# Tonix Pharmaceuticals Holding Corp. (TNXP) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Tonix Pharmaceuticals Holding Corp.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1430306/000138713123003377/tnxp-10k_123122.htm
Accession: 0001387131-23-003377
Filing date: 2023-03-13
Report date: 2022-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/TNXP/
All MD&A years: /company/TNXP/mda/
Previous year: /company/TNXP/mda/fy2021/ (FY 2021)
Next year: /company/TNXP/mda/fy2023/ (FY 2023)

ITEM
7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements
that reflect Management’s current views with respect to future events and financial performance. You can identify these statements
by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief
or current expectations of us and members of its management team as well as the assumptions on which such statements are based and should
be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with
the Securities and Exchange Commission, particularly those under “Risk Factors.”.

Business
Overview

We are a clinical-stage biopharmaceutical company focused on developing
therapeutics and vaccines to treat and prevent human disease and alleviate suffering. We have a rich pipeline of products in development
that has been curated from internal discovery, as well as licenses, acquisitions and collaborations with academic institutions and contract
research organizations. We continue to build capabilities in synthetic biology, precision medicine, protein engineering, medicinal chemistry,
molecular biology, pharmacogenomics and clinical-scale manufacturing. Our therapeutics under development include both small molecules
and biologics.

Our portfolio consists of central nervous system, or CNS, rare disease,
immunology, and infectious disease product candidates. The CNS portfolio includes small molecules and biologics to treat pain, neurologic,
psychiatric and addiction conditions. Our rare disease portfolio focuses on developing novel therapies for patients with rare diseases,
including those caused by genetic disorders which are characterized by complex symptoms and for which no drug is approved. Our immunology
portfolio includes biologics to address organ transplant rejection, autoimmune diseases and cancer. Our infectious disease portfolio includes
a vaccine in development to prevent smallpox and mpox (formerly known as monkeypox), next-generation vaccines to prevent COVID-19, a platform
to make fully human mAbs to treat COVID-19 and humanized anti-SARS-CoV-2 mAbs. Our vaccine in development to prevent smallpox and mpox
also serves as the live virus vaccine platform or recombinant pox vaccine (RPV) platform for other infectious diseases.

Our latest stage CNS product
candidate is TNX-102 SL*, a proprietary sublingual tablet formulation of cyclobenzaprine (CBP) designed for bedtime administration. TNX-102
SL has active INDs for fibromyalgia, or FM, FM-type Long COVID or PASC (post-acute sequelae of SARS-CoV-2 infection), posttraumatic stress
disorder, or PTSD, agitation in Alzheimer’s disease, or AAD, and alcohol use disorder, or AUD.

TNX-102 SL is in mid-Phase 3 development for the management of FM, a pain
disorder characterized by chronic widespread pain, non-restorative sleep, fatigue and impaired cognition. In December 2020, we reported
positive results from the Phase 3 RELIEF study of TNX-102 SL 5.6 mg for the management of FM. In July 2021, we reported pre-planned interim
analysis results from a second Phase 3 study, RALLY. Based on the recommendation from the independent data monitoring committee that the
RALLY trial was unlikely to demonstrate a statistically significant improvement in the primary endpoint, we stopped enrollment of new
participants but allowed those participants who were already enrolled to complete the study. We reported topline data from the completed
study in March of 2022. As expected, based on interim analysis results, TNX-102 SL did not achieve statistical significance over placebo
on the primary endpoint of reduction in daily pain, and relative to the previous positive Phase 3 Study (RELIEF), RALLY had an unexpected
increase in study participant adverse event-related discontinuations in both drug and placebo groups. In April 2022, we started a new
potentially confirmatory Phase 3 study of TNX-102 SL in FM, RESILIENT. Interim analysis results are expected in the second quarter of
2023 and topline results are expected in the fourth quarter of 2023. Following a positive outcome of the RESILIENT study, we believe we
would be positioned to file a New Drug Application (NDA) for TNX-102 SL for the management of FM.

TNX-102 SL is also
being developed as a potential treatment for a type of Long COVID, the symptoms of which overlap with FM, that we term FM-type
Long COVID. We initiated enrollment in the Phase 2 study PREVAIL, in August 2022. The primary endpoint is a change in daily pain
scores from baseline.

For TNX-102 SL in PTSD,
we completed the Phase 3 RECOVERY trial and reported topline results in the fourth quarter of 2020 in which TNX-102 SL did not
meet the primary efficacy endpoint. PTSD is a serious psychiatric condition that develops in response to experiencing a traumatic
event. We subsequently completed a meeting with the FDA to discuss potential new endpoints for the indication of treatment of PTSD.
Future studies will employ the one month look-back CAPS-5 as the primary endpoint rather than the one week look-back used in prior
studies.

The
AAD program is Phase 2 ready with an active IND and FDA Fast Track designation. AAD, which includes emotional lability, restlessness,
irritability, and aggression, is one of the most distressing and debilitating of the behavioral complications of Alzheimer’s disease.
We do not have any near-term plans to start a Phase 2 study in AAD.

The
AUD program is also Phase 2 ready with an active IND. AUD is a chronic relapsing brain disease characterized by compulsive alcohol use,
loss of control over alcohol intake, and a negative emotional state when not using alcohol. We do not have any near-term plans to start
a Phase 2 study in AUD.

TNX-1900* (intranasal
potentiated oxytocin) is in development for the treatment of chronic migraine and obesity-associated binge eating disorder, or BED.
TNX-1900 was acquired from Trigemina, Inc. and licensed from Stanford University in 2020. The potentiated formulation includes
magnesium, which has been shown in animal studies to potentiate binding of oxytocin to the oxytocin receptor. We received IND
clearance from the FDA in the fourth quarter of 2021 to study TNX-1900 in chronic migraine and we initiated a Phase 2 study in
migraine in the first quarter of 2023. We expect interim analysis results from the first 50 percent of patients enrolled in the
fourth quarter of 2023. In March 2022, we announced an agreement with Massachusetts General Hospital, a teaching hospital of Harvard
Medical School, to conduct an investigator-initiated Phase 2 clinical trial to study TNX-1900 in BED. The Phase 2 clinical trial is
expected to start in the second quarter of 2023. We do not own an IND for BED. We also licensed technology to use TNX-1900 for the
treatment of insulin resistance from the University of Geneva and also have rights to develop it as a treatment for craniofacial
pain, but we are not imminently pursuing clinical trials in either of these indications at this time.

59 

TNX-601 ER* (tianeptine hemioxalate extended-release tablets) is a CNS
product candidate in development as a treatment for major depressive disorder, or depression, and with possible additional indications
of PTSD, and neurocognitive dysfunction associated with corticosteroid use. TNX-601 ER represents a novel approach to treating depression
in the U.S., since the active ingredient tianeptine induces a neuroprotective and resilient phenotype in both neurons and microglia under
conditions of stress in animals. The dramatic and unique effects of tianeptine are illustrated in animal models by the restoration of
dendritic arborization of pyramidal neurons of CA3 region of hippocampus and the dentate gyrus region new neuron formation and integration
into hippocampal networks. In contrast, antidepressants that are marketed in the U.S. act by modulating the levels or receptor binding
of neurotransmitters in the synapse. We have completed a Phase 1 trial for formulation development outside of the U.S. We expect to initiate
a potentially pivotal Phase 2 study in the first quarter of 2023 for the treatment of major depressive disorder and we expect interim
analysis results from the first 50 percent of patients enrolled in the fourth quarter of 2023.

