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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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(Mark One)

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

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For the quarterly period ended March 31, 2023

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OR

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

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For the transition period from ___________ to __________

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Commission file number: 001-37846

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QUOIN PHARMACEUTICALS LTD.

(Exact name of registrant as specified in its charter)

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(703) 980-4182

(Registrant’s telephone number, including area code)

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N/A

(Former name, former address and former fiscal year, if changed since last report)

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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. Yes ☒ No ☐

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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 ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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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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. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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As of May 8, 2023, there were 59,233,024,799 ordinary shares, no par value per share, of the registrant outstanding, and 11,846,532 ADSs of the registrant outstanding, with each ADS representing 5,000 ordinary shares.

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QUOIN PHARMACEUTICALS LTD.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to, those described in Part I – Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”), as well as our subsequent reports filed with the Securities and Exchange Commission (“SEC”). Caution should be taken not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read this Form 10-Q and the documents that we reference in this Form 10-Q and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Form 10-Q by these cautionary statements.

Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to the terms “Quoin,” “Quoin Ltd.,” the “Company,” “us,” “we”, and “our” refer to Quoin Pharmaceuticals Ltd. and its consolidated subsidiaries.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

QUOIN PHARMACEUTICALS LTD.

Condensed Consolidated Balance Sheets

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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements

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QUOIN PHARMACEUTICALS LTD.

Condensed Consolidated Statements of Operations (Unaudited)

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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements

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QUOIN PHARMACEUTICALS LTD.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Three months ended March 31, 2022

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Three months ended March 31, 2023

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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements

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QUOIN PHARMACEUTICALS LTD.

Condensed Consolidated Statements of Cash Flows (unaudited)

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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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QUOIN PHARMACEUTICALS LTD.

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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Notes to Consolidated Financial Statements

March 31, 2023 and 2022

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included in Part I-Item 1 of this Form 10-Q. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q.

Overview

We are a clinical stage specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. Our initial focus is on the development of products, using our proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. Our first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary in-licensed Invisicare® technology, is under development as a potential treatment fort Netherton Syndrome (“NS”), a rare hereditary genetic disease. QRX003 is currently being tested in two clinical studies in the United States (“U.S.”) under an open Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). Dosing of patients has commenced for both studies. We are also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, we entered into Research Agreements with the Queensland University of Technology (“QUT”), under which we have obtained an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma.

Our objective is to develop and commercialize proprietary therapeutic drug products. To this effect, we intend to develop and seek marketing approvals from the FDA and other worldwide regulatory bodies for rare and orphan diseases. To achieve these objectives, we plan to:

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue our operations. See “Liquidity and Capital Resources”.

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Key Events

Clinical Development

Quoin’s lead asset, QRX003, is currently in late-stage clinical development in the U.S. under an open IND application with the FDA. Five clinical sites in the U.S. have been opened for this study, patients are actively being screened and recruited into the study and dosing has commenced. This study is a randomized, double blinded assessment of two different doses of QRX003 versus a placebo vehicle in NS patients. The test materials are applied once daily, over a twelve-week period, to pre-selected areas of the patient’s body. Based on discussions with the FDA, a number of different clinical endpoints are being assessed in the study, including but not limited to, an Investigators Global Assessment (IGA), Patient’s Global Assessment (PaGA) and Pruritis.

In November 2022, we submitted a protocol for our second clinical study in NS patients to the FDA under our currently open IND. This study was cleared by the FDA to initiate in December 2022. Patients are actively being screened and recruited into the study and dosing has commenced. This study is being conducted in ten NS patients who are currently receiving off-label systemic therapy, primarily systemic biologic therapy. This is an open-label study with no placebo control. Both of our NS clinical studies are running concurrently and utilize the same clinical trial sites and investigators.

Public Offering

On February 24, 2023 (the “February Closing Date”), we completed an offering (the “February Offering”) of 24,750,000,000 ordinary shares represented by 4,950,000 ADSs at a purchase price of $1.00 per ADS and a pre-funded warrant (the “February Pre-Funded Warrant”) to purchase 10,250,000,000 ordinary shares represented by 2,050,000 ADSs at a per pre-funded warrant price of $0.9999, with each ADS and February Pre-Funded Warrant accompanied by an ordinary warrant (the “February Common Warrant”) for aggregate gross proceeds of $7.0 million, resulting in net proceeds of approximately $5.8 million, after deducting the placement agent’s fees and offering expenses paid by us, and excluding the proceeds, if any, from the subsequent exercise of the February Common Warrants. Each February Common Warrant has an exercise price of $1.00 per ADS and expires on the fifth anniversary of the February Closing Date. On the February Closing Date, the holder of the February Pre-Funded Warrant exercised its Pre-Funded Warrant in full.

