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You should read the following discussion and analysis of our financial status and operating results, as well as the unaudited interim financial statements and notes included in the quarterly report on Form 10-Q, and our audited financial statements and notes for the year ended As of December 31, 2020 and relevant management’s discussion and analysis of financial conditions and operating results, both of which are contained in our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K ”).
This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933 (the “Securities Act”), as well as the revised 1934 Securities Exchange Article 21E of the Act. Forward-looking statements other than statements of historical facts contained in this quarterly report, including statements about our future operating performance and financial status, business strategies, R&D plans and costs, the impact of COVID-19, timing and possibilities, regulatory filing and approval , Commercialization plans, pricing and reimbursement, the potential of developing future product candidates, the timing and possibility of success in future operational management plans and goals, and the expected future results of product development work are all forward-looking statements. These statements are usually made by using expressions such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “may”, “should”, “estimate” or “continue” and similar expressions or Variants. The forward-looking statements in this quarterly report are only predictions. Our forward-looking statements are mainly based on our current expectations and forecasts of future events and financial trends. We believe that these events and financial trends may affect our financial condition, operating performance, business strategy, short-term and long-term business operations and goals. These forward-looking statements were issued only on the date of this quarterly report and are subject to many risks, uncertainties and assumptions, including those described in item 1A under the heading “Risk Factors” in Part II. The events and circumstances reflected in our forward-looking statements may not be realized or occur, and actual results may differ materially from the forecasts in the forward-looking statements. Unless required by applicable law, we do not intend to publicly update or revise any forward-looking statements contained herein, whether due to any new information, future events, changes in circumstances or other reasons.
Marizyme is a multi-technology platform life science company with a clinically tested and patented product platform for myocardial and vein graft preservation, protease therapy for wound healing, thrombosis and pet health. Marizyme is committed to acquiring, developing and commercializing therapies, equipment and related products that maintain cell viability and support metabolism, thereby promoting cell health and normal function. Our common stock is currently quoted at the QB level of OTC Markets under the code “MRZM”. The company is actively working towards listing its common stock on the Nasdaq stock market within the next twelve months after the date of this report. We may also examine the options for listing of our common stock on the New York Stock Exchange (“New York Stock Exchange”).
Krillase-Through our acquisition of Krillase technology from ACB Holding AB in 2018, we purchased an EU research and evaluation protease treatment platform that has the potential for treating chronic wounds and burns and other clinical applications. Krillase is a medicine classified as a Class III medical device in Europe for the treatment of chronic wounds. Krill enzyme is derived from Antarctic krill and shrimp crustaceans. It is a combination of endopeptidase and exopeptidase, which can safely and effectively decompose organic matter. The mixture of protease and peptidase in Krillase helps Antarctic krill to digest and break down food in the extremely cold Antarctic environment. Therefore, this specialized enzyme collection provides unique biochemical “cutting” capabilities. As a “biochemical knife”, Krillase can potentially decompose organic matter, such as necrotic tissue, thrombotic substances, and biofilms produced by microorganisms. Therefore, it can be used to alleviate or treat a variety of human disease states. For example, Krillase can safely and effectively dissolve arterial thrombosis plaques, promote faster healing and support skin grafts to treat chronic wounds and burns, and reduce bacterial biofilms associated with poor oral health in humans and animals.
We have acquired a product line based on Krillase, which focuses on the development of products for the treatment of multiple diseases in the intensive care market. The following itemizes the breakdown of our anticipated Krillase development pipeline:
Krillase was qualified as a medical device in the European Union on July 19, 2005, for debridement of deep partial and full-thickness wounds of hospitalized patients.
As of the date of submission of this document, the company will continue to evaluate the commercial, clinical, research, and regulatory considerations involved in marketing our Krillase-based product line. Our business strategy for developing this product line has two aspects:
We expect to complete the development, operation and business strategy of the Krillase platform by 2022, and expect to generate the first batch of product sales revenue in 2023.
DuraGraft-Through our acquisition of Somah in July 2020, we have obtained its key knowledge products based on cell protection platform technology to prevent ischemic damage to organs and tissues during transplantation and transplantation operations. Its products and candidate products, known as Somah products, include DuraGraft, a one-time intraoperative vascular graft treatment for vascular and bypass surgery, which can maintain endothelial function and structure, thereby reducing the incidence and complications of graft failure. And to improve the clinical outcome after bypass surgery.
