Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A, below and under "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission, or the SEC, on March 9, 2022.
These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Introduction
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying unaudited interim condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:
Overview - A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
Results of Operations - An analysis of our financial results comparing the three months ended March 31, 2022 to the three months ended March 31, 2021.
Liquidity and Capital Resources - An analysis of changes in our unaudited interim condensed consolidated balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Critical Accounting Policies and Significant Judgments and Estimates - A discussion of critical accounting policies and those that require us to make subjective estimates and judgments.
Overview
We are a clinical-stage biopharmaceutical company focused on developing next-generation, systemically active viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and deliver transgenes to stimulate multiple arms of the immune system against tumors. We believe that the therapies we are developing could bring significant benefit to many patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.
Our HSV Platform
Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our HSV Platform, which leverages the Herpes Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Using our HSV Platform, we engineered ONCR-177 to overcome the limitations of existing viral immunotherapies by enhancing potency and driving strong systemic anti-tumor immune responses at injected as well as distant non-injected tumor sites. ONCR-177 is armed with five immunostimulatory transgenes—a greater number of transgenes than viral immunotherapies that are either currently approved or in clinical development. Product candidates from our HSV Platform are designed to maintain full viral replication competency in tumors and to be selectively attenuated in healthy tissues, meaning they replicate and express transgenes only in tumor cells while disabling potentially harmful effects on healthy tissues. In multiple preclinical cancer models, we observed that these attributes of ONCR-177 were achieved without either the systemic release of cytokines that can be associated with toxicity or significant presence of the virus in non-injected tumors or in circulation, in addition to favorable tolerability when administered via intravenous and intratumoral injection in a validated murine model of HSV-1 infection. We believe this combination of features allows our HSV Platform to overcome the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. Based on safety and tolerability profile observed to date and its ability to stimulate multiple arms of the immune system to attack cancer systemically, we also believe that ONCR-177 has potential in pre-surgical, or neoadjuvant, settings.
In June 2020, we initiated our Phase 1 clinical trial of ONCR-177 in patients with several different types of solid tumors, including breast cancers and cutaneous tumors. We presented our preliminary findings from the Phase 1 clinical trial in November 2021, which included data from 14 patients in the fully enrolled and completed dose escalation cohorts of the trial and five patients enrolled in the
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dose expansion monotherapy portion of the trial. In the fully enrolled and completed surface lesion dose escalation portion of the trial, ONCR-177 administered to heavily pretreated patients with advanced, injectable solid tumors was well tolerated with no dose-limiting toxicities. No treatment-related adverse events exceeded Grade 2, and no infectious virions were detected in skin swabs. After four weeks of monotherapy treatment with ONCR-177 at the recommended Phase 2 dose, or RP2D, three of eight evaluable patients (one with cutaneous melanoma, one with squamous cell carcinoma of the head and neck, or SCCHN, and one with mucosal melanoma) had demonstrated clinical benefit. We have initiated enrollment in the surface lesion dose combination expansion portion of the clinical trial. Patients in the trial will receive ONCR-177 in combination with Merck's KEYTRUDA® (pembrolizumab), an immune checkpoint inhibitor. In addition, we are enrolling and currently dosing separate cohorts of patients with visceral tumors in the liver with the goal of showing additional safety data. We plan to report additional surface lesion monotherapy expansion data as well as initial surface lesion combination expansion data in the second half of 2022.
In addition to ONCR-177, we also have additional preclinical stage programs within our HSV Platform addressing both intratumoral and intravenous solutions to other unmet medical needs, including ONCR-GBM, our program designed to target brain cancer through intratumoral injection.
Our Selectively Self-Amplifying vRNA Immunotherapy Platform
We are also developing a broad pipeline of product candidates that leverages our second platform, our selectively self-amplifying viral RNA, or vRNA, immunotherapy platform, referred to as our vRNA Immunotherapy Platform, which aims to enable repeat intravenous, or IV, administration of viral immunotherapies to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung. Our IV-administered approach involves encapbsulating in a lipid nanoparticle, or LNP, the genomes of RNA viruses known to kill cancer cells, creating a selectively self-amplifying vRNA immunotherapy. We believe this approach will avoid the rapid immune clearance from circulation caused by neutralizing antibodies otherwise observed to date with IV-administered oncolytic viruses and thought to limit their effectiveness in the clinic. Once inside the tumor, the synthetic viral genome from our synthetic viruses is first amplified and then instructs tumor cells to synthesize actual infectious virions, which can cause tumor lysis before infecting nearby tumor cells while stimulating immune cell recruitment and activity.
