets	$	23,536,576	$	—
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	39,397,542	$	53,608,585

See accompanying notes to these condensed consolidated financial statements.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description

9 Meters Biopharma, Inc. (the “Company”) is a clinical-stage company pioneering novel treatments for people with rare digestive diseases, gastrointestinal conditions with unmet needs, and debilitating disorders in which the biology of the gut is a contributing factor. The Company’s pipeline includes drug candidate vurolenatide, a proprietary long-acting GLP-1 agonist for the orphan-designated disease short bowel syndrome (“SBS”), and a robust pipeline of early-stage candidates for undisclosed rare diseases and/or unmet needs.

On October 17, 2022, the Company effected a 1-for-20 reverse stock split (the “Reverse Stock Split”). The Reverse Stock Split did not change the number of authorized shares of capital stock or cause an adjustment to the par value of the Company’s capital stock. The Company has retroactively restated the unaudited condensed consolidated financial statements to reflect the effect of the reverse stock split made effective on October 17, 2022. Additionally, pursuant to their terms, a proportionate adjustment was made to the per share exercise price and number of shares issuable and outstanding to the Company’s stock options and warrants. The number of shares authorized for issuance pursuant to the Company’s equity incentive plans have been adjusted proportionately to reflect the reverse stock split. The Company retroactively restated such adjustment in the notes to the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021 and the condensed consolidated balance sheet information included as of December 31, 2021.

Basis of Presentation

The unaudited condensed consolidated interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the balance sheets, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 or any other future period. Certain information and footnote disclosure normally included in the annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial position, results of operations and cash flows are presented in U.S. Dollars. These financial statements and related notes should be read in conjunction with the audited financial statements and related notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 23, 2022.

Except as noted below under the section entitled “Recently Issued Accounting Standards—Accounting Pronouncements Adopted,” there have been no material changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2022, as compared to the significant accounting policies disclosed in Note 1 of the Company’s financial statements for the years ended December 31, 2021 and 2020 included in the Company’s Annual Report on Form 10-K. However, the following accounting policies are the most critical in fully understanding the Company’s financial condition and results of operations.

Basis of Consolidation

The accompanying consolidated financial statements reflect the operations of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Shelf Registration Filing

On October 2, 2020, the Company filed a shelf registration statement that was declared effective on October 9, 2020 (the “Current Registration Statement”). Pursuant to the Current Registration Statement, the Company may from time to time offer, issue and sell in one or more offerings of various types of securities up to an aggregate dollar amount of $200 million.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On July 22, 2020, the Company filed a prospectus supplement and associated sales agreement (the “Sales Agreement”) related to an “at-the-market” offering pursuant to which the Company may sell, from time to time, common stock with an aggregate offering price of up to $40 million through Truist Securities, Inc. (previously SunTrust Robinson Humphrey), or Truist, as sales agent, for general corporate purposes (the “2020 ATM”). In October 2020, the Company entered into an amendment to the Sales Agreement to reflect the termination of the prior registration statement and effectiveness of the Current Registration Statement. During the three and nine months ended September 30, 2022 and 2021, the Company did not sell any shares under the Sales Agreement.

April 2021 Offering

On March 30, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Citigroup Global Markets, Inc., William Blair & Company, L.L.C. and Truist, as representatives of the several underwriters named therein (the “Underwriters”), in connection with the public offering of 1,500,000 shares of the Company’s common stock at a price of $20.00 per share, less underwriting discounts and commissions (the “April 2021 Offering”). Pursuant to the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to an additional 225,000 shares of common stock at the same price, which the Underwriters exercised in full on March 31, 2021. On April 5, 2021, upon closing of the April 2021 Offering, the Company received net proceeds of approximately $31.5 million after deducting underwriting discounts and commissions and offering expenses. The shares issued in the April 2021 Offering were registered and sold under the Current Registration Statement.

Of the shares of common stock issued in the April 2021 Offering, the Company’s Chief Executive Officer, then-current Chief Financial Officer and Chairman of the Board of Directors purchased an aggregate of 22,500 shares at the public offering price and on the same terms as the other purchasers in the offering. The underwriters received the same underwriting discount on the shares purchased by the Company’s Chief Executive Officer, then-current Chief Financial Officer and Chairman of the Board of Directors.

Business Risks

The Company faces risks, including those associated with biopharmaceutical companies whose products are in various stages of development. These risks include, among others, risks related to the inability of the Company to obtain sufficient additional capital to continue to advance these product candidates and its preclinical programs, including in light of current stock market conditions; risks related to the Company’s ability to successfully implement its strategic plans; uncertainties associated with the clinical development and regulatory approval of product candidates, including reliance on blinded data; uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom, including the Company’s reliance on its lead product candidate; risks related to the failure to realize any value from product candidates and preclinical programs being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market; intellectual property risks; the impact of COVID-19 on the Company’s operations, enrollment in and timing of clinical trials; risks related to leveraging the Company by borrowing money under the debt facility and compliance with its terms; uncertainties regarding the effect of the reverse stock split and our continued listing on Nasdaq; reliance on collaborators; reliance on research and development partner; risks related to cybersecurity and data privacy; and risks associated with acquiring and developing additional compounds.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The outbreak of COVID-19 began in December 2019 and on March 11, 2020, the World Health Organization declared the outbreak a pandemic. The COVID-19 pandemic and its resurgences are affecting the United States and global economies and may continue to affect the Company’s operations and those of third parties on which the Company relies, including by causing disruptions in the supply of the Company’s product candidates and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the Food and Drug Administration (the “FDA”) and other health authorities, which could result in delays of reviews and approvals, including with respect to the Company’s product candidates. The COVID-19 pandemic has led to slower enrollment in the Company’s clinical trials and could continue to impact enrollment directly or indirectly. Patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices unless due to a health emergency. Such facilities and offices may also be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services related to the Company’s product candidates. New and potentially more contagious variants, such as the Omicron variant, could further affect the impact that the COVID-19 pandemic has on the Company’s operations. The impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital in the future, which could negatively impact the Company’s long-term liquidity. The Company’s assessment of the impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Areas of the financial statements where estimates may have the most significant effect include fair value measurements, expected term of the convertible note, accrued expenses, share-based compensation, valuation allowance for income tax assets, and management’s assessment of the Company’s ability to continue as a going concern. The Company considered the impact of the COVID-19 pandemic on its estimates and assumptions, and concluded there was not a material impact to its condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022. Changes in the facts or circumstances underlying these estimates could result in material changes and actual results could differ from these estimates.