Another CNS candidate in development
is TNX-1300* (double-mutant cocaine esterase) which is in Phase 2 for the treatment of life-threatening cocaine intoxication. TNX-1300
has been granted Breakthrough Therapy designation, or BTD, by the U.S. Food and Drug Administration, or FDA. TNX-1300 was licensed from
Columbia University in 2019 after a Phase 2 study showed that it rapidly and efficiently disintegrates cocaine in the blood of volunteers
who received intravenous, or i.v., cocaine. In August of 2022, we received a Federal Grant from the National Institute on Drug Abuse (NIDA)
to advance the development of TNX-1300 as a treatment for cocaine intoxication. We expect to initiate a potentially pivotal Phase 2 study
of TNX-1300 in emergency rooms in the second quarter of 2023.

Finally,
our CNS pipeline includes TNX-1600*, an inhibitor of the reuptake of neurotransmitters serotonin, norepinephrine and dopamine, or a triple
reuptake inhibitor. TNX-1600 was licensed from Wayne State University in 2019 and is expected to be developed as a treatment for PTSD,
depression and attention-deficit/hyperactivity disorder, or ADHD. TNX-1600 is in the preclinical stage of development.

Our rare disease portfolio
consists of TNX-2900*, another magnesium-potentiated, intranasal oxytocin-based therapeutic in development for the treatment of Prader-Willi
syndrome, or PWS. The technology for TNX-2900 was licensed from Inserm, the French National Institute of Health and Medical Research.
PWS, an orphan condition, is a rare genetic disorder of failure to thrive in infancy, associated with uncontrolled appetite beginning
in childhood with complications of obesity and diabetes. We have sponsored a research program at Inserm to study oxytocin on suckling
behavior in mice that have been engineered to express one of the Prader-Willi genes. TNX-2900 has been granted Orphan-Drug Designation
for the treatment of PWS, and is in the pre-IND stage of development.

Our lead candidate
in the immunology pipeline is TNX-1500*, a humanized mAb, directed against CD40-ligand, or CD40L (also
known as CD154), engineered to modulate binding to Fc receptors, that is being developed as a prophylaxis against organ transplant
rejection as well as to treat autoimmune conditions. In experiments at the Massachusetts General Hospital or MGH, a teaching hospital
of Harvard Medical School, TNX-1500 is being studied as monotherapy or in combination with other immunosuppressive agents in heart
and kidney allogeneic organ transplants in non-human primates. Preliminary results from ongoing experiments in kidney and heart
transplants indicate that TNX-1500 appears to have comparable efficacy to historical experiments using the chimeric mouse/human
IgG1 version (5c8H1) of the anti-CD40L mAb 5c8. First generation anti-CD40L mAb therapies were associated with an increased risk
of blood clots or thrombosis. In the non-human primate studies with TNX-1500 for allogeneic kidney or heart transplantation, no
evidence of thrombosis has been observed so far. We expect to start a Phase 1 study of TNX-1500 in the second quarter of 2023.
TNX-1500 also is being studied in combination with other immunosuppressive agents in xenogeneic organ transplants in non-human
primates at MGH and at the University of Maryland at Baltimore or UMB. In experiments at UMB, TNX-1500 is being studied to prevent
rejection of xenogeneic hearts from genetically engineered pigs developed by the Revivicor division of United Therapeutics Corporation.

Our immunology pipeline
also includes TNX-1700*, a recombinant Trefoil Factor Family 2, or rTFF2, fusion protein that was licensed from Columbia University
in 2019. TNX-1700 consists of TFF2 fused to human serum albumin or I and is a biologic being developed to treat gastric and colorectal
cancers by an immune-oncology mechanism, in combination with PD1 blockers, and is in the preclinical stage of development. We recently
presented data that show a murine version of TNX-1700 consisting of a fusion protein with murine serum albumin or MSA was able
to evoke anti-tumor immunity in the MC38 mouse model of colorectal cancer as monotherapy and that TNX-1700 augmented the efficacy
of anti-PD1 therapy in both the MC38 mouse model and the CT26.wt models of colorectal cancer.

Our infectious disease
portfolio includes vaccines based on our live virus vaccine or recombinant pox vaccine, “RPV” platform. Live virus
vaccines are believed to protect against poor clinical outcomes of infectious diseases by eliciting T cell responses in addition
to antibody responses. TNX-801*, a live attenuated vaccine based on synthesized horsepox is in the pre-IND stage of development
to protect against smallpox and mpox. Non-human primates vaccinated with TNX-801 were protected from monkeypox in studies reported
in the first quarter of 2020. A Phase 1 study of TNX-801 in humans is expected to start in the second half of 2023. TNX-801
also serves as the live virus vaccine platform for other infectious diseases for which subsequent products will be designed by
expressing other viral antigens in the horsepox vector.

TNX-1850* is a live
virus vaccine that expresses the SARS-CoV-2 spike protein from the BA.2 strain that has not yet been tested in animals. TNX-1800*
is a live virus vaccine that expresses the SARS-CoV-2 spike protein from the ancestral Wuhan strain, which has shown encouraging
results in non-human primates. Because the subsequent omicron variant out-competed the ancestral Wuhan strain, we began work on
new vaccine versions, TNX-1840* and TNX-1850*, that are designed to express spike protein from the omicron variant and from the
BA.2 variant, respectively. Of those, based on the trajectory of COVID-19, the focus is now on TNX-1850. The COVID-19 vaccines
that are approved for use, or have emergency use authorization, or EUA, in the U.S. have provided significant health benefits to
the vaccinated population; however, they have shown limitations in the durability of protection conferred and in their ability
to block forward transmission. Live virus vaccines that protect against other viral diseases by eliciting T cell responses have
shown durability of protection that lasts years to decades and some live virus vaccines have significantly inhibited forward transmission.
With respect to TNX-1800 vaccination, we reported positive efficacy data from animal challenge studies using live SARS-CoV-2 in
the first quarter of 2021. In this study, TNX-1800 vaccinated, SARS-CoV-2 challenged animals had undetectable SARS-CoV-2 in the
upper airways, which we believe relates to potential inhibition of forward transmission of this respiratory pathogen.

