Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on 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, includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in this Quarterly Report on Form 10-Q.
Overview
We are a biotechnology company focused on developing precision therapies for genetically defined diseases. Our approach is to design rational precision therapies that treat the underlying cause of disease and improve the lives of patients. Our most advanced program is bezuclastinib, also known as CGT9486, a highly selective tyrosine kinase inhibitor designed to potently inhibit the KIT D816V mutation as well as other mutations in KIT exon 17. In the vast majority of cases, KIT D816V is responsible for driving Systemic Mastocytosis (“SM”), a serious disease caused by unchecked proliferation of mast cells. Exon 17 mutations are also found in patients with advanced gastrointestinal stromal tumors (“GIST”), a type of cancer with strong dependence on oncogenic KIT signaling. Bezuclastinib is a highly selective and potent KIT inhibitor with the potential to provide a new treatment option for these patient populations. In addition to bezuclastinib, the Cogent Research Team is developing a portfolio of novel targeted therapies to help patients fighting serious, genetically driven diseases and is initially targeting FGFR2 and ErbB2.
Pipeline
Bezuclastinib
In October 2021, we presented preclinical data in a virtual poster at the 2021 AACR-NCI-EORTC Virtual International Conference on Molecular Targets and Cancer Therapeutics that identified bezuclastinib as a differentiated, potent and selective KIT mutant inhibitor with unique selectivity for KIT D816V and minimal evidence of brain penetration that avoids targeting PDGFR isoforms. In April 2022, we presented additional preclinical data at the 2022 American Associated for Cancer Research annual meeting (“AACR”) demonstrating that bezuclastinib potently inhibits A loop-mutations, is exquisitely selective against other closely related kinases, and is differentiated by its lack of brain penetration. We also presented preclinical data supporting that bezuclastinib inhibits KIT downstream signaling and drives tumor regressions at clinically achievable doses.
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We are continuing the development of bezuclastinib in patients living with Advanced Systemic Mastocytosis (“AdvSM”) and Non-Advanced Systemic Mastocytosis (“Non-AdvSM”). The vast majority of AdvSM and Non-AdvSM patients have a KIT D816V mutation. Patients with AdvSM have a significantly diminished lifespan with a median survival of less than 3.5 years. For patients with Non-AdvSM, there are no available approved therapies, and while their lifespan is not impacted by the disease, these patients suffer from a poor quality of life and new treatment options are badly needed. The FDA has granted orphan drug designation to bezuclastinib for the treatment of Mastocytosis.
APEX is our global, open-label, multi-center, Phase 2 clinical trial in patients with AdvSM evaluating the safety, efficacy, pharmacokinetic, and pharmacodynamic profiles of bezuclastinib. In June 2022, we reported positive initial clinical data from the ongoing APEX trial at the 2022 European Hematology Association Annual Congress and we presented updated positive clinical data in an oral presentation at the American Society of Hematology (“ASH”) Annual Meeting in December 2022. In April 2023, we initiated Part 2 of the APEX trial using an optimized formulation of bezuclastinib at 150 mg daily dose. Clinical data from approximately 30 patients from APEX Part 1 is expected to be included in a presentation at a scientific meeting in the second half of 2023. Clinical activity, safety and tolerability of patients dosed in APEX Part 1 remains consistent with results presented at ASH.
SUMMIT is our randomized, double-blind, placebo-controlled, global multi-center Phase 2 clinical trial for patients with Non-AdvSM. The study is designed to evaluate the safety and efficacy of bezuclastinib in patients with moderate to severe Indolent Systemic Mastocytosis or Smoldering Systemic Mastocytosis. Based on the performance of bezuclastinib’s new formulation in the PEAK lead-in trial, as well as in a healthy volunteer study, the SUMMIT trial protocol was amended in 2022 to allow for the optimized formulation to be introduced during the dose exploration phase. We expect to report initial clinical data in patients with Non-AdvSM in the second half of 2023. In March 2023, Cogent received approvals from European regulatory authorities to initiate the SUMMIT trial in patients with Non-AdvSM. We have started activating clinical trial sites across major countries in the European Union.