Restricted Cash

The terms of the convertible note further described in Note 5—Debt require the Company to maintain a minimum liquidity balance of 110% of then-outstanding principal (which was reduced to 80% upon amendment of the note further described in Note 10—Subsequent Events). The restricted amount is maintained in a reserve account with the Company’s financial banking institution, and funds are periodically released from restriction as the balance of outstanding principal decreases. In accordance with the terms of the note, upon fulfillment of certain conditions, the cash held in reserve pursuant to the minimum liquidity requirement will be further reduced to a minimum amount equal to the greater of (i) the total outstanding principal amount less 7.5% of the Company’s total market capitalization and (ii) 50% of the total outstanding principal. As of September 30, 2022, there was approximately $23.4 million classified as restricted cash under the convertible note.

Additionally, under the terms of the lease agreement further described in Note 10—Subsequent Events, we are required to maintain a letter of credit as security for performance of lease obligations over the life of the lease. Accordingly, there is approximately $0.1 million classified as restricted cash under the letter of credit. As certain conditions are met, including the passage of time, the amount will be reduced to a minimum of $23,600, or the equivalent of approximately one month’s rent.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accrued Expenses

The Company incurs periodic expenses such as research and development, licensing fees, salaries and benefits, and professional fees. The Company is required to estimate its expenses resulting from obligations under contracts with clinical research organizations, vendors and consulting agreements that have been incurred by the Company prior to being invoiced. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company estimates accrued expenses as of each balance sheet date based on facts and circumstances known at that time.

Accrued expenses consisted of the following:


	September 30, 2022 (Unaudited)		December 31, 2021
Accrued compensation and benefits	$	1,654,688	$	1,633,295
Accrued clinical expenses	5,016,241		4,228,048
Other accrued expenses	103,276		106,479
Total	$	6,774,205	$	5,967,822

Derivative Liability

The Company accounts for derivative instruments in accordance with ASC 815, Derivative and Hedging, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the condensed consolidated balance sheet at fair value. The Company’s derivative financial instruments consisted of embedded features in the Company’s convertible notes. The embedded derivatives include provisions that provide the noteholder with certain conversion and put rights at various conversion or redemption values as well as certain call options for the Company. See Note 5—Debt for further details.

Research and Development

Research and development expenses consist of costs incurred to further the Company’s research and development activities and include salaries and related employee benefits, manufacturing of pharmaceutical active ingredients and drug products, costs associated with clinical trials, nonclinical activities, regulatory activities, research-related overhead expenses and fees paid to expert consultants, external service providers and contract research organizations which conduct certain research and development activities on behalf of the Company. Costs incurred in the research and development of products are charged to research and development expense as incurred.

Costs for preclinical studies and clinical trial activities are recognized based on an evaluation of the vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided by vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The estimates of accrued expenses as of each balance sheet date are based on the facts and circumstances known at the time. Although the Company does not expect its estimates to be materially different from amounts incurred, the Company’s estimates and assumptions for clinical trial costs could differ significantly from actual costs incurred, which could result in increases or decreases in research and development expenses in future periods when actual results are known.

Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the goods have been received or when the activity is performed, rather than when payment is made.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Acquired In-process Research and Development

The Company has acquired, and may in the future acquire, rights to develop and commercialize new drug candidates and/or other in-process research and development assets. The up-front acquisition payments, as well as future milestone payments that are deemed probable to achieve and do not meet the definition of a derivative, are expensed as acquired in-process research and development provided that the drug has not achieved regulatory approval for marketing, and, absent obtaining such approval, have no alternative future use.

Share-Based Compensation

The Company recognizes share-based compensation expense for grants of stock options based on the grant-date fair value of those awards using the Black-Scholes option-pricing model. Share-based compensation expense is generally recognized on a straight-line basis over the requisite service period for awards with time-based vesting. For awards with performance conditions, compensation cost is recognized from the time achievement of the performance criteria is probable over the expected term.

Share-based compensation expense includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Under the Black-Scholes option-pricing model, fair value is calculated based on assumptions with respect to:

•Expected dividend yield. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on the Company’s common stock.

•Expected stock-price volatility. Due to limited trading history as a public company, the expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term. In evaluating comparable companies, the Company considers factors such as industry, stage of life cycle, financial leverage, size and risk profile.

•Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.

•Expected term. The expected term represents the period that the stock-based awards are expected to be outstanding. Due to limited history of stock option exercises, the Company estimates the expected term of employee stock options with service conditions based on the simplified method, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options. Pursuant to Accounting Standards Update (“ASU”) 2018-07, the Company has elected to use the contractual life of the option as the expected term for non-employee options. The expected term for performance options is the longer of the explicit or implicit service period.

