# Larimar Therapeutics, Inc. (LRMR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Larimar Therapeutics, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1374690/000095017024031529/lrmr-20231231.htm
Accession: 0000950170-24-031529
Filing date: 2024-03-14
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LRMR/
All MD&A years: /company/LRMR/mda/
Previous year: /company/LRMR/mda/fy2022/ (FY 2022)
Next year: /company/LRMR/mda/fy2024/ (FY 2024)

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 together with the audited consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results may differ materially from those described in or implied by these forward-looking statements as a result of many factors, including those set forth under the section titled “Risk Factors” and in other parts of this Annual Report on Form 10-K.

Overview

We are a clinical-stage biotechnology company focused on developing treatments for patients suffering from complex rare diseases using our novel cell penetrating peptide ("CPP") technology platform. Our lead product candidate, nomlabofusp (nomlabofusp is the International Nonproprietary Name ( "INN") and the United States Adopted Name ("USAN") for CTI-1601), is a subcutaneously administered, recombinant fusion protein intended to deliver tissue frataxin ("FXN"), an essential protein, to the mitochondria of patients with Friedreich's ataxia (“FA”). FA is a rare, progressive, and fatal disease in which patients are unable to produce sufficient FXN due to a genetic abnormality. Currently, there are no treatment options that address the core deficit of FA, low levels of FXN. Nomlabofusp represents the first potential therapy designed to increase FXN levels in patients with FA.

We believe that our CPP platform, which enables a therapeutic molecule to cross a cell membrane in order to reach intracellular targets, has the potential to enable the treatment of other rare and orphan diseases. We intend to use our proprietary platform to target additional orphan indications characterized by deficiencies in or alterations of intracellular content or activity.

Since our inception, we have devoted substantially all of our resources to developing nomlabofusp, building our intellectual property portfolio, developing third-party manufacturing capabilities, business planning, raising capital, and providing general and administrative support for such operations.

Nomlabofusp Program Update

Clinical Trials

We have completed two Phase 1 clinical trials and a Phase 2 dose exploration trial in patients with FA.

In May 2021, we reported positive top-line data from our Phase 1 FA program after completing dosing of the single ascending dose ("SAD") trial in December 2020 and of the multiple ascending dose ("MAD") trial in March 2021. Data from these trials demonstrated proof-of-concept by showing that daily subcutaneous injections of nomlabofusp for up to 13 days resulted in dose-dependent increases in FXN levels from baseline compared to placebo in all evaluated tissues (buccal cells, skin, and platelets). There were no serious adverse events associated with either the MAD or SAD trials.

In May 2023, we reported preliminary unblinded top-line data from the 25 mg cohort of our Phase 2 four-week, placebo-controlled, dose exploration trial of nomlabofusp in FA patients. Data from the cohort indicated nomlabofusp was generally well tolerated and showed increases in FXN levels from baseline compared to placebo in all evaluated tissues (skin and buccal cells) at day 14.

In June 2023, we met with the FDA. Following that meeting, we submitted a complete response to the FDA’s partial clinical hold that included unblinded safety, PK and frataxin data from the Phase 2 trial’s completed 25 mg cohort.

In July 2023, following the FDA’s review of our complete response to the partial clinical hold, the FDA cleared initiation of a second cohort (50 mg) of our four-week, placebo-controlled, Phase 2 dose exploration trial and to initiate our OLE trial with daily dosing of 25 mg.

In January 2024, we initiated the OLE trial evaluating daily subcutaneous injections of 25 mg of nomlabofusp self-administered or administered by a caregiver, with the first patient dosed in March 2024. Participants who complete treatment in the Phase 2 dose exploration trial, or who previously completed a prior clinical trial of nomlabofusp are potentially eligible to screen for the OLE. The OLE will evaluate the safety and tolerability and PK and measures of frataxin levels in peripheral tissues as well as other exploratory PD (lipid profiles and gene expression data) following long-term subcutaneous administration of nomlabofusp. Clinical measures collected during the trial will be compared to data from a synthetic control arm derived from participants in the Friedreich’s Ataxia Clinical Outcome Measures Study ("FACOMS") database. Dose escalation in the OLE trial will be

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considered based on safety, tolerability, PK, and tissue FXN levels from the Phase 2 trial’s 50 mg cohort as well as available data from the 25 mg dose of nomlabofusp in the OLE trial and is contingent on FDA review as part of the partial clinical hold. Initial data from the OLE trial is expected in the fourth quarter of 2024.

