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 unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and planned clinical trials for our product candidates, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, if approved, the impact of the COVID-19 pandemic and global geopolitical events, such as the ongoing conflict between Russia and Ukraine, on our business, the pricing and reimbursement of our product candidates, if approved, the potential to develop future product candidates, the potential benefits of current and future licenses, acquisitions, and strategic arrangements with third parties, and our intent to enter into any future strategic arrangements, the timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated product development efforts, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “expect,” “intend,” "target," “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a clinical-stage precision oncology company singularly focused on discovering, developing, and commercializing therapies for patients with RAS/MAPK pathway-driven cancers. Molecular alterations in RAS, the most frequently mutated oncogene, and the MAPK pathway, one of the most frequently altered signaling pathways in cancer, account for approximately 5.5 million new patients diagnosed with cancer globally each year. Our company was co-founded by leading pioneers in precision oncology and RAS targeting to create novel therapies and combination regimens designed to comprehensively shut down the RAS/MAPK pathway for the treatment of cancer. We have assembled what we believe to be the deepest, wholly-owned or controlled RAS/MAPK pathway-focused pipeline in the industry, including 11 disclosed modality-agnostic programs aligned with our three therapeutic strategies of: (1) targeting key upstream and downstream signaling nodes in the RAS/MAPK pathway; (2) targeting RAS directly; and (3) targeting escape routes that emerge in response to treatment.
23
The following figure shows the RAS/MAPK pathway and how the three therapeutic strategies listed above attempt to comprehensively and synergistically shut down the RAS/MAPK pathway.
The target breadth and molecular diversity represented in our pipeline enable us to pursue a systematic, data-driven clinical development effort to identify single agent and combination approaches with the goal of prolonging survival in numerous patient populations with high unmet medical needs. Our modality-agnostic approach aims to allow us to selectively and potently inhibit or degrade critical signaling nodes with small molecule therapeutics, large molecule therapeutics, and protein degraders. Our purpose-built pipeline includes three clinical-stage programs (ERK and SHP2 inhibitors, which together comprise our first, innovative MAPKlamp approach, and an EGFR inhibitor), one preclinical-stage program (central nervous system (CNS)-penetrant KRAS G12C inhibitor), and seven discovery-stage programs targeting other key oncogenic drivers. In 2023, we expect to have four product candidates in the clinic. In addition, we expect to file an additional investigational new drug application (IND) with the US Food and Drug Administration (FDA) every 12-18 months through 2026. We believe our world-class team’s capabilities and experience, further guided by our scientific advisory board, which includes the world’s leading experts in the RAS/MAPK pathway, uniquely position us to achieve our bold mission of erasing cancer.
Our lead product candidates are ERAS-007 (our oral ERK1/2 inhibitor) and ERAS-601 (our oral SHP2 inhibitor), which target downstream and upstream nodes, respectively, of the RAS/MAPK pathway. We are pursuing a broad clinical development plan across multiple tumor types for ERAS-007, which we refer to as our HERKULES series of clinical trials, that includes both monotherapy and combinations with approved and investigational agents, such as receptor tyrosine kinase (RTK), SHP2, RAS, and/or RAF inhibitors.