Our two product candidates from our vRNA Immunotherapy Platform are ONCR-021 and ONCR-788. ONCR-021 encodes an optimized strain of Coxsackievirus A21, or CVA21, and ONCR-788 encodes for a modified version of the Seneca Valley Virus, or SVV. Both CVA21 and SVV have extensive clinical experience and favorable safety profiles when administered IV. We believe our selectively self-amplifying vRNA Immunotherapy Platform holds the potential for IV administration and avoids the challenge of neutralizing antibodies seen in previous approaches with IV-administered RNA-based oncology therapeutics. We plan to investigate our novel vRNA immunotherapies in multiple histologies, including cancers of the lung, both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments. We plan to submit an IND to the U.S. Food and Drug Administration, or FDA, for ONCR-021 in mid-2023 to enable clinical development for non-small cell lung cancer and other cancers such as clear cell renal cell carcinoma and melanoma, both as a single agent and in combination with immune checkpoint inhibitors. Following the IND submission for ONCR-021 and pending further resources, we plan to submit an IND for ONCR-788 to enable its development in small cell lung cancer, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments. In the process of developing our vRNA Immunotherapy Platform, we also developed a proprietary LNP platform intended to efficiently deliver large nucleic acids with minimal endosomal escape.
Manufacturing
We plan to manufacture our product candidates at our approximately 105,000 square foot manufacturing facility in Andover, Massachusetts, 41,000 square feet of which is specifically dedicated to processes that are compliant with good manufacturing practices, or GMP. We began process development activities at the facility in 2021 and we anticipate this facility will be operational in late 2022.
Financial
Since inception in 2015, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial, and manufacturing scale-up activities. We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.
We have funded our operations primarily through the sale of redeemable convertible preferred stock, including Series A-1 redeemable convertible preferred stock, or Series A-1, and Series B redeemable convertible preferred stock, or Series B, our initial public offering, or IPO, of our common stock and a follow-on public offering, or the Follow-on Offering, of our common stock. Through our Series
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A-1 and Series B financings we raised $150.9 million in aggregate gross proceeds. In October 2020, we completed our IPO, in which we issued an aggregate of 6,557,991 shares of common stock for aggregate gross proceeds of $98.4 million. Our shares of common stock began trading on the Nasdaq Global Market under the ticker symbol “ONCR” on October 2, 2020. In February 2021, we completed the Follow-on Offering in which we issued 3,000,000 shares of common stock for aggregate gross proceeds of $57.0 million. From inception through March 31, 2022, we have raised an aggregate of $306.3 million of gross proceeds through the issuance of redeemable convertible preferred stock, our IPO, and the Follow-on Offering.
Since inception, we have incurred significant operating losses. Our net losses were $17.8 million and $12.7 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit of $212.4 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.
We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
As of March 31, 2022, we had cash and cash equivalents and investments of $98.7 million. We believe that our existing cash and cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements into early 2024.
Recent Developments
On April 1, 2022, we entered into a loan and security agreement, or the Loan Agreement, with K2 HealthVentures LLC, or K2HV, which we refer to together with any other lender from time to time party thereto, as the Lenders. The Loan Agreement provides up to $45.0 million principal in term loans consisting of a first tranche of $20.0 million that was funded at closing and three subsequent tranches totaling $25.0 million to be funded upon the achievement of certain time-based, clinical and regulatory milestones. The Term Loan will mature on April 1, 2026 and bears a variable interest rate equal to the greater of (i) 7.75% and (ii) the sum of (A) the prime rate last quoted in The Wall Street Journal (or a comparable replacement rate if The Wall Street Journal ceases to quote such rate) and (B) 4.25%. The Loan Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including covenants that limit or restrict our ability to, among other things, dispose of assets, make changes to our business, management, ownership or business locations, merge or consolidate, incur additional indebtedness, pay dividends or other distributions or repurchase equity, make investments, and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for its obligations under the Loan Agreement, we granted the Lenders a first priority security interest on substantially all of our assets (other than intellectual property), subject to certain exceptions.