Periodically, the Company’s Board of Directors (the “Board”) may approve the grant of restricted stock units (“RSUs”) pursuant to the Company’s stock incentive plans which represent the right to receive shares of the Company’s common stock based on terms of the agreement. The fair value of RSUs is recognized as share-based compensation expense generally on a straight-line basis over the service period, net of estimated forfeitures. The grant date fair value of an RSU represents the closing price of the Company’s common stock on the date of grant.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial instruments recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs to valuation techniques as follows:

•Level 1 - defined as observable inputs based on unadjusted quoted prices for identical instruments in active markets;

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•Level 2 - defined as inputs other than Level 1 that are either directly or indirectly observable in the marketplace for identical or similar instruments in markets that are not active; and

•Level 3 - defined as unobservable inputs in which little or no market data exists where valuations are derived from techniques in which one or more significant inputs are unobservable.

The fair value of the embedded derivatives issued in connection with the 2022 Convertible Note and 2020 Convertible Note, further described in Note 5—Debt, were determined by using a Monte Carlo simulation technique (“MCS”) to value the embedded derivatives associated with each note. As part of the MCS valuation, a discounted cash flow (“DCF”) model was used to value the debt on a stand-alone basis and determine the discount rate to utilize in both the DCF and MCS models. The significant estimates used in the DCF model include the time to maturity of the convertible debt and calculated discount rate, which includes an estimate of the Company’s specific risk premium. The MCS methodology calculates the theoretical value of an option based on certain parameters, including: (i) the threshold of exercising the option, (ii) the price of the underlying security, (iii) the time to expiration, or expected term, (iv) the expected volatility of the underlying security, (v) the risk-free rate and (vi) the number of paths. These valuation techniques involve management’s estimates and judgment based on unobservable inputs and are classified in Level 3. The fair value estimates may not be indicative of the amounts that would be realized in a market exchange. Additionally, there may be inherent uncertainties or changes in the underlying assumptions used, which could significantly affect the current or future fair value estimates. The table below summarizes the valuation inputs into the MCS model for the derivative liability associated with the 2022 Convertible Note on the date of issuance, July 15, 2022 and the end of the period, September 30, 2022.


	July 15, 2022			September 30, 2022
Discount rate	24.0		%	26.2		%
Expected stock price volatility	102.5		%	102.1		%
Risk-free interest rate	3.1		%	4.2		%
Expected term	3.0 years			2.8 years
Price of the underlying common stock	$	4.87		$	4.30

The following table summarizes the fair value hierarchy of financial liabilities measured at fair value as of September 30, 2022. There were no financial liabilities measured at fair value as of December 31, 2021.


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Derivative liability	$	—	$	—	$	1,945,000	$	1,945,000
Total liabilities at fair value	—		—		1,945,000		1,945,000

The following table summarizes the changes in fair value of the derivative liability classified in Level 3. Gains and losses reported in this table include changes in fair value that are attributable to unobservable inputs.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	September 30, 2022
Beginning balance as of December 31, 2021	$	—
Issuance of derivative liability (the 2022 Convertible Note)	2,022,000
Change in fair value of derivative liability	(77,000)
Ending balance as of September 30, 2022	$	1,945,000

The amount of total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to the fair value liabilities still held at the end of the period	$	77,000

The cumulative unrealized gain relating to the change in fair value of the derivative liability of $0.1 million for the three and nine months ended September 30, 2022 and $7,000 for the nine months ended September 30, 2021 is included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss.

ASC 820, Fair Value Measurement and Disclosures requires all entities to disclose the fair value of financial instruments, both assets and liabilities, for which it is practicable to estimate fair value. As of September 30, 2022 and December 31, 2021, the recorded values of cash and cash equivalents, restricted cash, accounts payable, convertible notes payable and accrued expenses approximated their fair values due to the short-term nature of the instruments.

Deferred Offering Costs

Deferred offering costs consist principally of legal, accounting and underwriters’ fees related to offerings or the Company’s shelf registration statement. Offering costs incurred prior to an offering are initially capitalized and then subsequently reclassified to additional paid-in capital upon completion of the offering. If the equity offering is not completed, any costs deferred will be expensed immediately upon termination of the offering.

Patent Costs

Costs associated with the submission of patent applications are expensed as incurred given the uncertainty of the future economic benefits of the patents. Patent and patent related legal and administrative costs included in general and administrative expenses were approximately $52,000 and $98,000 for the three months ended September 30, 2022 and 2021, respectively, and $391,000 and $329,000 for the nine months ended September 30, 2022 and 2021, respectively.

Net Loss Per Share

The Company calculates net loss per share as a measurement of the Company’s performance while giving effect to all potentially dilutive shares that were outstanding during the reporting period. Because the Company had a net loss for all periods presented, the inclusion of common stock options or other similar instruments would be anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted net loss per share are the same. For the three and nine months ended September 30, 2022 and 2021, 7.4 million and 2.3 million shares, respectively, underlying potentially dilutive warrants and stock options issued and outstanding, and shares of common stock expected to be issued under our convertible note have been excluded from the computation of diluted weighted average shares outstanding because the effect would be anti-dilutive. The potentially dilutive securities consisted of the following:

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	September 30,
	2022	2021
Options outstanding under the Innovate 2015 Stock Incentive Plan	179,630	285,026
Options outstanding under the 2012 Omnibus Incentive Plan, as amended	1,192,233	723,773
Options outstanding under the 2022 Stock Incentive Plan	36,880	—
Options outstanding under the Option Grant Agreements granted to RDD Employees	49,295	49,295

Warrants outstanding at an exercise price of $50.80	112	112
Warrants outstanding at an exercise price of $63.60	5,699	5,699
Warrants outstanding at an exercise price of $11.7880	1,146,393	1,251,393
Shares issuable upon conversion of convertible debt (Note 5)	4,772,860	—

Total	7,383,102	2,315,298

Segments

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates and manages its business as one operating segment and the Company’s primary operations are in North America.

