The following discussion of our financial condition and results of operations
should be read in conjunction with our audited consolidated financial statements
and the related notes thereto included elsewhere in this Annual Report on Form
10-K. In addition to historical information, the following discussion contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ materially from those anticipated by the
forward-looking statements due to important factors and risks including, but not
limited to, those set forth in the "Risk Factors" in Part I, Item 1A of this
report.
Overview
9 Meters 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.
Our pipeline includes drug candidates for short bowel syndrome ("SBS"), celiac
disease ("CeD"), multi-system inflammatory syndrome in children ("MIS-C") and a
robust pipeline of early-stage candidates for undisclosed rare diseases and/or
unmet needs. Our current product development pipeline is described in the table
below:
[[Image Removed: nmtr-20211231_g2.jpg]]

Vurolenatide for the treatment of short bowel syndrome

Vurolenatide is a long-acting injectable glucagon-like-peptide-1 ("GLP-1")
analogue being developed for SBS, a debilitating orphan disease with an
underserved market. It affects up to 20,000 adults in the U.S., with similar
prevalence in Europe. Patients with SBS cannot absorb enough water, vitamins,
protein, fat, calories and other nutrients from food. It is a severe disease
with life-changing consequences, such as impaired intestinal absorption,
diarrhea and metabolic complications. A portion of patients have life-long
dependency on Parenteral Support (PS) to survive with risk of life-threatening
infections and extra-organ impairment. Vurolenatide links exenatide, a GLP-1
analogue, to a long-acting linker technology and is designed specifically to
address the gastric effects in SBS patients by slowing digestive transit time.
The asset uses proprietary XTEN® technology to extend the half-life of
exenatide, allowing for weekly to every other week dosing, thus potentially
increasing convenience for patients and caregivers. Vurolenatide is
patent-protected and has received orphan drug designation by the U.S. Food and
Drug Administration ("FDA").
We announced top-line results from our Phase 1b/2a clinical trial for
vurolenatide in SBS in the fourth quarter of 2020. The study met its primary
objective as vurolenatide demonstrated excellent safety and tolerability. In
addition, vurolenatide demonstrated a clinically relevant improvement in total
stool output (TSO) volume within 48 hours of first dose. The Phase 1b/2a
clinical trial was an open-label, two-dose study evaluating the safety and
tolerability of three escalating fixed doses of vurolenatide (50 mg, 100 mg, 150
mg) in 9 adults with SBS for 56 days. The trial was conducted at Cedars-Sinai
Medical
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Center. Patients in each of the three cohorts received two subcutaneous doses
two weeks apart with six weeks of subsequent follow-up. The study assessed the
safety and tolerability of repeated doses on Days 1 and 15 at each dose level.
Because reduced TSO volume and bowel movement frequency are correlated with
improved intestinal absorption and potentially less need for intravenous
supplementation for nutrition and hydration, these were key secondary objectives
in the trial. The primary purpose of this open-label Phase 1b/2a trial was to
assess the compound's safety and potential efficacy in order to inform future
development.

Vulolenatide was generally safe and well tolerated: 17 treatment-related adverse events (TEAEs) were observed in 9 patients, 15 of which were mild, transient and self-limiting without further intervention. The majority of TEAEs were of gastrointestinal origin (nausea and vomiting).

Importantly, 8 of the 9 patients experienced meaningful declines in TSO
following each dose, relative to a baseline output. The rapid onset of clinical
improvements in stool volumes, as observed in all 9 patients having substantial
reductions in stool output within 48 hours of the first dose, shows the
potential for vurolenatide to address the primary problem of chronic
malabsorptive diarrhea in SBS patients. Additionally, four of seven patients
showed reductions in bowel movement frequency after one dose and five of six
evaluable patients showed reductions in bowel movement frequency after the
second dose. Furthermore, of the five patients on PS in the trial, two patients
showed reduction in PS after each dose. Results of the short-form health survey
quality of life instrument demonstrated directional improvement in multiple
elements of health status over the course of the trial. The short-form health
survey, or SF-36, is a set of generic, coherent and easily administered
quality-of-life measures. These measures rely upon patient self-reporting and
are now widely utilized by managed care organizations and by Medicare for
routine monitoring and assessment of care outcomes in adult patients.
We launched a multi-center, double-blind, double-dummy, randomized,
placebo-controlled Phase 2 trial of vurolenatide for the treatment of SBS in the
second quarter of 2021 using TSO as the primary efficacy outcome measure. The
FDA has provided global anchor questions and specific guidance for performance
of exit interviews to support clinical meaningfulness of observed efficacy. We
anticipate topline results from the Phase 2 trial in the second quarter of 2022
followed by an End-of-Phase 2 meeting with the FDA. Shortly after our
End-of-Phase 2 meeting with the FDA, we plan to initiate the Phase 3 trial.
Vurolenatide has received Orphan Drug Designation from the FDA. The FDA Office
of Orphan Products Development grants orphan designation to advance the
evaluation of safe and effective drugs and biologics to treat, prevent or
diagnose rare diseases affecting fewer than 200,000 people in the U.S. Under the
Orphan Drug Act, orphan designation qualifies drug sponsors for development
incentives conferred by the FDA, including tax credits for qualified clinical
testing.