Our current HERKULES Phase 1b/2 clinical trials are exploring both tissue agnostic and tissue specific indications in patients with solid tumors, including non-small cell lung cancer (NSCLC), colorectal cancer (CRC), and pancreatic ductal adenocarcinoma (PDAC). In May 2021, we dosed the first patient in HERKULES-1, a Phase 1b/2 clinical trial designed to evaluate ERAS-007 as a single agent and in combination with various RAS/MAPK pathway targeting agents in advanced solid tumors. In September 2021, we dosed the first patient in HERKULES-2, a Phase 1b/2 master protocol clinical trial for ERAS-007 and/or ERAS-601 in combination with various agents in patients with NSCLC. In September 2021, we dosed the first patient in HERKULES-3, a Phase 1b/2 master protocol clinical trial for ERAS-007 in combination with various agents in patients with gastrointestinal (GI)
24
cancers. In September 2021, we announced a clinical trial collaboration and supply agreement (CTCSA) with Pfizer Inc. (Pfizer) in connection with the HERKULES-3 trial. Under the terms of the agreement, we are sponsoring and funding the clinical trial and Pfizer is providing its BRAF inhibitor, encorafenib (BRAFTOVI), at no cost. Additionally, in March 2022, we announced a CTCSA with Eli Lilly and Company (Lilly) in connection with the HERKULES-3 trial. Under the terms of the agreement, we are sponsoring and funding the clinical trial and Lilly is providing its EGFR antibody, cetuximab (ERBITUX), at no cost. Further, in October 2022, we announced a second CTCSA with Pfizer in connection with the HERKULES-3 trial. Under the terms of the agreement, we are sponsoring and funding the clinical trial and Pfizer is providing its CDK4/6 inhibitor, palbociclib (IBRANCE), at no cost. The master protocols for each of the HERKULES-2 and -3 Phase 1b/2 clinical trials provide the flexibility to explore additional combinations and expand into other NSCLC and GI cancer indications, respectively. These two trials are expected to provide proof-of-concept (PoC) data and may be expanded to enable potential accelerated approvals in their respective indications. We closed the HERKULES-4 clinical trial prior to enrolling patients in order to further focus our clinical efforts on solid tumors where we see the most promising avenues to make an impact on patients in the near term. As data emerge, we will re-evaluate hematologic malignancies in the context of our overall clinical development plan. In September 2022, we announced preliminary data related to ERAS-007 at a virtual R&D Day event that are discussed in more detail below. In addition, in October 2022, we reported additional Phase 1b monotherapy data from HERKULES-1 at the 2022 EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium. These data included preliminary monotherapy safety and pharmacokinetics to support dose selection for combinations of ERAS-007. In addition, we anticipate multiple additional data readouts from our HERKULES clinical trials, including a Phase 1b combination data readout from HERKULES-3 in the first half of 2023 and a Phase 1b combination data readout from HERKULES-2 in 2023. In June 2022, we announced an additional Phase 1b PoC clinical trial to investigate ERAS-007 in combination with a KRAS G12C inhibitor in KRAS G12C-driven NSCLC and CRC. While we have agreed to provide ERAS-007 for this clinical trial, the trial will be funded by a grant that the principal investigators received from Stand Up To Cancer (SU2C).
ERAS-601 is designed to be a potent and selective oral inhibitor of SHP2, a convergent node for upstream RTK signaling and a critical “on/off switch” that activates RAS-GTP signaling. SHP2 also drives tumor cell proliferation and development of resistance. ERAS-601 is designed to block oncogenic signal transduction and delay the onset of therapeutic resistance, and thereby serve as a backbone of combination therapy. In December 2020, we dosed the first patient in FLAGSHP-1, a Phase 1 clinical trial for ERAS-601 in patients with advanced solid tumors. ERAS-601 combinations are being evaluated in the FLAGSHP-1 and HERKULES-2 clinical trials for patients with CRC, head and neck cancer, and NSCLC. In July 2022, we announced a CTCSA with Lilly in connection with the FLAGSHP-1 trial. Under the terms of the agreement, we are sponsoring and funding the clinical trial and Lilly is providing its EGFR inhibitor, cetuximab (ERBITUX), at no cost. In September 2022, we announced preliminary data related to ERAS-601 at a virtual R&D Day event that are discussed in more detail below. In addition, in October 2022, we reported additional Phase 1 monotherapy data from FLAGSHP-1 at the 2022 EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium. These data included preliminary monotherapy safety and pharmacokinetics to support dose selection for combinations of ERAS-601. In addition, we anticipate a Phase 1b combination data readout from FLAGSHP-1 in triple wildtype (KRAS/NRAS/BRAF wildtype) CRC in the first half of 2023.