In connection with the February Offering, we entered into a Securities Purchase Agreement (the “February Purchase Agreement”) with certain institutional investors. Under the February Purchase Agreement, subject to certain exemptions, we agreed not to: (i) for a period of ninety (90) days after the closing date of the February Offering, issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ADSs, ordinary shares or ordinary share equivalents or (ii) file any registration statement or amendment or supplement thereto, other than a registration statement on Form S-8 in connection with any employee benefit plan or any post-effective amendment to a registration statement declared effective by the Securities and Exchange Commission (the “SEC”) and (ii) for a period of 180 days after the closing date of the February Offering, enter into an agreement to effect a “variable rate transaction” as defined in the February Purchase Agreement.

In connection with the February Offering, we entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both our offering completed in August 2022 (the “August Offering”) and the February Offering. The Warrant Amendments amended certain terms of the Common Warrants issued to such 2022 Purchasers in the August Offering. Specifically, the Warrant Amendments reduced the exercise price of such warrants to $1.10 and extended the term during which those warrants could remain exercisable until February 24, 2028.

Nasdaq Listing

On April 5, 2023, we received a letter from Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that the closing bid price per ADS representing 5,000 ordinary shares of the Company was below the required minimum of $1.00 for a period of 30 consecutive business days and that the we did not meet the minimum bid price requirements set forth in Nasdaq Rule 5550(a)(2). Pursuant to Nasdaq Rule 5810(c)(3)(A), we have a period of one hundred eighty (180) calendar days, or until October 2, 2023 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the Compliance Period, the closing bid price per ADS is at least $1.00 for a minimum of ten (10) consecutive business days,

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Nasdaq will provide us with a written confirmation of compliance and the matter will be closed. In the event we do not regain compliance by October 2, 2023, we may be eligible for an additional 180 calendar day grace period. To qualify, we will be required to meet the continued listing requirement for market value of publicly held ADSs and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period. Although Nasdaq notification letter described above has no immediate effect on our listing on The Nasdaq Capital Market, and we are working on implementing plans to regain compliance with Nasdaq listing standards, there can be no assurance that we will be able to regain compliance with Nasdaq’s minimum bid-price requirement for continued listing. If our ADSs are delisted from Nasdaq, it will have material negative impacts on the actual and potential liquidity of our securities, as well as material negative impacts on our ability to raise future capital.

Components of Our Results of Operations

Operating Expenses

Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. We utilize outside consultants and third parties to conduct the majority of our research and development, under the supervision of our management team.

Future research and development expenses may include:

Research and development activities will continue to be central to our business plan. Products in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to be significant over the next several years as personnel and compensation costs increase and we conduct late-stage clinical studies and prepare to seek regulatory approval for QRX003 and any other future product.

The duration, costs and timing of clinical trials of QRX003 and any other future product will depend on a variety of factors that include, but are not limited to:

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General and Administrative Expenses

General and administrative expenses consist primarily of compensation and employee related expenses including non-cash stock-based compensation, professional fees and other corporate expenses.

We anticipate that our general and administrative expenses will increase in 2023 to support our continued research and development activities. These increases will include compensation and employee-related expenses including stock-based compensation, increased costs related to the potential hiring of personnel, travel costs and fees to outside consultants, lawyers and accountants.

Other Expenses

Other expenses consist primarily of non-cash costs (income) associated with the financing arrangements entered into during 2020 and 2021, including fair value adjustments of warrants, forgiveness of trade payable, interest income and unrealized gains on investments.

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Results of Operations – Three months ended March 31, 2023 compared to the three months ended March 31, 2022

The following table sets forth our results of operations for the three months ended March 31, 2023, compared to the three months ended March 31, 2022:

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General and Administrative Expenses

General and administrative expenses were approximately $1,684,000 and $1,588,000, in the three months ended March 31, 2023 and 2022, respectively, representing an increase of $95,000, or approximately 6.0%. The increase was primarily due to an increase of $58,000 in travel related expenses and non-cash stock-based compensation expense of $227,000 following the issuance of options under the Amended and Restated Equity Incentive Plan (the “Amended Plan”) in April 2022, offset by a reduction in public company costs of $196,000.

Research and Development Expenses

Our research and development expenses during the three months ended March 31, 2023 and 2022 were approximately $1,092,000 and $588,000, respectively, representing an increase of $504,000, or approximately 85.8%.  The increase was primarily due to $465,000 in increased expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology. Also, included in the 2023 expenses were approximately $34,000 of non-cash stock-based compensation expense allocated to research and development expense following the issuance of options under the Amended Plan in April 2022. We expect to increase our research and development efforts in 2023 by conducting the remaining studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above.

We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set out above. The license from Skinvisible was obtained in October 2019.  Amortization of intangible assets was approximately $26,000 in each of the three month periods ended March 31, 2023 and 2022.

Other Expenses:

Interest and unrealized gain

We earned $152,000 in interest income and $20,000 in unrealized income in the three months ended March 31, 2023 from our cash and cash equivalents and investments in marketable debt securities.  

Warrant liability income

We determined our warrants issued to investors in our 2020 notes (the “2020 Noteholder Warrants”) required liability treatment at fair value, which was remeasured at each reporting period up to March 2022. The 2020 Noteholder Warrants were exchanged for new

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