TENAX THERAPEUTICS,

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TENAX THERAPEUTICS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

03/31/2021 | 04:34pm

You should read the following discussion and analysis together with the
consolidated financial statements and the related notes to those statements
included in Item 8 - "Financial Statements and Supplementary Data". This
discussion contains forward-looking statements that involve risks and
uncertainties. As a result of many factors, such as those set forth under "Risk
Factors" and elsewhere in this Annual Report on Form 10-K, our actual results
may differ materially from those anticipated in these forward-looking
statements.






24



Results of operations- Comparison of the years ended December 31, 2020 and 2019



Overview



Strategy



Our principal business objective is to identify, develop, and commercialize
novel therapeutic products for disease indications that represent significant
areas of clinical need and commercial opportunity. The key elements of our
business strategy are outlined below.



Efficiently conduct clinical development to establish clinical proof of concept
with our current product candidates.Levosimendan and imatinib both represent
novel therapeutic modalities for the treatment of pulmonary hypertension and
other cardiovascular and pulmonary diseases of high unmet medical need. We are
conducting clinical development with the intent to establish proof of concept in
several important disease areas where these therapeutics would be expected to
have benefit. Our focus is on conducting well-designed studies to establish a
robust foundation for subsequent development, partnership and expansion into
complementary areas.



Efficiently explore new high potential therapeutic applications, leveraging
third-party research collaborations and our results from related areas.
Levosimendan has shown promise in multiple disease areas. We are committed to
exploring potential clinical indications where our therapies may achieve
best-in-class profile, and where we can address significant unmet medical needs.
In order to achieve this goal, we have established collaborative research
relationships with investigators from research and clinical institutions and our
strategic partners. These collaborative relationships have enabled us to cost
effectively explore where our product candidates may have therapeutic relevance,
and how it may be utilized to advance treatment over current clinical care.
Additionally, we believe we will be able to leverage clinical safety data and
preclinical results from some programs to support accelerated clinical
development efforts in other areas, saving substantial development time and
resources compared to traditional drug development.



Continue to expand our intellectual property portfolio. Our intellectual
property is important to our business and we take significant steps to protect
its value. We have ongoing research and development efforts, both through
internal activities and through collaborative research activities with others,
which aim to develop new intellectual property and enable us to file patent
applications that cover new applications of our existing technologies or product
candidates.



Enter into licensing or product co-development arrangements.In addition to our
internal development efforts, an important part of our product development
strategy is to work with collaborators and partners to accelerate product
development, reduce our development costs, and broaden our commercialization
capabilities. We believe this strategy will help us to develop a portfolio of
high-quality product development opportunities, enhance our clinical development
and commercialization capabilities, and increase our ability to generate value
from our proprietary technologies.



Additionally, our Board of Directors continues to review strategic alternatives
focused on maximizing stockholder value. This process may not result in any
transaction and we do not intend to disclose additional details unless and until
we determine further disclosure is appropriate or required.



Opportunities and Trends



On June 2, 2020, we announced preliminary, top-line data from our Phase 2 HELP
Study. The primary efficacy analysis, PCWP during exercise did not demonstrate a
statistically significant reduction from baseline. Levosimendan did demonstrate
a statistically significant reduction in PCWP compared to baseline (p=<0.0017)
and placebo (p=<0.0475) when the measurements at rest, with legs up and on
exercise were combined. Levosimendan also demonstrated a statistically
significant improvement in 6-minute walk distance as compared to placebo
(p=0.0329). These findings from the HELP Study represent important discoveries
related to the use of levosimendan in PH-HFpEF patients since this is the first
study to evaluate levosimendan in PH-HFpEF patients and this is the first study
ever conducted of any therapy in PH-HFpEF patients to show such positive
improvements in hemodynamics and 6-minute walk distance.






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On October 9, 2020, we entered into an amendment to the License with Orion to
include two new product formulations containing levosimendan, in a capsule solid
oral dosage form, and a subcutaneously administered dosage form containing
levosimendan to the scope of the License, subject to specified limitations. We
plan to study the utility of the levosimendan oral capsule dosage form in
patients who have participated in the open-label extension of the HELP Study and
who continue to receive weekly infusions of intravenous levosimendan. These
patients are now eligible to participate in the amendment to the HELP Study that
will transition them from the intravenous to an oral formulation. The
investigators at the centers that participated in the HELP Study have been
invited to participate and enroll their patients into this study. The results of
this study will inform Tenax Therapeutics about the design of the Phase 3 that
has been proposed.