In February 2024, we reported positive top-line data and successful completion of the two cohorts (25 mg and 50 mg groups) of our four-week, placebo-controlled Phase 2 dose exploration study of nomlabofusp in participants with FA. Nomlabofusp was generally well tolerated and demonstrated dose dependent increases in FXN levels in all evaluated tissues (skin and buccal cells) after daily dosing of 14 days followed by every other day dosing until day 28 in the 25 mg and 50 mg cohorts. Participants in the 25 mg (n=13) and 50 mg (n=15) cohorts were randomized 2:1 to receive subcutaneous injections of nomlabofusp or placebo.

Recently, we had discussions with the FDA regarding the use of tissue FXN levels as a novel surrogate endpoint. The FDA has acknowledged that frataxin deficiency appears to be critical to the pathogenic mechanism of FA, and that there continues to be an unmet need for treatments for FA patients that address the underlying disease pathophysiology. We intend to pursue an accelerated approval using FXN levels, supportive PD and clinical information, and safety data from the OLE study, along with additional non-clinical pharmacology information needed to support the novel surrogate endpoint approach. We are beginning to plan for a confirmatory study and are targeting a BLA submission in the second half of 2025.

Nomlabofusp has been granted Orphan Drug (U.S. and Europe), Rare Pediatric Disease (U.S.), Fast Track (U.S.), and PRIME (Europe) designations for FA. We have also begun to engage with regulators and investigators outside the U.S. as we prepare to expand our clinical program to additional geographies. With approximately 75% of individuals with FA living outside the U.S., establishing global clinical trial capabilities is important for addressing the pressing unmet needs of the FA community.

Financing Activities, Including Recent Material Financings

We have funded our operations to date primarily with proceeds from sales of common stock, proceeds from the sale of prefunded warrants for the purchase of common stock, the acquisition in 2020 of cash, cash equivalents, marketable securities and restricted cash upon the merger with Zafgen, Inc. ("Zafgen") and, prior to the 2020 merger with Zafgen, capital contributions from Chondrial Holdings, LLC.

In September 2022, we sold 25,558,750 shares of common stock in an underwritten offering for net proceeds of $75.2 million, after issuance costs.

In February 2024, we sold 19,736,842 shares of common stock in an underwritten public offering, for net proceeds of approximately $161.6 million.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, costs and expenses, and related disclosures. We believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate these estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

Research and Development Expense

Costs for certain research and development activities, such as manufacturing, non-clinical studies and clinical trials are generally recognized based on the evaluation of the progress of completion of specific tasks using information and data provided by our vendors and collaborators, and accordingly, are considered an area of significant judgment and management’s review of manufacturing, non-clinical and clinical expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel and outside vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. We work with vendors and suppliers to ensure that our estimates of our research and development expenses are reasonable. We expect to increase our investment in research and development in order to advance nomlabofusp through additional clinical trials. As a result, we expect that our research and development expenses will increase in the foreseeable future as we pursue clinical development of nomlabofusp and/or any other product candidates we develop.

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Stock Compensation Expense

We measure all stock-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. The assumptions used in our option-pricing model represent management’s best estimates. These estimates are complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, and thus are inherently subjective. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

Prior to May 28, 2020, we were a private company and lacked company-specific historical and implied volatility information for our common stock. Prior to January 1, 2023, the Company estimated its expected common stock price volatility solely based on the historical volatility of publicly traded peer companies with comparable characteristics including enterprise value, risk profiles and position within the industry. Beginning on January 1, 2023, the Company began blending its historical data starting in June 2020 (following its merger with Zafgen in 2020) with its historical peer group. We regularly evaluate our peer group to assess changes in circumstances where identified companies may no longer be similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation. We expect to continue to do so until we have full historical data regarding the volatility of our own traded stock price.

The expected term of our stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield considers the fact that we have never paid cash dividends on common stock and do not expect to pay any cash dividends in the foreseeable future.

Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Typically, we issue awards with only service-based vesting conditions and record the expense for these awards using the straight-line method. We account for forfeitures as they occur.

We classify stock-based compensation expense in our consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales, and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for our product candidates, we may generate revenue from those product candidates or collaborations.

Operating Expenses

The majority of our operating expenses since inception have consisted primarily of research and development activities, and general and administrative costs.

Research and Development Expenses

Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of:

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third-party contract costs relating to research, formulation, manufacturing, non-clinical studies and clinical trial activities;

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employee related costs, including salaries, benefits and stock-based compensation expenses for employees engaged in scientific research and development functions;

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external costs of outside consultants and vendors;

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payments made under our third-party licensing agreements;

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sponsored research agreements;

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•
laboratory consumables; and

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allocated facility-related costs.