Larazotide for celiac disease

In 2019, we initiated a Phase 3 clinical trial ("CeDLara") for our co-lead drug
candidate, larazotide, for the treatment of CeD. Larazotide has the potential to
be a first-to-market therapeutic for CeD, an unmet medical need affecting an
estimated 1% of the U.S. population or more than 3 million individuals. Patients
with CeD have no treatment alternative other than a strict lifelong adherence to
a gluten-free diet, which is difficult to maintain and can be deficient in key
nutrients. In CeD, larazotide is the only drug which has successfully met its
primary clinical efficacy endpoint with statistical significance in a Phase 2b
efficacy trial, which was comprised of 342 patients. We completed the
End-of-Phase 2 meeting with the FDA for the treatment of CeD with larazotide and
received Fast Track designation. Larazotide has been shown to be safe and
effective after being tested in several clinical trials involving nearly 600
patients.
We have over 100 active clinical trial sites in our Phase 3 trial with three
treatment groups, 0.25 mg of larazotide, 0.5 mg of larazotide and a placebo arm.
In addition, after consultation with the FDA, the analytical approach to the
primary endpoint was modified to perform a continuous variable analysis instead
of a responder analysis of the primary efficacy outcome. The new methodology
enables a more capital-efficient study, with reduction in participants from 630
to 525. Site activation and patient enrollment have been impacted by the
COVID-19 pandemic. We continue to monitor the evolving situation with COVID-19,
which is likely to impact the pace of enrollment directly or indirectly over the
next several months. Interim results are anticipated in the second quarter of
2022. During 2021, we engaged Beyond Celiac and The Celiac Disease Foundation,
both leading non-profit patient advocacy groups, to further identify potential
and appropriate patients for enrollment in the Phase 3 trial. We also launched a
CeD trial awareness campaign utilizing a dedicated YouTube channel and initiated
a social media geo-targeting CeDLara awareness campaign. In October 2021, we
held a live/virtual investigators'
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meting directed toward enhancing enrollment efforts. We continue to evaluate and
respond to trial execution challenges related to the ongoing COVID-19 pandemic
and will implement additional measures as needed.

NM-003 GLP-2 long-acting

NM-003 is a proprietary long-acting glucagon-like-peptide ("GLP-2") receptor
agonist with improved serum half-life compared with short-acting versions. On
December 9, 2020, we announced that the FDA has granted orphan drug designation
to NM-003 for prevention of acute graft versus host disease. NM-003, also called
teduglutide, utilizes proprietary XTEN technology to extend circulating
half-life. NM-003 is currently undergoing a preclinical proof-of-concept study.
Based on the results of this study, we intend to progress NM-003 through a
clinical and regulatory pathway in an undisclosed orphan and rare GI indication.

NM-102 Tight Junction Microbiome Modulator

NM-102, a small molecule peptide, is being developed as a potential microbiome
modulator and undergoing an indication selection process. NM-102 is a
long-acting, degradation-resistant peptide, believed to be gut-restricted, and
presumed to prevent gut microbial metabolites and antigens from trafficking into
systemic circulation. We recently announced a collaboration with Gustav Roussy,
a leading cancer center in Villejuif, France, using NM-102. This collaboration
adds to an initial 14-month preclinical research project initiated in March
2019, which focused on the relationship between intestinal microbiome
composition and systemic responses to cancer treatments such as chemotherapy and
immune checkpoint inhibitors.

