zsan-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			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 001-36570

ZOSANO PHARMA CORPORATION

(Exact name of registrant as specified in its charter)

____________________________


Delaware						45-4488360
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

34790 Ardentech Court

Fremont, CA 94555

(Address of principal executive offices) (Zip Code)

(510) 745-1200

(Registrant’s telephone number, including area code)

___________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value	ZSAN	The Nasdaq Stock Market

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. Yes x No ☐

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). Yes x No ☐

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.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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 ☐ No x

As of May 11, 2022, the registrant had a total of 4,902,260 shares of its common stock, $0.0001 par value per share, outstanding.

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Zosano Pharma Corporation

Quarterly Report on Form 10-Q

INDEX


		Page
PART I. FINANCIAL INFORMATION		5
Item 1.	Condensed Financial Statements (unaudited)	5
	Condensed Balance Sheets	5
	Condensed Statements of Operations	6
	Condensed Statements of Changes in Stockholders' Equity	7
	Condensed Statements of Cash Flows	8
	Notes to Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
SIGNATURES		72

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “intend,” “seek,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” or the negative of those terms, and similar expressions and comparable terminology intended to reference future periods. Forward-looking statements include, but are not limited to, statements about:

•our expectations regarding our expenses and revenue, the sufficiency of our cash resources, needs for additional financing and ability to continue our operations;

•our ability to continue as a going concern;

•the potential for future impairment of our long-lived assets;

•the potential for resubmitting a 505(b)(2) New Drug Application (“NDA”) for M207 to the U.S. Food and Drug Administration (“FDA”);

•our expectations regarding the clinical effectiveness and safety of our product candidates;

•the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved product;

•our manufacturing capabilities and strategy, and our ability to establish and maintain relationships with contract manufacturing organization(s) (“CMOs”);

•the anticipated timing, costs and conduct of any clinical trials and preclinical studies;

•our intellectual property position and our ability to obtain and maintain intellectual property protection for our product candidates;

•our expectations regarding competition;

•the anticipated trends and challenges in our business and the markets in which we operate;

•the scope, progress, expansion, and costs of developing and commercializing our product candidates;

•the size and growth of the potential markets for our product candidates and the ability to serve those markets;

•the rate and degree of market acceptance of our product candidates;

•our ability to establish and maintain development partnerships;

•our ability to retain key personnel;

•our expectations regarding federal, state and foreign regulatory requirements;

•the timing of and expected costs related to workforce reduction activities;

•our ability to pursue strategic alternatives and our anticipated general and administrative expenses relating to the same;

•our retention bonus program, and incentive payments under the program; and

•regulatory developments in the United States and foreign countries.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with the U.S. Securities Exchange Commission. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly

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Report on Form 10-Q and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report.

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Risk Factors Summary

The following is a summary of the principal risks that could materially adversely affect our business, results of operations, and financial condition, all of which are more fully described in Part II, Item 1A, “Risk Factors.” This summary should be read in conjunction with Item 1A, “Risk Factors” and should not be relied upon as an exhaustive summary of the material risks we face.

Below is a summary of some of the principal risks we face.

•We will need to obtain substantial additional funding to fund our operations, and we will not be able to continue as a going concern if we are unable to do so. Without additional capital, our liquidity, financial condition and business prospects will be materially and adversely affected, and we may have to cease operations. Our ability to raise capital is limited by the significant decline in our market capitalization and current market conditions.

•We have a history of operating losses. We expect to continue to incur additional significant losses in the foreseeable future and are not likely to become profitable.

•We have made significant investments in property and equipment, and, in the quarter ended March 31, 2022, we recorded an impairment of our long-lived property and equipment and right-of-use assets in the amount of $25.9 million, or approximately 71% of the carrying value at the date of impairment, and, in the future, we could see further impairment of our long-lived property and equipment and right-of-use assets if our estimates of future undiscounted cash flows are not greater than the carrying value of the long-lived assets. Additionally, if we commit to a plan to sell our property and equipment assets, any amount that we may receive for the assets could be significantly less than fair value.

•We have generated only limited revenues, and even if we were to resume our product development activities, we would need substantial additional capital to develop and commercialize our product candidates, which may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or lead product candidates.

•Our build-to-suit arrangement with Trinity Funding 1, LLC (successor to Trinity Capital Fund III, L.P.) (“Trinity”), imposes restrictions on our business and requires that we maintain a minimum cash balance equal to three times the remaining rent due, and if we default on our obligations, Trinity would have a right to request payment in full of the build-to-suit obligation.

•We have limited operating history and capabilities.

•The development and commercialization of our product candidates are subject to many risks. For example, on October 20, 2020, we received a Complete Response Letter (“CRL”) from the FDA in response to our NDA for M207, and based on feedback from the FDA, we conducted an additional pharmacokinetic (“PK”) study for inclusion in an NDA resubmission package. On February 17, 2022, we received a response letter from the FDA with regard to our January 18, 2022 resubmission of the M207 NDA, stating that the FDA did not consider the resubmitted M207 NDA to be a complete response to the deficiencies identified in the FDA’s October 20, 2020 CRL, and that the FDA will not begin substantive review of the application until a complete response is received. In April 2022, in order to preserve our capital and cash resources, we suspended our M207 program. We currently do not have capital or resources to continue with the development of M207 or resubmission of the M207 NDA. If we do not successfully develop, receive approval for, and commercialize our product candidates, our business will be adversely affected.

