zsan-20210331

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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, 2021


☐			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 7, 2021, the registrant had a total of 106,728,371 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		4
Item 1.	Financial Statements	4
	Balance Sheets	4
	Statements of Operations and Comprehensive Loss	5
	Statements of Changes in Stockholders' Equity	6
	Statements of Cash Flows	7
	Notes to Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	30
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	69
SIGNATURES		71

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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 and needs for additional financing;

•our plans for and the anticipated timing with respect to the resubmission of our 505(b)(2) New Drug Application ("NDA") for Qtrypta to the U.S. Food and Drug Administration (the “FDA”), including our plan to conduct an additional pharmacokinetic study;

•our plans for and the anticipated timing with respect to the commencement and completion of the pharmacokinetic study and the availability of data from the study;

•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) to expand our manufacturing capacity;

•the anticipated timing, costs and conduct of our planned 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 attract or retain key personnel;

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

•the pending securities class action and derivative lawsuits; 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 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 substantial additional funding to fund our operations, and we may not be able to continue as a going concern if we are unable to do so. We could also be forced to delay, reduce or terminate our product development, other operations or commercialization effort.

•We have a history of operating losses. We expect to continue to incur losses over the next several years and may never become profitable.

•We have generated only limited revenues and will need 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 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, we received a complete response letter from the FDA in response to our NDA for Qtrypta, and based on feedback from the FDA, we are planning to conduct an additional pharmacokinetic study for inclusion in an NDA resubmission package. However, there is no guarantee that we will be able to adequately address the issues raised to the FDA’s satisfaction. 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 could adversely impact our business, including our clinical trials.

•The results of our clinical trials may not support the intended use of Qtrypta or any other 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.

•We use customized equipment to 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 primarily on third-party suppliers for manufacture 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 Qtrypta or any other product candidates we may develop.

•We rely on contract manufacturing organizations 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.

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•We have no experience selling, marketing or distributing approved product candidates and have no internal capabilities to do so, and will rely on Eversana and other third parties for the commercialization of Qtrypta, and we and they may not be able to effectively market, sell and distribute Qtrypta, if approved.

•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.

•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. Financial Statements

ZOSANO PHARMA CORPORATION

BALANCE SHEETS

(in thousands, except par value and share amounts)


	March 31, 2021		December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	26,882	$	35,263
Prepaid expenses and other current assets	1,591		453
Total current assets	28,473		35,716
Restricted cash	455		455
Property and equipment, net	32,128		30,909
Operating lease right-of-use assets	4,651		4,928
Other long-term assets	3		3
Total assets	$	65,710	$	72,011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,661	$	1,884
Accrued compensation	2,703		2,294
Build-to-suit obligation, current portion, net of debt issuance costs and discount	4,697		4,779
Operating lease liabilities, current portion	1,434		1,378
Paycheck Protection Program loan, current portion	1,422		809
Other accrued liabilities	1,491		3,367
Total current liabilities	14,408		14,511
Build-to-suit obligation, long-term portion, net of debt issuance costs and discount	3,426		4,359
Operating lease liabilities, long-term portion	4,304		4,687
Paycheck Protection Program loan, long-term portion	204		812
Other long-term liabilities	217		127
Total liabilities	22,559		24,496
Commitments and contingencies (see note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	—		—
Common stock, $0.0001 par value; 250,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 106,372,820 and 102,066,218 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	11		10
Additional paid-in capital	383,472		379,695
Accumulated deficit	(340,332)		(332,190)

Total stockholders’ equity	43,151

SEC Form 10-Q filed by Zosano Pharma Corporation