The Lenders may elect at any time following the closing and prior to the full repayment of the term loans to convert any portion of the principal amount of the term loans then outstanding, up to an aggregate of $5.0 million in principal amount, into shares of our common stock at a conversion price of $2.2689, subject to customary beneficial ownership limitations. In connection with entering into the Loan Agreement, we also issued to K2HV a warrant to purchase a number of shares of our common stock equal to the quotient of 2.95% of the aggregate funded term loan amount divided by $1.5126, the exercise price, up to a maximum of 877,627 shares. The warrant expires on April 1, 2032.
On April 5, 2022, we announced plans to relocate all of our operations to our facility in Andover, Massachusetts. We anticipate that the relocation will be complete in the fourth quarter of 2022.
Impact of the COVID-19 Pandemic on Our Business
In response to the COVID-19 pandemic, we implemented a work-from-home policy allowing employees who can work from home to do so. We are in the process of transitioning back to in-office work for the majority of our employees. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Business travel was previously suspended but is now limited, and online and teleconference technology continues to be used regularly. We continue to monitor health guidance measures and may adjust our plans based upon the status of the pandemic.
Components of Operating Results
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Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical and clinical studies under our research programs, which include:
•employee-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for our research and development personnel;
•costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;
•costs of manufacturing drug product and drug supply related to our current or future product candidates;
•costs of conducting preclinical studies and clinical trials of our product candidates;
•consulting and professional fees related to research and development activities, including stock-based compensation to non-employees;
•costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;
•costs related to compliance with clinical regulatory requirements;
•facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies; and
•fees for maintaining licenses and other amounts due under our third-party licensing agreements.
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
We track external research and development costs on a program-by-program basis beginning, with respect to each program, upon our internal nomination of a candidate in that program for further preclinical and clinical development. For example, ONCR-021 and ONCR-788 were both nominated as candidates in May 2021, at which time we began tracking their external research and development costs. External costs include fees paid to consultants, contractors and vendors, including contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our preclinical, clinical and manufacturing activities and license milestone payments related to candidate development. We do not allocate employee costs, costs associated with our discovery efforts, costs incurred for laboratory supplies, and facilities, including depreciation, or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
•the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;
•establishing an appropriate safety profile;
•successful enrollment in and completion of clinical trials;
•whether our product candidates show safety and efficacy in our clinical trials;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
•continued acceptable safety profile of the products following any regulatory approval.
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A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses include salaries, bonuses and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees including legal fees relating to intellectual property and corporate matters, audit and tax fees, recruiting costs, costs for consultants who we utilize to supplement our personnel and insurance costs. General and administrative expenses also include travel costs, facility and office-related costs that are not included in research and development expenses, as well as depreciation and amortization.
We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the SEC and Nasdaq listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
Other Income (Expense)
Other income (expense) primarily consists of interest income from our short-term investments and cash equivalents.
Results of Operations
The following table summarizes our results of operations for the periods indicated.
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THREE MONTHS ENDED
MARCH 31, |
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CHANGE |
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|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
|
(in thousands, except percentages) |
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Operating expenses: |
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|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
12,469 |
|
|
$ |
8,447 |
|
|
$ |
4,022 |
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|
|
48 |
% |
General and administrative |
|
|
5,349 |
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|
|
4,222 |
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|
|
1,127 |
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|
|
27 |
% |
Total operating expenses |
|
|
17,818 |
|
|
|
12,669 |
|
|
|
5,149 |
|
|
|
41 |
% |
Loss from operations |
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|
(17,818 |
) |
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|
(12,669 |
) |
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|
(5,149 |
) |
|
|
-41 |
% |
Total other income (expense), net |
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38 |
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|
6 |
|
|
|
32 |
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|
|
533 |
% |
Net loss |
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$ |
(17,780 |
) |
|
$ |
(12,663 |
) |
|
$ |
(5,117 |
) |
|
|
-40 |
% |
Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
Research and Development Expenses
The table below summarizes our research and development expenses by product candidate or development program and unallocated research and development expenses for each of the periods presented:
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THREE MONTHS ENDED
MARCH 31, |
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2022 |
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2021 |
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CHANGE |
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(in thousands) |
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|
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Direct external expenses by program |