DuraGraft is an “endothelial injury inhibitor” suitable for cardiac bypass, peripheral bypass and other vascular surgery. It carries the CE mark and is approved for sale in 33 countries/regions on 4 continents, including but not limited to the European Union, Turkey, Singapore, Hong Kong, India, the Philippines, and Malaysia. Somahlution also focuses on developing products to reduce the impact of ischemia-reperfusion injury in other transplant operations and other indications where ischemic injury can cause disease. A variety of products derived from cell protection platform technology for multiple indications are in different stages of development.
According to the market analysis report, the global coronary artery bypass graft market is valued at approximately US$16 billion. From 2017 to 2025, the market is expected to grow at a compound annual growth rate of 5.8% (Grand View Research, March 2017). Globally, it is estimated that approximately 800,000 CABG surgeries are performed each year (Grand View Research, March 2017), of which surgeries performed in the United States account for a large portion of the total global surgeries. In the United States, it is estimated that approximately 340,000 CABG operations are performed each year. It is estimated that by 2026, the number of CABG operations will drop at a rate of about 0.8% per year to less than 330,000 per year, mainly due to the use of percutaneous coronary intervention (also known as “angioplasty”) medicine and technology Progress (idata research, September 2018).
In 2017, the number of peripheral vascular operations including angioplasty and peripheral arterial bypass, phlebectomy, thrombectomy, and endarterectomy was approximately 3.7 million. The number of peripheral vascular surgeries is expected to grow at a compound annual growth rate of 3.9% between 2017 and 2022, and is expected to exceed 4.5 million by 2022 (Research and Markets, October 2018).
The company is currently working with local distributors of cardiovascular disease-related products to sell and increase DuraGraft’s market share in Europe, South America, Australia, Africa, the Middle East and the Far East in accordance with local regulatory requirements. As of the date of submission of this document, the company expects to submit a de novo 510k application to the United States in the second quarter of 2022 and is optimistic that it will be approved by the end of 2022.
DuraGraft is expected to submit a de novo 510k application, and the company plans to submit a pre-submission document to the FDA, which describes the strategy to prove the clinical safety and effectiveness of the product. The FDA’s application for the use of DuraGraft in the CABG process is expected to take place in 2022.
The CE-marked DuraGraft commercialization plan and selected existing distribution partners in European and Asian countries will begin in the second quarter of 2022, adopting targeted approaches based on market access, existing KOLs, clinical data, and revenue penetration Sexual approach. The company will also begin to develop the US CABG market for DuraGraft through the development of KOLs, existing publications, selected clinical studies, digital marketing and multiple sales channels.
We have suffered losses in every period since our establishment. For the nine months ended September 30, 2021 and 2020, our net losses were approximately US$5.5 million and US$3 million, respectively. We expect to incur expenses and operating losses in the next few years. Therefore, we will need additional funds to support our continued operations. We will seek to fund our operations through public or private equity issuance, debt financing, government or other third-party funding, cooperation and licensing arrangements. We may not be able to obtain sufficient additional financing on acceptable terms or at all. Our failure to raise funds when needed will affect our continuing operations and have a negative impact on our financial condition and our ability to implement business strategies and continue operations. We need to generate substantial revenue to be profitable, and we may never do it.
On November 1, 2021, Marizyme and Health Logic Interactive Inc. (“HLII”) signed a final arrangement agreement under which the company will acquire My Health Logic Inc., a wholly-owned subsidiary of HLII (“HLII”). “MHL”). “trade”).
The transaction will be carried out through a plan of arrangement under the Business Company Act (British Columbia). According to the plan of arrangement, Marizyme will issue a total of 4,600,000 ordinary shares to HLII, which will be subject to certain terms and restrictions. Upon completion of the transaction, My Health Logic Inc. will become a wholly-owned subsidiary of Marizyme. The transaction is expected to be completed on or before December 31, 2021.
The acquisition will give Marizyme access to consumer-centric handheld point-of-care diagnostic devices that connect to patients’ smartphones and a digital continuous care platform developed by MHL. My Health Logic Inc. plans to use its patent-pending lab-on-a-chip technology to provide rapid results and facilitate the transfer of data from diagnostic equipment to patients’ smartphones. MHL expects that this data collection will enable it to better assess the risk profile of patients and provide better patient outcomes. The mission of My Health Logic Inc. is to enable people to perform early detection of chronic kidney disease through operable digital management anytime, anywhere.