In September 2022, we announced promising preliminary data for ERAS-007 and ERAS-601 in BRAF-driven and RAS/MAPK-altered solid tumors at a virtual R&D Day event. A retrospective pooled analysis of all trials evaluating ERAS-007 or ERAS-601 in advanced solid tumors was performed that included our ongoing HERKULES-1 and FLAGSHP-1 trials and the Asana BioSciences’ previously completed ASN007-101 trial. The analysis was designed to identify responsive subsets that were particularly sensitive to ERAS-007 or ERAS-601 for prioritized combination development within indications of high unmet medical need where no targeted therapies with regular approval are available. Patients with solid tumors with RAS/MAPK alterations were segmented into two groups based on differing levels of responsiveness to monotherapy inhibition and differences in RAS/MAPK pathway reactivation: (1) patients with CRC and (2) patients with non-CRC. Key findings from the retrospective pooled interim analysis of ERAS-007 and ERAS-601 included:
•23% (6/26) of patients with RAS/MAPK-altered non-CRC solid tumors responded (2 confirmed and 4 unconfirmed partial responses) to single agent ERAS-007 or ERAS-601;
•44% (4/9) with a subset of BRAF-driven non-CRC solid tumors responded (1 confirmed and 3 unconfirmed partial responses) to single agent ERAS-007 or ERAS-601; and
•ERAS-007 and ERAS-601 had favorable safety and tolerability monotherapy profiles with largely non-overlapping treatment-related adverse events that are expected to be monitorable and manageable at the likely recommended combination doses.
25
The above results are based on data cutoff dates of November 6, 2020, July 11, 2022, and May 16, 2022 for the ASN007-101, FLAGSHP-1, and HERKULES-1 trials, respectively.
In February 2022, we dosed the first patient in our THUNDERBBOLT-1 Phase 1 clinical trial for ERAS-801, our CNS-penetrant EGFR inhibitor, in patients with recurrent glioblastoma multiforme (GBM). In the second half of 2022, we expect to file an IND with the FDA for ERAS-3490, the CNS-penetrant development candidate we nominated from our ERAS-1 KRAS G12C inhibitor franchise. We are also advancing seven other disclosed programs targeting key oncogenic drivers in the RAS/MAPK pathway, which we will need to successfully progress through discovery and IND-enabling activities prior to advancing these programs into clinical development, if at all.
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates obtain marketing approval. We are working with our current manufacturers to ensure that we will be able to scale up our manufacturing capabilities to support our clinical plans. We are also in the process of locating and qualifying additional manufacturers to build redundancies into our supply chain. In addition, we rely on third parties to package, label, store, and distribute our product candidates, and we intend to continue to rely on third parties with respect to our commercial products if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the design and development of our product candidates.
In July 2021, we completed our initial public offering (IPO) and issued 21,562,500 shares of our common stock, including the exercise in full by the underwriters of their option to purchase 2,812,500 shares of our common stock, at a price to the public of $16.00 per share. Our aggregate net proceeds from the offering were $317.0 million, net of underwriting discounts and commissions of $24.2 million and offering costs of $3.8 million.
In August 2022, we entered into an Open Market Sale Agreement (the Sale Agreement) with Jefferies LLC (the Agent), pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $200 million from time to time, in “at the market” offerings through the Agent. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from us of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sale Agreement. There have been no shares of our common stock sold under the Sale Agreement as of September 30, 2022.
Since our inception in 2018, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying, acquiring, and in-licensing our product candidates, establishing our intellectual property portfolio, conducting research, preclinical studies and clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue. As of September 30, 2022, we have raised a total of $665.4 million to fund our operations, comprised primarily of gross proceeds from our IPO and the sale and issuance of convertible preferred stock. As of September 30, 2022, we had cash, cash equivalents and marketable securities of $365.5 million.
We have incurred significant operating losses since inception. Our net losses were $35.5 million and $46.1 million for the three months ended September 30, 2022 and 2021, respectively, and $107.6 million and $92.3 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $345.7 million. We expect our expenses and operating losses will increase substantially for the foreseeable future, particularly if and as we conduct our ongoing and planned clinical trials and preclinical studies; continue our research and development activities; utilize third parties to manufacture our product candidates and related raw materials; hire additional personnel; acquire, in-license, or develop additional product candidates; expand and protect our intellectual property; and incur additional costs associated with being a public company. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. In addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities.