Recently Issued Accounting Standards

Accounting Pronouncements Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from U.S. GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020. The Company early adopted this guidance effective January 1, 2022 and applied the modified retrospective method. There were no debt instruments outstanding at the beginning of the year that were impacted by this guidance and as such, retained earnings, net loss and earnings per share were not impacted by adoption of this guidance.

NOTE 2: LIQUIDITY AND GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2022, the Company had unrestricted cash and cash equivalents of approximately $15.9 million and restricted cash of $23.5 million (further described in Note 5–Debt). The Company expects to incur substantial losses in the future as it progresses its current product pipeline, seeks regulatory approval for product candidates and prepares for commercialization.

Based on the Company’s limited operating history, recurring negative cash flows from operations, current plans and available resources, the Company will need substantial additional funding to support future operating activities. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced by the Company raise substantial doubt about the Company’s ability to continue as a going concern for at least one year following the date these financial statements are issued. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company may seek to raise additional funding through dilutive and non-dilutive financings. There can be no assurance that the Company will be able to obtain additional capital on terms acceptable to the Company, on a timely basis or at all. The failure to obtain sufficient additional funding could adversely affect the Company’s ability to achieve its business objectives and product development timelines and could have a material adverse effect on the Company’s results of operations. The Company has concluded that the prevailing conditions and ongoing liquidity risks faced by the Company raise substantial doubt about our ability to continue as a going concern.

NOTE 3: ACQUISITION

Lobesity Acquisition

On July 19, 2021, the Company closed an asset purchase agreement (the “Lobesity Asset Purchase Agreement”) with Lobesity LLC (“Lobesity”) pursuant to which the Company acquired global development rights to a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide, as well as related intellectual property (the “Lobesity Acquisition”). The consideration for the Lobesity Acquisition at closing consisted of $2.3 million in cash and 120,861 shares of unregistered common stock plus the right to contingent payments including certain potential worldwide regulatory and clinical milestone payments totaling $45.5 million for a single indication (with the total amount payable, if multiple indicates are developed, not to exceed $58.0 million), global sales-related milestone payments totaling up to $50.0 million, and, subject to certain adjustments, a mid-single digit royalty on worldwide net sales.

To satisfy the Company’s post-closing rights to indemnification under the Lobesity Asset Purchase Agreement, 30,216 of the shares issued to Lobesity are subject to holdback restrictions for 18 months following closing of the transaction. The Company’s right to indemnification will be satisfied through the recovery of these shares or paid in cash by Lobesity.

The Lobesity Acquisition was accounted for as an asset acquisition under ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The net tangible and intangible assets acquired, and liabilities assumed in connection with the transaction were recorded at their estimated fair values on the date of acquisition. The excess of purchase price over fair value of identified assets acquired and liabilities assumed was expensed as in-process research and development.

NOTE 4: RELATED PARTY TRANSACTIONS

Michael Rice, a member of our Board since March 2021, is a Founding Partner of LifeSci Advisors, LLC and LifeSci Communications, LLC. Prior to his becoming a director, on April 1, 2020 the Company entered into a master services agreement with both LifeSci Advisors, LLC and LifeSci Communications, LLC, to provide investor relations and public relations services, respectively. The Company incurred expenses with LifeSci Advisors, LLC of approximately $66,000 and $193,000 during the three and nine months ended September 30, 2022, respectively, and $63,000 and $239,000 during the three and nine ended September 30, 2021, respectively. The Company incurred expenses with LifeSci Communications, LLC of approximately $54,000 and $198,000 during the three and nine months ended September 30, 2022, respectively, and $67,000 and $257,000 during the three and nine months ended September 30, 2021, respectively.

NOTE 5: DEBT

2020 Convertible Note

On January 10, 2020, the Company entered into a securities purchase agreement and unsecured convertible promissory note in the principal amount of $2,750,000 (the “2020 Convertible Note”). The convertible noteholder could elect to convert all or a portion of the 2020 Convertible Note, at any time from time to time into the Company’s common stock at a conversion price of $65.00 per share, subject to adjustment for stock splits, dividends, combinations and similar events. The purchase price of the 2020 Convertible Note was $2,500,000 and carried an original issuance discount of $250,000, which was included in the principal amount.

The various conversion and redemption features contained in the 2020 Convertible Note were embedded derivative instruments, which were recorded as a debt discount and derivative liability at the issuance date at their estimated fair value of $0.4 million. Amortization of the debt discount and accretion of the OID for the 2020 Convertible Note recorded as interest expense was approximately $44,000 for the nine months ended September 30, 2021. There was no interest expense incurred during the three months ended September 30, 2021 or the three and nine months ended September 30, 2022.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The 2020 Convertible Note bore interest at the rate of 10% per annum, compounding on a daily basis. During the nine months ended September 30, 2021, the Company paid the remaining balance of principal and interest on the 2020 Convertible Note of approximately $59,000 in cash.