After the transaction is completed, the company will acquire MHL’s digital diagnostic equipment MATLOC1. MATLOC 1 is a proprietary diagnostic platform technology being developed to test different biomarkers. Currently, it focuses on urine-based biomarkers albumin and creatinine for screening and final diagnosis of chronic kidney disease. The company expects that the MATLOC 1 device will be submitted to the FDA for approval by the end of 2022, and management is optimistic that it will be approved in mid-2023.
In May 2021, the company began a private placement in accordance with Rule 506 of the Securities Act, with a maximum of 4,000,000 units (“issuance”), including convertible notes and warrants, aimed at raising up to 10,000,000 US dollars on a rolling basis . Certain terms and conditions of the sale were revised in September 2021. During the nine-month period ending September 30, 2021, the company sold and issued a total of 522,198 units with total proceeds of US$1,060,949. The proceeds from the issuance will be used to maintain the company’s growth and fulfill its capital obligations.
During the nine-month period ending September 30, 2021, Marizyme has been undergoing corporate restructuring, in which key officials, directors, and management team have changed to accelerate the company’s process of achieving its key goals and implementing strategies. After the MHL transaction is completed and completed, the company expects more changes in its main management team to further streamline and improve the company’s overall performance.
Revenue represents the total product sales minus service fees and product returns. For our distribution partner channel, we recognize product sales revenue when the product is delivered to our distribution partner. Since our products have an expiration date, if the product expires, we will replace the product free of charge. Currently, all of our revenue comes from selling DuraGraft in European and Asian markets, and products in these markets meet the required regulatory approvals.
Direct revenue costs mainly include product costs, which include all costs directly related to the purchase of raw materials, expenses of our contract manufacturing organization, indirect manufacturing costs, and transportation and distribution expenses. Direct revenue costs also include losses due to excess, slow-moving or obsolete inventory and inventory purchase commitments (if any).
Professional fees include legal fees related to intellectual property development and corporate affairs, as well as consulting fees for accounting, financial and valuation services. We expect an increase in the cost of auditing, legal, regulatory, and tax-related services related to maintaining compliance with exchange listing and Securities and Exchange Commission requirements.
Salary includes salary and related personnel expenses. Stock-based compensation represents the fair value of equity-settled share awards granted by the company to its employees, managers, directors, and consultants. The fair value of the award is calculated using the Black-Scholes option pricing model, which considers the following factors: exercise price, current market price of the underlying stock, life expectancy, risk-free interest rate, expected volatility, dividend yield, and forfeiture speed.
Other general and administrative expenses mainly include marketing and sales expenses, facility costs, administrative and office expenses, insurance premiums for directors and senior staff, and investor relations costs related to operating a listed company.
Other income and expenses include the market value adjustment of the contingent liabilities assumed for the acquisition of Somah, as well as the interest and appreciation expenses related to the convertible notes issued by us under the unit purchase agreement.
The following table summarizes our operating results for the nine months ended September 30, 2021 and 2020:
We confirmed that the revenue for the nine months ended September 30, 2021 was US$270,000, and the revenue for the nine months ended September 30, 2020 was US$120,000. The increase in revenue during the comparison period was mainly attributable to the increase in sales of DuraGraft, which was acquired as part of the Somah transaction.
During the nine months ended September 30, 2021, we incurred a direct cost of revenue of $170,000, which was an increase of Up to 150,000 US dollars. Compared with revenue growth, the cost of sales has increased at a faster rate. This is mainly due to the shortage of raw materials caused by the COVID-19 pandemic, which directly affects the cost of finding, protecting and obtaining alternative high-quality materials.
For the period ending September 30, 2021, professional fees increased by US$1.3 million, or 266%, to US$1.81 million, compared to US$490,000 as of September 30, 2020. The company has conducted a number of corporate transactions, including the acquisition of the Somah entity and the company’s restructuring, which resulted in a substantial increase in attorney fees over a period of time. The increase in professional fees is also the result of the company’s preparation for FDA approval and the advancement and development of other intellectual property rights. In addition, Marizyme relies on a number of external consulting companies to oversee multiple aspects of the business, including the company’s financial and accounting functions. In the nine months ending September 30, 2021, Marizyme also initiated a public sale transaction, which further promoted the increase in professional fees during the period.