26
Based upon our current operating plans, we believe that our cash, cash equivalents and marketable securities as of September 30, 2022 will be sufficient to fund our operations into the second half of 2024. We do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and may never occur. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce, or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
The COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees, patients, physicians and other healthcare providers, communities and business operations, as well as the US and global economies and financial markets. To date, we have not experienced material disruptions in our business operations. However, while it is not possible at this time to estimate the impact that COVID-19 could have on our business in the future, particularly as we advance our product candidates through clinical development, the continued spread of COVID-19 and the measures taken by the governmental authorities, and any future epidemic disease outbreaks, could: disrupt the supply chain and the manufacture or shipment of drug substances and finished drug products for our product candidates for use in our research, preclinical studies and clinical trials; delay, limit or prevent our employees and CROs from continuing research and development activities; impede our clinical trial initiation and recruitment and the ability of patients to continue in clinical trials, including the risk that participants enrolled in our clinical trials will contract COVID-19 or other epidemic disease while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events; impede testing, monitoring, data collection and analysis and other related activities; any of which could delay our preclinical studies and clinical trials and increase our development costs, and have a material adverse effect on our business, financial condition and results of operations. The extent to which the COVID-19 pandemic impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Additionally, inflation generally affects us by increasing our employee-related costs and other expenses. Our financial condition and results of operations may also be impacted by other factors we may not be able to control, such as global supply chain disruptions, uncertain global economic conditions, global trade disputes or political instability. We do not believe that such factors had a material adverse impact on our results of operations during the three months ended September 30, 2022.
Our acquisition and license agreements
We have entered into in-license and acquisition agreements pursuant to which we in-licensed or acquired certain intellectual property rights related to our product candidates and development programs.
For additional information regarding these agreements, see the section titled “Business—Our acquisition and license agreements” in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.
Components of results of operations
Revenue
We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and obtained regulatory approval, if ever. If we fail to complete preclinical and clinical development of product candidates or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position would be adversely affected.
27
Operating expenses
Research and development
Research and development expenses consist of external and internal costs associated with our research and development activities, including our discovery and research efforts and the preclinical and clinical development of our product candidates. Research and development costs are expensed as incurred. Our research and development expenses include:
external costs, including expenses incurred under arrangements with third parties, such as contract research organizations (CROs), contract manufacturing organizations (CMOs), consultants and our scientific advisors; and
internal costs, including:
employee-related expenses, including salaries, benefits, and stock-based compensation for those individuals involved in research and development efforts;
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study materials; and
facilities and depreciation, which include direct and allocated expenses for rent of facilities and depreciation.
The following table summarizes our research and development expenses incurred for the following periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
ERAS-007 |
|
$ |
9,519 |
|
|
$ |
6,239 |
|
|
$ |
27,439 |
|
|
$ |
15,094 |
|
ERAS-601 |
|
|
5,156 |
|
|
|
4,099 |
|
|
|
15,091 |
|
|
|
10,453 |
|
Other clinical program |
|
|
2,119 |
|
|
|
— |
|
|
|
6,689 |
|
|
|
— |
|
Other discovery and preclinical programs |
|
|
11,390 |
|
|
|
9,613 |
|
|
|
33,882 |
|
|
|
24,247 |
|
Total research and development expenses |
|
$ |
28,184 |
|
|
$ |
19,951 |
|
|
$ |
83,101 |
|
|
$ |
49,794 |
|
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to conduct our ongoing research and development activities, conduct clinical trials and advance our preclinical research programs toward clinical development, particularly as more of our product candidates move into later stages of development, which typically cost more. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates.
The timelines and costs with research and development activities are uncertain, can vary significantly for each product candidate and program and are difficult to predict. We anticipate we will make determinations as to which product candidates and programs to pursue and how much funding to direct to each product candidate and program on an ongoing basis in response to preclinical and clinical results, regulatory developments, ongoing assessments as to each product candidate’s and program’s commercial potential, and our ability to enter into collaborations, licenses, or other similar agreements to the extent we determine the resources or expertise of a third-party would be beneficial for a given product candidate or program. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates and programs may be subject to future collaborations, licenses, or other agreements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our development costs may vary significantly based on factors such as:
the number and scope of preclinical and IND-enabling studies and clinical trials;
per-patient trial costs;
the number of trials required for approval;
the number of sites included in the trials;
28
the countries in which the trials are conducted;
the length of time required to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
the cost and timing of manufacturing our product candidates;
the phase of development of our product candidates;
the efficacy and safety profile of our product candidates;
the timing, receipt and terms of any approvals from applicable regulatory authorities;
maintaining a continued acceptable safety profile of our products following approval, if any;
significant and changing government regulation and regulatory guidance;
the impact of any interruptions to our operations or to those of the third parties with whom we work due to the ongoing COVID-19 pandemic and other events (such as the ongoing conflict between Russia and Ukraine and the increased rate of inflation in the United States); and
the extent to which we establish additional collaboration, license or other arrangements.