2022 Convertible Note

On June 30, 2022, the Company entered into a securities purchase agreement (the “Purchase Agreement”) for the purchase of senior secured convertible notes with an institutional investor (the “Holder”). The purchase price of the initial note issued on July 15, 2022 and maturing July 1, 2025, is $21.0 million (the “2022 Convertible Note”), and carries an original issuance discount (“OID”) of 5% or $1.1 million, with an option for the Company to issue additional convertible notes to the Holder with principal amounts of up to an aggregate of $70.0 million, subject to certain limitations. The 2022 Convertible Note bears interest equal to the three-month benchmark rate plus 5% (with a floor of 6% and 18% upon default). The Company paid debt issuance costs of approximately $1.1 million during the three and nine months ended September 30, 2022.

The 2022 Convertible Note will rank senior to all outstanding and future indebtedness of the Company and its subsidiaries over the three-year term. The 2022 Convertible Note also contains customary affirmative and negative covenants, including limitations on incurring additional indebtedness, the creation of additional liens on the Company’s assets, and entering into investments, as well as a subsequent financing requirement to raise at least $25.0 million by March 31, 2023, and a minimum liquidity requirement to maintain 110% of the outstanding principal in a restricted cash account (which was reduced to 80% in November 2022, further described in Note 10—Subsequent Events). The Company is required to have shares reserved of at least 200% of then outstanding principal and accruable interest divided by the Holder’s conversion rate. The Holder can elect to convert at the Holder’s conversion rate of $7.06 per share, subject to certain adjustments, including but not limited to, the issuance of certain rights, options or warrants.

During the first 12 months following closing, the Company will make interest payments to the Holder but is not required to make any principal payments on the 2022 Convertible Note. The 2022 Convertible Note will be optionally convertible by the Company or the Holder, subject to certain limitations. Beginning on July 1, 2023, and on the first day of each calendar month thereafter, the Company is required to make principal payments of $882,000.

The Company can elect to make principal or interest payments (or advanced principal and interest payments) in common stock instead of cash at an amount equal to 92% of the lowest daily volume weighted-average price (“VWAP”) of the Company’s common stock during the three-trading day period immediately prior to payment date, which cannot be less than the floor price of $3.00 per share. If the Company elected to convert the 2022 Convertible Note at September 30, 2022, the Company would have issued 5,447,134 shares with a fair value of $4.30 per share. A decrease in the Company’s share price of $1.00 would result in an increase of 1,602,098 shares issued.

The Holder can redeem the 2022 Convertible Note in cash upon (i) a fundamental change as defined in the 2022 Convertible Note, (ii) cessation of vurolenatide clinical development while the Company’s total market capitalization is less than $100 million for a period of five consecutive trading days (the “Clinical Development Cessation”), (iii) an event of default as defined in the 2022 Convertible Note, or (iv) if the resale registration statement is withdrawn. The Holder’s cash redemption price ranges from 5% to 15% of then-outstanding principal and unpaid interest. If the Holder redeemed the 2022 Convertible Note at September 30, 2022 under the redemption options (i) through (iii) above, the Company would settle the 2022 Convertible Note in cash at a price of approximately $24.2 million. Redemption option (iv) would result in a cash redemption payment of approximately $22.1 million. The Company can elect to redeem the 2022 Convertible Note in cash at an amount equal to the greater of (A) the fixed conversion value (as defined in the note) plus accrued and unpaid interest and (B) if before the first year anniversary of the issuance date, 125% of then-outstanding principal and interest. If the Company elected to redeem the 2022 Convertible Note as of September 30, 2022, the Company would have settled the 2022 Convertible Note in cash for approximately $26.3 million.

Events of defaults include, but are not limited to, failure to make timely payments, failure to maintain the minimum liquidity requirement, failure to timely deliver certain notices (including notice of a fundamental change or the Clinical Development Cessation) and filing for bankruptcy. There were no events of default during the three or nine months ended September 30, 2022.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company made interest payments in cash of approximately $0.3 million during the three and nine months ended September 30, 2022. There were no principal payments made during the three and nine months ended September 30, 2022. The various conversion and redemption features contained in the 2022 Convertible Note are embedded derivative instruments, which were recorded as a debt discount and derivative liability at the issuance date at their estimated fair value of $2.0 million. Amortization of the debt discount and accretion of the OID for the 2022 Convertible Note, recorded as interest expense using an effective interest rate of 30.8%, was approximately $0.5 million for the three and nine months ended September 30, 2022. The Company’s accounting policy is to amortize the debt discount and OID over the estimated life of the debt, which is approximately 2 years for the 2022 Convertible Note.

Future maturities of the 2022 Convertible Note as of September 30, 2022, consisted of:


	September 30,
	2022
2022 (remaining)	$	—
2023	5,292,000
2024	10,584,000
2025	6,174,000
Total outstanding principal	$	22,050,000
Less: unamortized debt discount and OID	(3,659,943)
Less: current portion of convertible note payable	(2,646,000)
Long-term convertible note payable, net	$	15,744,057

NOTE 6: LICENSE AGREEMENTS

Alba License

During 2016, the Company entered into a license agreement (the “Alba License”) with Alba Therapeutics Corporation (“Alba”) to obtain the rights to certain intellectual property relating to larazotide acetate and related compounds.

Upon execution of the Alba License, the Company paid Alba a non-refundable license fee of $0.5 million. In addition, the Company is required to make milestone payments to Alba upon the achievement of certain clinical and regulatory milestones totaling up to $1.5 million and payments upon regulatory approval and commercial sales of a licensed product totaling up to $150 million, which is based on sales ranging from $100 million to $1.5 billion.