In October 2020, we met with the FDA for an End-of-Phase 2 Meeting to discuss
the Phase 2 clinical data and further development of levosimendan in PH-HFpEF
patients. The FDA agreed that one or two Phase 3 clinical studies (depending on
the size) with a primary endpoint of change in 6-minute walk distance over 12
weeks or a single Phase 3 trial with clinical worsening (e.g., death,
hospitalization for heart failure, or decline in exercise capacity) over 24
weeks would be sufficient to demonstrate the effectiveness of levosimendan in
PH-HFpEF. The FDA also agreed to a plan to replace weekly intravenous
levosimendan dosing with daily oral levosimendan doses in a Phase 3 clinical
study. The FDA expressed concern about a safety database as potentially
necessary and indicated that the need for a further safety database could be
dependent on the final design of the Phase 3 study. This will be addressed when
the final Phase 3 protocol is submitted which will better characterize the trial
design and primary endpoints.



On January 15, 2021, through our wholly owned subsidiary, Life Newco II, we
acquired 100% of the equity of PHPM. In accordance with the terms of the merger
agreement between Life Newco II and PHPM, Life Newco II merged with and into
PHPM, with PHPM surviving as our wholly owned subsidiary. As a result of the
merger, we plan to develop and commercialize pharmaceutical products containing
imatinib for the treatment of pulmonary arterial hypertension.



On May 30, 2019, PHPM met with the FDA to discuss a proposal for a Phase 3 trial
of imatinib for PAH. At that meeting PHPM received agreement for a single Phase
3 trial using change in 6-minute walk distance as the primary endpoint (p<0.05).
PHPM also received agreement for submission under the 505(b)(2) regulatory
pathway, and thereafter received orphan designation. In August of 2019, PHPM was
given preliminary advice on its plans to submit an application for Breakthrough
Therapy Designation. In July 2020, PHPM received agreement from the FDA for the
development of a modified release formulation that would require only a small
comparative PK/bioavailability study in 12 volunteers receiving a single dose of
the modified release formulation to be compared to a single dose of the existing
immediate release formulation. A Phase 3 study is planned with the modified
release formulation of imatinib.



The continued spread of COVID-19 globally could adversely affect our clinical
trial operations in the United States and elsewhere, including our ability to
recruit and retain patients, principal investigators and site staff who, as
healthcare providers, may have heightened exposure to COVID-19 if an outbreak
occurs in their geography. Further, some patients may be unable to comply with
clinical trial protocols if quarantines or travel restrictions impede patient
movement or interrupt healthcare services, or if the patients become infected
with COVID-19 themselves, which would delay our ability to initiate and/or
complete planned clinical and preclinical studies in the future.



As we focus on the development of our existing product candidates, we also
continue to position ourselves to execute upon licensing and other partnering
opportunities. To do so, we will need to continue to maintain our strategic
direction, manage and deploy our available cash efficiently and strengthen our
collaborative research development and partner relationships.



During 2021, we are focused on the following initiatives:




-


Working with collaborators and partners to accelerate product development,
reduce our development costs, and broaden our developmental capabilities; and
-
Identifying strategic alternatives, including, but not limited to, the potential
acquisition of additional products or product candidates.





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Financial Overview



General and Administrative Expenses



General and administrative expenses consist primarily of compensation for
executive, finance, legal and administrative personnel, including stock-based
compensation. Other general and administrative expenses include facility costs
not otherwise included in research and development expenses, legal and
accounting services, other professional services, and consulting fees. General
and administrative expenses and percentage changes for the years ended December
31, 2020
and 2019, respectively, are as follows:





Increase/ % Increase/
For the year ended December 31, (Decrease) (Decrease)


2020 2019

Personnel costs $3,478,186 $2,782,798 $695,388 25%
Legal and professional fees 1,043,139 1,545,890 (502,751) (33)%
Other costs 630,959 602,611 28,348 5%
Facilities 154,922 152,812 2,110 1%



Personnel costs:



Personnel costs increased approximately $695,000 for the year ended December 31,
2020
compared to the prior year. This increase was due primarily to an increase
of approximately $86,000 for the recognized expense for vested employee stock
options, an increase of approximately $548,000 in bonuses paid and an overall
increase of approximately $51,000 in salaries paid as compared to the same
period in the prior year.