At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical and commercial development of nomlabofusp, or any other product candidates we develop. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. The duration, costs, and timing of clinical trials and development of nomlabofusp or any other product candidates we develop will depend on a variety of factors, including:

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the scope, rate of progress and expense of clinical trials and other research and development activities;

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clinical trial results;

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uncertainties in clinical trial enrollment rate or design;

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significant and changing government regulation;

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the timing and receipt of any regulatory approvals;

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the influence of the FDA or other regulatory authorities on our clinical trial design and timing;

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establishing manufacturing capabilities or making arrangements with third-party manufacturers and risk involved with development of manufacturing processes, FDA pre-approval inspection practices and successful completion of manufacturing batches for clinical development and other regulatory purposes;

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our ability to obtain and maintain patent and trade secret protection and regulatory exclusivity for our product candidates; and

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our ability to recruit and retain key research and development personnel.

A change in the outcome of one or more of these variables with respect to the development of a product candidate could significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct additional non-clinical or clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, consisting of salaries, related benefits and stock-based compensation, costs related to our executive, finance, information technology, and costs related to other administrative functions. General and administrative expenses also include insurance expenses and professional fees for auditing, tax, and legal services, including legal expenses to pursue patent protection for our intellectual property. We expect that our general and administrative expenses will increase in the foreseeable future as we hire additional employees to implement, improve and scale our operational, financial, commercial and management systems.

Results of Operations

The following commentary is a discussion and analysis of our financial condition as of December 31, 2023 and results of operations and cash flows for the year ended December 31, 2023 compared to the year ended December 31, 2022 and should be read in conjunction with the consolidated financial statements and accompanying notes.

The discussion and analysis of our financial condition as of December 31, 2022, and results of operations and cash flows for the year ended December 31, 2022, compared to the year ended December 31, 2021, is included in item 7, Management’s Discussion and Analysis of Financial and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Comparison of the years ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","","","Increase"],["","","2023","","","2022","","","(Decrease)"],["","","(in thousands)"],["Statement of Operations Data:"],["Operating expenses:"],["Research and development","","$","27,670","","","$","24,250","","","$","3,420"],["General and administrative","","","14,088","","","","12,276","","","","1,812"],["Total operating expenses","","","41,758","","","","36,526","","","","5,232"],["Loss from operations","","","(41,758",")","","","(36,526",")","","","(5,232",")"],["Other income (expense), net","","","4,809","","","","1,171","","","","3,638"],["Net loss","","$","(36,949",")","","$","(35,355",")","","$","(1,594",")"]]
[[/GREPCENT_TABLE]]

Research and development expenses

Research and development expenses for the twelve months ended December 31, 2023 increased $3.4 million compared to the twelve months ended December 31, 2022 due to continued and increased clinical development of nomlabofusp and related regulatory and bioanalysis. The increase in research and development expenses compared to the prior year period was primarily driven by an increase of $1.9 million in personnel expense, an increase of $1.3 million in clinical expense, an increase of $1.1 million in regulatory and statistical consulting expenditures, an increase of $0.5 million in assay development costs, and an increase of $0.3 million in stock-based compensation expense associated with stock option grants made in 2022 and 2023, partially offset by a decrease of $2.0 million in drug manufacturing costs.

General and administrative expenses

General and administrative expenses for the twelve months ended December 31, 2023 increased $1.8 million compared to the twelve months ended December 31, 2022. The increase in general and administrative expense was primarily driven by an increase of $0.7 million in stock-based compensation expense associated with stock option grants made in 2022 and 2023, an increase of $0.5 million in personnel expense, an increase of $0.5 million in operational costs primarily related to technology and an increase of $0.4 million in professional fees primarily related to legal, accounting and consulting services, partially offset by a decrease of $0.3 million in insurance expense.

Other income (expense), net

Other income (expense), net was $4.8 million of income in the twelve months ended December 31, 2023 compared to $1.2 million in the twelve months ended December 31, 2022. The increase primarily relates to interest income on a higher investment base and higher investment yields on that base during the current period.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from any sources, including from product sales, and have incurred significant operating losses and negative cash flows from our operations. We have devoted substantially all of our resources to developing nomlabofusp, building our intellectual property portfolio, developing third-party manufacturing capabilities, business planning, capital raising, and providing general and administrative support for such operations.