Salary expenses for the period ending September 30, 2021 were USD 2.48 million, an increase of USD 2.05 million or 472% over the comparative period. The increase in wage costs is attributable to the reorganization and growth of the organization as the company continues to expand into new markets and is committed to the commercialization of DuraGraft in the United States.
For the nine months ended September 30, 2021, other general and administrative expenses increased by US$600,000 or 128% to US$1.07 million. The increase was due to the company’s restructuring, growth, and increased marketing and public relations expenses related to product brand promotion and costs, which resulted from operating a listed company. As we plan to continue to expand administrative and commercial functions, we expect general and administrative expenses to increase in the coming period.
During the nine-month period ending September 30, 2021, the company launched the sale, which included multiple rolling completions in batches. Interest and value-added costs associated with convertible notes issued at a discount as part of the offering agreement.
In addition, the company also confirmed a fair value gain of $470,000, including an adjustment to the market value of the contingent liabilities assumed by the acquisition of Somah.
The following table summarizes our operating results for the three months ended September 30, 2021 and 2020:
We confirmed that the revenue for the three months ended September 30, 2021 was US$040,000, and the revenue for the three months ended September 30, 2020 was US$120,000, a year-on-year decrease of 70%. In the three months ended September 30, 2021, we incurred a direct cost of revenue of US$ 0.22 million, which was a decrease compared to the direct cost of revenue of US$ 0.3 million in the three months ended September 30, 2020. 29%.
The COVID-19 pandemic has caused shortages of raw materials and disruption of the global supply chain. In addition, in 2021, Marizyme’s business partners will focus on addressing the specific manufacturing needs of the US government in the fight against the COVID-19 pandemic. In addition, during 2021, due to the overload of the medical system and the potential risks associated with patient recovery during the pandemic, the demand for elective surgery has declined. All these factors have had a negative impact on the company’s revenue and direct cost of sales for the three months ended September 30, 2021.
Professional fees for the three months ended September 30, 2021 increased by USD 390,000 to USD 560,000, compared to USD 170,000 for the three months ended September 30, 2020. After the Somah transaction was completed, Inc. acquired and completed the valuation process of the acquired assets and liabilities assumed.
Salary expenses for the three months ended September 30, 2021 were $620,000, an increase of $180,000 or 43% over the comparison period. The increase in wage costs is attributable to the growth of the organization as the company continues to expand into new markets and is committed to the commercialization of DuraGraft in the United States.
In the three months ending September 30, 2021, other general and administrative expenses increased by US$0.8 million or 18% to US$500,000. The main reason for the increase was the legal, regulatory and due diligence work related to the acquisition of My Health Logic Inc.
In the three months ending September 30, 2021, the company completed the second and largest sale and issued the highest number of convertible notes to date. Interest and value-added costs associated with convertible notes issued at a discount as part of the offering agreement.
In the three months ended September 30, 2021, the company recognized a fair value gain of US$190,000, adjusted to market value based on the contingent liabilities assumed when Somah was acquired
Since our establishment, our operating business has generated net losses and negative cash flow, and it is expected that we will continue to generate net losses in the foreseeable future. As of September 30, 2021, we have $16,673 in cash and cash equivalents.
In May 2021, Marizyme’s board authorized the company to initiate the sale and sell up to 4,000,000 units (“units”) at a price of US$2.50 per unit. Each unit includes (i) a convertible promissory note that can be converted into the company’s common stock, with an initial price of US$2.50 per share, and (ii) a warrant for the purchase of one share of the company’s common stock (“Class A Warrant”)) ; (iii) The second warrant for the purchase of the company’s common stock (“Class B Warrant”).
In the nine months ending September 2021, the company issued a total of 469,978 units related to the sale, with a total proceeds of US$1,060,949.
On September 29, 2021, the company revised the May 2021 unit agreement with the consent of all unit holders. By withdrawing the investment, the unit holder agreed to modify the unit purchase agreement, resulting in the following changes in the issuance:
The company determined that the modification of the unit purchase agreement was not sufficient to be considered as significant, and therefore did not adjust the value of the original instruments issued. As a result of this modification, a total of 469,978 units previously issued have been replaced with a total of 522,198 prorated units.
The company intends to raise up to US$10,000,000 on a rolling basis. The proceeds from the issuance will be used to maintain the company’s growth and fulfill its capital obligations.