Legal and professional fees:



Legal and professional fees consist of the costs incurred for legal fees,
accounting fees, capital market expenses, consulting fees and investor relations
services, as well as fees paid to our Board of Directors. Legal and professional
fees decreased approximately $503,000 for the year ended December 31, 2020
compared to the prior year. This decrease was due primarily to reimbursement of
direct costs and legal fees incurred for arbitration proceedings related to our
license agreement for levosimendan, and a decrease in costs incurred for
investor relations services in the current period.




-


Legal fees decreased approximately $369,000 in the current year. This decrease
was due primarily to the reimbursement of approximately $358,000 in costs
incurred for arbitration in the current period, as well as a decrease of
approximately $170,000 in fees incurred for arbitration proceedings related to
our license agreement for levosimendan and a decrease of approximately $34,000
in costs associated with our intellectual property portfolio, partially offset
by an increase of approximately $192,000 in legal fees, primarily due to our
acquisition of PHPM as compared to the prior year.
-
Investor relations costs decreased approximately $111,000 in the current period.
This decrease was primarily due to fees paid to a third-party investor relations
firm for direct outreach and communications in the prior year that were not
incurred in the current year as well as a decrease in fees paid for conferences
and presentations in the current year as compared to the prior year.



Other costs:



Other costs include costs incurred for franchise and other taxes, travel,
supplies, insurance, depreciation and other miscellaneous charges. Other costs
increased approximately $28,000 for the year ended December 31, 2020compared to
the prior year. This increase was due primarily to an increase of approximately
$171,000 for the cost of annual insurance premiums, partially offset by a
reduction of approximately $65,000 in travel costs incurred and approximately
$67,000 in taxes paid in the current year as compared to the same period in the
prior year.



Facilities:



Facilities expenses include costs paid for rent and utilities at our corporate
headquarters in North Carolina. Facilities costs remained relatively consistent
for the years ended December 31, 2020 and 2019.






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Research and Development Expenses



Research and development expenses include, but are not limited to, (i) expenses
incurred under agreements with CROs and investigative sites, which conduct our
clinical trials and a substantial portion of our pre-clinical studies; (ii) the
cost of supplying clinical trial materials; (iii) payments to contract service
organizations, as well as consultants; (iv) employee-related expenses, which
include salaries and benefits; and (v) facilities, depreciation and other
allocated expenses, which include direct and allocated expenses for rent and
maintenance of facilities and equipment, depreciation of leasehold improvements,
equipment, and other supplies. All research and development expenses are
expensed as incurred. Research and development expenses and percentage changes
for the years ended December 31, 2020 and 2019, respectively, are as follows:





Increase/ % Increase/
For the year ended December 31, (Decrease) (Decrease)


2020 2019

Clinical and preclinical development $4,281,884 $3,217,596 $1,064,288 33%
Personnel costs 250,228 215,907 34,321 16%
Other costs 2,025 21,050 (19,025) (90)%
Consulting 26,587 16,600 9,987 60%




Clinical and preclinical development:



Clinical and preclinical development costs include, primarily, the costs
associated with our Phase 2 HELP Study for levosimendan, which was initiated
during fiscal year 2018 and the trial was completed in the current year. The
increase of approximately $1.1 million in clinical and preclinical development
costs for the year ended December 31, 2020 compared to the prior year was
primarily due to an increase of approximately $1.5 million in expenditures for
CRO costs, partially offset by a reduction of approximately $210,000 in costs
for clinical research associates to manage the Phase 2 HELP Study, as well as a
decrease of approximately $216,000 in the direct costs associated with clinical
sites, clinical drug delivery and enrolled patient costs.



Personnel costs:



Personnel costs increased approximately $34,000 for the year ended December 31,
2020
primarily due to an increase in salaries and bonuses paid in the current
year as compared to the prior year.



Other costs:



Other costs decreased approximately $19,000 for the year ended December 31, 2020
due primarily to reductions in costs incurred for travel in the current year as
compared to the prior year.



Consulting fees:



Consulting fees increased approximately $10,000 for the year ended December 31,
2020
due primarily to fees paid to an external consultant to assist in review
and analysis of our Phase 2 clinical data in the current year as compared to the
prior year.



