ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and results of operations in conjunction with our financial statements and notes thereto appearing
elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. Our actual results could differ materially from those anticipated by these
forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences
below and elsewhere in this Form 10-K, including those set forth under “Risk Factors” and “Forward-Looking Statements.”
Overview
Our objective is to develop
and commercialize our product candidates to treat diseases where the innate immune system is dysfunctional causing or contributing to
the patient’s disease. Innate immune dysfunction can occur for a variety of reasons including genetics, lifestyle, and other factors.
However, age plays a significant role in the development of immune dysfunction. Innate immune dysfunction can be seen in cancer where
Natural Killer (“NK”) cells are impaired and facilitate a tumor’s evasion of the immune system and subsequent disease
progression. Chronic inflammation is implicated in neurologic and metabolic diseases where it impairs the innate immune system. Our primary
focus continues to be treatment of cancer with INKmune and treatment of Alzheimer’s Disease (“AD”) and Treatment Resistant
Depression (“TRD”) with XPro1595. We have added CORDStrom, a pooled, human umbilical cord mesenchymal stem cell product to
treat recessive dystrophic epidermolysis bullosa (RDEB), a pediatric orphan disease caused by mutations in the COL7A1 gene that results
in a debilitating disease of skin blistering, dysphagia and failure to thrive with chronic wound problems that often results in fatal
squamous cell carcinoma.
XPro1595 (“XPro”),
targets Alzheimer’s Disease and TRD. XPro for AD has completed Phase I trials and a Phase II trial has completed enrollment of patients
at clinical sites in the United Kingdom, EU, Australia and Canada. Patients are currently being treated with XPro for Early AD as part
of that clinical trial. TRD is being prepared for Phase II trials. We expect to start a pivotal global registration trial in patients
with AD after the results of the Phase II trial have been analyzed. The INKmune program is in an open label Phase II trial in metastatic
castrate resistant prostate cancer (mCRPC). CORDStrom for the treatment of children with RDEB has completed a pivotal blinded randomized
cross-over trial. The data will be submitted for a marketing authorization by filing a Biologics License Application (BLA) with the FDA
in the US which is anticipated in late 2025 or early 2026. Afterwards, the company intends to file a Marketing Authorization Application
(MAA) in the United Kingdom and EU.
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CORDStrom,
developed by INmune Bio circa 2020, represents a breakthrough in mesenchymal stem cell technology. The CORDStrom platform leverages, among
other things, proprietary screening, pooling and expansion techniques to create off-the-shelf, allogeneic, pooled human umbilical cord
-derived mesenchymal stromal cells (HucMSCs) as medicines to treat complex inflammatory diseases. CORDStrom products are designed to provide
high-quality, off-the-shelf, batch-to-batch consistent, scalable, cGMP manufactured, potent cellular medicines that can be produced at
low cost and with repeatable specification independent of donor characteristics. Initially developed at the INKmune manufacturing facilities
utilizing United Kingdom academic grant funding, CORDStrom is a product platform that shows promise as a therapy for RDEB and many other
debilitating conditions. While the first generation CORDStrom product is agnostic to indication, the platform enables creation of indication-specific
products, which can be tuned for optimization of anti-inflammatory, immunomodulatory, wound healing, and other characteristics.
The
CORDStrom product platform shares many similarities, including starting materials, equipment, and procedures, with the Company’s
INKmune oncology product, enabling the Company to leverage economies of scale, experienced staff, and other resources to strategically
manufacture both products in a rotational campaign with resource and environmental efficiencies.
Children with Recessive Dystrophic Epidermolysis Bullosa (RDEB) have skin
that is damaged by even the smallest amount of friction which causes severe blistering, deep wounds, and scars. It is caused by a fault
in a gene that makes collagen, a protein that holds the skin layers together. There are limited options available for treatment,
none that adequately meet the needs of patients, and the condition gets worse over time with most children reliant on a wheelchair as
they move into their teenage years. Many of those with an RDEB diagnosis will also go on to develop aggressive life-threatening skin cancer
in adulthood caused by the accumulated damage to their skin. The Company estimates roughly 2,000 people suffer from RDEB in the US,
United Kingdom and EU representing a large unmet opportunity to potentially provide routine clinical care to these children.