TNX-2300* is a live
virus vaccine based on bovine parainfluenza virus in development to protect against COVID-19. In April 2022, we extended a sponsored
research agreement with Kansas State University to develop a vaccine candidate, TNX-2300, for the prevention of COVID-19 that utilizes
a novel live virus vaccine vector platform based on bovine parainfluenza virus. The efficacy of co-expression of the CD40-ligand,
also known as CD154, to stimulate T cell immunity will also be tested. Attenuated bovine parainfluenza virus has previously been
shown to be an effective antigen delivery vector in humans. Previous work by others has shown that attenuated BPI3V is tolerated
and immunogenic in non-human primates and human infants and children. We believe the vector is well suited for mucosal immunization
using a nasal atomizer, and can also be delivered parenterally. TNX-2300 is in the preclinical stage of development.

TNX-3600* and TNX-3800*
are mAbs directed against SARS-CoV-2 which are in development as potential therapeutic or preventative agents for COVID-19. Given
the unpredictable trajectory of the SARS-CoV-2 virus and new variants, we seek to contribute a broad set of anti-SARS-CoV-2 mAbs,
that can be scaled up quickly and potentially combined with other mAbs. We envision the future of mAb therapy for COVID-19 to be
cocktails of mAbs with specificity to variants of concern.  TNX-3600 refers to a series of fully human mAbs generated by human-human hybridomas from COVID-19 convalescent volunteers. We are collaborating with Columbia University to produce these fully
human mAbs to SARS-CoV-2 spike proteins from variants such as delta, omicron and XBB1.5 and to other viral targets. TNX-3800 refers
to three humanized murine mAbs which we licensed exclusively in December 2022 from Curia Global, Inc. for the treatment or
prophylaxis of SARS-CoV-2 infection. The initial focus is to develop COVID-19 therapeutic mAbs. We plan to seek indications similar
to previously EUA-approved therapeutic mAbs for treating individuals with mild-to-moderate COVID-19 who are at high risk for
progression to severe disease or for prophylaxis in individuals with compromised immune systems who are at high risk for severe COVID-19 disease. None of the previously EUA-approved therapeutic or preventative mAbs are still available, because each
has become obsolete since the SARS-CoV-2 virus has mutated to evade their binding. TNX-3600 and TNX-3800 mAbs may also be used in
combination therapy with other COVID-19 therapeutic mAbs. Combination therapies with other anti-SARS-CoV-2 mAbs may reduce the
emergence of resistant viral strains. TNX-3600 and TNX-3800 are in the preclinical stage of development.

60 

TNX-3700* is a COVID-19
mRNA vaccine candidate employing a zinc nanoparticle (ZNP) formulation. In collaboration with Kansas State University, we are developing
this ZNP technology as a potential replacement for the lipid nanoparticle (LNP) technology used in current mRNA vaccines. ZNP technology
potentially allows for improved stability which facilitates shipping and storage and addresses the limitations in current mRNA
vaccines which require ultra-cold storage and shipping. This current requirement limits the use of mRNA vaccines in less developed
countries. We plan to seek initial indications as a booster, similar to the current FDA approved mRNA vaccines for COVID-19. We
intend to conduct research with Kansas State University on ZNP SARS-CoV-2 spike based vaccines in tissue culture and animals in
the first half of 2023. TNX-3700 is in the preclinical stage of development.

Relating to our COVID-19 and other infectious disease development programs,
we are developing the resources necessary to enable internal research, development and manufacturing capabilities necessary to meet the
goal of producing new vaccine candidates within 100 days of recognition within weeks of obtaining sequence information of a novel pathogen.
We seek to be a leader in the movement to re-build domestic U.S. research, development and manufacturing capabilities. Because this movement
follows a protracted period when domestic research, development and manufacturing were moved out of the U.S., or “off-shore”
by other companies to save on labor and other costs, the movement to reverse that trend has been described as “on-shoring”
or “re-domestication”. The COVID-19 pandemic taught that national borders may close during a health emergency. Therefore,
domestic capabilities are essential for the health security of the U.S., which has also been described as pandemic preparedness and biodefense.
As articulated in the American Pandemic Preparedness Plan, or AP3, released by the U.S. Office of Science and Technology Policy, this
100-day goal for vaccines is a key component of preparedness for future pandemics. We believe we have established the infrastructure necessary
to support the pandemic preparedness goals established in the AP3, specifically with respect to our RPV vaccine and potentially to other
vaccine and therapeutic platforms. This infrastructure consists of (i) our R&D Center, or “RDC”, (ii) our Advanced Development
Center, or ADC, and (iii) our Commercial Manufacturing Center, or CMC. We acquired the RDC in Frederick, Maryland consisting of one building
totaling approximately 48,000 square feet. The acquisition closed in October 2021 and the facility is operational. The RDC facility focuses
on our development of vaccines and antiviral drugs against SARS-CoV-2, its variants, and other infectious diseases. The RDC also conducts
research on central nervous system and immunology drugs. The RDC facility is mostly biosafety level 2 (BSL-2), with some components designated
BSL-3. We completed the substantial renovation of the ADC located in the New Bedford business park in Dartmouth, Massachusetts, which
became operational as of the fourth quarter 2022. This approximately 45,000 square foot BSL-2 facility is intended to accelerate development
and clinical scale manufacturing of live-virus vaccines and biologics to support clinical trials. We also plan to build the CMC in Hamilton,
Montana, where we purchased approximately 44 acres of land and have built a field office to manage construction of the facility. The CMC
will focus on developing and manufacturing commercial scale live-virus vaccines and biologics and is also intended to be BSL-2. Site enabling
work is expected to be initiated for the CMC in 2023. Together, we expect these facilities may qualify the RPV vaccine platform for programs
that are designed to carry out the goals of AP3.

*All
of our product candidates are investigational new drugs or biologics and have not been approved for any indication.

We
are led by a management team with significant industry experience in drug development. We complement our management team with a network
of scientific, clinical, and regulatory advisors that includes recognized experts in their respective fields.

 Results
of Operations

We
anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of our
research and development efforts and the timing and outcome of regulatory submissions. Due to these uncertainties, accurate predictions
of future operations are difficult or impossible to make.

Fiscal
year Ended December 31, 2022 Compared to Fiscal year Ended December 31, 2021

The
following table sets forth our operating expenses for the fiscal years ended December 31, 2022 and 2021 (in thousands):

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2022","","2021"],["COSTS AND EXPENSES:"],["Research and development","","$","81,876","","","$","68,838"],["General and administrative","","","30,215","","","","23,474"],["Total operating expenses","","","112,091","","","","92,312"],["Operating loss","","","(112,091",")","","","(92,312",")"],["Interest income, net","","","1,873","","","","25"],["Net loss","","$","(110,218",")","","$","(92,287",")"]]
[[/GREPCENT_TABLE]]

Research
and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2022, were $81.9 million,
an increase of $13.1 million, or 19%, from $68.8 million for the fiscal year ended December 31, 2021. This increase is predominately due
to increased employee-related expenses of $9.0 million, predominately related to new hires at the RDC and ADC, lab supplies of $3.3 million, and office-related expenses of $1.4 million related
to our new facilities offset by a decrease in regulatory expenses of $0.4 million and a decrease in market research expenses of $0.3 million.
We expect research and development expenses to increase during 2023 as we move our clinical development programs forward and continue
to invest in our development pipeline.