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ONCR-177 |
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$ |
3,127 |
|
|
$ |
1,630 |
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|
$ |
1,497 |
|
ONCR-021 |
|
|
925 |
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|
|
— |
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|
|
925 |
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ONCR-788 |
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46 |
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|
|
— |
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46 |
|
Platform development, early stage research and unallocated
expenses: |
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Employee compensation and related |
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|
4,600 |
|
|
|
3,011 |
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|
|
1,589 |
|
External research, development and consulting |
|
|
284 |
|
|
|
857 |
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|
|
(573 |
) |
Laboratory supplies |
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|
958 |
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|
|
924 |
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|
|
34 |
|
Facility-related |
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1,793 |
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1,522 |
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|
|
271 |
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Other expenses |
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|
736 |
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|
|
503 |
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|
233 |
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Total research and development |
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$ |
12,469 |
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|
$ |
8,447 |
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|
$ |
4,022 |
|
Research and development expenses increased from $8.4 million for the three months ended March 31, 2021 to $12.5 million for the three months ended March 31, 2022. The increase of $4.0 million, or 48%, was primarily the result of:
•a $1.5 million increase in direct external expenses for ONCR-177 due to increased clinical trial costs associated with the Phase 1 trial and increased drug production costs directly attributable to ONCR-177;
•a $1.0 million increase in direct external expenses for ONCR-021 and ONCR-788, which was attributable to pre-clinical development costs that were incurred subsequent to their respective candidate nominations in May 2021;
•a $1.6 million increase in employee compensation costs, including salaries, bonus and employee benefits due to increased headcount in 2022 as compared to 2021. Employee compensation costs also increased due to higher stock compensation expense incurred from increased stock option grants to existing and new employees in 2022 compared to 2021;
•a $0.6 million decrease in external research, development and consulting costs as costs in this category related to ONCR-021 and ONCR-788 are now being captured as program costs following their candidate nominations in May 2021;
•a $0.3 million increase in facility-related costs primarily due to additional rent expense incurred from us entering into an amendment to our Andover lease in December 2021 and increasing total leased space by 17,150 square feet; and
•a $0.2 million increase in other expenses primarily related to increased license expense, depreciation related to our manufacturing facility and support costs related to our growth.
General and Administrative Expenses
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THREE MONTHS ENDED
MARCH 31, |
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2022 |
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2021 |
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CHANGE |
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(in thousands) |
|
Employee compensation and related |
|
$ |
2,535 |
|
|
$ |
1,649 |
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|
$ |
887 |
|
Professional service and consultant fees |
|
|
1,922 |
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|
|
2,089 |
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(168 |
) |
Facility-related |
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|
301 |
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|
|
108 |
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|
|
193 |
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Other expenses |
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|
591 |
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|
|
376 |
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|
215 |
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Total general and administrative expenses |
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$ |
5,349 |
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|
$ |
4,222 |
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|
$ |
1,127 |
|
General and administrative expenses increased from $4.2 million for the three months ended March 31, 2021 to $5.3 million for the three months ended March 31, 2022. The increase of $1.1 million, or 27%, was primarily the result of:
•a $0.9 million increase in employee compensation costs primarily related to higher stock compensation expense incurred from increased stock option grants to existing and new employees in 2022 compared to 2021 as well as higher salaries, bonus and employee benefits costs, due to increased headcount in 2022 as compared to 2021;
•a $0.2 million decrease in professional service and consultant fees primarily related to decreased costs for consultants who have been replaced by increased headcount;
•a $0.2 million increase in facility-related costs primarily due to additional rent expense incurred from us entering into an amendment to our Andover lease in December 2021 and increasing total leased space by 17,150 square feet and changes in rent expense allocation driven by changes in our employee headcount; and
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•a $0.2 million increase in other expenses primarily related to increased support costs related to our growth.
Other Income (Expense)
Other income (expense) for the three months ended March 31, 2022 improved slightly compared to the three months ended March 31, 2021. The major component of other income (expense) is interest income earned on our investments which we purchased in late 2021.
Liquidity and Capital Resources
Sources of Liquidity
From inception through March 31, 2022, we funded our operations with gross proceeds of $306.3 million from sales of our redeemable convertible preferred stock, our IPO and our Follow-on Offering. As of March 31, 2022, our cash and cash equivalents and investments totaled $98.7 million.