Since
2020, the Company has supplied CORDStrom HucMSCs as an investigational medical product to the Great Ormond Street Hospital (GOSH),
London, in connection with the MissionEB study, which was primarily funded by a grant from the National Institute for Health and
Care Research (NIHR) in the United Kingdom. INmune Bio was compensated for CORDStrom used in the trial and was not a sponsor of the Mission
EB study. Investigators recently concluded a double blinded, placebo-controlled arm of the study, which evaluated the safety and efficacy
of CORDStrom in 30 pediatric patients (less than 16 years old) in the United Kingdom with intermediate and severe RDEB using a novel cross-over
clinical trial design. Patients were randomized to CORDStrom or placebo arms and received 2, intravenous infusions two weeks apart and
then followed for 9 months. Each child then crossed over to the other arm and received two doses of placebo or CORDStrom two weeks apart
with a further 9-month follow-up.
All patients were treated as day-cases and no CORDStrom related serious
adverse events were reported through the study. Top-line results showed the treatment was easily administered, well tolerated and there
were beneficial effects across all types of patients receiving CORDStrom with respect to Itch Man Scale, iscorEB clinician score and iscorEB
skin involvement. Most notably, CORDStrom significantly reduced itch scores as measured by the Itch Man Scale. In patients with
the most severe disease activity, CORDStrom reduced itch at 3 months and led to a sustained reduction of over 27% at 6 months. These results
demonstrate a clinically meaningful reduction in itch severity sustained over time. Intermediate group patients showed a broader range
of improvements, including reduced skin involvement and less pain as well as large reduction in itch. The younger patients (less
than 10 years old) showed improvements in skin score, indicating better skin integrity and reduced disease activity. Interviews with patients
and caregivers on completing follow up strongly support the clinical benefits of the therapy; both caregivers and patients were able to
correctly identify which treatment had been CORDStrom and which had been placebo. Those who completed the study are asking to continue
on therapy, which the Company intends to pursue as an open-label study.
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The Mission EB data form the basis of a license that was entered into
between INmune Bio and GOSH, whereby the Company gains exclusive access to the clinical study data for commercial uses in exchange for
payment of an initiation milestone of £250,000 (approximately $0.3 million at February 6, 2025) and a single development milestone
of approximately £6 million (approximately $7.5 million at February 6, 2025) due on receipt of first marketing authorization from
the FDA, EMA, or MHRA, and an ongoing commitment to supply CORDStrom to patients enrolled in an open label arm of the Mission EB trial,
subject to certain limitations.
After
reviewing results of the Mission EB study, the Company initiated a Type C meeting with the FDA to obtain CMC and regulatory feedback and
submitted information, data and requests for Rare Pediatric Disease and Orphan Drug Designations (RPDD/ODD).
The
FDA granted RPDD to the Company’s CORDStrom product on December 13, 2024, ahead of the sunset period under Section 529(b)(5) of
the Federal Food, Drug, and Cosmetic Act. As such, CORDStrom remains eligible to receive a Priority Review Voucher (PRV) if approved by
the FDA on or prior to September 30, 2026. If granted, a PRV can be redeemed to receive priority review for a different product. Alternatively,
a PRV may be transferred or sold to another sponsor.
The
FDA granted ODD to the Company’s CORDStrom product on January 6, 2025. Benefits of ODD include certain tax credits and eligibility
for select grants, waiver of FDA user fees, including the BLA application fees, access to frequent meetings with the FDA for efficient
drug development, and eligibility for seven (7) years of market exclusivity post approval.
The
company plans to prepare for and hold a pre-BLA meeting to discuss particulars of its planned BLA submission, with intent to submit a
BLA this year seeking approval of CORDStrom for treatment of RDEB. Concurrently, the company will also seek to submit MAAs to the EU and
United Kingdom in 2026.
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We believe our DN-TNF platform
can be used as a CNS (“central nervous system”) therapy to target glial activation to prevent progression of Alzheimer’s
disease (“AD”); to target neuroinflammation in treatment resistant depression (“TRD”). The primary focus of the
company’s development efforts for XPro is AD. The next indication to be developed with XPro will be TRD. In each case, we believe
neutralizing sTNF is a cornerstone to the treatment of these diseases.