Other income, net



Other income and expense include non-operating income and expense items not
otherwise recorded in our consolidated statement of comprehensive loss. These
items include, but are not limited to, changes in the fair value of financial
assets and derivative liabilities, interest income earned and fixed asset
disposals. Other income for the years ended December 31, 2020 and 2019,
respectively, is as follows:





(Increase)/
For the year ended December 31, Decrease


2020 2019

Other income, net $(18,166) $(160,901) $142,735






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Other income decreased approximately $143,000 for the year ended December 31,
2020
compared to the prior year. This decrease is due primarily to a decrease in
the interest earned on our investment in marketable securities.



During the year ended December 31, 2020, we recorded interest income of
approximately $24,000 from our investments in marketable securities. This income
is derived from approximately $31,000 in bond interest paid and approximately
$7,000 in fair-value adjustments for the year, which compares to approximately
$144,000 in bond interest paid, net of charges for amortization of premiums paid
and fair-value adjustments during the prior year.



Liquidity, capital resources and plan of operation



We have incurred losses since our inception and as of December 31, 2020, we had
an accumulated deficit of approximately $246 million. We will continue to incur
losses until we generate sufficient revenue to offset our expenses, and we
anticipate that we will continue to incur net losses for at least the next
several years. We expect to incur additional expenses related to our development
and potential commercialization of levosimendan for pulmonary hypertension and
other potential indications, as well as identifying and developing other
potential product candidates, and as a result, we will need to generate
significant net product sales, royalty and other revenues to achieve
profitability.



Liquidity



We have financed our operations since September 1990 through the issuance of
debt and equity securities and loans from stockholders. We had total current
assets of $6,795,506 and $6,180,829 and working capital of $4,676,543 and
$3,648,434 as of December 31, 2020 and December 31, 2019, respectively. Our
practice is to invest excess cash, where available, in short-term money market
investment instruments and high quality corporate and government bonds.



Clinical and Preclinical Product Development



We are currently developing a new formulation for imatinib and conducting a
clinical trial to transition from an intravenous to oral formulation of
levosimendan in North America for the treatment of pulmonary hypertension. Our
ability to continue to pursue development of our products beyond the third
quarter of calendar year 2021 will depend on obtaining license income or outside
financial resources. There is no assurance that we will obtain any license
agreement or outside financing or that we will otherwise succeed in obtaining
any necessary resources.



The continued spread of COVID-19 globally could adversely affect our ability to
recruit and retain patients and principal investigators and site staff who, as
healthcare providers, may have heightened exposure to COVID-19 if an outbreak
occurs in their geography. Further, some patients may be unable to comply with
clinical trial protocols if quarantines or travel restrictions impede patient
movement or interrupt healthcare services, or if the patients become infected
with COVID-19 themselves, which would delay our ability to complete our clinical
trials or release clinical trial results. See "Item 1A - Risk Factors" above for
additional discussion.



Financings



On July 6, 2020 entered into a definitive agreement with a single
healthcare-focused institutional investor, or the Investor, for the issuance and
sale of 2,523,611 shares of our common stock at a purchase price of $1.0278 per
share and pre-funded warrants to purchase up to 652,313 shares of common stock,
at a purchase price of $1.0277 per pre-funded warrant (which represents the per
share offering price for the common stock less $0.0001, the exercise price of
each pre-funded warrant), in a registered direct offering priced at-the-market
under Nasdaq rules. Additionally, in a concurrent private placement, we agreed
to issue to the Investor unregistered pre-funded warrants to purchase up to
4,607,692 shares of common stock, at the same purchase price as the registered
pre-funded warrants, as well as unregistered warrants to purchase up to an
aggregate of 7,783,616 shares of common stock. The unregistered warrants have an
exercise price of $0.903 per share, were immediately exercisable upon issuance,
and expire five and one-half years from the date of issuance. The aggregate
gross proceeds to us of both offerings were approximately $8.0 million. As part
of the offerings and subject to Nasdaq rules, the Investor will have the right
to designate two directors to our Board of Directors. The offerings closed on
July 8, 2020.



We agreed to pay H.C. Wainwright & Co., LLC, or the Placement Agent, a cash fee
equal to 7.5% of the gross proceeds of the July 2020 offering, totaling
approximately $600,000. We also agreed to pay the Placement Agent $75,000 for
non-accountable expenses, a management fee equal to 1.0% of the gross proceeds
and up to $12,900 for clearing fees. In addition, we issued designees of the
Placement Agent warrants to purchase 583,771 shares of common stock
(representing 7.5% of the aggregate number of shares of common stock (or common
stock equivalents) sold in the July 2020 offering). The Placement Agent warrants
have substantially the same terms as the unregistered warrants, except that the
Placement Agent warrants have an exercise price equal to $1.2848, or 125% of the
offering price per share of common stock and will be exercisable for five years
from the effective date of the July 2020 offering.