•If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.

•Clinical trials are very expensive, time-consuming and difficult to design and implement.

•The COVID-19 pandemic, including any strains or variants of the virus, could adversely impact our business.

•The results of our clinical trials may not support the intended use of any product candidates we may develop.

•Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate we advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

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•We use customized equipment to manufacture, coat and package our transdermal microneedle system; any production or equipment performance failures could negatively impact the clinical trials of our product candidates that we may develop or sales of our product candidate(s), if approved.

•We currently depend on third-party suppliers for manufacture of certain components of our product candidates. If these manufacturers fail to provide us or our collaborators with adequate supplies of materials for clinical trials or commercial product or fail to comply with the requirements of regulatory authorities, we may be unable to develop or commercialize product candidates we may develop.

•We rely on CMOs for various components of our transdermal microneedle system, and our business could be harmed if those third parties fail to provide us with sufficient quantities of those components at acceptable quality levels and prices or fail to maintain or achieve satisfactory regulatory compliance.

•We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to comply with applicable regulatory requirements or to meet deadlines for the completion of such trials.

•We have no experience selling, marketing or distributing approved product candidates and currently have no internal capabilities to do so, and, if we resume our M207 program, we will rely on Eversana or other third parties for the commercialization of M207, and we and they may not be able to effectively market, sell and distribute M207, if approved. An amendment to the Eversana agreement provides that, if the M207 NDA is approved, the deferral mechanism, payment terms and loan terms in the master services agreement will be adjusted as mutually agreed by both parties. There is no guarantee that we and Eversana will reach an agreement on the deferral mechanism, payment terms and loan terms.

•If we fail to comply with our obligations to our licensor in our intellectual property license, we could lose license rights that are important to our business.

•Our failure to obtain and maintain patent protection for our technology and our product candidates could permit our competitors to develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and product candidates may be adversely affected.

•We are highly dependent on the technical, financial and business development expertise of our executive officers and other employees at our Fremont, California facility. A number of employees terminated pursuant to our March 2022 and April 2022 workforce reductions had extensive knowledge of our technology and manufacturing processes, and the loss of technical expertise resulting from these workforce reductions will result in delays in product development if we resume our M207 program and diversion of management resources.

•The trading price of our common stock has been volatile with substantial price fluctuations on heavy volume, which could result in substantial losses for purchasers of our common stock and existing stockholders.

•If we are unable to maintain listing of our securities on the Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our stockholders to sell their securities.

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PART I - FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

ZOSANO PHARMA CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except par value and share amounts)


	March 31, 2022		December 31, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,529	$	11,043
Accounts receivable	91		146
Prepaid expenses and other current assets	2,012		420
Total current assets	15,632		11,609
Restricted cash	455		455
Property and equipment, net	7,922		32,557
Operating lease right-of-use assets	2,436		3,769
Total assets	$	26,445	$	48,390
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,720	$	2,120
Accrued compensation	475		1,767
Build-to-suit obligation, current portion, net of debt issuance costs and discount	1,739		3,822
Operating lease liabilities, current portion	1,642		1,606
Other accrued liabilities	2,154		1,818
Total current liabilities	9,730		11,133
Build-to-suit obligation, long-term portion, net of debt issuance costs and discount	—		970
Operating lease liabilities, long-term portion	2,662		3,081
Other long-term liabilities	—		231
Total liabilities	12,392		15,415
Commitments and contingencies (see note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value; 250,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 4,902,260 and 3,434,451 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	—		—
Additional paid-in capital	409,577		395,090
Accumulated deficit	(395,524)		(362,115)

Total stockholders’ equity	14,053		32,975
Total liabilities and stockholders’ equity	$	26,445	$	48,390

The accompanying notes are an integral part of these financial statements.

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ZOSANO PHARMA CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,
	2022		2021

Service revenue	$	132	$	258
Operating expenses:
Cost of service revenue	86		162
Research and development	4,481		5,330
General and administrative	2,942		2,814

Impairment loss	25,941		—
Total operating expenses	33,450		8,306
Loss from operations	(33,318)		(8,048)
Other income (expense):
Interest income	2		1
Interest expense	(73)		(97)
Other income (expense), net	(20)		2
Loss before provision for income taxes	(33,409)		(8,142)
Provision for income taxes	—		—
Net loss	$	(33,409)	$	(8,142)



Net loss per common share – basic and diluted	$	(7.86)	$	(2.73)
Weighted-average common shares used in computing net loss per common share – basic and diluted	4,248		2,981

The accompanying notes are an integral part of these financial statements.

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ZOSANO PHARMA CORPORATION

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)


	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at January 1, 2022	3,434,451	—	$	395,090	$	(362,115)	$	32,975
Issuance of common stock and Series F warrants in connection with public offering, net

SEC Form 10-Q filed by Zosano Pharma Corporation