We believe the DN-TNF platform
can be used to treat selected neurodegenerative diseases by reducing neuroinflammation without immunosuppression. The Company believes
the core pathology of cognitive decline is a combination of neurodegeneration and synaptic dysfunction. Neurodegeneration is nerve cell
death that may include demyelination. Synaptic dysfunction means the connections between nerve cells stop working efficiently and may
decrease in number. The combination of neurodegeneration and synaptic dysfunction causes cognitive decline and behavioral changes associated
with Alzheimer’s disease (“AD”). XPro completed a Phase I trial treating patients with Alzheimer’s disease that
was partially funded by a Part-the-Clouds Award from the Alzheimer’s Association. We believe XPro targets activated microglia and
astrocytes of the brain that produce sTNF that promotes nerve cell loss, synaptic dysfunction and prevents myelin repair - key elements
in the development of dementia. In animal models, elimination of sTNF prevents nerve cell dysfunction, reverses synaptic pruning and promotes
myelin repair. The Phase I trial in patients with biomarkers of inflammation with AD has been completed. The open label, dose escalation
trial was designed to demonstrate that XPro can safely decrease neuroinflammation in patients with ADi. ADi is the term used to delineate
patients with AD with biomarkers of inflammation. The endpoints of the trial were measures of neuroinflammation and neurodegeneration
in blood and cerebral spinal fluid by measuring changes in inflammatory cytokine levels in the CNS and using MRI-DTI to measure brain
microstructural changes. XPro, at the 1mg/kg/week dose, decreased inflammatory cytokines in the CSF in the brain demonstrating that XPro
can decrease neuroinflammation in patients with AD. We also studied downstream benefits of decreasing neuroinflammation by measuring changes
in the CSF proteome and quantifying changes in novel white matter MRI biomarkers. XPro significantly decreases biomarkers of neurodegeneration as
measured by changes in the CSF proteome including neurofilament light chain, phospho Tau 217 and VILIP-1; decreases of 84%, 46% and 91%
respectively after 3 months of therapy. Three months of XPro therapy improved measures of synaptic function, as measured in the CSF proteome
including a 222% increase in Contactin 2 and a 56% decrease neurogranin, changes that contribute to improved synaptic function.
The successful completion
of the Phase I trial in AD has informed the design of a blinded randomized, placebo-controlled Phase II trial in patients with early ADi.
Early ADi includes patients with AD and MCI who have at least one biomarker of inflammation (ADi and MCI2 respectively). The
early ADi trial is a blinded randomized trial to test if treatment of early AD patients with neuroinflammation with XPro will affect cognitive
decline. The Phase II trial in early ADi has six important elements. Two hundred and one patients are being enrolled in a 2:1 ratio (XPro
vs placebo). The patients will receive 1mg/kg/week as a subcutaneous injection for six months. An enrichment strategy identical to the
successful strategy used in the Phase I trial will be used to ensure patients have neuroinflammation. Patients will need to have one or
more enrichment criteria: elevated blood level of at least one of C-reactive protein, hemoglobin A1c, erythrocyte sedimentation and at
least one allele of ApoE4. The primary end-point will be Early/mild Alzheimer’s Cognitive Composite (“EMACC”), a validated
cognitive measure that is more sensitive than traditional end-points used in many studies of patients with early AD. The AD program is
open in Australia, Canada, the United Kingdom, France, Germany, Spain, Czech Republic and Slovakia.
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Full enrollment in the Phase
II AD trial occurred in late 2024 with 208 patients enrolled. Topline data of EMACC is expected to be reported in June followed by secondary
end-points which include blood biomarker, neuroimaging and additional neuropsychiatric end-points which should be available 2-3 months
after top line data. Finally, several months after all the data are analyzed, the Company plans an end-of-phase II meeting with the FDA
to finalize plans for the pivotal Phase III trial. XPro for treatment of AD may be eligible for one or both accelerated approval pathways.
We expect to be eligible for Break Through status after completion of the Phase II in 2025.
Effective therapy for TRD
is a large unmet need. Twenty percent of patients with a Major Depressive Disorder have TRD. Once third of TRD patients have peripheral
biomarkers to inflammation (elevated CRP). This is a large patient population. The role of TNF and anti-TNF therapeutics was explored
in a small open label clinical trial by Prof. Andrew Miller, MD of Emory University demonstrated the patients have elevated TNF levels
and treatment with infliximab treated their depression (Miller, 2011). The Company has a $2.0M USD award from the National Institute of
Mental Health (“NIMH”) to treat TRD with XPro. The blinded, randomized Phase II trial will use biomarkers of peripheral inflammation
to select patients with TRD for enrollment. Patients will be treated for 6 weeks. Primary end-points include both clinical and neuroimaging
measures. The TRD trial is expected to start enrollment during 2025.
