Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on March 22, 2023 (the “2022 Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of our 2022 Form 10-K and this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biotechnology company focused on unlocking the full potential of cell therapies to benefit patients with cancer and other serious medical conditions. The company was founded on the therapeutic potential of Cell Squeeze®, our proprietary technology which allows for rapid delivery of a variety of cargo into different cell types. We aim to create multiple cell therapies that drive the immune system to combat diseases.
On November 30, 2022, our Board of Directors approved a restructuring plan and strategic prioritization of our clinical portfolio (the Restructuring Plan) to concentrate on the development of our second-generation enhanced Antigen Presenting Cells (eAPC) cell therapy program, focused on HPV16 positive recurrent, locally advanced, or metastatic solid tumors and reduce our workforce by approximately 60%. On November 30, 2022, the Board appointed Howard Bernstein, MD, PhD, our director and former Chief Scientific Officer, as Interim Chief Executive Officer.
Additionally, on November 30, 2022, we announced a pause of our Antigen Presenting Cells (APC), Activating Antigen Carrier (AAC) and Tolerizing Antigen Carrier (TAC) programs. This portfolio prioritization was designed to allow us to deliver initial data readouts for the SQZ® eAPC program’s highest-dose monotherapy cohort, which we anticipate in mid-2023. We will continue to explore partnerships and collaborations for our earlier stage assets and programs, including TAC, as well as our point-of-care manufacturing capabilities.
In oncology, we are developing cell therapy platforms that are based on directing tumor antigen-specific immune activation via engineered antigen presentation. We believe that by engineering physiological antigen presentation signals in subsets of peripheral blood cells that act on immune priming pathways, we have the potential to develop cell therapies that are designed to be potent drivers of tumor-specific immunity, well-tolerated, administered without lymphodepleting preconditioning or hospitalization, and produced in under 24 hours.
We have continued to build upon the progress of our SQZ® APC platform through the development of the novel SQZ® eAPC platform. Our lead eAPC product candidate leverages the added capabilities and functionality of multiple antigen presentation and immunological signals achieved through multiplexed mRNA delivery to diverse immune cell types. In January 2022, we received allowance to proceed with clinical trials from the U.S. Food and Drug Administration, or FDA, under our Investigational New Drug, or IND, application for SQZ-eAPC-HPV, our lead eAPC candidate engineered with HPV16 antigens and costimulatory signals. We initiated the SQZ-eAPC-HPV trial, the COMMANDER-001 Phase 1/2 study, in patients with HPV16+ advanced solid tumors in the first half of 2022. We expect to announce initial data from highest-dose monotherapy cohort in this trial in mid-2023.
Recent Developments
At the time of the November 2022 strategic realignment announcement, the SQZ-AAC-HPV trial had one patient in the lowest-dose cohort on study. On December 21, 2022, after two treatment cycles, the patient’s CT scan showed reduction of the target lesion—a right hilar lymph node—from 16 millimeters (mm) at baseline to 10mm, or approximately 38% from baseline, which was consistent with a partial response by RECIST 1.1 criteria. A subsequent scan on February 2, 2023, after four treatment cycles, showed further reduction of the target lesion to 8mm, or 50% from baseline, which was consistent with a confirmed partial response / unconfirmed complete response by RECIST 1.1 criteria, as well as an unconfirmed complete response. In March 2023, after seven cycles of SQZ-AAC-HPV, a CT scan confirmed the complete response by RECIST 1.1 criteria. Biomarker analysis on this patient identified an inflamed tumor microenvironment that highly expressed MHC1 cells and an increase in CD8+ cell density was observed. In light of this response in the first patient dosed, we decided to continue to enroll patients in the SQZ-AAC-HPV clinical trial. We have completed the dose-limiting toxicity period for the lowest-dose cohort. Following review and recommendation by the Study Safety Committee, we are advancing SQZ-AAC-HPV-101 trial to the highest-dose cohort. We anticipate initial clinical data from the highest-dose cohort in the fourth quarter of 2023.
The ENVOY-001 trial is a Phase 1 open-label trial of our AAC HPV therapy candidate, or SQZ-AAC-HPV, as a monotherapy and in combination with immune checkpoint inhibitors in HLA-A*02+ patients with HPV16+ recurrent, locally advanced or metastatic solid tumors.