Humanized Monoclonal Antibody NM-136

On July 19, 2021, we entered into and closed an Asset Purchase Agreement with
Lobesity LLC ("Lobesity"), pursuant to which we acquired global development
rights to a proprietary and highly specific humanized monoclonal antibody, now
known as NM-136, that targets glucose-dependent insulinotropic polypeptide
("GIP"), as well as the related intellectual property (the "Lobesity
Acquisition"). GIP is a hormone found in the upper small intestine that is
released into circulation after food is ingested, and when found in high
concentrations, can contribute to obesity and obesity-related disorders such as
Prader-Willi Syndrome. NM-136 has been shown to prevent GIP from binding to its
receptor, which in preclinical obesity models has been shown to significantly
decrease weight and abdominal fat by reducing nutrient absorption from the
intestine as well as nutrient storage without affecting appetite. We have
initiated antibody profiling to support a preclinical development program and
expect to have a pre-IND meeting by the end of 2022.

NM-004 Immunomodulator

NM-004 is a double-cleaved mesalamine with an immunomodulator. NM-004 is
currently undergoing a probability of technical, regulatory and intellectual
property analysis in an undisclosed GI indication. Based on the results of that
analysis, we intend to determine the viability of a path forward.

Business development

Agreement and proposed merger and reorganization with RDD Pharma, Ltd.

On October 6, 2019, we entered into an Agreement and Plan of Merger and
Reorganization pursuant to which we agreed to acquire all of the outstanding
capital stock of privately-held RDD Pharma, Ltd., an Israel corporation ("RDD"),
in exchange for common stock issued by us to the existing RDD shareholders (the
"RDD Merger"). The RDD Merger closed on April 30, 2020. In connection with the
RDD Merger, we changed our name from Innovate Biopharmaceuticals, Inc. to 9
Meters Biopharma, Inc.

RDD Merger Funding

On April 29, 2020, we entered into a securities purchase agreement with various
accredited investors, pursuant to which we agreed to issue and sell to the
investors units ("Units") consisting of (i) one share of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and (ii) one five-year warrant
(the "Preferred Warrants") to purchase one share of Series A Preferred Stock
(the "RDD Merger Financing"). On May 4, 2020, we closed the RDD Merger Financing
and sold an
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aggregate of (i) 382,779 shares of Series A Preferred Stock, which converted
into 38,277,900 shares of common stock on June 30, 2020, upon receipt of
approval by our stockholders (the "Automatic Conversion"), and (ii) Preferred
Warrants to purchase up to 382,779 shares of Series A Preferred Stock, which,
following the Automatic Conversion, became exercisable for 38,277,900 shares of
common stock. The exercise price of the Preferred Warrants was $58.94 per share
of Series A Preferred Stock, and following the Automatic Conversion, became
$0.5894 per share of common stock, subject to adjustments as provided under the
terms of the Preferred Warrants. In addition, broker warrants covering 8,112
Units and broker warrants covering 10,899 shares of Series A Preferred Stock,
which, following the Automatic Conversion, became exercisable for 2,712,300
shares of common stock, were issued in connection with the RDD Merger Financing.
Gross proceeds from the RDD Merger Financing were approximately $22.6 million
with net proceeds of approximately $19.2 million after deducting commissions and
estimated offering costs.
Naia Acquisition
On May 6, 2020, we entered into and consummated a two-step merger with Naia Rare
Diseases, Inc. in accordance with the terms of an Agreement and Plan of Merger
(the "Naia Acquisition"). The consideration for the Naia Acquisition at closing
consisted of $2.1 million in cash and 4,835,438 shares of common stock valued at
$2.2 million, plus the pre-payment of certain operating costs on behalf of Naia
totaling $0.1 million. Consideration for the Naia Acquisition also included
potential future development and sales milestone payments worth up to $80.4
million and royalties on net sales of certain products to which Naia has
exclusive rights by license. No contingent consideration for the Naia
Acquisition was recorded at the time of acquisition because the potential
development and sales milestones were not deemed probable.

