UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Amendment No. 1)
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________________ to ___________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232. 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 1, 2022, the registrant had
EXPLANATORY NOTE
Background and Effect of Restatement
On October 26, 2022, the Company, after discussion with its independent registered public accounting firm and the Audit Committee of the Board of Directors (the “Audit Committee”), concluded that an error was made in the application of revenue recognition for the $5.0 million development milestone achieved in February 2022 under the License and Collaboration Agreement (the “LianBio License Agreement”) with LianBio Inflammatory Limited, which was entered into on May 31, 2021. In connection with the original accounting for the LianBio License Agreement, the Company determined there were two distinct performance obligations: (1) the license to develop and commercialize LYR-210, manufacturing activities related to the clinical supply of LYR-210, and the non-exclusive license to manufacture LYR-210 and obligation to transfer manufacturing technology in the case of a supply failure, and (2) the Company’s performance of the development activities related to the global Phase 3 clinical trial. The correction of this error resulted in a restatement of the Company’s unaudited condensed consolidated interim financial statements and financial data covering the three months ended March 31, 2022 and the three and six months ended June 30, 2022 (the "Restated Periods”).
The restatement reflects the correction of the immediate recognition as revenue of the $5.0 million development milestone in the Restated Periods by properly allocating the amount to the two performance obligations and recognizing the allocated amounts in accordance with the revenue recognition model previously developed for each performance obligation. The impact of this misstatement does not impact any other accounts in the Company’s condensed consolidated statement of operations accounts, including its income tax accounts since the Company has not recognized any income tax benefit for its operating losses. The Company has appropriately adjusted certain balance sheet accounts. The correction did not impact the cash position previously disclosed.
Certain balances and accounts in this Form 10-Q/A have been corrected to reflect the appropriate revenue recognition for the LianBio License Agreement. See "Restatement and Significant Accounting Policies" in Note 2 to the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Form 10-Q/A, for more information regarding the impact of correcting this error on the Company's unaudited condensed interim financial statements.
The Audit Committee concluded that the previously issued unaudited condensed consolidated interim financial statements and financial data covering the Restated Periods contained in the Company’s Original Form 10-Q required restatement and should no longer be relied upon. See the Company’s Current Report on Form 8-K filed with the SEC on October 26, 2022 for additional details.
Internal Control Over Financial Reporting Considerations
In connection with such restatement, the Company’s management has determined that there were deficiencies in its internal control over financial reporting that constituted a material weakness at June 30, 2022. For a discussion of management’s consideration of its disclosure controls and procedures and the material weakness in its internal control over financial reporting, see Part I, Item 4, "Controls and Procedures,” included in this Form 10-Q/A.
Items Amended in this Form 10-Q/A
For the convenience of the reader, this Form 10-Q/A amends and restates the Original Form 10-Q in its entirety, except for Exhibits 4.2 through 10.3, which are incorporated by reference from the Original Form 10-Q. The following items included in the Original Form 10-Q are amended by this Form 10-Q/A:
This report on Form 10-Q/A is presented as of the filing date of the Original Form 10-Q and does not reflect events occurring after that date, nor modifies or updates the information contained therein other than as required to correct the error and record the adjustment described above to correct the allocation of previously identified constrained amounts of the transaction price to the two performance obligations related to the LianBio License Agreement. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings with the SEC subsequent to the filing of the Original Form 10-Q, as well as Exhibits 4.2 through 10.3, which are incorporated by reference from the Original Form 10-Q.