29



The shares of common stock and pre-funded warrants offered in the registered
direct offering (including the shares of common stock underlying the pre-funded
warrants) were offered and sold pursuant to a "shelf" registration statement on
Form S-3 which was declared effective by the SEC on May 23, 2018. The
unregistered pre-funded warrants and unregistered warrants described above were
offered in a private placement under Section 4(a)(2) of the Securities Act and
Regulation D promulgated thereunder and, along with the shares of common stock
underlying the pre-funded warrants and the warrants, have not been registered
under the Securities Act, or applicable state securities laws. The net proceeds
from the July 2020 offering, after deducting placement agent fees and other
direct offering expenses, were approximately $6.5 million. We are using the net
proceeds to further our clinical trials of levosimendan, for research and
development and general corporate purposes, including working capital and
potential acquisitions.



On March 11, 2020, we entered into a definitive agreement with the Investor for
the issuance and sale of 750,000 shares of our common stock at a purchase price
of $1.1651 per share and pre-funded warrants to purchase up to 1,610,313 shares
of common stock, at a purchase price of $1.1650 per pre-funded warrant (which
represents the per share offering price for the common stock less $0.0001, the
exercise price of each pre-funded warrant), for gross proceeds of approximately
$2.75 million, in a registered direct offering priced at-the-market under Nasdaq
rules. Additionally, in a concurrent private placement, we also agreed to issue
to the Investor unregistered warrants to purchase up to 2,360,313 shares of
common stock. The unregistered warrants have an exercise price of $1.04 per
share and exercise period commencing immediately upon the issuance date and a
term of five and one-half years. The offering closed on March 13, 2020.



We agreed to pay the Placement Agent a cash fee equal to 7.5% of the gross
proceeds of the March 2020 offering, totaling approximately $206,250. We also
agreed to pay the Placement Agent $75,000 for non-accountable expenses, a
management fee equal to 1.0% of the gross proceeds and up to $12,900 for
clearing fees. In addition, we issued designees of the Placement Agent warrants
to purchase 177,023 shares of common stock (representing 7.5% of the aggregate
number of shares of common stock (or common stock equivalents) sold in the March
2020
offering). The Placement Agent warrants have substantially the same terms
as the unregistered warrants, except that the Placement Agent warrants have an
exercise price equal to $1.4564, or 125% of the offering price per share of
common stock and will be exercisable for five years from the effective date of
the March 2020 offering.



The shares of common stock and pre-funded warrants offered in the registered
direct offering (including the shares of common stock underlying the pre-funded
warrants) were offered and sold pursuant to a "shelf" registration statement on
Form S-3, which was declared effective by the SEC on May 23, 2018. The
unregistered warrants described above were offered in a private placement under
Section 4(a)(2) of the Securities Act, and Regulation D promulgated thereunder
and, along with the shares of common stock underlying the warrants, have not
been registered under the Securities Act, or applicable state securities laws.
The net proceeds from the March 2020 offering, after deducting placement agent
fees and other direct offering expenses, were approximately $2.125 million. We
intend to use the net proceeds to further our clinical trials of levosimendan,
for research and development and general corporate purposes, including working
capital and potential acquisitions.



We have an effective shelf registration statement on Form S-3 on file with the
SEC that allows us to periodically offer and sell, individually or in any
combination, shares of common stock, shares of preferred stock, debt securities,
warrants to purchase shares of common stock or preferred stock or debt
securities, and units consisting of any combination of the foregoing types of
securities, up to a total of $75.0 million (of which approximately $69.0 million
remains available), but not to exceed one-third of our public float in any
12-month period. As of March 25, 2021, our public float (which is the aggregate
market value of our outstanding common stock held by non-affiliates) is
approximately $23.9 million. Our ability to issue securities under the shelf
registration statement is also subject to market conditions.






30



Paycheck Protection Program Loan



On April 30, 2020, we received the PPP Loan in the principal amount of $244,657.
The PPP Loan has a two-year term and bears interest at a rate of 1.00% per
annum. Monthly principal and interest payments are deferred for sixteen months.
Beginning September 30, 2021, we are required to make monthly payments of
principal and interest of approximately $31,100 to the Lender. We did not
provide any collateral or guarantees for the PPP Loan, nor did we pay any
facility charge to obtain the PPP Loan. The note governing the PPP Loan provides
for customary events of default, including, among others, those relating to
failure to make payment, bankruptcy, breaches of representations, and material
adverse effects. We may prepay the principal of the PPP Loan at any time,
subject to certain notice requirements.