We believe that INKmune improves
the ability of the patient’s own NK cells to attack their tumor. INKmune interacts with the patient’s NK cells to convert
them from inert resting NK cells into memory-like NK cells that kill the patient’s cancer cells. INKmune is a replication incompetent
proprietary cell line that is given to the patient after determining that i) the patient has adequate NK cells in their circulation and
ii) those NK cells are functional when exposed to INKmune in vitro. INKmune is designed to be given to patients after their immune system
has recovered after cytotoxic chemotherapy to target the residual disease that remains after treatment with cytotoxic therapy. We believe
INKmune can be used to treat numerous hematologic malignancies and solid tumors including leukemia, multiple myeloma, lymphoma, lung,
ovary, breast, renal and prostate cancer. The Company had a Phase I trial using INKmune to treat patients with high risk MDS/AML, a form
of leukemia. Two patients were treated in the Phase I trial for MDS, three patients have been treated compassionately in AML and another
MDS patient is expected to be treated shortly. During March 2024, the Company decided to terminate further enrollment in the MDS/AML trial.
In the patients, INKmune therapy is safe, produces memory-like NK cells that kill cancer in vitro, and promotes development of cancer
killing memory-like NK cells that can be found in the patient’s circulation of 4 months. The Company initiated a separate Phase
I/2 trial of INKmune in a metastatic castrate resistant prostate cancer. The open label trial enrolled the first patient in December 2023.
The Phase I/II trial using
INKmune to treat patients with metastatic castrate resistant prostate cancer (mCPRC) is an open label trial. Biomarker data from the patients
will be visible as patients are treated. The Company will report data from each cohort as it becomes available. Because of the modified
Bayesian design, the Company estimates the trial will be completely enrolled 1H25 with top-line data available 6 months later. Topline
data is divided into immunologic and tumor response variables. The most important immunologic response variable is related to memory like
NK cell persistence. This is how long are the number of mlNK cells in patients blood compared to baseline. There are 3 important variables
to tumor response: i) blood PSA changes; ii) change in PMSA scan and iii) change in circulating tumor DNA (ctDNA). Ideally, the levels
of all three variables decrease with treatment. We do not expect this 6 month trial to provide survival data.
We continue to incur significant
development and other expenses related to our ongoing operations. As a result, we are not and have never been profitable and have incurred
losses in each period since our inception, resulting in substantial doubt in our ability to continue as a going concern. We reported a
net loss of $42.1 million and $30.0 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and
2023, we had cash and cash equivalents of $20.9 million and $35.8 million, respectively. We expect to continue to incur significant losses
for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory
approvals for, our product candidates. The size of our future net losses will depend, in part, on the rate of future growth of our expenses
and our ability to generate revenues, if any.
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Our recurring net losses and
negative cash flows from operations raise substantial doubt regarding our ability to continue as a going concern within one year after
the issuance of our consolidated financial statements for the year ended December 31, 2024. Until we can generate sufficient revenue from
the commercialization of our product candidates, we expect to finance our operations through the public or private sale of equity, debt
financings or other capital sources, such as government funding, collaborations, strategic alliances, divestment of non-core assets, or
licensing arrangements with third parties. To date, the Company has relied on equity and debt financing to fund its operations.
Components of Operating Results
Operating Expenses
Research and Development
Research and development expense
consists of expenses incurred while performing research and development activities to discover and develop our product candidates. This
includes conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings
for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily
consist of:
● clinical trial and regulatory-related costs;
● manufacturing and testing costs and related supplies and materials; and
The following table summarizes
our research and development expenses by product candidate for the periods indicated (in thousands):
Year Ended December 31,
External Costs
INKmune (High Risk MDS/AML & Prostate Cancer) and CORDStrom 4,589 3,296
Preclinical and other programs 611 921
Accrued research and development rebate (1,823 ) (3,040 )
We
typically use our employee resources across our development programs. We track outsourced development costs by product candidate or development
program, but we do not allocate internal costs personnel costs including salaries and stock-based compensation to specific product candidates
or development programs.
We
participate, through our wholly owned subsidiary in Australia, in the Australian research and development tax incentive program, such
that a percentage of our qualifying research and development expenditures are reimbursed by the Australian government, and such incentives
are reflected as a reduction of research and development expense. The Australian research and development tax incentive is recognized
when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred and the amount of the
consideration can be reliably measured.
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Substantially all of our research
and development expenses to date have been incurred in connection with our current and future product candidates. We expect our research
and development expenses to increase significantly for the foreseeable future as we advance an increased number of our product candidates
through clinical development, including the conduct of our planned clinical trials and manufacturing drug to be used in those clinical
trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful
development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required
to complete the remaining development of any product candidates. This is due to the numerous risks and uncertainties associated with the
development of product candidates.