The
table below summarizes our direct research and development expenses for our product candidates and development platform for the years
ended December 31, 2022, and 2021.

61 

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","(in thousands)"],["","","2022","","2021","","Change"],["Research and development expenses:"],["Direct expenses \u2013 TNX - 102 SL","","$","13,530","","","$","13,974","","","$","(444",")"],["Direct expenses \u2013 TNX - 1800","","","3,819","","","","8,049","","","","(4,230",")"],["Direct expenses \u2013 TNX - 601 ER","","","1,308","","","","4,602","","","","(3,294",")"],["Direct expenses \u2013 TNX - 801","","","2,111","","","","81","","","","2,030"],["Direct expenses \u2013 TNX - 1300","","","3,233","","","","5,882","","","","(2,649",")"],["Direct expenses \u2013 TNX - 1500","","","11,510","","","","5,334","","","","6,176"],["Direct expenses \u2013 TNX - 1900","","","4,155","","","","2,429","","","","1,726"],["Direct expenses \u2013 TNX - 2100","","","1,434","","","","3,410","","","","(1,976",")"],["Direct expenses \u2013 TNX - 3500","","","1,162","","","","5,368","","","","(4,206",")"],["Direct expenses \u2013 Other programs","","","7,912","","","","4,861","","","","3,051"],["Internal staffing, overhead and other","","","31,702","","","","14,848","","","","16,854"],["Total research & development","","$","81,876","","","$","68,838","","","$","13,038"]]
[[/GREPCENT_TABLE]]

Our
direct research and development expenses consist principally of external costs for clinical, nonclinical and manufacturing, such as fees
paid to contractors, consultants and CROs in connection with our development work. Included in “Internal Staffing, Overhead and
Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel, regulatory and
legal.

 General
and Administrative Expenses. General and administrative expenses for the fiscal year ended December
31, 2022 were $30.2 million, an increase of $6.7 million, or 29%, from $23.5 million incurred in the fiscal year ended December 31, 2021.
The increase is primarily due to employee-related expenses of $4.3 million, of which $2.4 million relates to stock-based compensation,
an increase in legal fees of $0.1 million due to increased patent prosecution costs, an increase in software/technology expenses of $0.5
million, an increase in financial reporting expenses of $1.1 million, and an increase in travel-related of $0.4 million.

Net
Loss. As a result of the foregoing, the net loss for the year ended December 31, 2022 was $110.2 million, compared to a net
loss of $92.3 million for the year ended December 31, 2021.

License
Agreements

On
February 13, 2023, we exercised an option to obtain an exclusive license from Columbia for the development of a portfolio of both fully
human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including our TNX-3600 and TNX-4100 product candidates,
respectively. The licensed mAbs were developed as part of a research collaboration and option agreement between us and Columbia.

On
December 12, 2022, we entered into an exclusive license agreement with Curia for the development of three humanized murine mAbs for the
treatment or prophylaxis of SARS-CoV-2 infection. We believe that the licensing of these mAbs strengthens our pipeline of next-generation
therapeutics to treat COVID-19, which is caused by SARS-CoV-2. As consideration for entering into the License Agreement, we paid a license
fee of approximately $0.4 million to Curia. The License Agreement also provides for single-digit royalties and contingent milestone payments.
As of December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

On
May 18, 2022, we entered into an exclusive License Agreement with the University of Alberta focused on identifying and testing broad-spectrum
antiviral drugs against future variants of SARS-CoV-2 and other emerging viruses. As consideration for entering into the License Agreement,
we paid a low-five digit license fee to University of Alberta. The License Agreement also provides for single-digit royalties and contingent
milestone payments. As of December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

On
April 14, 2021, we and OyaGen, Inc. (“OyaGen”) entered into an exclusive License Agreement (the “OyaGen License Agreement”)
pursuant to which OyaGen granted us an exclusive license to certain patents and technical information related to an antiviral inhibitor
of SARS-CoV-2, sangivamycin, and to develop and commercialize products thereunder, and to acquire rights to any technology based thereon
for the prevention or treatment of Covid-19 developed by OyaGen during the term of the License Agreement.

As consideration for entering
into the License Agreement, we agreed to pay a low-seven digit license fee to OyaGen, and agreed to issue to OyaGen and an affiliated
entity an aggregate of 86,010 shares of our common stock, valued at $3.0 million, which are unregistered and subject to a six-month lock-up
and a voting agreement, pursuant to which OyaGen and the affiliated entity have agreed to vote the common stock on any matter put to
a vote of the shareholders of the Company in accordance with management’s recommendations. The OyaGen License also provides for
single-digit royalties and contingent milestone payments. No milestone payments were accrued or paid in relation to this agreement. In
July 2022, we notified OyaGen of our intent to terminate the License Agreement, and the agreement was terminated effective September
20, 2022. 

On
February 11, 2021, we entered into a license agreement (the “Inserm License Agreement”) pursuant to which we licensed technology
using oxytocin-based therapeutics for the treatment of Prader-Willi syndrome and non-organic failure to thrive disease from Inserm (the
French National Institute of Health and Medical Research), Aix-Marseille Université and Centre Hospitalier Universitaire of Toulouse.
The Inserm License Agreement provides for the payment of annual fees and milestone payments upon the occurrence of specified sales milestones,
totaling approximately $0.4 million, as well royalties on net sales of products based on the licensed technology, and assignment/transfer
and sublicense royalties. As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement. 

On
September 16, 2019, we entered into an exclusive License Agreement (the “Columbia License Agreement”) with the Trustees of
Columbia University in the City of New York (“Columbia”), as subsequently amended, pursuant to which Columbia granted to us
an exclusive license, with the right to sublicense, certain patents and technical information (collectively, the “TFF2 Technology”)
related to a recombinant Trefoil Family Factor 2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2 Product”).
Pursuant to the terms of the Columbia License Agreement, Columbia has reserved for itself the right to practice the TFF2 Technology for
academic research and educational purposes. 

62 

We
paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research
and development expenses in the statement of operations for the year ended December 31, 2019. We are obligated to use Commercially Reasonable
Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified developmental
milestones.

We
are obligated to pay Columbia single-digit royalties on net sales of (i) TFF2 Products sold by us or a sublicensee and (ii) any other
products that involve material or technical information related to the TFF2 Product and transferred to us pursuant to the License Agreement
(“Other Products”) sold by us or a sublicensee. Royalties on each particular TFF2 Product are payable on a country-by-country
and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued
patents covered by the Columbia License Agreement, and (ii) a specified period of time after the first commercial sale of a TFF2 Product
in the country in question. Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis
until a specified period of time after the first commercial sale of such particular Other Product in such country. Royalties payable on
net sales of the TFF2 Product and Other Products may be reduced by 50% of the royalties payable by us to any third party for intellectual
property rights which are necessary for the practice of the rights licensed to us under the Columbia License Agreement, provided that
the royalty payable on a TFF2 Product or Other Product may not be reduced by more than 50%.