Acquisition of obesity

On July 19, 2021, we completed an Asset Purchase Agreement with Lobesity,
pursuant to which we acquired global development rights to a proprietary and
highly specific humanized monoclonal antibody, NM-136, that targets GIP, as well
as the related intellectual property. We paid a combination of cash and equity
consideration in the form of a $5 million upfront payment, as 40% cash and 60%
equity (consisting of 2,417,211 shares of unregistered common stock priced at
our 3-day volume weighted-price immediately prior to the closing), 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 indications 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.
Financial Overview
Since our inception, we have focused our efforts and resources on identifying
and developing our research and development programs. We have not had any
products approved for commercial sale and have incurred operating losses in each
year since inception. Substantially all of our operating losses resulted from
expenses incurred in connection with our research and development programs and
from general and administrative costs associated with our operations. To date,
we have financed our operations primarily through public offerings of equity
securities and private placements of convertible debt and equity securities.
As of December 31, 2021, we had an accumulated deficit of $168.8 million. We
incurred net losses of $36.8 million and $61.5 million for the years ended
December 31, 2021 and 2020, respectively. We expect to continue to incur
significant expenses and increase our operating losses for the foreseeable
future, which may fluctuate significantly between periods. We anticipate that
our expenses will increase substantially as and to the extent we:

•pursue research and development, including preclinical and clinical development of our existing and future product candidates, including larazotide and vurolenatide;

• experiencing delays in our clinical trials due to the COVID-19 pandemic;

• successfully develop the acquired clinical assets

• seek regulatory approval for our product candidates;

• commercialize any product candidate for which we obtain regulatory approval;

•maintain and protect our intellectual property rights;

• add operational, financial and management staff and information systems;

•pursue additional entry or exit licenses or similar strategic transactions; and

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•continue to incur additional legal, accounting, regulatory, tax and other costs necessary to operate as a public company.

  As such, we will need substantial additional funding to support our operating
activities. Adequate funding may not be available to us on acceptable terms, or
at all. We currently anticipate that we will seek to fund our operations through
equity or debt financings, strategic alliances or licensing arrangements, or
other sources of financing. Our failure to obtain sufficient funds on acceptable
terms could have a material adverse effect on our business, results of
operations and financial condition.

COVID-19[female[feminine

The effect of the COVID-19 pandemic and its associated restrictions, including
the recent Omicron variant, has delayed and may continue to delay the expected
development timelines and may increase the anticipated aggregate costs for our
product candidates. Impacts from the COVID-19 pandemic include, but are not
limited to, disruptions in the supply chain for clinical supplies, delays in the
timing and pace of participant enrollment in clinical trials and lower than
anticipated participant enrollment and completion rates due to COVID-19 clinical
site closures, delays in the review and approval of our regulatory submissions
by the FDA and other agencies with respect to our product candidates, and other
unforeseen disruptions. Site activation and patient enrollment have been
impacted by the COVID-19 pandemic and could continue to be impacted by the
pandemic over the next several months. We are working closely with our clinical
trial sites and product candidate manufacturers to ensure that patient safety
and clinical supply of our product candidates are not adversely impacted by the
pandemic, while also attempting to progress our trials and product candidate
development as much as we can. In response to the COVID-19 pandemic, we put in
place several safety measures for our employees, patients, healthcare providers
and suppliers. These measures included, but were not limited to, substantially
restricting travel, limiting access to our corporate office, including allowing
employees to work remotely, providing personal protective equipment to
employees, investigator sites and third-party vendors, implementing social
distancing protocols, and coordinating safety protocols with our investigator
sites.
The ultimate impact resulting from the COVID-19 pandemic will depend, among
other factors, on the extent of the pandemic in the regions with clinical trial
sites, the timing and availability of the COVID-19 vaccines and length and
severity of travel restrictions and other limitations ordered by governmental
agencies. New and potentially more contagious variants could further affect the
impact of the COVID-19 pandemic on our operations.
The economic impact of the COVID-19 pandemic and its effect on capital markets
and investor sentiment may adversely impact our ability to raise capital when
needed or on acceptable terms to fund our development programs and operations.
However, we closed public offerings and received net proceeds of approximately
$31.5 million in April 2021 and $32.0 million in December 2020, which we plan to
use to complete the Phase 2 trial vurolenatide in SBS and continue progression
of our Phase 3 larazotide trial in CeD. In addition, we have a robust pipeline
of early-stage product candidates, including recently acquired NM-136.
We do not yet know the full extent of potential delays or impacts on our
business, clinical trial activities, ability to access capital or on healthcare
systems or the global economy as a whole due to the COVID-19 pandemic. However,
these effects could have a material adverse impact on our business and financial
condition.
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Operating results