The costs of clinical trials
may vary significantly over the life of a project owing to, but not limited to, the following:
● per patient trial costs;
● the number of sites included in the clinical trials;
● the countries in which the clinical trials are conducted;
● the length of time required to enroll eligible patients;
● the number of patients that participate in the clinical trials;
● the number of doses that patients receive;
● the cost of comparative agents used in clinical trials;
● the drop-out or discontinuation rates of patients;
● the duration of patient follow-up;
● the efficacy and safety profile of the product candidate; and
We do not expect any of our
product candidates to be commercially available for at least the next several years, if ever. We expect to continue to incur significant
expenses and increasing operating losses for the foreseeable future, which may fluctuate significantly from quarter-to-quarter and year-to-year.
We anticipate that our expenses will increase substantially as we:
● potentially seek regulatory approval for our product candidates;
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● seek to discover and develop additional product candidates;
● seek to comply with regulatory standards and laws;
● maintain, leverage and expand our intellectual property portfolio;
General and Administrative Expenses
General and administrative
expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting,
accounting and tax services; insurance, overhead, including rent and utilities; and other general operating expenses not otherwise classified
as research and development expenses.
Other income, net
Other expense consists primarily
of interest expense incurred on debt, partially offset by interest income from a money market investment.
Critical Accounting Estimates
This management’s discussion
and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance
with accounting principles generally accepted in the United States. The preparation of our 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 our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates
and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors 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 other sources. Actual results may differ from these estimates under different assumptions or conditions.
In-Process Research and Development
The Company evaluates the
carrying value of indefinite-lived intangible assets, which consists of in-process research and development (“IPR&D”),
on an annual basis or more frequently when indicators of impairment exist. An impairment of indefinite-lived intangible assets would occur
if the fair value of the intangible asset is less than the carrying value. Intangible assets with finite lives are tested for impairment
when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If these facts and circumstances
exist, the Company assesses for recovery by comparing the carrying values of the assets with their future undiscounted net cash flows.
Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected undiscounted
cash flows.
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IPR&D assets are considered
to be indefinite-lived until the completion or abandonment of the associated research and development projects. During the period the
assets are considered indefinite-lived, they are tested for impairment. If the related project is terminated or abandoned, the Company
may have a full or partial impairment related to the IPR&D assets, calculated as the excess of their carrying value over fair value.
The valuation process is very complex and requires significant input and judgment using internal and external sources with respect to
the Company’s future revenue and expense growth rates, changes in working capital use, the selection of an appropriate discount
rate, and other assumptions and estimates.
Stock-Based Compensation
We measure and recognize compensation
expense for all stock-based awards granted to service providers, employees, and directors based on the estimated fair value of the award
on the grant date. We calculate the estimated fair value of stock options on the date of grant using the Black-Scholes option-pricing
model, which is impacted by the fair value of our common stock, as well as changes in assumptions regarding a number of highly complex
and subjective variables. These variables include, but are not limited to, the market value of common stock on the grant date, the expected
dividend yield, the expected term of the awards, the risk-free interest rates and the expected common stock price volatility over the
term of the option awards. The expected volatility is based on the historical volatility of a few unrelated public companies within our
industry over the most recent period commensurate with the estimated expected term of our stock options as we have insufficient historical
information regarding the volatility of the share price of our common stock. We use the simplified approach to determine the expected
term as we do not have sufficient data related to stock option exercises. The risk-free interest rate for periods within the contractual
life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have never declared or paid dividends and
have no plans to do so in the foreseeable future.
We recognize the fair value
of stock options on a straight-line basis over the period during which a service provider is required to provide services in exchange
for the award (generally the vesting period). We account for forfeitures as they occur.
Off-Balance Sheet Arrangements
During the periods presented,
we did not have any off-balance sheet arrangements as defined under SEC rules.
Licensing and Collaboration Agreements
We anticipate that in-licensing,
out-licensing and strategic collaborations will become an integral part of our operations, providing the company with opportunities to
leverage our partners’ expertise and capabilities to further expand the potential of our technologies, product candidates and revenue
streams.
Xencor
In October 2017, we licensed
INB03 (also known as XPro) from Xencor. This exclusive, global, unrestricted license came with considerable know-how, intellectual property,
pre-clinical data, regulatory documentation and product stocks. Currently, we are focused on using this asset in a neurological indication.