NYSE Notification
14
Table of Contents
On January 18, 2023, we received notice (the “NYSE Notification”) from the New York Stock Exchange (“NYSE”) indicating that we are not in compliance with Section 802.01C of the NYSE Listed Company Manual (“Section 802.01C”) because the average closing price of our common stock was less than $1.00 over a consecutive 30 trading-day period. The NYSE Notification does not result in the immediate delisting of our common stock from the NYSE.
We have notified the NYSE of our intent to cure the stock price deficiency and return to compliance with the NYSE continued listing standards. Under NYSE rules, we have a period of six months from receipt of the NYSE Notification to cure the stock price deficiency and regain compliance with the NYSE’s continued listing standards. Our common stock will continue to be listed and trade on the NYSE during this cure period, subject to our compliance with other NYSE continued listing standards. If our common stock is delisted, it may be difficult for our stockholders to sell their common stock without depressing the market price for our common stock, or at all. See Part I, Item 1A. “Risk Factors—An active, liquid trading market for our common stock may not be sustained” in the 2022 Form 10-K
Other Developments
Since our inception, we have focused substantially all of our resources on building our Cell Squeeze technology, establishing and protecting our intellectual property portfolio, conducting research and development activities, developing our manufacturing process and manufacturing product candidate materials, preparing for and initiating clinical trials of our product candidates, organizing and staffing our company, business planning, raising capital and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. Through March 31, 2023, we have funded our operations primarily with upfront and milestone payments received under our collaboration agreements with Hoffman La Roche Inc. and F. Hoffman La Roche Ltd. (together, "Roche",) and with proceeds from equity and debt offerings, most recently from our initial public offering, or IPO, follow-on public offering of common stock, or the Follow-on Offering, and our at-the market offering facility with Jefferies LLC ("ATM Facility").
Since our inception, we have incurred significant operating losses. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. We reported a net loss of $17.7 million for the three months ended March 31, 2023. As of March 31, 2023, we had an accumulated deficit of $292.7 million. Although we anticipate reduced quarterly expenses in each of the remaining quarters in 2023 as a result of the 2022 Restructuring Plan, we expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Absent significant changes to our current operating structure, we expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
•conduct clinical trials for our product candidates, including our ongoing clinical trials of SQZ-AAC-HPV and SQZ-eAPC-HPV;
•further develop our Cell Squeeze® technology;
•continue to develop additional product candidates;
•maintain, expand and protect our intellectual property portfolio;
•hire additional clinical, scientific manufacturing and commercial personnel;
•expand external and/or establish internal commercial manufacturing sources and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval;
•acquire or in-license other product candidates and technologies;
•seek regulatory approvals for any product candidates that successfully complete clinical trials;
•establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and
•add operational, financial and management information systems and personnel to support our product development, clinical execution and planned future commercialization efforts, as well as to continue to support our status as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Currently, market conditions in the biotechnology sector are challenging due to ongoing global and economic uncertainties. Accordingly, we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we would have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.
15
Table of Contents
Because of the numerous risks and uncertainties associated with cell therapy product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of May 10, 2023, the issuance date of the interim condensed consolidated financial statements for the three months ended March 31, 2023, included elsewhere in this Quarterly Report on Form 10-Q, based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future and the need to raise additional capital to finance future operations, our management has concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that the condensed consolidated financial statements are issued. See “—Liquidity and Capital Resources.”
Impact of Macroeconomic Conditions and the COVID-19 Pandemic
The global economy, including credit and financial markets, has recently experienced extreme volatility and disruptions, including, for example, severely diminished liquidity and credit availability, rising interest and inflation rates, crises involving banking and financial institutions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. In addition, the COVID-19 pandemic continues to be prevalent globally. The COVID-19 pandemic has impacted and may continue to impact personnel at third-party manufacturing facilities or the availability or cost of materials, which would disrupt our supply chain. Previously, it also has affected and may continue to affect our ability to enroll patients in and timely complete its ongoing clinical trials of SQZ-eAPC-HPV and SQZ-AAC-HPV and delay the initiation of future clinical trials, disrupt regulatory activities or have other adverse effects on its business and operations.