In-process research and development
In-process research and development expenses include rights acquired as part of asset acquisitions or in-licenses to develop and commercialize product candidates. Upfront payments that relate to the acquisition of a new product candidate, as well as pre-commercial milestone payments, are immediately expensed as in-process research and development in the period in which they are incurred, provided that the new product candidate did not also include processes or activities that would constitute a “business” as defined under US generally accepted accounting principles (US GAAP), the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use.
In-process research and development expenses consist primarily of our upfront payments, milestone payments, and our stock issuances in connection with our acquisition and in-license agreements.
General and administrative
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for employees in our finance, accounting, legal, information technology, business development and support functions. Other general and administrative expenses include allocated facility and depreciation related costs not otherwise included in research and development expenses and professional fees for auditing, tax, intellectual property and legal services. Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since recoverability of such expenditures is uncertain.
29
We expect our general and administrative expenses will increase substantially for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product candidates receive marketing approval, commercialization activities, as well as to support our operations generally. We also expect to incur increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory and tax services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.
Other income (expense), net
Interest income
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities.
Change in fair value of preferred stock purchase right liability
Our issuance of shares of our Series B-1 convertible preferred stock in April and August 2020 potentially obligated us to issue 13,175,191 shares of our Series B-2 convertible preferred stock at a price of $7.50 per share in an additional closing to certain purchasers of our Series B-1 convertible preferred stock, upon the achievement of certain milestones set forth in the Series B financing purchase agreement. We determined our obligation to issue these shares of Series B-2 convertible preferred stock represented a freestanding financial instrument that required liability accounting. This freestanding preferred stock purchase right liability for the Series B-2 convertible preferred stock was recorded at fair value upon issuance and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred stock purchase right liability were recognized in the condensed consolidated statements of operations and comprehensive loss until the obligation for the Series B-2 shares was fulfilled upon the Series B-2 issuance in January 2021.
Results of operations
Comparison of the three months ended September 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
28,184 |
|
|
$ |
19,951 |
|
|
$ |
8,233 |
|
In-process research and development |
|
|
— |
|
|
|
1,680 |
|
|
|
(1,680 |
) |
General and administrative |
|
|
8,778 |
|
|
|
6,916 |
|
|
|
1,862 |
|
Contribution of common stock to Erasca Foundation |
|
|
— |
|
|
|
17,497 |
|
|
|
(17,497 |
) |
Total operating expenses |
|
|
36,962 |
|
|
|
46,044 |
|
|
|
(9,082 |
) |
Loss from operations |
|
|
(36,962 |
) |
|
|
(46,044 |
) |
|
|
9,082 |
|
Total other income (expense), net |
|
|
1,473 |
|
|
|
(25 |
) |
|
|
1,498 |
|
Net loss |
|
$ |
(35,489 |
) |
|
$ |
(46,069 |
) |
|
$ |
10,580 |
|
30
Research and development expenses
Research and development expenses were $28.2 million for the three months ended September 30, 2022 compared to $20.0 million for the three months ended September 30, 2021. The increase of $8.2 million was primarily driven by a $4.4 million increase in expenses incurred in connection with clinical trials, preclinical studies and discovery activities, a $2.0 million increase in facilities-related expenses and depreciation primarily due to our new San Diego and South San Francisco facilities which we moved into in the second and third quarters of 2022, respectively, a $1.2 million increase in stock-based compensation expense primarily due to increases in our stock price and headcount, and a $1.0 million increase in outsourced services and consulting fees, partially offset by a net decrease of $0.7 million in personnel costs primarily due to the employee retention credit of $1.5 million recorded during the three months ended September 30, 2022 offset by an increase in headcount.
In-process research and development expenses
In-process research and development expenses were $0 for the three months ended September 30, 2022 compared to $1.7 million for the three months ended September 30, 2021. In-process research and development expenses for the three months ended September 30, 2021 related to the cash payment of $1.7 million following the completion of our IPO in connection with the amendment to our license agreement with The Regents of the University of California, San Francisco (the Regents).