Upon the Company paying Alba $2.5 million for the first commercial sale of a licensed product, the Alba License becomes perpetual and irrevocable. Upon the achievement of net sales in a year exceeding $1.5 billion, the Alba License also becomes free of milestone fees. The Alba License provides Alba with certain termination rights, including failure of the Company to use Commercially Reasonable Efforts (as defined in the Alba License) to develop the licensed products.

Seachaid Agreement

During 2013, the Company entered into an exclusive license agreement with Seachaid Pharmaceuticals, Inc. (the “Seachaid Agreement”) to further develop and commercialize the licensed product, the compound known as APAZA. The Company was required to make an initial, non-refundable payment under the Seachaid Agreement in the amount of $0.2 million. The agreement also calls for milestone payments totaling up to $6.0 million to be paid when certain clinical and regulatory milestones are met. There are also commercialization milestone payments ranging from $1.0 million to $2.5 million depending on net sales of the products in a single calendar year, followed by royalty payments in the single digits based on net product sales.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Repligen Agreement

During 2014, the Company entered into an asset purchase agreement (the “Repligen Asset Purchase Agreement”) with Repligen Corporation (“Repligen”) to acquire Repligen’s RG-1068 program for the development of Secretin for the Pancreatic Imaging Market and Magnetic Resonance Cholangiopancreatography. As consideration for the Repligen Asset Purchase Agreement, the Company agreed to make a non-refundable cash payment on the date of the agreement and future royalty payments consisting of a percentage between five and fifteen of annual net sales, with the royalty payment percentage increasing as annual net sales increase.

Amunix Licenses

In connection with the acquisition of Naia Rare Diseases, Inc. (the “Naia Acquisition”), the Company entered into two amended and restated license agreements with Amunix Pharmaceuticals, Inc. (“Amunix”), pursuant to which the Company received an exclusive, worldwide, royalty-bearing license, with rights of sublicense, to lead molecules GLP-1 and GLP-2 along with a related XTEN sequence and other intellectual property referenced therein (the “Amunix Licenses”). Also in connection with the Naia Acquisition, the Company entered into an amended and restated license agreement with Cedars-Sinai Medical Center (“Cedars”), pursuant to which the Company licensed the rights to GLP-1 Agonist for the treatment of SBS (the “Cedars License”).

As consideration under the Amunix License for GLP-1, the Company agreed to pay Amunix certain royalty payments and (i) $70.4 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major EU countries, (ii) $20.5 million in milestone payments upon achievement of future development and sales milestones in China and certain related territories, and (iii) $20.5 million in milestone payments upon achievement of future development and sales milestones in South Korea and certain other East Asian countries. As consideration under the Amunix License for GLP-2, the Company agreed to pay Amunix certain royalty payments and $60.1 million in milestone payments upon achievement of future development and sales milestones in the U.S. and major EU countries.

As consideration under the Cedars License, the Company agreed to pay Cedars certain royalty payments and approximately $9.4 million in milestone payments upon achievement of future development and sales milestones.

MHS License

One of the assets acquired in the Lobesity Acquisition was an amended and restated technology license agreement with MHS Care-Innovation LLC (“MHS”), pursuant to which the Company received an exclusive, worldwide license, with rights to sublicense, to certain patent and other intellectual property rights concerning a proprietary and highly specific humanized monoclonal antibody that targets glucose-dependent insulinotropic polypeptide (the “MHS License”). The MHS License does not require the payment of any future milestone payments or royalties to MHS, since it was originally entered into with Lobesity in exchange for the issuance of certain equity securities and a grant of certain related rights to Lobesity, all of which occurred prior to the closing of the Lobesity Acquisition. As consideration for the assets purchased in the Lobesity Acquisition (including but not limited to the MHS License), the Company is obligated to pay Lobesity (i) potential worldwide regulatory and clinical milestone payments totaling $45.5 million for a single indication (with the total amount payable, if multiple indications are developed, not to exceed $58.0 million), (ii) up to $50.0 million in global sales-related milestone payments, and (iii) subject to certain adjustments, a mid-single digit royalty on worldwide net sales.

EBRIS Collaboration

On August 6, 2021, the Company announced a collaboration with the European Biomedical Research Institute of Salerno, Italy (“EBRIS”) to study larazotide for the treatment of MIS-C. In connection with this collaboration, the Company paid a milestone fee of $0.5 million upon IND approval for MIS-C. Following receipt of a Study May Proceed letter from the FDA under the Investigator IND, EBRIS initiated a Phase 2a study in MIS-C during the fourth quarter of 2021. The ongoing Phase 2a study is a randomized, double-blind, placebo-controlled study.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On April 11, 2022, the Company entered into an exclusive license agreement (the “EBRIS License Agreement”) with EBRIS pursuant to which the company granted to EBRIS an exclusive license to study the Company’s product incorporating larazotide as its sole active pharmaceutical ingredient (the “Product”) for the treatment of MIS-C and, potentially, multisystem inflammatory syndrome in adults (“MIS-A”). In turn, the Company will have an option to license from EBRIS any new intellectual property resulting from such development (the “Option”).