We are monitoring the potential impact of general economic conditions and the COVID-19 pandemic on our business and financial statements. To date, we have not incurred impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in these interim condensed consolidated financial statements. Unstable market and economic conditions and further disruption created by COVID-19 or other pandemics may have serious adverse consequences on our business, financial condition and results of operations.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to do so for the next several years. All of our revenue to date has been derived from three collaboration agreements with Roche, and, to a lesser extent, from government grants.
If our development efforts for our product candidates are successful and result in regulatory approval, or in license or additional collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from additional collaboration or license agreements that we may enter into with third parties, or any combination thereof. We expect that our revenue for the next several years will be derived primarily from our collaboration agreements with Roche as well as any additional collaborations that we may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.
Collaboration Revenue
2018 License and Collaboration Agreement with Roche
In October 2018, we entered into a license and collaboration agreement with Roche, or the 2018 Roche Agreement, to jointly develop certain products based on mononuclear antigen presenting cells, or APCs, including human papillomavirus, or HPV, using our SQZ APC platform for the treatment of oncology indications. We granted Roche a non-exclusive license to our intellectual property, and Roche granted us a non-exclusive license to its and its affiliates’ intellectual property for the purpose of performing research activities. In connection with this agreement, the parties terminated an earlier agreement.
Under the 2018 Roche Agreement, Roche was granted option rights to obtain an exclusive license to develop APC products or products derived from the collaboration programs on a product-by-product basis and to develop a Tumor Cell Lysate, or TCL, product. For each of the APC products and TCL product, once Roche exercises its option and pays a specified incremental amount, Roche will receive worldwide, exclusive commercialization rights for the licensed products. Through March 31, 2023, Roche had not exercised any of its options under the 2018 Roche Agreement.
Under the 2018 Roche Agreement, we received an upfront payment of $45.0 million and are eligible to receive (i) reimbursement of a mid-double-digit percentage of our development costs; (ii) aggregate milestone payments on a product-by-product basis of up to $1.6 billion upon the achievement of specified milestones, consisting of up to $217.0 million of development milestone payments, up to
16
Table of Contents
$240.0 million of regulatory milestone payments and up to $1.2 billion of sales milestone payments; and (iii) tiered royalties on annual net sales of APC and TCL products licensed under the agreement at specified rates ranging from a mid-single-digit percentage to a percentage in the mid-twenties. We received the upfront payment of $45.0 million in October 2018 upon execution of the agreement. In addition, during the second quarter of 2019, we received a payment of $10.0 million following the achievement of the first development milestone under the 2018 Roche Agreement related to submission by us of preclinical data to the FDA. During the first quarter of 2020, we received a payment of $20.0 million following the achievement of the second development milestone under the 2018 Roche Agreement related to first-patient dosing in a Phase 1 clinical trial. In the first quarter of 2022, we received a milestone payment of $3.0 million having achieved in the fourth quarter of 2021 the following: (i) the endorsement by an independent panel that we could advance our SQZ-PBMC-HPV clinical trial to combination therapy using checkpoint inhibitors and (ii) the initiation of that therapy.
We identified three performance obligations at the outset of the 2018 Roche Agreement: (1) the license to our intellectual property, the research and development activities related to HPV through Phase 1 clinical trials under a specified research plan, and the manufacturing of our SQZ APC platform and equipment in order to support the HPV research plan (the “first performance obligation”); (2) the license to our intellectual property and the research and development activities on next-generation APCs (the “second performance obligation”); and (3) the license to our intellectual property and the research and development activities on TCL (the “third performance obligation”).
In addition, we determined that the upfront payment of $45.0 million as well as the reimbursable costs of $10.8 million estimated by us constituted the entirety of the consideration to be included in the transaction price. This transaction price of $55.8 million was initially allocated to the three performance obligations based on the relative standalone selling price of each obligation. The potential milestone payments that we may be eligible to receive were excluded from the transaction price at the outset of the arrangement. We reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, we will adjust our estimate of the transaction price.
We separately recognize revenue associated with each of the three performance obligations as the research, development and manufacturing services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy each performance obligation. The amounts received from Roche that have not yet been recognized as revenue are deferred as a contract liability in our consolidated balance sheet and will be recognized over the remaining research and development period until each performance obligation is satisfied.