Under the terms of the CARES Act, Paycheck Protection Program loan recipients
can apply for and be granted forgiveness for all or a portion of a loan granted
under the program. Such forgiveness will be determined, subject to limitations,
based on the use of loan proceeds for payment of payroll costs and any payments
of mortgage interest, rent, and utilities. We are using the proceeds from the
PPP Loan to fund payroll costs in accordance with the relevant terms and
conditions of the CARES Act. However, no assurance is provided that forgiveness
for any portion of the PPP Loan will be obtained.



As of December 31, 2020, the current and long-term portions of the PPP Loan were
$120,491 and $124,166, respectively.



Cash Flows



The following table shows a summary of our cash flows for the periods indicated:





For the year ended December 31,


2020 2019

Net cash used in operating activities $(9,272,856) $(7,556,177)
Net cash provided by (used in) investing activities 20,109 (1,651)
Net cash provided by financing activities 10,596,995 96,500




Net cash used in operating activities. Net cash used in operating activities
was approximately $9.3 million for the year ended December 31, 2020 compared to
net cash used in operating activities of approximately $7.6 million for the year
ended December 31, 2019. The increase in cash used for operating activities was
due primarily to an increase in our accrued costs related to the Phase 2
clinical trial for levosimendan in the current period.



Net cash provided by (used in) investing activities. Net cash provided by
investing activities was approximately $20,000 for the year ended December 31,
2020
compared to approximately $2,000 used in the year ended December 31, 2019.
The increase in cash provided by investing activities was primarily due to a
decrease in the purchase of marketable securities in the current period.



Net cash provided by financing activities. Net cash provided by financing
activities was approximately $10.6 million for the year ended December 31, 2020
compared to approximately $97,000 for the year ended December 31, 2019. The
increase in cash provided by financing activities was due to net proceeds of
approximately $6.5 million from the July 2020 offering, net proceeds of
approximately $2.1 million from the March 2020 offering, the issuance of 877,203
shares of common stock upon the exercise of approximately $1.7 million of
outstanding warrants and the receipt of approximately $245,000 under the PPP
Loan in the current period.






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Operating Capital and Capital Expenditure Requirements



Our future capital requirements will depend on many factors that include, but
are not limited to the following:



- the initiation, progress, timing and completion of clinical trials for our



product candidates and potential product candidates;



- the outcome, timing and cost of regulatory approvals and the regulatory



approval process;



- delays that may be caused by the global coronavirus pandemic;



- delays that may be caused by changing regulatory requirements;



- the number of product candidates that we pursue;



- the costs involved in filing and prosecuting patent applications and enforcing



and defending patent claims;



- the timing and terms of future collaboration, licensing, consulting or other



arrangements that we may enter into;



- the cost and timing of establishing sales, marketing, manufacturing and



distribution capabilities;



- the cost of procuring clinical and commercial supplies of our product



candidates;



- the extent to which we acquire or invest in businesses, products or



technologies; and



- the possible costs of litigation.



Based on our working capital on December 31, 2020, we believe we have sufficient
capital on hand to continue to fund operations through the third quarter of
calendar year 2021.



We will need substantial additional capital beyond the third quarter of calendar
year 2021 and in the future in order to complete the regulatory approval and
commercialization of levosimendan and to fund the development and
commercialization of other future product candidates. Until we can generate a
sufficient amount of product revenue, if ever, we expect to finance future cash
needs through public or private equity offerings, debt financings or corporate
collaboration and licensing arrangements. Such funding, if needed, may not be
available on favorable terms, if at all. In the event we are unable to obtain
additional capital, we may delay or reduce the scope of our current research and
development programs and other expenses. As a result of our historical operating
losses and expected future negative cash flows from operations, we have
concluded that there is substantial doubt about our ability to continue as a
going concern. Similarly, the report of our independent registered public
accounting firm on our December 31, 2020 consolidated financial statements
includes an explanatory paragraph indicating that there is substantial doubt
about our ability to continue as a going concern. Substantial doubt about our
ability to continue as a going concern may materially and adversely affect the
price per share of our common stock and make it more difficult to obtain
financing.