Pursuant to the EBRIS License Agreement, the Company issued to EBRIS shares of common stock valued at $500,000 (consisting of 43,708 shares of unregistered common stock priced at the Company’s 20-day volume weighted-price as of the date of closing), plus the Company will pay EBRIS $500,000 in cash in connection with final database lock of the ongoing Phase II clinical trial for the treatment of MIS-C. Upon the readout of the top-line data and an FDA agreed upon path forward to further develop the compound in MIS-C, the Company may exercise the Option for an upfront fee of $1 million. In addition, the EBRIS License Agreement contemplates certain contingent payments, including development milestone payments, sales-related milestone payments, and subject to certain adjustments, a low-single digit royalty on net sales of Products in the United States sold pursuant to prescriptions for use in treating MIS-C and, if applicable, MIS-A. Of note, each such payment is payable, at the option of the Company, in cash or a combination of cash and unregistered shares of the Company’s common stock.

The Company has the right to exercise the Option until three months following the later of (i) the end of the Development Term (as defined in the EBRIS License Agreement) and (ii) the delivery by EBRIS to the Company of the material Know-How (as defined in the EBRIS License Agreement) and final study reports (the “Option Expiration Date”). Unless earlier terminated, the term of the EBRIS License Agreement will continue (i) if the Company does not exercise the Option, until the Option Expiration Date or (ii) if the Company exercises the Option, on a product-by-product and country-by-country basis, until the expiration of the Company’s royalty obligations for each product in a particular country.

Following the Option Expiration Date, the EBRIS License Agreement may be terminated by the Company for convenience upon two months’ prior written notice to EBRIS. The EBRIS License Agreement may be terminated by either party upon (i) a material breach by the other party (subject to prior written notice and a cure period), (ii) certain insolvency events, including bankruptcy proceedings, or (iii) written notice that, as reasonably determined in good faith by the terminating party, termination is necessary to protect the health or safety of trial participants. Additionally, the EBRIS License Agreement will automatically terminate if the Alba License terminates. The EBRIS License Agreement includes standard and customary provisions regarding, among other things, compliance with laws and regulations, confidentiality, intellectual property, representations and warranties, liability, indemnification, and insurance.

Milestone Fees

The Company incurred milestone fees of $0.5 million, which were paid in equity to EBRIS, during the nine months ended September 30, 2022. There were no milestone fees incurred during the three months ended September 30, 2022 or three and nine months ended September 30, 2021.

NOTE 7: STOCKHOLDERS’ EQUITY

The Company’s amended and restated certificate of incorporation, as amended, authorizes 560 million shares of capital stock, par value $0.0001 per share, of which 550 million shares are designated as common stock and 10 million shares are designated as preferred stock.

Preferred Stock

The Company’s amended and restated certificate of incorporation, as amended, authorizes the Board to issue preferred stock in one or more classes or one or more series within any class from time to time. Voting powers, designations, preferences, qualifications, limitations, restrictions or other rights will be determined by the Board at that time.

There were no shares of preferred stock issued and outstanding as of September 30, 2022 or December 31, 2021.

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Common Stock

The holders of the Company’s common stock (i) have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board; (ii) are entitled to share in all the Company’s assets available for distribution to holders of common stock upon liquidation, dissolution or winding up of the Company’s affairs; (iii) do not have preemptive, subscription or conversion rights (and there are no redemption or sinking fund provisions or rights); and (iv) are entitled to one non-cumulative vote per share on all matters on which stockholders may vote.

There were 12,955,481 and 12,911,771 shares of common stock outstanding as of September 30, 2022 and December 31, 2021, respectively. The Company had reserved shares of common stock for future issuance as follows:


	September 30,	December 31,
	2022 (Unaudited)	2021
Outstanding stock options	1,458,038	1,044,739
Warrants to purchase common stock	1,152,204	1,152,204

Shares reserved for issuance upon conversion of convertible debt (Note 5)	7,231,143	—
For possible future issuance under the 2022 Plan	565,120	273,940
Total common shares reserved for future issuance	10,406,505	2,470,883

The Company entered into the Sales Agreement dated July 22, 2020, and as amended on October 2, 2020, with Truist relating to the 2020 ATM. During the three and nine months ended September 30, 2022 and 2021, there were no shares sold under the 2020 ATM. Pursuant to the sales agreement, the Company will pay Truist a commission rate of 3.0% of the gross proceeds from the sale of any shares of common stock under the 2020 ATM.

NOTE 8: SHARE-BASED COMPENSATION

The Company has three stock option plans in existence: the 9 Meters Biopharma, Inc. 2022 Stock Incentive Plan (the “2022 Plan”), the 2012 Omnibus Incentive Plan, as amended (the “Omnibus Plan”) and the Innovate 2015 Stock Incentive Plan (the “Private Innovate Plan”). In addition, the Company assumed 50,714 options in accordance with the terms of the merger agreement with RDD Pharma, Ltd. (the “RDD Merger Agreement”). The Company’s stock options typically vest over a period of three or four years and typically have a maximum term of ten years.

2015 Stock Incentive Plan

As of September 30, 2022, there were 179,630 stock options outstanding under the Private Innovate Plan. Since 2018, the Company has not issued, and does not intend to issue, any additional awards from the Private Innovate Plan.

The following table summarizes stock option activity under the Private Innovate Plan:


	Number of Options	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (in years)
Outstanding at December 31, 2021	265,067	$	33.80	$	837,459	2.7
Options granted	—	—
Options forfeited	(85,437)	41.76
Options exercised	—	—
Outstanding at September 30, 2022	179,630	29.88		—		2.9
Exercisable at September 30, 2022	179,630	29.88		—		2.9

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There were no options granted under the Private Innovate Plan during the nine months ended September 30, 2022 and 2021. All of the options granted under the Private Innovate Plan are fully vested and as such, there were no stock options vested during the nine months ended September 30, 2022. The total fair value of options vested during the nine months ended September 30, 2021 under the Private Innovate Plan was approximately $49,000. As of September 30, 2022, there was no unrecognized compensation cost related to unvested stock-based compensation arrangements under the Private Innovate Plan.