During the three months ended March 31, 2023 and 2022, there were no significant changes in the total estimated costs expected to be incurred to satisfy the performance obligations under the 2018 Roche Agreement. We recognized no revenue and $2.9 million during the three months ended March 31, 2023 and 2022, respectively, under this agreement. As of March 31, 2023, we recorded as a contract liability deferred revenue related to the 2018 Roche Agreement of $0.1 million, all of which was a current liability. As of March 31, 2023, the research and development services related to the performance obligations were expected to be performed over a remaining period of three months.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including development of our product candidates and costs incurred under our collaboration arrangements with Roche, which include:
•employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;
•expenses incurred in connection with the preclinical and clinical development of our product candidates and research programs, including under agreements with third parties, such as consultants, contractors and contract research organizations, or CROs;
•the costs of developing and scaling our manufacturing process and of manufacturing our product candidates for use in our preclinical studies and clinical trials, including the costs under agreements with third parties, such as consultants, contractors and contract manufacturing organizations, or CMOs;
•laboratory and consumable materials and research materials;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and utilities; and
•payments made under third-party licensing agreements.
We expense research and development costs as incurred. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees
17
Table of Contents
under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
Our direct research and development expenses are tracked on a program-by-program basis and consist of external costs and fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development and manufacturing activities. Such program costs also include the external costs of laboratory and consumable materials and costs of raw materials that are directly attributable to and incurred for any single program. We do not allocate employee costs, costs associated with our platform development and discovery efforts, payments made under third-party licensing agreements, costs of laboratory supplies and consumable materials that are not directly attributable to any single program, and facilities expenses, including rent, depreciation and other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform technology and, as such, are not separately classified.
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 that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future, particularly should Roche determine not to exercise its options and we decide to continue clinical development of a product candidate. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:
•the timing and progress of preclinical and clinical development activities;
•the number and scope of preclinical and clinical programs we decide to pursue;
•our ability to raise the additional funds necessary to complete preclinical and clinical development of our product candidates;
•the progress of the development efforts of parties with whom we have entered, or may enter, into collaboration arrangements;
•our ability to maintain our current research and development programs and to establish new ones;
•our ability to establish new licensing or collaboration arrangements;
•the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
•the receipt and related terms of regulatory approvals from applicable regulatory authorities;
•the availability of specialty raw materials for use in production of our product candidates;
•our ability to consistently manufacture our product candidates for use in clinical trials;
•our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships with third parties;
•our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally; and
•our ability to protect our rights in our intellectual property portfolio.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. In addition, we may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
18
Table of Contents
Other Income (Expense)
Interest Income
Interest income consists of interest earned on our cash equivalents balances.
Other Income (Expense), Net
Other income (expense), net consists of miscellaneous income and expense unrelated to our core operations.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
|
|
2023 |
|
2022 |
|
CHANGE |
|
|
(in thousands) |
Collaboration revenue |
|
$— |
|
$2,869 |
|
$(2,869) |
Operating expenses: |
|
|
|
|
|
|
Research and development |
|
12,976 |
|
17,010 |
|
(4,034) |
General and administrative |
|
5,279 |
|
6,912 |
|
(1,633) |
Total operating expenses |
|
18,255 |
|
23,922 |
|
(5,667) |
Loss from operations |
|
(18,255) |
|
(21,053) |
|
2,798 |
Other income (expense): |
|
|
|
|
|
|
Interest income |
|
505 |
|
15 |
|
490 |
Other income (expense), net |
|
63 |
|
— |
|
63 |
Total other income, net |
|
568 |
|
15 |
|
553 |
Net loss |
|
$(17,687) |
|
$(21,038) |
|
$3,351 |
Revenue
Collaboration revenue decreased by $2.9 million to $0 for the three months ended March 31, 2023, compared to $2.9 million for the three months ended March 31, 2022. The decrease in revenue was primarily because we had completed most of the performance obligations related to the 2018 Roche Agreement as of December 31, 2022.