General and administrative expenses
General and administrative expenses were $8.8 million for the three months ended September 30, 2022 compared to $6.9 million for the three months ended September 30, 2021. The increase of $1.9 million was primarily driven by an increase of $1.0 million in stock-based compensation expense due to increases in our stock price and headcount, increases of $1.0 million in legal and accounting fees, in the aggregate, and an increase of $0.3 million in facilities and office-related expenses, partially offset by a net decrease in personnel costs of $0.5 million primarily due to the employee retention credit of $0.7 million recorded during the three months ended September 30, 2022 and a decrease in insurance costs of $0.2 million.
Contribution of common stock to the Erasca Foundation
Expenses of $17.5 million were recognized for the three months ended September 30, 2021 in connection with the issuance of 1,093,557 shares of our common stock as a contribution to the Erasca Foundation in conjunction with our IPO. No such expenses were recognized for the three months ended September 30, 2022.
Other income (expense), net
Other income (expense), net was $1.5 million for the three months ended September 30, 2022 compared to $(25,000) for the three months ended September 30, 2021. The increase of $1.5 million was primarily related to an increase in interest earned on our cash, cash equivalents and marketable securities during the three months ended September 30, 2022.
Comparison of the nine months ended September 30, 2022 and 2021
The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
83,101 |
|
|
$ |
49,794 |
|
|
$ |
33,307 |
|
In-process research and development |
|
|
2,000 |
|
|
|
10,848 |
|
|
|
(8,848 |
) |
General and administrative |
|
|
24,271 |
|
|
|
15,696 |
|
|
|
8,575 |
|
Contribution of common stock to Erasca Foundation |
|
|
— |
|
|
|
17,497 |
|
|
|
(17,497 |
) |
Total operating expenses |
|
|
109,372 |
|
|
|
93,835 |
|
|
|
15,537 |
|
Loss from operations |
|
|
(109,372 |
) |
|
|
(93,835 |
) |
|
|
(15,537 |
) |
Total other income (expense), net |
|
|
1,817 |
|
|
|
1,535 |
|
|
|
282 |
|
Net loss |
|
$ |
(107,555 |
) |
|
$ |
(92,300 |
) |
|
$ |
(15,255 |
) |
31
Research and development expenses
Research and development expenses were $83.1 million for the nine months ended September 30, 2022 compared to $49.8 million for the nine months ended September 30, 2021. The increase of $33.3 million was primarily driven by a $17.1 million increase in expenses incurred in connection with clinical trials, preclinical studies and discovery activities, a $5.5 million increase in stock-based compensation expense primarily due to increases in our stock price and headcount, a $4.6 million net increase in personnel costs primarily due to an increase in headcount offset by the employee retention credit of $1.5 million recorded during the nine months ended September 30, 2022, a $3.5 million increase in facilities-related expenses and depreciation primarily due to our new San Diego and South San Francisco facilities which we moved into in the second and third quarters of 2022, respectively, and a $1.6 million increase in outsourced services and consulting fees.
In-process research and development expenses
In-process research and development expenses were $2.0 million for the nine months ended September 30, 2022 compared to $10.8 million for the nine months ended September 30, 2021. In-process research and development expenses for the nine months ended September 30, 2022 related to a development milestone payment of $2.0 million in connection with our license agreement with Katmai Pharmaceuticals, Inc. In-process research and development expenses for the nine months ended September 30, 2021 related to the cash payment of $1.7 million following the completion of our IPO and the issuance of 944,945 shares of our common stock at a price of $5.81 per share or a total fair value of $5.5 million in connection with the amendment to our license agreement with the Regents, and a $2.0 million upfront payment and issuance of 500,000 shares of our common stock to Emerge Life Sciences, Pte. Ltd. (ELS) at a price of $3.36 per share or a total fair value of $1.7 million in connection with the purchase agreement we entered into in March 2021 with ELS.
General and administrative expenses
General and administrative expenses were $24.3 million for the nine months ended September 30, 2022 compared to $15.7 million for the nine months ended September 30, 2021. The increase of $8.6 million was primarily driven by an increase of $3.8 million in stock-based compensation expense due to increases in our stock price and headcount, an increase of $1.7 million in insurance costs, an increase of $1.5 million in facilities and office-related expenses, a net increase of $0.7 million in personnel costs primarily due to an increase in headcount partially offset by the employee retention credit of $0.7 million recorded during the nine months ended September 30, 2022, and increases in legal and accounting fees of $0.2 million, in the aggregate.