Comparison of the years ended December 31, 2021 and 2020

The following table presents the main components of our results of operations for the years ended December 31, 2021 and 2020:

                                                                 Year Ended December 31,
                                                               2021                   2020                $ Change               % Change
Operating expenses:
Research and development                                 $  21,995,291          $  10,933,023          $ 11,062,268                     101  %
Acquired in-process research and development                 5,103,753             32,266,893           (27,163,140)                    (84) %
General and administrative                                   9,662,875             10,519,955              (857,080)                     (8) %
Warrant inducement expense                                           -              7,157,887            (7,157,887)                   (100) %
Total operating expenses                                    36,761,919             60,877,758           (24,115,839)                    (40) %
Loss from operations                                       (36,761,919)           (60,877,758)           24,115,839                      40  %
Total other income (expense), net                              (17,481)              (618,731)              601,250                      97  %
Net loss                                                 $ (36,779,400)         $ (61,496,489)         $ 24,717,089                      40  %

Research and development costs

Research and development expense for the year ended December 31, 2021 increased
approximately $11.1 million, or 101%, as compared to the year ended December 31,
2020. The increase was primarily due to an increase of approximately $5.6
million in clinical trial expenses associated with completion of the Phase 1b
trial and launching of the Phase 2 trial in SBS. In addition, expenses
associated with our other pipeline drugs increased by approximately $3.9 million
for the Phase 3 trial in CeD, $1.7 million for IND-enabling activities for
NM-102 and $1.0 million for preclinical development of NM-136. Personnel costs
and benefits increased by approximately $1.5 million due to the addition of
research and development personnel during the year ended December 31, 2021.
These increases were offset by a decrease in research and development license
fees of approximately $1.6 million and a decrease in non-cash share-based
compensation expense of approximately $1.0 million. The accelerated vesting of
certain outstanding options upon closing of the RDD Merger in 2020 and
additional options awarded in 2020, some of which were fully vested upon grant
as a non-cash merger bonus, contributed to non-cash share-based compensation
expense being higher in 2020. The table below summarizes our research and
development expenses by program, license fees and other research and development
expenses for the periods indicated.
                                                      Year Ended December 31,
                                                        2021           2020
       Research and development expenses:
         Larazotide - Celiac Disease               $  7,484,835   $ 

3,634,291

Vurolenatide – Short bowel syndrome 7,419,098 1,772,388

         NM-102 - Orphan Indication                   1,728,513              -
         NM-136 - Obesity Disorder                    1,020,748              -
         License fees                                   600,000     

2,201,985

Other research and development costs 3,742,097 3,324,359

Total research and development expenditure $21,995,291 $10,933,023

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Research in progress acquired and Development

Acquired in-process research and development expense was approximately $5.1
million for the year ended December 31, 2021 as compared to $32.3 million for
the year ended December 31, 2020. Acquired in-process research and development
expense during the year ended December 31, 2021 represents expenses associated
with the Lobesity Acquisition and includes approximately $2.6 million non-cash
acquired in-process research and development expense paid in equity ownership.
Acquired in-process research and development expense during the year ended
December 31, 2020 represents expenses associated with the RDD Merger and Naia
Acquisition. Approximately $28.8 million represents non-cash acquired in-process
research and development expense paid in equity ownership.

General and administrative costs

General and administrative expense for the year ended December 31, 2021
decreased by approximately $0.9 million, or 8%, as compared to the year ended
December 31, 2020. The decrease was primarily due to decreases in (i) non-cash
stock compensation expense of approximately $1.3 million, (ii) personnel costs
and benefits of approximately $0.2 million, (iii) costs associated with
operating as a public company of $0.4 million, and (iv) professional fees of
$0.3 million. The accelerated vesting of certain outstanding options upon
closing of the RDD Merger in 2020 and additional options awarded in 2020, some
of which were fully vested upon grant as a non-cash merger bonus, contributed to
non-cash share-based compensation being higher in 2020. Personnel costs and
benefits was higher in 2020 due to severance expense related to the termination
of former Innovate employees upon closing of the RDD Merger. These decreases
were offset by increases in general corporate fees, including patent protection
of our intellectual property, market research and business development of
approximately $1.3 million.