We are also pursuing the development of bezuclastinib in patients living with GIST based on our study of more than 50 advanced solid tumor and GIST patients in a Phase 1/2 clinical trial, with the vast majority of those patients living with advanced GIST. GIST is a disease frequently driven by KIT mutations, and resistance to currently available therapeutics is frequently associated with the emergence of other KIT mutations. Anti-tumor activity for bezuclastinib was observed in both single agent and combination settings, including in combination with sunitinib, an approved treatment option for GIST patients. Clinical data from the Phase 1/2 clinical trial were published in the Journal of American Medical Association and were presented at several scientific conferences, including most recently by Cogent at the 2020 annual Connective Tissue Oncology Society (“CTOS”) meeting, and previously by Plexxikon Inc., a member of the Daiichi Sankyo Group (“Plexxikon”), at the 2018 annual American Society of Clinical Oncology meeting and the 2017 annual CTOS meeting. Within the group of 15 heavily pre-treated GIST patients who received the combination of bezuclastinib and sunitinib, and who had not received prior treatment with bezuclastinib, the confirmed objective response rate was twenty percent, including two partial responses and one complete response, while the estimated median progression free survival (“mPFS”) for this group was twelve months. Four subjects continued to receive bezuclastinib via individual patient INDs beyond the conclusion of the trial.
PEAK is our randomized open-label, global Phase 3 clinical trial designed to evaluate the safety, tolerability, and efficacy of bezuclastinib in combination with sunitinib compared to sunitinib alone in patients with locally advanced, unresectable or metastatic GIST who have received prior treatment with imatinib. The FDA and EMA have granted orphan drug designation to bezuclastinib for the treatment of GIST.
In November 2021, through a partnership with Serán Biosciences, we announced the development of an optimized formulation of bezuclastinib, which was used in the PEAK lead-in study. Based on the data from the PEAK lead-in study we have initiated the randomized portion of PEAK using a 600 mg dose of the optimized formulation of bezuclastinib, which in the lead-in portion of the study demonstrated clinical exposure equivalent to the 1,000 mg original formulation used in our GIST Phase 1/2 clinical trial. Initial safety and pharmacokinetic data from the PEAK lead-in study was presented at the CTOS annual meeting in November 2022. We expect to present updated clinical data from refractory GIST patients in the lead-in cohort of the Phase 3 PEAK trial of bezuclastinib plus sunitinib at the annual American Society of Clinical Oncology (“ASCO”) meeting in June 2023.
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Worldwide rights to develop and commercialize bezuclastinib are exclusively licensed from Plexxikon. Under the terms of the license agreement, Plexxikon received an upfront payment and is eligible for additional development milestones of up to $7.5 million upon the satisfaction of certain clinical milestones and up to $25.0 million upon the satisfaction of certain regulatory milestones. During the second quarter of 2022, as a result of the progression of the Peak study, the first clinical milestone was achieved, resulting in payment of $2.5 million to Plexxikon in June 2022.
Patents protecting bezuclastinib include composition of matter claims which have been issued in the US and other key territories and provide exclusivity through 2033 and potentially beyond through patent term extensions. In addition, we intend to file a provisional patent application seeking to protect our new formulation of bezuclastinib, which could potentially provide exclusivity through at least 2043.
Research programs
During the second quarter of 2021, we announced the formation of the Cogent Research Team, a highly experienced discovery and research group. Based in Boulder, Colorado, the Cogent Research Team is focused on pioneering best-in-class, small molecule therapeutics to expand our pipeline and deliver novel precision therapies for patients living with unmet medical needs. Our research team is building a pipeline of small molecule inhibitors, with our first efforts aimed toward targeting currently undrugged mutations in fibroblast growth factor receptor (“FGFR”). FGFR mutations are well-established oncogenic drivers in multiple diseases, but approved medicines fail to capture the full landscape of FGFR altered tumor types, with FGFR1-mediated hyperphosphatemia serving as the most common dose-limiting toxicity for pan-FGFR inhibitors.
In April 2023, we reported preclinical data at the American Association for Cancer Research (“AACR”) 2023 Annual Meeting providing the first published evidence of a reversible, selective FGFR2 inhibitor with coverage of activating and emerging resistance mutations that spares inhibition of FGFR1. Preclinical data demonstrate a profile that delivers equipotent coverage across both key gatekeeper and molecular brake mutations (V564X, N549X) in FGFR2, while avoiding any evidence of FGFR1-linked hyperphosphatemia at efficacious plasma concentrations. In addition, as a reversible inhibitor, the Cogent program retains enzymatic potency against potential cysteine 491 mutations which are known to emerge as key resistance mutations in patients treated with covalent inhibitors.