2012 Omnibus Incentive Plan

The shares reserved for issuance under the Omnibus Plan automatically increased on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent of the number of shares of common stock outstanding as of December 31st of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as determined by the Board (the “Evergreen Provision”). On January 1, 2022, the number of shares of common stock available under the Omnibus Plan automatically increased by 645,589, pursuant to the Evergreen Provision. The Board elected to forgo the increase from the Evergreen Provision that would have increased the option pool by 5% of the shares of common stock outstanding on January 1, 2021.

As of September 30, 2022, there were options to purchase 1,192,233 shares of the Company’s common stock outstanding under the Omnibus Plan. The Omnibus Plan expired on April 30, 2022 and no new awards will be granted under the Omnibus Plan but any awards outstanding under the Omnibus Plan will remain subject to the Omnibus Plan. On June 22, 2022, the Company’s stockholders approved the adoption of the 2022 Plan previously approved by the Board. Any shares subject to outstanding awards under the Omnibus Plan that subsequently expire, terminate or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2022 Plan.

The range of assumptions used in estimating the fair value of the options granted under the Omnibus Plan using the Black-Scholes option pricing model for the periods presented were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Expected dividend yield	0%	0%	0%	0%
Expected stock-price volatility	—%	77%	79%	68% - 85%
Risk-free interest rate	—% - —%	0.8% - 0.9%	1.4% - 1.9%	0.1% - 1.1%
Expected term of options (in years)	0	6.1 years	6.1 years	2.3 - 6.1 years

The following table summarizes stock option activity under the Omnibus Plan:


	Number of Options	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (in years)
Outstanding at December 31, 2021	730,377	$	23.70	$	2,296,720	8.5
Options granted	470,631	14.71
Options forfeited	(8,775)	14.80
Options exercised	—	—
Outstanding at September 30, 2022	1,192,233	18.54		—		8.4
Exercisable at September 30, 2022	499,303	19.70		—		7.6
Vested and expected to vest at September 30, 2022	1,145,502	$	20.34	$	—	8.4

9 METERS BIOPHARMA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The weighted-average grant date fair value of options granted under the Omnibus Plan was $9.89 during the nine months ended September 30, 2022, and $15.77 and $18.12 during the three and nine months ended September 30, 2021, respectively. There were no options granted under the Omnibus Plan during the three months ended September 30, 2022. The total intrinsic value of options exercised was approximately $39,000 during the nine months ended September 30, 2021. There were no options exercised during the three and nine months ended September 30, 2022 or three months ended September 30, 2021.

The total fair value of stock option awards vested under the Omnibus Plan was approximately $0.4 million and $3.3 million during the three and nine months ended September 30, 2022, respectively. As of September 30, 2022, there was approximately $7.3 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements under the Omnibus Plan. This cost is expected to be recognized over a weighted average period of 2.8 years.

The Omnibus Plan provides for accelerated vesting, if approved by the Company’s Board. During the nine months ended September 30, 2022, in accordance with the separation and consulting agreement entered into with our former Chief Financial Officer, the Company accelerated the vesting of all remaining unvested options and extended the exercise period to ten years from the issuance date. During the nine months ended September 30, 2021, the Board approved the acceleration and extension of unvested options held by a former board member whose term on the Board was expiring. The Company recognized additional non-cash stock compensation expense related to the modifications of $1.1 million during the nine months ended September 30, 2022 and $0.1 million during the three and nine months ended September 30, 2021. There was no modification expense during the three months ended September 30, 2022.

There were no RSUs granted during the three and nine months ended September 30, 2022 and 2021 and there were no unvested RSUs as of September 30, 2022. The Company recognized share-based compensation expense for RSUs of approximately $56,000 and $160,000 during the three and nine months ended September 30, 2021, respectively. There was no share-based compensation expense for RSUs during the three and nine months ended September 30, 2022.

2022 Stock Incentive Plan

The 2022 Plan was approved by the Company’s stockholders on June 22, 2022. The 2022 Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, or other stock awards. Upon adoption of the 2022 Plan, there were 600,000 shares of the Company’s common stock reserved for issuance.

As of September 30, 2022, there were options to purchase 36,880 shares of the Company’s common stock outstanding under the 2022 Plan and 565,120 shares available for issuance under the 2022 Plan.

The range of assumptions used in estimating the fair value of the options granted under the 2022 Plan using the Black-Scholes option pricing model for the periods presented were as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
Expected dividend yield	0%	—	0%	—
Expected stock-price volatility	81%	—	79% - 81%	—
Risk-free interest rate	3.0%	—

9 METERS BIOPHARMA, INC. [NMTR] Filings
10-Q	[2022-11-08]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-03-23]
10-Q	[2021-11-15]
10-Q	[2021-08-12]
10-Q	[2021-05-13]
10-K	[2021-03-22]
10-Q	[2020-11-09]
10-Q	[2020-08-13]
10-Q	[2020-05-15]
10-K	[2020-03-20]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-10]
10-K	[2019-03-18]
10-Q	[2018-11-13]
10-Q	[2018-08-14]
10-Q	[2018-05-15]
10-K	[2018-03-14]
10-Q	[2017-11-08]
10-Q	[2017-08-21]
10-Q	[2017-05-19]
10-K	[2017-03-31]
S-1	[2017-02-13]
10-Q	[2016-11-16]
10-Q	[2016-08-15]
S-1	[2015-11-10]