We
are also obligated to make contingent milestone payments to Columbia totaling $4.1 million on a Product-by-Product basis upon the achievement
of certain development, approval and sales milestones related to a TFF2 Product. In addition, we shall pay Columbia 5% of consideration,
other than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As of December 31, 2022, no
milestone payments have been accrued or paid in relation to this agreement.  

On
May 20, 2019, we entered into an exclusive License Agreement (the “License Agreement”) with Columbia pursuant to which Columbia,
for itself and on behalf of the University of Kentucky and the University of Michigan (collectively, the “Institutions”) granted
to us an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”)
related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”). Pursuant
to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the Technology for
academic research and educational purposes.

 We
paid a six-digit license fee to Columbia as consideration for entering into the License Agreement. We are obligated to use Commercially
Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product, and to achieve specified developmental
milestones.

We
are obligated to pay Columbia single-digit royalties on net sales of (i) Products sold by us or a sublicensee and (ii) any other products
that involve material or technical information related to the Product and transferred to us pursuant to the License Agreement (“Other
Products”) sold by us or a sublicensee. Royalties on each particular Product are payable on a country-by-country and Product-by-Product
basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued patents covered by the
License Agreement, (ii) a specified period of time after the first commercial sale of a Product in the country in question, or (iii) expiration
of any market exclusivity period granted by a regulatory agency. Royalties on each particular Other Product are payable on a country-by-country
and product-by-product basis until the later of (i) a specified period of time after the first commercial sale of such particular Other
Product in such country or (ii) expiration of any market exclusivity period granted by a regulatory agency. Royalties payable on net sales
of the Product and Other Products may be reduced by 50% of the royalties payable by us to any third party for intellectual property rights
which are necessary for the practice of the rights licensed to us under the License Agreement, provided that the royalty payable on a
Product or Other Product may not be reduced by more than 50%.

We
are also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis upon the achievement
of certain development, approval and sales milestones related to a Product. In addition, we shall pay Columbia 5% of consideration, other
than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As of December 31, 2022, no milestone
payments have been accrued or paid in relation to this agreement. 

Asset
Purchase Agreements 

On
February 2, 2023, we entered into an asset purchase agreement (the “Asset
Purchase Agreement”) with Healion Bio Inc., pursuant to which we acquired all the pre-clinical
infectious disease assets of Healion, including its portfolio of next-generation antiviral technology assets. Healion’s drug portfolio
includes a class of broad-spectrum small molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including
TNX-3900, formerly known as HB-121. As consideration for entering into the Asset Purchase Agreement, we paid $1.2 million to Healion.
Because the Healion intellectual property was acquired prior to FDA approval, the cash consideration totaling $1.2 million, is expected
to be expensed as research and development costs since there is no alternative future use and the acquired intellectual property does
not constitute a business.

On
December 22, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Katana Pharmaceuticals,
Inc. (“Katana”) pursuant to which we acquired Katana assets related to insulin resistance and related syndromes, including
obesity (the “Katana Assets”). In connection with the acquisition of the Assets, we assumed Katana’s rights and obligations
under that certain Exclusive License Agreement by and between Katana and The University of Geneva (“Geneva”) (the “Geneva
License “Agreement”) pursuant to an Assignment and Assumption Agreement with Geneva (“Geneva Assignment and Assumption
Agreement”), dated December 22, 2020. As consideration for entering into the Asset Purchase Agreement, we paid $0.7 million to Katana.
Because the Katana intellectual property was acquired prior to FDA approval, the cash consideration totaling $0.7 million, was expensed
as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute
a business.

Pursuant
to the terms of the Geneva Assignment and Assumption Agreement, Geneva granted us an exclusive license, with the right to sublicense,
certain patents related to the Katana Assets. We are obligated to use commercially reasonable efforts to diligently develop, manufacture,
and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such
products. The Geneva License Agreement specifies developmental milestones and the period of time during which such milestones must be
completed and provides for an annual maintenance fee payable to Geneva. As of December 31, 2022, no milestone payments have been accrued
or paid in relation to this agreement. 

63 

 On
June 11, 2020, we entered into an asset purchase agreement (the “Trigemina Asset Purchase Agreement”) with Trigemina, Inc.
(“Trigemina”) and certain shareholders named therein (the “Executive Shareholders”) pursuant to which we acquired
Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection with the acquisition
of the Trigemina Assets, we assumed Trigemina’s rights and obligations under that certain Amended and Restated Exclusive License
Agreement, dated November 30, 2007, as amended, by and between Trigemina and The Board of Trustees of the Leland Stanford Junior University
(“Stanford”) (the “Stanford License “Agreement”) pursuant to an Assignment and Assumption Agreement with
Stanford (“Assignment and Assumption Agreement”), dated June 11, 2020.

As
consideration for entering into the Trigemina Asset Purchase Agreement, we paid $824,759 to Trigemina and issued to Trigemina 62,500 shares
of our common stock and paid Stanford $250,241 pursuant to the terms of the Assignment and Assumption Agreement. The common stock is unregistered
and subject to a 12 month lock-up and a Shareholder Voting Agreement, dated June 11, 2020, pursuant to which Trigemina and the Executive
Shareholders have agreed to vote the common stock on any matter put to a vote of our shareholders in accordance with management’s
recommendations. Both the costs associated with the cash payments and share issuance, totaling $2.4 million, were recorded to research
and development in the statement of operations for the year ended December 31, 2020. Because the Trigemina intellectual property was acquired
prior to FDA approval, the cash and stock consideration was expensed as research and development costs since there is no alternative future
use and the acquired intellectual property does not constitute a business.

 Pursuant
to the terms of the Assignment and Assumption Agreement, Stanford has granted us an exclusive license, with the right to sublicense, certain
patents related to the Trigemina Assets. Stanford has reserved for itself the right to practice under the patents for academic research
and educational purposes. We are obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products
claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Stanford
License Agreement specifies developmental milestones and the period of time during which such milestones must be completed, and provides
for an annual maintenance fee payable to Stanford. As of December 31, 2022, other than the annual maintenance fee, no milestone payments
have been accrued or paid in relation to this agreement.