In the future, we may develop the asset in a wide variety of therapeutic areas, with a variety of delivery techniques by ourselves or
in conjunction with partners.
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Results of Operations
Comparison of the Years Ended December 31,
2024 and December 31, 2023
Year Ended
Revenues
During 2024 and 2023, the
Company sold MSC’s to one customer in the United Kingdom and recognized $14,000 and $155,000 of revenues, respectively.
General and Administrative
General and administrative
expenses were $9.5 million for the year ended December 31, 2024, compared to $9.6 million for the year ended December 31, 2023. The decrease
in general and administrative expenses is due to lower travel expense.
Research and Development
Research and development expenses
increased to $33.2 million for the year ended December 31, 2024 from $20.3 million for the year ended December 31, 2023. The increase
in research and development expenses during the year ended December 31, 2024 compared to 2023 is mainly due to the Company incurring $9.9
million higher costs with our Alzheimer’s clinical trial, $1.3 million of higher costs in connection with our INKmune/CORDStrom
clinical trials, $0.7 million higher internal costs and $1.2 million lower accrued R&D rebate, partially offset by $0.3 million lower
of preclinical and other expenses.
Other Expense, net
The Company generated other
income of $553,000 in 2024 compared to other expense of $267,000 in 2023. The change is due to the Company incurring $1.5 million lower
interest expense in 2024 as a result of the Company paying off its debt in full in 2024, partially offset by earning $0.7 million lower
interest income from money market investments in 2024 as a result of lower amounts invested in money markets investments in 2024.
Liquidity and Capital Resources
Liquidity is the ability of
a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing
basis.
We incurred a net loss of
$42,082,000 and $30,008,000 for the years ended December 31, 2024 and 2023, respectively. Net cash used in operating activities was $33,361,000
and $11,980,000 for the years ended December 31, 2024 and 2023, respectively. Since inception, we have funded our operations primarily
with proceeds from the sales of our common stock. As of December 31, 2024, we had cash and cash equivalents of $20,922,000. We anticipate
that operating losses and net cash used in operating activities will increase over the next few years as we advance our products under
development.
Our primary uses of capital
are, and we expect will continue to be, third-party clinical and preclinical research and development services, costs incurred to manufacture
our drugs under development, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs.
We believe our use of CROs provides us with flexibility in managing our spending.
The Company incurs significant
research and development expenses in Australia and the United Kingdom. Fluctuations in the rate of exchange between the United States
dollar and the pound sterling as well as the Australian dollar could adversely affect our financial results, including our expenses
as well as assets and liabilities. We currently do not hedge foreign currencies but will continue to assess whether that strategy is appropriate.
As of December 31, 2024, the cash balance held by our foreign subsidiaries with currencies other than the United States dollar was approximately
$0.1 million.
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Our recurring net losses and
negative cash flows from operations, as well as forecast of continued losses and negative cash flows from operations, raised substantial
doubt regarding our ability to continue as a going concern within one year after the issuance of our consolidated financial statements
for the year ended December 31, 2024. Until we can generate sufficient revenue from the commercialization of our product candidates, we
expect to finance our operations through the public or private sale of equity, debt financing or other capital sources, such as government
funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third parties. Our cash and
cash equivalents were $20.9 million and total current assets were $22.7 million at December 31, 2024, which the Company is projecting
will be insufficient to sustain its operations through one year following the date that the financial statements are issued.
Additional capital may not
be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates or cease
operations. If we raise additional funds through the issuance of additional debt or equity securities it could result in dilution to our
existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of our common stock and
could contain covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business,
financial condition and prospects.
Financing strategies we may
pursue include, but are not limited to, the public or private sale of equity, debt financing or funds from other capital sources, such
as government or grant funding, collaborations, strategic alliances, divestment of non-core assets, or licensing arrangements with third
parties. There can be no assurances additional capital will be available to secure additional financing, or if available, that it will
be sufficient to meet our needs on favorable terms. If we are unable to raise additional capital in sufficient amounts or on terms acceptable
to us, we may have to significantly delay, scale back or discontinue the development of one or more of our product candidates. If we raise
additional funds through the public or private sale of equity or debt financings, it could result in dilution to our existing stockholders
or increased fixed payment obligations and these securities may have rights senior to those of our common stock and could contain covenants
that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license our intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and
prospects.