Cash Flows
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THREE MONTHS ENDED
MARCH 31, |
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2022 |
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2021 |
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(in thousands) |
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Net cash (used in) provided by: |
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|
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Operating activities |
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$ |
(23,437 |
) |
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$ |
(10,379 |
) |
Investing activities |
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|
(1,868 |
) |
|
|
(385 |
) |
Financing activities |
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|
62 |
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|
|
53,081 |
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Net (decrease) increase in cash and cash equivalents |
|
$ |
(25,243 |
) |
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$ |
42,317 |
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Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $23.4 million and was primarily related to our net loss for the period of $17.8 million, partially offset by non-cash charges consisting primarily of depreciation and amortization of $0.6 million and stock-based compensation expense of $2.0 million. Our net cash used in operating activities also included a net use of cash of $8.2 million related to changes in operating assets and liabilities as follows:
•a net use of cash of $13.7 million from an decrease in accounts payable and accrued expenses primarily due to the timing of Andover construction invoices and payment of our 2021 annual bonuses; and
•a source of cash of $4.5 million from the reimbursement of certain Andover construction costs through our tenant improvement allowance;
Net cash used in operating activities for the three months ended March 31, 2021 was $10.4 million and was primarily related to our net loss for the period of $12.7 million, partially offset by non-cash charges consisting of depreciation and amortization of $0.4 million and stock-based compensation expense of $1.2 million. Our net cash used in operating activities also included a net source of cash of $0.7 million related to changes in operating assets and liabilities as follows:
•a net source of cash of $0.2 million due to a decrease in prepaid expenses and other current assets primarily due to services being performed on amounts already paid to vendors;
•a net source of cash of $1.0 million from changes in the operating lease liability and associated right-of-use asset due to the difference in the timing of rent expense compared to rent payments;
•a net source of cash of $0.8 million from an increase in accounts payable due to overall expense growth and the timing of invoices; and
•a net use of cash of $1.3 million from a decrease in accrued expenses and other current liabilities primarily due to the payment of our 2020 annual bonuses.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2022 and 2021 was $1.9 million and $0.4 million, respectively. These investing activities in 2022 and 2021 were associated with purchases of property and equipment, specifically leasehold improvements and laboratory equipment for our Andover facility.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2022 was $0.1 million, which consisted of proceeds from the exercise of stock options. Net cash provided by financing activities for the three months ended March 31, 2021 was $53.1 million and primarily consisted of net proceeds from the issuance of common stock in connection with our Follow-on Offering.
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Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate clinical trials, continue the buildout of our Andover manufacturing facility and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. We also expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into early 2024. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on a number of factors, including:
•the costs of conducting preclinical studies and clinical trials;
•the costs of manufacturing;
•the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any;
•the costs, timing, and outcome of regulatory review of our product candidates;
•our ability to establish and maintain collaborations on favorable terms, if at all;
•the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time;
•the costs associated with the ongoing buildout of our Andover facility;
•the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
•the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
•the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
•our headcount growth and associated costs as we expand our business operations, research and development activities and manufacturing capabilities; and
•the costs of operating as a public company.
Our cash and cash equivalents as of March 31, 2022 will not be sufficient to complete development of ONCR-177 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests of stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited interim condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent
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assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.
There have been no significant changes to our critical accounting policies or other significant judgements and estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Contractual Obligations
As of March 31, 2022, there have been no material changes to our contractual obligations and commitments, consisting solely of operating lease obligations, from those described in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022.
See "—Recent Developments" above for a discussion of our Loan Agreement with K2HV, which we entered into on April 1, 2022.
Emerging Growth Company and Smaller Reporting Company Status
We are an ‘‘emerging growth company,’’ or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.
As an EGC, we may also take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
•we may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual reports on Form 10-K filed with the SEC;
•we will avail ourselves of the exemption from providing an auditor’s attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
•we will avail ourselves of the exemption from complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis;
•we may provide reduced disclosure about our executive compensation arrangements in our proxy statements filed with the SEC; and
•we will not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.
We will remain an EGC until the earliest of (i) December 31, 2025, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
We are also a ‘‘smaller reporting company,’’ meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company for so long as (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during our most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.
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If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recent Accounting Pronouncements
Refer to Note 2 in the accompanying notes to our unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
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