Our research team is also advancing a novel, ErbB2 mutant program, which is focused on actionable and underserved mutations in a variety of solid tumor indications. In April 2023, we reported preclinical data at AACR describing a series of novel compounds which potently inhibit several key ErbB2 mutations, including YVMA insertions, while sparing inhibition of EGFR. An exemplar compound from these series demonstrates advantages versus tucatinib, an approved benchmark compound, on tumor growth inhibition in a peripheral ErbB2 L755S driven mutant model, as well as in an ErbB2 driven intracranial model. Recent program advances with a novel chemotype have further improved ErbB2 mutational potency and selectivity, increased estimated brain penetrance to 40% and improved human whole blood stability to nearly 24 hours, suggesting a favorable profile for optimal clinical efficacy.
For both FGFR2 and ErbB2, we see an opportunity to provide a more robust molecular response compared to existing therapies. We expect to initiate clinical trials for both of these programs in 2024.
Since our inception in 2014, we have focused significant efforts and financial resources on establishing and protecting our intellectual property portfolio, conducting research and development of our product candidates, manufacturing drug product material for use in preclinical studies and clinical trials, staffing our company, and raising capital. We do not have any products approved for sale and have not generated any revenue from product sales. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $38.6 million for the three months ended March 31, 2023 compared to net losses of $30.6 million for the three months ended March 31, 2022. As of March 31, 2023, we had an accumulated deficit of $449.8 million. We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
•initiate and increase enrollment for our existing and planned clinical trials for our product candidates;
•continue to discover and develop additional product candidates;
•acquire or in-license other product candidates and technologies;
•maintain, expand, and protect our intellectual property portfolio;
•hire additional research, clinical, scientific, and commercial personnel;
•establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval;
15
•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, including personnel to support our product development and planned future commercialization efforts.
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 and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal 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. 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 may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates.
Because of the numerous risks and uncertainties associated with pharmaceutical 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 March 31, 2023, we had cash, cash equivalents and marketable securities of $220.3 million. Based on our current plans, we expect that our current cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into 2025.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:
•expenses incurred in connection with the discovery, preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants, contractors and contract research organizations (“CROs”);
•the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants, contractors and contract manufacturing organizations (“CMOs”);
•employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions;
•laboratory supplies and animal care;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and
•payments made under third-party licensing agreements.
We expense research and development costs as incurred. 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.
16
Certain of our direct research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our discovery, preclinical and clinical development activities. We do not allocate employee costs, costs associated with the manufacture of bezuclastinib, costs associated with our discovery efforts, 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.
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 clinical and preclinical development activities in the near term and in the future. At this time, we cannot reasonably 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 and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
•the timing and progress of our preclinical and clinical development activities;
•the number and scope of preclinical and clinical programs we decide to pursue;
•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;
•the enrollment rates in our clinical trials;
•our ability to establish new licensing or collaboration arrangements;
•the future productivity of the Cogent Research Team in Boulder, CO and its ability to discover new product candidates and build our pipeline;
•the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
•the receipt of regulatory approvals from applicable regulatory authorities;
•the success in establishing and operating a manufacturing facility, or securing 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;
•our ability to protect our rights in our intellectual property portfolio;
•the commercialization of our product candidates, if and when approved;
•the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors;
•competition with other products; and
•a continued acceptable safety profile of our therapies following approval.
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. 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 a result of the costs associated with the expansion of operations to support our on-going discovery, preclinical and clinical activities.
Interest Income
Interest income consists of interest earned on our cash equivalents and marketable securities balances.
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Other Income, Net
Other income consists of miscellaneous income and expense unrelated to our core operations, primarily income from subleasing a portion of our headquarters facilities.
Change in Fair Value of the CVR liability
This consists of changes in the fair value of the CVR liability.
Income Taxes
Since our inception, we have not recorded any current or deferred tax benefit for the net losses we have incurred in each year or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that our net operating loss carryforwards and tax credits will not be realized. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2022. We reevaluate the utilization of net operating loss carryforwards and tax credits at each reporting period. As of December 31, 2022, we had U.S. federal and state net operating loss carryforwards of $151.9 million and $65.1 million, respectively, which may be available to offset future taxable income and begin to expire in 2035. Of the federal net operating loss carryforwards at December 31, 2022, $148.7 million is available to be carried forward indefinitely but we are permitted to offset a maximum of 80% of taxable income per year. As of December 31, 2022, we also had U.S. federal and state research and development tax credit carryforwards of $10.7 million and $1.9 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2040 and 2035, respectively.
Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.