If adequate funds are not available, we may also be required to eliminate one or
more of our clinical trials, delaying approval of levosimendan or our
commercialization efforts. To the extent that we raise additional funds by
issuing equity securities, our stockholders may experience additional
significant dilution, and debt financing, if available, may involve restrictive
covenants. To the extent that we raise additional funds through collaboration
and licensing arrangements, it may be necessary to relinquish some rights to our
technologies or our product candidates or grant licenses on terms that may not
be favorable to us. We may seek to access the public or private capital markets
whenever conditions are favorable, even if we do not have an immediate need for
additional capital at that time. We may also consider strategic alternatives,
including a sale of our company, merger, other business combination or
recapitalization.



Off-Balance Sheet Arrangements



Since our inception, we have not engaged in any off-balance sheet arrangements,
including the use of structured finance, special purpose entities or variable
interest entities.



Summary of Critical Accounting Policies



Use of Estimates-The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America
, or GAAP, requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.






32



Preclinical Study and Clinical Accruals-We estimate our preclinical study and
clinical trial expenses based on the services received pursuant to contracts
with several research institutions and CROs that conduct and manage preclinical
and clinical trials on our behalf. The financial terms of the agreements vary
from contract to contract and may result in uneven expenses and payment flows.
Preclinical study and clinical trial expenses include the following:



- fees paid to CROs in connection with clinical trials;



- fees paid to research institutions in conjunction with preclinical research



studies; and



- fees paid to contract manufacturers and service providers in connection with



the production and testing of active pharmaceutical ingredients and drug



materials for use in preclinical studies and clinical trials.



Stock-Based Compensation-We account for stock-based awards to employees in
accordance with Accounting Standards Codification, or ASC, 718, Compensation -
Stock Compensation, which provides for the use of the fair value-based method to
determine compensation for all arrangements where shares of stock or equity
instruments are issued for compensation. Fair values of equity securities are
determined by management based predominantly on the trading price of our common
stock. The values of these awards are based upon their grant-date fair value.
That cost is recognized over the period during which the employee is required to
provide service in exchange for the reward.



We account for equity instruments issued to non-employees in accordance with ASC
505-50, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Equity instruments issued to non-employees are recorded at their fair value on
the measurement date and are subject to periodic adjustment as the underlying
equity instruments vest.



Recent Accounting Pronouncements



In December 2019, the Financial Accounting Standards Board, or FASB, issued an
accounting standard intended to simplify accounting for income taxes. It removes
certain exceptions to the general principles in Topic 740, Income Taxes, and
amends existing guidance to improve consistent application. This guidance is
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2020 and early adoption is permitted. We are
currently evaluating this standard, but we do not believe the adoption of the
new guidance will have a material impact on our consolidated financial
statements.



In February 2016, the FASB issued an accounting standard intended to improve
financial reporting regarding leasing transactions. The standard requires us to
recognize on our balance sheet the assets and liabilities for the rights and
obligations created by all leased assets. The standard also requires us to
provide enhanced disclosures designed to enable users of financial statements to
understand the amount, timing, and uncertainty of cash flows arising from all
leases, operating and capital, with lease terms greater than 12 months. The
standard was effective for financial statements beginning after December 15,
2018
, and interim periods within those annual periods. Early adoption was
permitted.



We adopted this standard on January 1, 2019, using the required
modified-retrospective approach as of the effective date. We elected the package
of practical expedients permitted under the transition guidance within the new
standard, which among other things, allows us to carryforward the historical
lease classification. We made an accounting policy election to account for
leases with an initial term of 12 months or less similar to previous guidance
for operating leases, under which we recognize those lease payments in the
consolidated statements of operations and comprehensive loss on a straight-line
basis over the lease term. Results for the year ended December 31, 2019 continue
to be reported in accordance with historical accounting under previous lease
guidance, the ASC Topic 840, Leases.



In June 2016, the FASB issued an accounting standard that amends how credit
losses are measured and reported for certain financial instruments that are not
accounted for at fair value through net income. This standard requires that
credit losses be presented as an allowance rather than as a write-down for
available-for-sale debt securities and will be effective for interim and annual
reporting periods beginning January 1, 2023, with early adoption permitted. A
modified retrospective approach is to be used for certain parts of this
guidance, while other parts of the guidance are to be applied using a
prospective approach. We do not believe the adoption of this standard will have
a material impact on our consolidated financial statements and related
disclosures.






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