The following table summarizes our sources and uses of cash for each of the periods presented below:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022"],["","","(in thousands)"],["Net cash used in operating activities","","$","(33,459",")","","$","(27,569",")"],["Net cash provided by (used in) investing activities","","","33,353","","","","(90,960",")"],["Net cash provided by financing activities","","","30","","","","75,257"],["Net decrease in cash, cash equivalents and restricted cash","","$","(76",")","","$","(43,272",")"]]
[[/GREPCENT_TABLE]]

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Net cash used in operating activities

During the year ended December 31, 2023, net operating activities used $33.5 million of cash, resulting from our net loss of $36.9 million, adjusted for noncash expenses of $6.0 million, and changes in our operating assets and liabilities of resulting in a use of cash of $2.5 million. Our net loss was attributed to operating expenses of $41.8 million offset by other income (net) of $4.8 million. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses and an increase in prepaid assets.

During the year ended December 31, 2022, operating activities used $27.6 million of cash, resulting from our net loss of $35.4 million, adjusted for noncash expenses of $6.1 million, and changes in our operating assets and liabilities resulting in a use of cash of $1.7 million. Our loss was primarily attributed to operating expenses of $36.5 million. The change in operating assets and liabilities was primarily due to an increase in accrued expenses due to the growth in our operating activities following the partial release of the clinical hold in late 2022.

Net cash provided by (used in) investing activities

During the year ended December 31, 2023, investing activities provided $33.4 million of net cash, resulting from $134.8 million of maturities and sales of marketable securities, which was offset by purchases of $101.2 million in marketable securities.

During the year ended December 31, 2022, investing activities used $91.0 million of net cash, resulting from purchases of $133.6 million in marketable securities, which was offset by $42.8 million of maturities and sales of marketable securities.

Net cash provided by financing activities

During the year ended December 31, 2023, financing activities provided less than $0.1 million of cash from the exercise of stock options and warrants.

During the year ended December 31, 2022, financing activities provided $75.3 million of cash from sale of common stock in an underwritten public offering, net of issuance costs.

Operating Capital Requirements

We have not yet commercialized any products and do not expect to generate revenue from the commercial sale of any products for several years, if at all.

We have to date incurred net losses. We incurred net losses of approximately $36.9 million and $35.4 million for the twelve months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $188.6 million and a cash, cash equivalents and marketable securities balance of $86.8 million, excluding restricted cash of $1.3 million.

Losses have resulted principally from costs incurred in connection with research and development activities, and general and administrative costs associated with the development of nomlabofusp and our operations. We expect to incur significant expenses and operating losses for the foreseeable future as we expect to continue to incur expenses in connection with our ongoing activities, if and as we:

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continue to advance the development of nomlabofusp through additional clinical trials, including related manufacturing costs;

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seek to identify and advance development of additional product candidates into clinical development and identify additional indications for our product candidates;

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seek to obtain regulatory approvals for nomlabofusp and other potential product candidates;

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identify, acquire or in-license other product candidates and technologies;

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maintain, leverage and expand our intellectual property portfolio; and

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expand our operational, financial, commercial and management systems and personnel, including personnel to support our clinical development and future commercialization efforts and our operations as a public company.

In February 2024, we sold 19,736,842 shares of common stock in an underwritten public offering, net of underwriting discounts and commissions and offering costs of approximately $161.6 million. We anticipate that

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these net proceeds, together with our current cash, cash equivalents and marketable securities will fund operations into 2026. If we encounter unexpected delays in our clinical trials or if there are other unanticipated changes to our operating plan from our current assumptions that negatively impact our operations, we may reduce expenditures in order to further extend our existing cash resources. Until we can generate substantial revenue, if ever, we expect to seek additional funding through a combination of public or private equity offerings, debt/royalty financings, collaborations, strategic alliances and licensing arrangements or other sources. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, minimum cash balances, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms, if at all. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, or we do not have sufficient authorized shares, we may be required to delay, limit, or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition, and results of operations will be materially adversely affected. We could also be required to seek funds through arrangements with collaborative partners, strategic alliances or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. In addition, geopolitical tensions, volatility of capital markets, and other adverse macroeconomic events, including those due to inflationary pressures, rising interest rates, bank instability and the ability of the U.S. government to manage federal debt limits, as well as the potential impact of health crises on the global financial markets may reduce our ability to access capital, which could negatively affect our liquidity and ability to continue as a going concern.

If we are unable to obtain sufficient funding when needed and/or on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research and development programs, the manufacture of clinical and commercial supplies, product portfolio expansion and/or pre commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

Recently Issued Accounting Pronouncements

Please read Note 2 to our audited consolidated financial statements included in Part IV, Item 15, of this Annual Report for a description of recent accounting pronouncements applicable to our business.

Other Company Information

None.

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