We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
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) |
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
36,038 |
|
|
|
25,470 |
|
|
|
10,568 |
|
General and administrative |
|
|
7,199 |
|
|
|
5,948 |
|
|
|
1,251 |
|
Total operating expenses |
|
|
43,237 |
|
|
|
31,418 |
|
|
|
11,819 |
|
Loss from operations |
|
|
(43,237 |
) |
|
|
(31,418 |
) |
|
|
(11,819 |
) |
Other income: |
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2,268 |
|
|
|
107 |
|
|
|
2,161 |
|
Other income, net |
|
|
682 |
|
|
|
677 |
|
|
|
5 |
|
Change in fair value of CVR liability |
|
|
1,700 |
|
|
|
— |
|
|
|
1,700 |
|
Total other income, net |
|
|
4,650 |
|
|
|
784 |
|
|
|
3,866 |
|
Net loss |
|
$ |
(38,587 |
) |
|
$ |
(30,634 |
) |
|
$ |
(7,953 |
) |
18
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
|
(in thousands) |
|
|
|
|
Direct external research and development expenses: |
|
|
|
|
|
|
|
|
|
Bezuclastinib |
|
$ |
15,779 |
|
|
$ |
13,460 |
|
|
|
2,319 |
|
Preclinical research and discovery |
|
|
4,281 |
|
|
|
2,369 |
|
|
|
1,912 |
|
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
Personnel related (including stock-based compensation) |
|
|
12,073 |
|
|
|
7,651 |
|
|
|
4,422 |
|
Laboratory supplies, facility related and other |
|
|
3,905 |
|
|
|
1,990 |
|
|
|
1,915 |
|
Total research and development expenses |
|
$ |
36,038 |
|
|
$ |
25,470 |
|
|
$ |
10,568 |
|
Total research and development expense increased by $10.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022, driven by higher external research and development costs associated with the manufacture and development of bezuclastinib, including costs associated with the APEX, SUMMIT and PEAK trials, and the continued development of our research pipeline. Additionally, there was an increase in unallocated expenses driven by higher personnel costs due to an increase in headcount, including stock-based compensation expense which increased by $1.0 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This increase was further driven by increased lab supplies and other facilities costs to support the build-out of the Cogent Research Team.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2023 were $7.2 million, compared to $5.9 million for the three months ended March 31, 2022. The increase in general and administrative expenses was primarily due to higher personnel costs driven by an increase in headcount, including stock-based compensation expense which increased by $0.6 million for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.
Interest Income
Interest income for the three months ended March 31, 2023 was $2.3 million, compared to $0.1 million for the three months ended March 31, 2022 . The increase is due to higher average invested balances in cash equivalents and marketable securities.
Other Income, Net
Other income, net was $0.7 million for the three months ended March 31, 2023 and 2022. Other income represents sublease income recognized resulting from the sublease of a portion of our former corporate headquarters space.
Change in Fair Value of CVR Liability
The change in fair value of CVR liability for three months ended March 31, 2023 was $1.7 million. The change in fair value of CVR liability was a result of a decrease in the probability of receiving the milestone payments from Sotio prior to the expiration of the CVR.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from funding arrangements with our former collaboration partner. 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 several years, if at all. We have historically funded our operations primarily through the public offering and private placement of our securities and consideration received from our collaborative agreements.
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On May 6, 2022, we filed a shelf registration statement on Form S-3 with the SEC. The shelf registration statement allows us to sell from time-to-time up to $300.0 million of common stock, preferred stock, debt securities, warrants or units comprised of any combination of these securities, for our own account in one or more offerings. The terms of any offering under the shelf registration statement will be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to the completion of any such offering.
Additionally, on May 6, 2022, pursuant to the Form S-3, we entered into a Sales Agreement (the “Sales Agreement”) with Guggenheim Securities, LLC (“Guggenheim Securities”), pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through Guggenheim Securities, as the sales agent. As of December 31, 2022, no shares have been sold under the Sales Agreement.
On June 13, 2022, we completed an underwritten public offering of 17,899,698 shares of our common stock at a public offering price of $8.25 per share (including the exercise in full by the underwriters of their 30-day option to purchase up to 2,730,000 additional shares of common stock) and, in lieu of common stock to certain investors, pre-funded warrants to purchase 3,030,302 shares of our common stock at a purchase price of $8.24 per underlying share. The net proceeds from the offering were approximately $161.9 million, after deducting the underwriting discounts and commissions and estimated offering expenses.
On February 10, 2023, we filed a Form S-3ASR with the SEC (“2023 Shelf Registration”) for the issuance of common stock, preferred stock, warrants, rights, debt securities and units, which became effective immediately upon filing. At the time any of the securities covered by the 2023 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.