ATM Sales Agreement
During the year ending
December 31, 2024, the Company sold 247,126 shares of common stock at an average price of $9.85 for gross proceeds of approximately $2.4
million under the at the market offerings.
During the period from January 1, 2025 through March 27, 2025, the
Company sold 649,860 shares of its common stock through its ATM program for net proceeds of $5.3 million.
Registered Direct Offerings
During September 2024, the
Company entered into securities purchase agreements with investors whereby the Company sold 2,341,260 shares of the Company’s common
stock and warrants to purchase an additional 2,341,260 shares of the Company’s common stock exercisable six months from the issuance
date in a registered direct offering in exchange for gross proceeds of $13.0 million (net proceeds of approximately $12.0 million). Directors and
officers that participated in the offering paid a combined offering price of $6.50 per share and warrant, and other investors paid $5.50
per share and warrant. The exercise price of the warrants is $6.40, and are exercisable beginning on March 16, 2025 and will terminate
on March 16, 2030 unless accelerated pursuant to the terms of the warrant agreements.
On April 24, 2024, the Company
entered into a securities purchase agreement with an investor in which the Company sold 986,000 shares of common stock and warrants to
purchase 986,000 shares of common stock for gross proceeds of approximately $9.7 million (net proceeds of approximately $8.9 million).
The exercise price of the warrants is $9.84, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program.
On April 19, 2024, the Company
entered into securities purchase agreements with purchasers in which the Company sold 571,592 shares of common stock and warrants to purchase
571,592 shares of common stock for aggregate gross proceeds of approximately $4.8 million (net proceeds of approximately $4.5 million).
The exercise price of the warrants is $9.152, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program, provided that directors and officers of the Company
that are subject to a blackout with respect to trading in the Company’s stock will have an additional 60 days from the termination
of the blackout date to exercise the warrant. Directors and officers that participated in the offering paid a combined offering price
of $8.445 per share and warrant, and other investors paid $8.32 per share and warrant.
Term Loan
During the year ending December
31, 2024, the Company made $10 million of principal payments and paid off its term loan in full. During
February 2025, the Company entered into a letter agreement with its lenders whereby its term loan was terminated.
65
Cash Flows
The following table provides
information regarding our cash flows for the years ended December 31, 2024 and 2023:
Year Ended December 31,
Net cash used in operating activities $ (33,361 ) $ (11,980 )
Net cash used in (provided by) financing activities 18,211 (4,225 )
Impact on cash from foreign currency translation 224 (100 )
Net decrease in cash and cash equivalents $ (14,926 ) $ (16,305 )
Net Cash Used in Operating Activities
Our cash used in operating
activities was primarily driven by our net loss.
Operating activities used
$33.4 million of cash for the year ended December 31, 2024, primarily resulting from our net loss of $42.1 million, partially offset by
a net cash inflow of $1.0 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges
of $7.6 million. The change in our net operating assets and liabilities was primarily due to a decrease in prepaid expenses of $1.2 million,
a decrease in research and development tax rebate receivable of $0.7 million and a decrease in other tax receivable of $0.3 million, partially
offset by a decrease of $1.4 in accounts payable and accrued liabilities.
Operating activities used
$12.0 million of cash for the year ended December 31, 2023, primarily resulting from our net loss of $30.0 million, partially offset by
a net cash inflow of $10.4 million for changes in our net operating assets and liabilities, and non-cash stock-based compensation charges
of $7.4 million. The change in our net operating assets and liabilities was primarily due to a decrease in research and development tax
credit receivable of $6.2 million, a decrease in prepaid expenses and other current assets of $2.5 million and an increase in accounts
payable and accrued liabilities of $2.7 million, partially offset by a decrease in accrued liability – long term of $0.6 million.
Net Cash Provided by Financing Activities
During
the years ended December 31, 2024 and 2023, the Company paid off $10.0 million and $5.0 million, respectively, of its debt.
During
the year ended December 31, 2024, the Company sold 247,126 shares of its common stock for net proceeds of $2.4 million under the Company’s
ATM program.
During
the year ended December 31, 2023, the Company sold 75,697 shares of its common stock for net proceeds of $0.8 million under the Company’s
ATM program.
During September 2024, the
Company entered into securities purchase agreements with investors whereby the Company sold 2,341,260 shares of the Company’s common
stock and warrants to purchase an additional 2,341,260 shares of the Company’s common stock exercisable six months from the issuance
date in a registered direct offering in exchange for gross proceeds of $13.0 million (net proceeds of approximately $12.0 million). Directors and
officers that participated in the offering paid a combined offering price of $6.50 per share and warrant, and other investors paid $5.50
per share and warrant. The exercise price of the warrants is $6.40, and are exercisable beginning on March 16, 2025, and will terminate
on March 16, 2030 unless accelerated pursuant to the terms of the warrant agreements.