On
August 19, 2019, we entered into an asset purchase agreement (the “TRImaran Asset Purchase Agreement”) with TRImaran Pharma,
Inc. (“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant to which we
acquired TRImaran’s assets related to certain pyran-based compounds (the “TRImaran Assets”). In connection with the
acquisition of the TRImaran Assets, we entered into a First Amended and Restated Exclusive License Agreement (the “WSU License Agreement”)
with Wayne State University (“WSU”) on August 19, 2019, as subsequently amended. As consideration for entering into the TRImaran
Asset Purchase Agreement, we paid $100,000 to TRImaran and have assumed certain liabilities of TRImaran totaling $68,500. The $168,500
was recorded to research and development expenses in the statement of operations in 2019. Upon the achievement of specified development,
regulatory and sales milestones, we also agreed to pay TRImaran and the Selling Shareholders, in restricted stock or cash, at our option,
a total of approximately $3.4 million. Pursuant to the terms of the TRImaran Asset Purchase Agreement, TRImaran and the Selling Shareholders
are prohibited from disclosing confidential information related to the TRImaran Assets and are restricted from engaging, for a period
of three years, in the development or commercialization of any therapeutic containing any pyran-based drug compound for the treatment
of post-traumatic stress disorder, attention deficit hyperactivity disorder or major depressive disorder. Also for a period of three years,
if TRImaran or any Selling Shareholder engage in the research or development of any potential therapeutic compound for the treatment of
any central nervous system disorder, TRImaran or such Selling Shareholder is obliged to provide notice and opportunity to Tonix to make
an offer to acquire or license rights with respect to such product candidate. As of December 31, 2022, no milestone payments have been
accrued or paid in relation to this agreement.

Pursuant
to the terms of the WSU License Agreement, WSU granted us an exclusive license, with the right to sublicense, certain patents, technical
information and material (collectively, the “Technology”) related to the TRImaran Assets. WSU has reserved for itself the
right to practice the Technology for academic research and educational purposes. We are obligated to use commercially reasonable efforts
to obtain regulatory approval for one or more products utilizing the Technology (“WSU Products”) and to use commercially reasonable
marketing efforts throughout the term of the WSU License Agreement. The WSU License Agreement specifies developmental milestones and the
period of time during which such milestones must be completed and provides for an annual maintenance fee payable to WSU. We are obligated
to substantially manufacture WSU Products in the United States if WSU Products will be sold in the United States.

Pursuant
to the WSU License Agreement, we paid $75,000 to WSU as reimbursement of certain patent expenses, and, upon the achievement of specified
development, regulatory and sales milestones, we also agreed to pay WSU, milestone payments totaling approximately $3.4 million. We have
also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by us or a sublicensee on a tiered basis based on net
sales, and additional sublicense fees on certain consideration received from sublicensees. Royalties on each particular WSU Product are
payable on a country-by-country and Product-by-Product basis until the date of expiration of the last valid claim in the last to expire
of the issued patents covered by the WSU License Agreement. Royalties payable on net sales of WSU Products may be reduced by 50% of the
royalties payable by us to any third party for intellectual property rights which are necessary for the practice of the rights licensed
to us under the WSU License Agreement, provided that the royalty payable on a WSU Product may not be reduced by more than 50%. Each party
also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy. The WSU License Agreement
contains provisions relating to termination, indemnification, confidentiality and other customary matters for an agreement of this kind.
As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

Liquidity
and Capital Resources

As
of December 31, 2022, we had working capital of $112.6 million, comprised primarily of cash and cash equivalents of $120.2 million and
prepaid expenses and other of $10.5 million, offset by $8.1 million of accounts payable, $9.7 million of accrued expenses and other current
liabilities and $0.4 million of lease liabilities, short term. A significant portion of the accounts payable and accrued expenses are
due to work performed in relation to our Phase 3 clinical trial in FM and our vaccine program.

The
following table provides a summary of operating, investing and financing cash flows for the years ended December 31, 2022, and 2021, respectively
(in thousands):

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2022","","","2021"],["Net cash used in operating activities","","$","(98,053",")","","$","(75,557",")"],["Net cash used in investing activities","","","(48,147",")","","","(35,307",")"],["Net cash provided by financing activities","","","87,844","","","","212,487"]]
[[/GREPCENT_TABLE]]

64 

For
the years ended December 31, 2022 and 2021, we used approximately $98.1 million and $75.6 million of cash in operating activities, respectively,
which represents cash outlays for research and development and general and administrative expenses in such periods. The increase in cash
outlays principally resulted from an increase in research and development and general and administrative activities.

Cash
used by investing activities for the years ended December 31, 2022 and 2021 was approximately $48.1 million and $35.3 million, respectively,
related to the purchase of property and equipment. A significant portion of capital expenditure relates to the build-out of the RDC and ADC.

For
the years ended December 31, 2022 and 2021, net proceeds from financing activities were $87.8 million and $212.5 million, respectively,
predominately from the sale of our common stock.

We believe that our cash
resources at December 31, 2022 and the proceeds that we raised from equity offerings in the first quarter of 2023, net of amounts paid
to repurchase shares in the first quarter of 2023, will meet our operating and capital expenditure requirements into the fourth quarter
of 2023, but not beyond. 

We
face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently
expected due to changes we may make in our research and development spending plans. These factors raise substantial doubt about our ability
to continue as a going concern for the one year period from the date of filing of this Form 10-K. We believe we have the ability to obtain
additional funding through public or private financing or collaborative arrangements with strategic partners to increase the funds available
to fund operations. Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development
activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations.
If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected. 

Future
Liquidity Requirements

We
expect to incur losses from operations for the near future. We expect to incur increasing research and development expenses, including
expenses related to additional clinical trials and the buildout of our research and development operations and manufacturing. We will
not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates,
the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing
patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success
in developing markets for our product candidates.

We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include the issuance
of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required,
it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected
cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, shareholders
may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing
holders of our common stock.

If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate
our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize
independently.

Share
Repurchase Program

Since January 1, 2023, the Company
has repurchased 15,700,269 of its shares of common stock outstanding under a $12.5 million
share purchase program at prices ranging from $0.44 to $1.38 per share for a gross aggregate cost of approximately $12.5 million.

In January 2023, the Board of Directors
approved a new share repurchase program pursuant to which the Company may repurchase up to an additional $12.5
million in value of its outstanding common stock from time to time on the open market and in privately negotiated transactions subject
to market conditions, share price and other factors. Since January 1, 2023, the Company has
repurchased 1,000,000 of its shares of common stock outstanding under the new share repurchase
program at $1.14 per share for a gross aggregate cost of $1.1 million.

Convertible Redeemable Preferred stock

On October
26, 2022, we issued 1,400,000 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock to certain institutional
investors in a private placement. The Preferred Stock had an aggregate stated value of $15,000,000. Each share of the Preferred Stock
had a purchase price of $9.50, representing an original issue discount (“OID”) of 5% of the stated value. The shares of the
preferred stock were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $1.00
per share, at the option of the holder, and at our option upon the fulfillment of certain conditions and subject to certain limitations.
The Company and the holders of the preferred stock also entered into a registration rights agreement to register the resale of the shares
of common stock issuable in the event of the conversion of the preferred stock. The $14.3 million in gross proceeds of the offering were
held in an escrow account, along with an additional $1.5 million deposited by the Company to cover the aggregate OID as well as the additional
amount that would have been necessary to fund the 105% redemption price until the expiration of the redemption period for the Preferred
Stock.

All
outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed
in December 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $15.8 million in the aggregate. 