As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, currently dated certifications by the Company’s Principal Executive Officer and Principal Financial Officer are included in Part II, Item 6. “Exhibits” and attached as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-Q/A.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q/A contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q/A are forward-looking statements, including but not limited to statements regarding:
These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Quarterly Report on Form 10-Q/A are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q/A and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report on Form 10-Q/A entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q/A. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. You should read this Quarterly Report on Form 10-Q/A and the documents that we reference in this Quarterly Report on Form 10-Q/A completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
Unless the context requires otherwise, we use the terms “Lyra,” “the Company,” “we,” “us,” “our” and similar designations in this Quarterly Report on Form 10-Q/A to refer to Lyra Therapeutics, Inc. and its wholly owned subsidiary, Lyra Therapeutics Securities Corporation.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q/A. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:
Table of Contents
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
LYRA THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share data)
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June 30, |
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December 31, |
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2022 |
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2021 |
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Restated |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Operating lease liabilities, net of current portion |
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Deferred revenue, net of current portion |
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Total liabilities |
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(Note 8) |
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Stockholders’ equity: |
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stock, $ |
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— |
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— |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
2
LYRA THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)
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Three Months Ended |
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Six Months Ended |
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2022 |
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2021 |
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2022 |
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2021 |
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Restated |
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Restated |
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Collaboration revenue |
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$ |
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$ |
— |
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$ |
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$ |
— |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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Other income: |
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Interest income |
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Total other income |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share attributable to common stockholders—basic and |
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$ |
( |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Weighted-average common shares outstanding—basic and diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
LYRA THERAPEUTICS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share amounts)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of common stock options |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2021 |
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( |
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Exercise of common stock options |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of common stock options |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at March 31, 2022 |
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( |
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Issuance of common stock and pre-funded |
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— |
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Issuance of common stock upon RSU |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss (restated) |
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— |
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— |
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— |
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( |
) |
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( |
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Balance at June 30, 2022 (Restated) (Note 2) |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
LYRA THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
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Six Months Ended June 30, |
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2022 |
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2021 |
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Restated |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation expense |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Operating lease right-of-use assets |
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Other assets |
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( |
) |
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— |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
) |
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Operating lease liabilities |
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( |
) |
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( |
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Deferred revenue |
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Net cash used in operating activities |
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( |
) |
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( |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Proceeds from sale of common stock and pre-funded warrants |
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— |
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Payment of deferred offering expenses |
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( |
) |
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( |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash financing and investing activities: |
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Property and equipment purchases included in accounts payable |
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$ |
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$ |
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Deferred offering costs included in accounts payable and accrued expense |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
LYRA THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)
LYRA THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Basis of Presentation
Lyra Therapeutics, Inc. (the “Company”) is a clinical-stage therapeutics company focused on the development and commercialization of novel integrated drug and delivery solutions for the localized treatment of patients with ear, nose and throat (“ENT”) diseases. The Company’s proprietary technology platform, XTreo, is designed to precisely and consistently deliver medicines directly to the affected tissue for sustained periods with a single administration. The Company’s initial product candidates, LYR-210 and LYR-220, are bioresorbable polymeric matrices designed to be administered in a brief, non-invasive, in-office procedure and intended to deliver up to six months of continuous drug therapy to the sinonasal passages for the treatment of chronic rhinosinusitis (“CRS”). The Company was incorporated as a Delaware corporation on
The Company is subject to risks common to companies in the therapeutics and pharmaceutical industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, reliance on third party manufacturers, ability to transition from pilot-scale manufacturing to large-scale production of products and the need to obtain adequate additional financing to fund the development of its product candidates.
From inception through June 30, 2022, the Company has raised an aggregate of $
The Company believes that its cash and cash equivalents as of June 30, 2022 will be sufficient to fund the Company’s operating plan for a period of at least one year from the issuance date of the condensed consolidated financial statements. The Company will need additional financing to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through a combination of equity or debt financings, collaboration agreements, strategic alliances and licensing arrangements. The Company may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to obtain funding as and when needed would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding when needed, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. The Company will need to generate significant revenue to achieve profitability, and it may never do so.
6
LYRA THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)
COVID-19 Pandemic and CARES Act
The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including by causing disruptions in the supply of the Company’s product candidates and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the Food and Drug Administration and other health authorities, which could result in delays of reviews and approvals, including with respect to the Company’s product candidates. In light of developments relating to the COVID-19 pandemic, the Company discontinued enrollment at
On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company deferred the employer side social security payments of which
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The condensed consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022 and the results of its operations and its cash flows for the three and six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. These condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2022.
2. Restatement and Summary of Significant Accounting Policies
Restatement
The Company has restated its previously reported unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2022 to correct an error related to revenue that was incorrectly recognized. For the three and six months ended June 30, 2022, correcting this error increased the Company’s net loss by $
As discussed in Note 9, the Company entered into the LianBio License Agreement and received an upfront payment of $
7
LYRA THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements — Continued
(unaudited)
milestone of $
In connection with the third quarter 2022 financial statement close process, the Company determined that the $
The error in the recognition of the milestone amount was a result of the Company misapplying the provisions of ASC Topic 606, Revenue from Contracts with Customers, in accounting for the achievement of the milestone.
As a result of the restatement, the Company has made adjustments to present the corrected amount of collaboration revenue as a reduction to revenue previously recognized in the accompanying condensed consolidated statements of operations and comprehensive loss and as an increase in deferred revenue in the accompanying June 30, 2022 condensed consolidated balance sheet.
Set forth below are the adjustments to the Company’s previously issued unaudited statements of operations and comprehensive loss and unaudited balance sheet for the periods affected by the restatement. The restatement adjustments did not affect the net cash used in operating activities in the Company’s statements of cash flows.
(in thousands, except per share data) |
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Three Months Ended June 30, 2022 |
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Six Months Ended June 30, 2022 |
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Statement of Operations and Comprehensive Loss |
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As Reported |
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Adjustment |
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As Restated |
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As Reported |
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Adjustment |
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As Restated |
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Collaboration revenue |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Loss from operations |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss per share attributable to common |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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As of June 30, 2022 |
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Balance Sheet |
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As Reported |
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Adjustment |
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As Restated |
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Deferred revenue |
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