Warrant Induction Fee

During the year ended December 31, 2020, we recognized warrant inducement
expense of approximately $7.2 million. The warrant inducement expense represents
the accounting fair value of consideration issued to induce conversion of the
April Warrants and Placement Agent Warrants exchanged for 1.2 shares of our
common stock per warrant and to induce the exercise of certain warrants in the
Offer to Amend and Exercise, further described in "Note 1-Summary of Significant
Accounting Policies" to the accompanying consolidated financial statements
included in this Annual Report on Form 10-K. There was no warrant inducement
expense during the year ended December 31, 2021.

Other income (expenses), net

  Other expense, net, for the year ended December 31, 2021, decreased by
approximately $0.6 million, or 97%, as compared to the year ended December 31,
2020. The change in other expense consists of a decrease in interest expense of
approximately $4.0 million, which includes the non-cash beneficial conversion
feature of $2.2 million associated with our convertible note. This decrease was
offset by the decrease in other income related to the prior year gain on fair
value of warrant liabilities of approximately $2.6 million and the gain on fair
value of derivative liability of approximately $0.8 million.

Cash and capital resources

Sources of liquidity

As of December 31, 2021, we had cash and cash equivalents of approximately $47.0
million, compared to approximately $37.9 million as of December 31, 2020. The
increase in cash and cash equivalents was primarily due to the net proceeds of
$31.5 million received in the public offering of common stock that closed in
April 2021. In addition, the Company received proceeds of approximately $9.2
million from the exercise of warrants and approximately $0.3 million from the
exercise of stock options during the year ended December 31, 2021. These
increases in cash were offset by expenditures for business operations, research
and development and clinical trial costs, including the launch of the Phase 2
clinical trial in SBS and the Lobesity Acquisition.
To date, we have not generated revenue from product sales. We do not know when,
or if, we will generate any revenue from product sales. We expect to incur
substantial expenditures in the foreseeable future for the continued development
and clinical trials of our product candidates. We will continue to require
additional financing to develop and eventually
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commercialize our product candidates. Our future liquidity and capital
requirements will depend on a number of factors, including the outcome of our
clinical trials, which could be delayed due to the ongoing COVID-19 pandemic,
and our ability to complete the development and commercialization of our
products. There are a number of variables beyond our control including the
timing, success and overall expense associated with our clinical trials.
Consequently, there can be no assurance that we will be able to achieve our
objectives and we will need to seek additional funding. If we are unable to
raise additional funds when needed, our ability to develop our product
candidates will be impaired. We may also be required to delay, reduce, or
terminate some or all of our development programs and clinical trials. We
continue to evaluate multiple dilutive and non-dilutive sources for future
funding. If we raise additional funds through the issuance of equity securities,
substantial dilution to our existing shareholders could occur. We have concluded
that the prevailing conditions and ongoing liquidity risks faced by us raise
substantial doubt about our ability as a going concern.

Cash flow

The following table presents the main sources and uses of cash for the years ended December 31, 2021 and 2020:

                                                    Year Ended December 31,
                                                    2021               2020
Net cash (used in) provided by:
Operating activities                           $ (29,478,275)     $ (19,409,786)
Investing activities                              (2,430,641)        (3,186,997)
Financing activities                              41,050,813         55,855,239

Net increase in cash and cash equivalents $9,141,897 $33,258,456

Operating Activities
For the year ended December 31, 2021, net cash used in operating activities of
approximately $29.5 million primarily consisted of a net loss of $36.8 million,
offset by adjustments for non-cash share-based compensation of approximately
$2.4 million, amortization of debt discount of less than $0.1 million and
non-cash in process research and development expense of approximately $2.6
million. In addition, the net change in operating assets and liabilities
increased by approximately $2.2 million.
For the year ended December 31, 2020, net cash used in operating activities of
approximately $19.4 million primarily consisted of a net loss of $61.5 million,
a non-cash gain of $2.6 million for the change in the fair value of the warrant
liabilities and a non-cash gain of approximately $0.8 million for the change in
fair value of the convertible note derivative liabilities. These decreases were
offset by adjustments for non-cash share-based compensation of approximately
$4.7 million, non-cash warrant inducement expense of $7.2 million, non-cash
interest expense of approximately $1.8 million, a non-cash beneficial conversion
feature of approximately $2.2 million associated with the conversion of
convertible note principal and interest, and non-cash in process research and
development expense of approximately $28.8 million. In addition, the net change
in operating assets and liabilities increased by approximately $0.8 million.