65 

On June
24, 2022, we issued 2,500,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock to certain institutional
investors in a private placement. The Preferred Stock had an aggregate stated value of $30,000,000. Each share of the Preferred Stock
had a purchase price of $9.50, representing an OID of 5% of the stated value. The shares of the preferred stock were convertible into
shares of our common stock, upon the occurrence of certain events, at a conversion price of $4.00 per share, at the option of the holder,
and at our option upon the fulfillment of certain conditions and subject to certain limitations. The Company and the holders of the preferred
stock also entered into a registration rights agreement to register the resale of the shares of common stock issuable in the event of
the conversion of the preferred stock. The $28.5 million in gross proceeds of the offering were held in an escrow account, along with
an additional $3.0 million deposited by the Company to cover the aggregate OID as well as the additional amount that would have been necessary
to fund the 105% redemption price until the expiration of the redemption period for the Preferred Stock.

All outstanding shares of the
Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed in August 2022 at 105%
of the $10.00 stated value of the Preferred Stock, or $31.5 million in the aggregate.

2022
Lincoln Park Transaction

On
August 16, 2022, we entered into a purchase agreement (the “2022 Purchase Agreement”) and a registration rights agreement
(the “2022 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the
terms of the 2022 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $50,000,000 of our common stock (subject to certain
limitations) from time to time during the term of the 2022 Purchase Agreement. Pursuant to the terms of the 2022 Registration Rights Agreement,
we filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued
to Lincoln Park under the 2022 Purchase Agreement.

Pursuant
to the terms of the 2022 Purchase Agreement, at the time we signed the 2022 Purchase Agreement and the 2022 Registration Rights Agreement,
we issued 625,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under
the 2022 Purchase Agreement. The commitment shares were valued at $1,000,000 and recorded as an addition to equity for the issuance of
the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2022 Purchase Agreement.

During
the year ended December 31, 2022, we sold 1.0 million shares of common stock under the 2022 Purchase Agreement, for net proceeds of approximately
$0.5 million. Subsequent to December 31, 2022, the Company sold 0.6 million shares of common stock under the Purchase Agreement
with Lincoln Park for net proceeds of approximately $0.4 million.

Purchase
Agreement with Lincoln Park

On
December 3, 2021, we entered into a purchase agreement (the “Purchase Agreement with Lincoln Park”) and a registration rights
agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the Purchase Agreement with Lincoln Park, Lincoln Park agreed to purchase from us up to $80,000,000 of our common
stock (subject to certain limitations) from time to time during the term of the Purchase Agreement with Lincoln Park. Pursuant to the
terms of the Lincoln Park Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the
Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement with Lincoln Park.

Pursuant
to the terms of the Purchase Agreement with Lincoln Park, at the time we signed the Purchase Agreement with Lincoln Park and the Lincoln
Park Registration Rights Agreement, we issued 90,910 shares of common stock to Lincoln Park as consideration for its commitment to purchase
shares of our common stock under the Purchase Agreement with Lincoln Park. The commitment shares were valued at $1.6 million and recorded
as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under
the Purchase Agreement with Lincoln Park.

During
the year ended December 31, 2022, we sold 2.9 million shares of common stock under the Purchase Agreement with Lincoln Park, for net proceeds
of approximately $8.7 million.

Under
applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99% of the shares of its common stock outstanding
immediately prior to the execution of the Purchase Agreement (approximately 2.9 million shares) with Lincoln Park under the Purchase Agreement
without stockholder approval, unless the average price of all applicable sales of its common stock to Lincoln Park under the Purchase
Agreement equals or exceeds a threshold amount. As we have issued approximately 2.9 million shares to Lincoln Park under the Purchase
Agreement at less than the threshold amount, we will not sell any additional shares under the Purchase Agreement without shareholder approval.

2021
Lincoln Park Transaction 

On
May 14, 2021, we entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement (the
“2021 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms
of the 2021 Purchase Agreement, Lincoln Park agreed to purchase from us up to $80,000,000 of our common stock (subject to certain limitations)
from time to time during the term of the 2021 Purchase Agreement. Pursuant to the terms of the 2021 Registration Rights Agreement, we
filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued
to Lincoln Park under the 2021 Purchase Agreement.

Pursuant
to the terms of the 2021 Purchase Agreement, at the time we signed the 2021 Purchase Agreement and the 2021 Registration Rights Agreement,
we issued 40,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under
the 2021 Purchase Agreement. The commitment shares were valued at $1.6 million and recorded as an addition to equity for the issuance
of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2021 Purchase Agreement.

During
the year ended December 31, 2021, we sold an aggregate of approximately 2.0 million shares of common stock under the 2021 Purchase Agreement,
for gross proceeds of approximately $41.3 million. During the year ended December 31, 2022, no shares of common stock were sold under
the 2021 Purchase Agreement.

Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the 2021 Purchase Agreement (approximately 2.0 million shares) to Lincoln Park under the 2021 Purchase
Agreement without stockholder approval, unless the average price of all applicable sales of our common stock to Lincoln Park under the
2021 Purchase Agreement equals or exceeds a threshold amount.

66 

As
we have issued approximately 2.0 million shares to Lincoln Park under the 2021 Purchase Agreement, at less than the threshold amount,
we will not sell any additional shares under the 2021 Purchase Agreement without shareholder approval.

 February
2021 Financing

On
February 8, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale
of 1.8 million shares of our common stock, in a registered direct public offering (“the February 2021 Financing”), with A.G.P/Alliance
Global Partners (“AGP”), acting as placement agent. The public offering price for each share of common stock was $38.40. The
February 2021 Financing closed on February 9, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate amount of $4.9
million. We incurred other offering expenses of approximately $0.1 million. We received net proceeds of approximately $65.0 million, after
deducting the fees and other offering expenses.

January
2021 Financing

On
January 11, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale
of 1.6 million shares of its common stock in a registered direct public offering (“the January 2021 Financing”), with AGP
as placement agent. The public offering price for each share of common stock was $25.60. The January 2021 Financing closed on January
13, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $2.8 million. We incurred other offering expenses of
approximately $0.3 million. The Company received net proceeds of approximately $36.9 million, after deducting the fees and other offering
expenses.

At-the-Market
Offerings

 On
April 8, 2020, we entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which we may issue and
sell, from time to time, shares of our common stock having an aggregate offering price of up to $320.0 million in at-the-market
offerings (“ATM”) sales. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales
Agreement. Our common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.
During the year ended December 31, 2022, we sold approximately 56.4 million shares of common stock under the Sales Agreement, for
net proceeds of approximately $85.3 million. During the year ended December 31, 2021, we sold approximately 3.5 million shares of
common stock under the Sales Agreement, for net proceeds of approximately $69.3 million. Subsequent to December 31, 2022, we sold
2.1 million shares of common stock under the Sales Agreement, for net proceeds of approximately $1.4 million. 

Stock Compensation

Stock
Options

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”).
The 2019 Plan provided for the issuance of up to 4,375 shares of our common stock. With the adoption of the 2020 Plan (as defined below),
no further grants may be made under the 2019 Plan. On January 16, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp.
2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan provided for the issuance of up to 18,750 shares of our common
stock. With the adoption of the Amended and Restated 2020 Plan (as defined below), no further grants may be made under the 2020 Plan.