As of March 31, 2023, the Company has 90,815,350 shares outstanding on a fully diluted and as-converted basis, including the 70,946,790 shares of common stock outstanding, the 606,060 pre-funded warrants that are exercisable for shares of common stock, and the 77,050 shares of Series A Preferred stock, which are convertible into 19,262,500 shares of common stock.
As of March 31, 2023, we had cash, cash equivalents and marketable securities of $220.3 million, which we believe will be sufficient to fund our operating expenses and capital expenditure requirements into 2025.
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) |
|
Cash used in operating activities |
|
$ |
(39,517 |
) |
|
$ |
(28,334 |
) |
Net cash (used in) provided by investing activities |
|
|
59,884 |
|
|
|
(441 |
) |
Net cash provided by financing activities |
|
|
445 |
|
|
|
138 |
|
Net (decrease) increase in cash, cash equivalents and
restricted cash |
|
$ |
20,812 |
|
|
$ |
(28,637 |
) |
Operating Activities
During the three months ended March 31, 2023, operating activities used $39.5 million of cash, primarily resulting from our net loss of $38.6 million and net cash used in changes in our operating assets and liabilities of $4.7 million, partially offset by net noncash charges of $3.8 million. Net cash used in changes in our operating assets and liabilities for the three months ended March 31, 2023 consisted primarily of a $4.2 million decrease in accounts payable and accrued expenses and other current liabilities, a $0.3 million increase in prepaid expenses other current assets and a $0.2 million decrease in the operating lease liability.
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During the three months ended March 31, 2022, operating activities used $28.3 million of cash, primarily resulting from our net loss of $30.6 million and changes in our operating assets and liabilities of $1.9 million, partially offset by net cash provided by net noncash charges of $4.2 million. Net cash used in changes in our operating assets and liabilities for the three months ended March 31, 2022 consisted primarily of a $1.9 million increase in other assets, a $0.7 million increase in prepaid expenses and other current assets, and a $0.6 million decrease in the operating lease liability, partially offset by a $0.7 million increase in accounts payable and accrued expenses and other current liabilities and a $0.5 million decrease in the right-of-use asset.
Investing Activities
During the three months ended March 31, 2023, net cash provided by investing activities was $59.9 million which consisted of purchases of property and equipment and marketable securities, partially offset by maturities and sales of marketable securities.
During the three months ended March 31, 2022, net cash used in investing activities was $0.4 million, consisting of purchases of property and equipment.
Financing Activities
During the three months ended March 31, 2023, net cash provided by financing activities was $0.4 million, which consisted of the proceeds from the issuance of common stock under the Employee Stock Purchase Plan and proceeds from the issuance of common stock upon stock option exercises.
During the three months ended March 31, 2022, net cash provided by financing activities was $0.1 million, which consisted of the proceeds from the issuance of common stock under the Employee Stock Purchase Plan and proceeds from the issuance of common stock upon stock option exercises.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we advance the clinical development of our current and any future product candidates and conduct additional research, development and preclinical activities. The timing and amount of our operating expenditures will depend largely on:
•the initiation, progress, timing, and completion of preclinical studies and clinical trials for our current and future potential product candidates;
•any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;
•adverse results or delays in clinical trials;
•our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial;
•adverse regulatory decisions, including failure to receive regulatory approval of our product candidates;
•changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;
•adverse developments concerning our manufacturers;
•our inability to obtain adequate product supply for any approved product or our inability to do so at acceptable prices;
•our inability to establish collaborations, if desired or needed;
•our failure to commercialize our product candidates;
•additions or departures of key scientific or management personnel; and
•unanticipated serious safety concerns related to the use of our product candidates.
Based on our current plans, we believe that our existing cash, cash equivalents and marketable securities of $220.3 million as of March 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. The Company will require additional funding to complete the critical activities planned to support ongoing research and development programs.
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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 ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of 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 drug 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, we may be required to delay, limit, reduce, or terminate our research, product development, or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Estimates
There have been no material changes in our critical accounting policies during the three months ended March 31, 2023, as compared to those 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 Annual Report on Form 10-K.
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 in the rules and regulations of the SEC.
Contractual Obligations and Commitments
A description of our material cash requirements, including commitments for capital expenditures, is described above and disclosed in Note 7 to our condensed consolidated financial statements
appearing elsewhere in this Quarterly Report.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) 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 irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
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