Investing activities

For the year ended December 31, 2021, net cash used in investing activities
represents the purchase of property and equipment of approximately $12,000 and
the purchase of in-process research and development, net of assets received, of
approximately $2.5 million. These cash outflows were offset by the maturity of
our restricted investment of $75,000. Net cash used in investing activities for
the year ended December 31, 2020 represented the purchase of property and
equipment of approximately $2,500 and the purchase of in-process research and
development, net of assets received, of approximately $3.2 million.
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Fundraising activities

For the year ended December 31, 2021, net cash provided by financing activities
of approximately $41.1 million primarily consisted of (i) proceeds of $34.5
million from the public offering of our common stock that closed in April 2021,
(ii) proceeds $9.2 million from the exercise of warrants and (iii) proceeds of
$0.3 million from the exercise of stock options. These increases were offset by
approximately $0.1 million in debt repayments and approximately $2.9 million in
stock issuance costs.
For the year ended December 31, 2020, net cash provided by financing activities
of approximately $55.9 million primarily consisted of (i) $37.1 million received
from the sale of our common stock and warrants; (ii) proceeds of $22.6 million
from the issuance of preferred stock and warrants in the RDD Merger Financing,
(iii) proceeds of $2.5 million from the issuance of the unsecured convertible
promissory note issued in January 2020 and (iv) proceeds of approximately $2.5
million from the exercise of warrants. These increases were offset by
approximately $2.5 million in debt repayments and approximately $6.4 million in
stock issuance costs.

Contractual obligations and commitments

In July 2020, we entered into a four-year lease agreement for office space that
expires on September 30, 2024. Base annual rent for the four-year lease period
is $72,000 with monthly rent payments of $6,000.
We estimated the present value of the lease payments over the remaining term of
the lease using a discount rate of 12%, which represented our estimated
incremental borrowing rate. The two-year renewal option was excluded from the
lease payments as we concluded the exercise of this option was not considered
reasonably certain.
Periodically, we enter into separation and general release agreements with
former executives that include separation benefits consistent with the former
executive's employment agreements. We recognized severance expense totaling $0.4
million and $0.8 million during the years ended December 31, 2021 and 2020,
respectively. Severance payments are made in equal installments over 12 months
from the date of separation. The accrued severance obligation in respect of
former executives is approximately $0.4 million as of December 31, 2021.
We are obligated to make future payments to third parties under in-license
agreements, including sublicense fees, royalties and payments that become due
and payable on the achievement of certain development and commercialization
milestones. In general, the amount and timing of sub-license fees and the
achievement and timing of development and commercialization milestones are not
probable and estimable, and as such, these commitments have not been included on
the accompanying consolidated balance sheets. During the years ended December
31, 2021 and 2020, we incurred development milestone fees of approximately $0.6
million and $2.2 million, respectively.
We also enter into agreements in the normal course of business with contract
research organizations and other third parties with respect to services for
clinical trials, clinical supply manufacturing and other operating purposes that
are generally terminable by us with thirty to ninety days advance notice.

Off-balance sheet arrangements

From December 31, 2021we had no off-balance sheet arrangements as defined in Section 303(a)(4) of Regulation SK as promulgated by SECOND.

Significant Accounting Policies and Use of Estimates

Use of estimates

Our management's discussion and analysis of financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our consolidated financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, as well as the reported expenses
incurred during the reporting periods. Our estimates are based on our historical
experience and various other assumptions that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from
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other sources. Changes in estimates are reflected in reported results for the
period in which they become known. Actual results may differ materially from
these estimates under different assumptions or conditions.

Critical accounting policies

While our significant accounting policies are more fully described in the notes
to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K, we believe that the following accounting policies are
critical to the process of making significant judgments and estimates in the
preparation of our consolidated financial statements and understanding and
evaluating our reported financial results.
Areas of our consolidated financial statements where estimates may have the most
significant effect include acquired in-process research and development, accrued
expenses, share-based compensation, income taxes and management's assessment of
our ability to continue as a going concern. Changes in the facts or
circumstances underlying these estimates could result in material changes and
actual results could differ from these estimates.