On
May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan (“Amended
and Restated 2020 Plan”), and together with the 2020 Plan and the 2019 Plan, the “Plans”).

Under the terms of the Amended and Restated 2020 Plan, we may issue (1)
stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights (“SARs”), (4) RSUs, (5) other
stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up to 312,500
shares of common stock, which amount will be increased to the extent that awards granted under the Plans are forfeited, expire or
are settled for cash (except as otherwise provided in the Amended and Restated 2020 Plan). In addition, the Amended and Restated 2020
Plan contains an “evergreen provision” providing for an annual increase in the number of shares of our common stock available
for issuance under the Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021
and ending on (and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number
of shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares of
common stock reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year (including
shares subject to outstanding awards, issued pursuant to awards or available for future awards). The Board of Directors determines the
exercise price, vesting and expiration period of the grants under the Amended and Restated 2020 Plan. However, the exercise price of an
incentive stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder
and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted market
price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration period of grants
under the Amended and Restated 2020 Plan may not be more than ten years. As of December 31, 2022, 627,735 shares were available for future
grants under the Amended and Restated 2020 Plan.

We measure the fair value of stock options on the date of grant, based
on the Black Scholes option pricing model using certain assumptions discussed below, and the closing market price of the Company’s
common stock on the date of the grant. The fair value of the award is measured on the grant date. One-third of most stock options granted
pursuant to the Plans vest 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten years
from the date of grant. In addition, the Company issues options to directors which vest over a one-year period. The Company also issues
premium options to executive officers which have an exercise price greater than the grant date fair value and has issued performance-based
options which vest when target parameters are met or probable of being met, subject in each case to a one year minimum service period
prior to vesting. Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line
method.

The
risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options
as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting
Bulletin, and the expected stock price volatility is based on the Company’ historical stock price volatility.

The
weighted average grant date fair value of options granted during the years ended December 31, 2022 and 2021, was $5.25 and $33.78 per
share, respectively.

67 

Stock-based
compensation expense relating to options granted of $10.9 million, of which $7.9 million and $3.0 million, related to General and Administration
and Research and Development, respectively was recognized for the year ended December 31, 2022. Stock-based compensation expense
relating to options granted of $7.9 million, of which $5.5 million and $2.4 million, related to General and Administration and Research
and Development, respectively was recognized for the year ended December 31, 2021. 

As
of December 31, 2022, we have approximately $11.6 million of unrecognized compensation cost related to non-vested awards granted under
the Plans, which we expect to recognize over a weighted average period of 1.73 years.

Employee
Stock Purchase Plan

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan (the “2019 ESPP”).
As a result of adoption of the 2020 ESPP, as defined below, by the stockholders, no further grants may be made under the 2019 ESPP Plan.
On May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2020 Employee Stock Purchase Plan (the “2020
ESPP”). No further grants may be made under the 2020 ESPP Plan. On May 6, 2022, our stockholders approved the Tonix Pharmaceuticals
Holdings Corp. 2022 Employee Stock Purchase Plan (the “2022 ESPP”, and together with the 2019 ESPP and the 2020 ESPP, the
“ESPP Plans”)).

The
2022 ESPP allows eligible employees to purchase up to an aggregate of 93,750 shares of our common stock. Under the 2022 ESPP,
on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering period,
which allows the eligible employees to purchase shares of our common stock at the end of the offering period. Each offering period under
the 2022 ESPP is for six months, which can be modified from time-to-time. Subject to limitations, each participant will be permitted to
purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the offering period by the
applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at the beginning or end
of each offering period, whichever is less. A participant must designate in his or her enrollment package the percentage (if any) of compensation
to be deducted during that offering period for the purchase of stock under the 2022 ESPP, subject to the statutory limit under the Code.
As of December 31, 2022, 9 shares were available for future sales under the 2022 ESPP.

 The
2022 and 2020 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For
the year ended December 31, 2022 and 2021, $46,000 and $89,000, respectively were expensed. In January 2021, 1,703 shares that were purchased
as of December 31, 2020, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2021, approximately $28,000 of employee
payroll deductions accumulated at December 31, 2020, related to acquiring such shares, was transferred from accrued expenses to additional
paid in capital. The remaining $4,000 was returned to the employees. In January 2022, 4,033 shares that were purchased as of December
31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2022, approximately $40,000 of employee payroll deductions
accumulated at December 31, 2021, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital.
The remaining $30,000 was returned to the employees. As of December 31, 2022, approximately $43,000 of employee payroll deductions have
accumulated and have been recorded in accrued expenses. In January 2023, 93,741 shares that were purchased as of December 31, 2022,
under the 2022 ESPP, were issued. Accordingly, during the first quarter of 2023, approximately $29,000 of employee payroll deductions
accumulated at December 31, 2022, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital.
The remaining $14,000 was returned to the employees.

 Commitments

Research
and Development Contracts

We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $58.6
million at December 31, 2022 for future work to be performed.

We
have entered into a construction contract with outstanding commitments aggregating approximately $2.0 million at December 31, 2022 for
future work to be performed.

Operating
Leases

At
December 31, 2022, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows
(in thousands):

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Critical
Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations are based on our condensed financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We evaluate our estimates
and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.

68 

 We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Research
and Development. We outsource our research and development efforts and expense the related costs as incurred, including the cost of manufacturing
product for testing, licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and
other intellectual property acquired was expensed as research and development costs, as it related to particular research and development
projects and had no alternative future uses.

We
estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under
contracts with vendors, consultants and clinical research organizations and clinical site agreements in connection with conducting clinical
trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment
flows that do not match the periods over which materials or services are provided to us under such contracts. We account for trial expenses
according to the progress of the trial as measured by participant progression and the timing of various aspects of the trial. We determine
accrual estimates that take into account discussions with applicable personnel and outside service providers as to the progress or state
of completion of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition
if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date based on the facts
and circumstances known to us at that time. Our clinical trial accruals and prepaid assets are dependent upon the timely and accurate
reporting of contract research organizations and other third-party vendors.

Stock-Based
Compensation. All stock-based payments to employees and to nonemployee directors for their services as directors consisted of grants of
restricted stock and stock options, which are measured at fair value on the grant date and recognized in the consolidated statements of
operations as compensation expense over the relevant vesting period. In addition, for awards that vest immediately and are nonforfeitable,
the measurement date is the date the award is issued.

Redeemable
Convertible Preferred Stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured
at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within
the Company’s control, as temporary equity (“mezzanine”) until such time as the conditions are removed or lapse.

Other
than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or
liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material variable
interest in an unconsolidated entity. 

Recently
Issued Accounting Pronouncements

In August 2020, the FASB issued
ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and
it also simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on January 1, 2023, under the modified
retrospective method of transition. We do not anticipate the adoption of ASU 2020-06 to impact the Company’s financial position,
results of operations or cash flows.