Research and Development Expenses
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
|
|
2023 |
|
2022 |
|
CHANGE |
|
|
(in thousands) |
Direct research and development expenses by program: |
|
|
|
|
|
|
SQZ-PBMC-HPV |
|
$672 |
|
$1,903 |
|
$(1,231) |
SQZ-AAC-HPV |
|
2,480 |
|
1,357 |
|
1,123 |
SQZ-eAPC-HPV |
|
4,052 |
|
3,332 |
|
720 |
Other programs |
|
890 |
|
2,491 |
|
(1,601) |
Unallocated research and development expenses: |
|
|
|
|
|
|
Personnel related (including stock-based compensation) |
|
3,225 |
|
5,359 |
|
(2,134) |
Facility related |
|
986 |
|
1,411 |
|
(425) |
Laboratory and consumable materials |
|
23 |
|
325 |
|
(302) |
Platform-related external services and other |
|
648 |
|
832 |
|
(184) |
Total research and development expenses |
|
$12,976 |
|
$17,010 |
|
$(4,034) |
Research and development expenses decreased by $4.0 million to $13.0 million for the three months ended March 31, 2023, from $17.0 million for the three months ended March 31, 2022. The net decrease was primarily due to the following:
19
Table of Contents
•SQZ-PBMC-HPV and other program costs decreased by $1.2 million and $1.6 million, respectively, primarily due to the conclusion of patient enrollment in the SQZ-PBMC-HPV clinical trial and the reprioritization of our clinical portfolio in order to focus on the SQZ-eAPC-HPV and SQZ-AAC-HPV programs.
•Personnel-related costs decreased by $2.1 million primarily due to a $1.9 million decrease in salary and benefit costs and a $0.2 million decrease in stock-based compensation as a result of the headcount reductions included in the implementation of the Restructuring Plan in the fourth quarter of 2022.
The decreases in facilities, laboratory and consumable materials and platform-related external services and other costs were due to cost reductions as a result of the implementation of the Restructuring Plan.
Partially offsetting the above decreases were:
•SQZ-AAC-HPV program costs increased by $1.1 million primarily as a result of an increase in allocated manufacturing costs and clinical trial-related costs related to patient enrollment.
•SQZ-eAPC-HPV program costs increased by $0.7 million due to an increase in clinical trial-related costs related to patient enrollment.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
|
|
2023 |
|
2022 |
|
CHANGE |
|
|
(in thousands) |
Personnel related (including stock-based compensation) |
|
$2,662 |
|
$3,481 |
|
$(819) |
Professional, consultant and patent related costs |
|
1,151 |
|
1,745 |
|
(594) |
Facility related and other costs |
|
1,466 |
|
1,686 |
|
(220) |
Total general and administrative expenses |
|
$5,279 |
|
$6,912 |
|
$(1,633) |
General and administrative expenses decreased by $1.6 million during the three months ended March 31, 2023 to $5.3 million, compared to $6.9 million for the three months ended March 31, 2022. The decrease was primarily due to cost and headcount reductions as a result of the implementation of the Restructuring Plan.
Interest Income
Interest income for the three months ended March 31, 2023 and 2022 was $0.5 million and $15 thousand, respectively. The increase in interest income was due to the increase in average interest rates in 2023 despite lower average cash and equivalents available for investment.
Other Income (Expense), Net
Other income (expense), net for the both the three months ended March 31, 2023 and 2022 was not significant.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for the next several years, if at all. Through March 31, 2023, we have funded our operations primarily with payments received in connection with collaboration agreements, proceeds from equity and debt financing, most recently, with proceeds from our IPO, Follow-On Offering and our at-the market offering facility with Jefferies LLC ("ATM Facility"). As of March 31, 2023, we had cash and cash equivalents of $39.9 million. We maintain the majority of our cash and cash equivalents in accounts with major financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
20
Table of Contents
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
Net cash used in operating activities |
|
$ |
(23,772 |
) |
|
$ |
(20,434 |
) |
Net cash used in investing activities |
|
|
(65 |
) |
|
|
(194 |
) |
Net cash provided by financing activities |
|
|
— |
|
|
|
29 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
(23,837 |
) |
|
$ |
(20,599 |
) |
Operating Activities
During the three months ended March 31, 2023, operating activities used $23.8 million of cash, primarily resulting from our net loss of $17.7 million and changes in our operating assets and liabilities of $9.8 million, partially offset by net non-cash charges of $3.7 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2023 consisted of a $3.0 million decrease in operating lease liabilities, a $0.1 million increase in prepaid expenses and other current assets, a $4.0 million decrease in accrued expenses.