Research in progress acquired and development costs

We have 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 associated with asset acquisitions that are deemed probable
to achieve the milestones 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. See "Note 3-Merger and Acquisition" to
our consolidated financial statements for further discussion of acquired
in-process research and development expense during the years ended December 31,
2021 and 2020.
Accrued Expenses
We incur periodic expenses such as cost associated with clinical trials and
non-clinical activities, manufacturing of pharmaceutical active ingredients and
drug products, regulatory fees and activities, fees paid to external service
providers and consultants, salaries and related employee benefits and
professional fees. We are required to estimate our accrued expenses, which
involves reviewing quotations and contracts, identifying services that have been
performed on our behalf and estimating the level of service performed and the
associated cost incurred for the service when we have not been invoiced or
otherwise notified of the actual cost. The majority of our service providers
invoice monthly in arrears for services performed or when contractual milestones
are met. We estimate accrued expenses as of each balance sheet date based on
facts and circumstances known at that time. We periodically confirm the accuracy
of our estimates with the service providers and make adjustments if necessary.
Costs incurred in 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 the
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 services are performed. We determine accrual estimates through reports
from and discussions with applicable personnel and outside service providers as
to the progress or state of clinical trials, or the services completed.
Nonrefundable advance payments for goods or services that will be used in future
research and development activities are expensed when the activity is performed
or when the goods have been received, rather than when payment is made. The
estimates of accrued expenses as of each balance sheet date are based on the
facts and circumstances known at the time. Although we do not expect our
estimates to be materially different from those actually incurred, our estimates
and assumptions could differ significantly from actual costs, which could result
in increases or decreases in research and development expenses in future periods
when actual results are known.

Stock-based compensation

We account for share-based compensation using the fair value method of
accounting which requires the grant of stock options to be recognized in the
consolidated statements of operations based on the option's fair value at the
grant date. 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
remaining expected term.
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We estimate the fair value of our stock-based awards using the Black-Scholes
option pricing model, which requires the input of valuation assumptions, some of
which are highly subjective. Key valuation assumptions include:

• Expected Dividend Yield: The expected dividend is assumed to be zero as we have never paid dividends and currently have no plans to pay dividends on our common stock.

•Expected stock price volatility: due to our limited historical trading data as
a public company, the expected volatility is derived from the average historical
volatilities of publicly traded companies within the same industry that we
consider to be comparable to our business over a period approximating the
expected term. In evaluating comparable companies, we consider 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 we
Treasury yield in effect at the time of the grant for the zero coupon we Treasury
notes whose maturity is 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, we estimate the expected term of 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 options. Pursuant
to ASU 2018-07, we 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.

Income taxes

No provision for federal and state income tax expense has been recorded for the
years ended December 31, 2021 and 2020 due to the valuation allowance recorded
against the net deferred tax asset and recurring losses. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
As of December 31, 2021, we had net operating loss carryforwards for federal,
state and foreign income tax purposes of approximately $88,722,200, $88,568,100
and $30,689,600 respectively. Federal loss carryforwards of $3,551,900 begin to
expire in 2034 and $85,170,300 of the federal losses carryforward indefinitely.
The state loss carryforwards begin to expire in 2029. Foreign net operating
losses carry forward indefinitely, and may be subject to limitation. As of
December 31, 2021, we had contribution carryforwards of approximately $11,000,
which begin to expire in 2023. In addition, we have federal research and
development credits of $2,534,600, which begin to expire in 2038.
The Internal Revenue Code of 1986, as amended, contains provisions which limit
the ability to utilize the net operating loss and tax credit carryforwards in
the case of certain events, including significant changes in ownership
interests. If our net operating loss and tax credit carryforwards are limited,
and we have taxable income which exceeds the permissible yearly net operating
loss and tax credit carryforwards, we would incur a federal income tax liability
even though net operating loss and tax credit carryforwards would be available
in future years.

Recent accounting pronouncements

For more details on recent accounting pronouncements that we have adopted or that are currently being evaluated, refer to “Note 1 – Summary of Significant Accounting Policies – Recently Issued Accounting Standards” to the Consolidated Financial Statements below. – attachments included in this Annual Report on Form 10-K.

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