On April 24, 2024, the Company
entered into a securities purchase agreement with an investor in which the Company sold 986,000 shares of common stock and warrants to
purchase 986,000 shares of common stock for gross proceeds of approximately $9.7 million (net proceeds of approximately $8.9 million).
The exercise price of the warrants is $9.84, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program.
On April 19, 2024, the Company
entered into securities purchase agreements with purchasers in which the Company sold 571,592 shares of common stock and warrants to purchase
571,592 shares of common stock for aggregate gross proceeds of approximately $4.8 million (net proceeds of approximately $4.5 million).
The exercise price of the warrants is $9.152, and the term is the earlier of two years from the issuance of the warrants and thirty trading
days following the release of top line data in the Phase 2 Alzheimer’s program, provided that directors and officers of the Company
that are subject to a blackout with respect to trading in the Company’s stock will have an additional 60 days from the termination
of the blackout date to exercise the warrant. Directors and officers that participated in the offering paid a combined offering price
of $8.445 per share and warrant, and other investors paid $8.32 per share and warrant.
During the year ended December
31, 2024, the Company received $0.4 million in exchange for the exercise of 108,000 stock options.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
We are exposed to market risk
from changes in foreign currency rates.
66
Item 8. Financial Statements and Supplementary
Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
AUDITED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2024 AND 2023 F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
INmune Bio Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of INmune Bio Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements
of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended
December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023., and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting
principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred significant
losses and negative cash flows from its operating activities and is projecting insufficient liquidity to meet its obligations and sustain
its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2017.
Houston, Texas
March 27, 2025
F-2
INMUNE BIO INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS
Research and development tax credit receivable 1,181 1,905
Prepaid expenses and other current assets 331 1,510
Prepaid expenses – related party - 142
Operating lease – right of use asset 307 414
Acquired in-process research and development intangible assets 16,514 16,514
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 6,539 $ 7,901
Accounts payable and accrued liabilities – related parties 25 35
Current portion of long-term debt, net - 9,921
Operating lease, current liability 140 119
Long-term operating lease liability 244 397
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive loss (575 ) (799 )
See accompanying notes to these consolidated financial
statements.
F-3
INMUNE BIO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
(In
thousands, except share and per share amounts)
OPERATING EXPENSES
OTHER INCOME (EXPENSE), NET
Other income (expense), net 553 (267 )
Total other income (expense), net 553 (267 )
Net loss per common share – basic and diluted $ (2.11 ) $ (1.67 )
COMPREHENSIVE LOSS
Other comprehensive income (loss) – foreign currency translation 224 (100 )
See accompanying notes to these consolidated financial
statements.
F-4
INMUNE BIO INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
(In thousands, except share amounts)
Shares Amount Capital Income (loss) Deficit Equity
Issuance of common stock for cash, net 75,697 - 775 - - 775
Reclassification to redeemable common stock (75,697 ) - (799 ) - - (799 )
Cashless exercise of warrants 4,781 - - - - -
Stock-based compensation - - 7,368 - - 7,368
Loss on foreign currency translation - - - (100 ) - (100 )
Reclassification from redeemable common stock 75,697 - 799 - - 799
Stock-based compensation - - 7,605 - - 7,605
Gain on foreign currency translation - - - 224 - 224
See accompanying notes to these consolidated financial
statements.
F-5
INMUNE BIO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of debt discount 79 224
Changes in operating assets and liabilities:
Research and development tax credit receivable 724 6,194
Other tax receivable 309 (175 )
Prepaid expenses and other current assets 1,179 2,517
Prepaid expenses – related party 142 (108 )
Other assets 52 (32 )
Accounts payable and accrued liabilities (1,362 ) 2,695
Accounts payable and accrued liabilities – related parties (10 ) 26
Deferred liabilities 28 (127 )
Accrued liability – long-term - (550 )
Operating lease liability (25 ) (4 )
Net cash used in operating activities (33,361 ) (11,980 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock and warrants 27,789 775
Net proceeds from the exercise of stock options 422 -
Net cash provided by (used in) financing activities 18,211 (4,225 )
Impact on cash from foreign currency translation 224 (100 )