During the three months ended March 31, 2022, operating activities used $20.4 million of cash, primarily resulting from our net loss of $21.0 million and changes in our operating assets and liabilities of $4.1 million, partially offset by net non-cash charges of $4.7 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2022 consisted primarily of a $2.9 million decrease in deferred revenue, a $2.4 million decrease in operating lease liabilities, a $0.9 million increase in prepaid expenses and other current assets, a $1.7 million increase in accrued expenses, all of which were partially offset by a $3.0 million decrease in accounts receivable. The decrease in deferred revenue during the three months ended March 31, 2022 was due to the revenue we recognized in that same period under the 2018 Roche Agreement.
In all periods presented, other changes in prepaid expenses and other current assets, accounts receivable, accounts payable, accrued expenses and other liabilities not described above were generally due to growth in our business, the advancement of our research programs and the timing of vendor invoicing and payments. In all periods presented, decreases in operating lease liabilities were primarily due to our recurring payments made under recorded operating lease liabilities, including those arising from embedded leases.
Investing Activities
During the three months ended March 31, 2023 and 2022, net cash used in investing activities was $0.1 million and $0.2 million, respectively, consisting of purchases of property and equipment.
The purchases of property and equipment in each period were primarily for equipment purchases.
Financing Activities
During the three months ended March 31, 2023, net cash provided by financing activities was $0.
During the three months ended March 31, 2022, net cash provided by financing activities was $29 thousand consisting of proceeds from stock option exercises during the period.
Funding Requirements
Absent significant changes to our current operating structure, we expect that although our anticipated quarterly expenses for the remainder of 2023 will be lower compared to the corresponding quarters in 2022, we will continue to incur substantial expenses in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. The timing and amount of our operating and capital expenditures will depend largely on:
•the timing and progress of preclinical and clinical development activities;
•the commencement, enrollment or results of the planned clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;
•the timing and outcome of regulatory review of our product candidates;
•our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial as well as Roche’s decision whether to exercise its options;
21
Table of Contents
•changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;
•adverse developments concerning our manufacturers and other third-party providers;
•our ability to obtain materials to produce adequate product supply for any approved product or inability to do so at acceptable prices;
•our ability to establish collaborations if needed;
•the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we obtain marketing approval;
•the legal patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims;
•additions or departures of key scientific or management personnel;
•unanticipated serious safety concerns related to the use of our product candidates;
•the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; and
•the severity, duration and impact of the COVID-19 pandemic and macroeconomic conditions, which may adversely impact our business.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders' interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution 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 grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, including due to adverse macroeconomic conditions such as rising interest rates, we would be required to delay, scale back or discontinue our research, 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.
As of March 31, 2023, we had an accumulated deficit of $292.7 million. During the three months ended March 31, 2023, we recorded a net loss of $17.7 million. In addition, during the three months ended March 31, 2023 we used $23.8 million in operating and investing activities resulting in a cash and cash equivalents balance of $39.9 million as of March 31, 2023. We expect that our operating losses and negative cash flows will continue for the foreseeable future. Based on our currently forecasted operating plan, which reflects reduced quarterly spending for the remainder of 2023 as compared to the corresponding quarters in 2022, we believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024, but not for more than one year after the date that the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q are issued. Therefore, based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future and the need to raise additional capital to finance future operations, as of May 10, 2023, the issuance date of the interim condensed consolidated financial statements for the three months ended March 31, 2023, included elsewhere in this Quarterly Report on Form 10-Q, management has concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that the condensed consolidated financial statements are issued. We are developing plans to mitigate this risk, which primarily consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations, business transactions and reducing cash expenditures. If we are not able to secure adequate additional funding, we plan to make significant reductions in spending. In that event, we may have to delay, scale back, or eliminate some or all of our research and development programs and technology platform activities which could adversely affect our business prospects, or we may be unable to continue operations.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations from those described in our 2022 Form 10-K. For additional information, see Note 8 and 9 to our condensed consolidated financial statements appearing in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported
22
Table of Contents
amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our 2022 Form 10-K. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting policies from those described in the 2022 Form 10-K.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.