Contribution of common stock to the Erasca Foundation
Expenses of $17.5 million were recognized for the nine months ended September 30, 2021 in connection with the issuance of 1,093,557 shares of our common stock as a contribution to the Erasca Foundation in conjunction with our IPO. No such expenses were recognized for the nine months ended September 30, 2022.
Other income (expense), net
Other income (expense), net was $1.8 million for the nine months ended September 30, 2022 compared to $1.5 million for the nine months ended September 30, 2021. The increase of $0.3 million was primarily related to an increase of $1.9 million in interest earned on our cash, cash equivalents and marketable securities during the nine months ended September 30, 2022, partially offset by the change in fair value of the preferred stock purchase right liability of $1.6 million recorded in the nine months ended September 30, 2021 as a result of the obligation of the Series B-2 shares being fulfilled upon the Series B-2 issuance in January 2021.
32
Liquidity and capital resources
Sources of liquidity
In July 2021, we completed our IPO and issued 21,562,500 shares of our common stock, including the exercise in full by the underwriters of their option to purchase 2,812,500 shares of our common stock, at a price to the public of $16.00 per share. Our aggregate net proceeds from the offering were $317.0 million, net of underwriting discounts and commissions of $24.2 million and offering costs of $3.8 million. Prior to the IPO, we received aggregate gross proceeds of $320.4 million from the sale of shares of our convertible preferred stock.
In August 2022, we entered into the Sale Agreement with the Agent, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $200 million from time to time, in “at the market” offerings through the Agent. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. The Agent will receive a commission from us of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sale Agreement. There have been no shares of our common stock sold under the Sale Agreement as of September 30, 2022.
Future capital requirements
As of September 30, 2022, we had cash, cash equivalents and marketable securities of $365.5 million. Based upon our current operating plans, we believe that our cash, cash equivalents and marketable securities will be sufficient to fund our operations into the second half of 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.
Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
the type, number, scope, progress, expansions, results, costs and timing of discovery, preclinical studies and clinical trials of our product candidates that we are pursuing or may choose to pursue in the future, including the costs of any third-party products used in our combination clinical trials that are not covered by such third party or other sources;
the costs and timing of manufacturing for our product candidates with CMOs, including commercial manufacturing, if any product candidate is approved;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
the costs associated with hiring additional personnel, consultants, and CROs as our preclinical and clinical activities increase;
the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we have in-licensed or acquired our product candidates or technologies;
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
33
any delays and cost increases that result from the COVID-19 pandemic and other events (such as the ongoing conflict between Russia and Ukraine and the increased rate of inflation in the United States);
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
costs associated with any products or technologies that we may in-license or acquire.
We have no other committed sources of capital. Until we can generate a sufficient amount of product revenue to finance our cash requirements, if ever, we expect to finance our future cash needs primarily through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could 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, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, licensing, or other similar 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 when needed, we may be required to delay, limit, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Cash flows
The following table shows a summary of our cash flows for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
Net cash (used in) provided by: |
|
|
|
|
|
|
Operating activities |
|
$ |
(76,892 |
) |
|
$ |
(57,118 |
) |
Investing activities |
|
|
(66,214 |
) |
|
|
(641 |
) |
Financing activities |
|
|
1,879 |
|
|
|
438,290 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
(141,227 |
) |
|
$ |
380,531 |
|
Operating activities
Cash used in operating activities was $76.9 million during the nine months ended September 30, 2022, primarily resulting from a net loss of $107.6 million, partially reduced by changes in operating assets and liabilities of $12.4 million, stock-based compensation of $14.7 million, in-process research and development expenses of $2.0 million, which are reflected in investing activities, and depreciation expense of $1.7 million. Net cash provided by changes in operating assets and liabilities consisted primarily of an increase in operating lease assets and liabilities of $12.4 million primarily due to the receipt of $14.2 million in reimbursement from our landlord for tenant improvements and increases in accounts payable, accrued expenses and other current liabilities of $4.5 million, partially offset by an increase in prepaid expenses and other current and long-term assets of $4.5 million.
Cash used in operating activities was $57.1 million during the nine months ended September 30, 2021, primarily resulting from a net loss of $92.3 million, partially reduced by the issuance of common stock to the Erasca Foundation of $17.5 million, which is reflected in noncash investing and financing activities, in-process research and development expenses of $10.8 million, which are reflected in noncash and investing activities, stock-based compensation expense of $5.4 million, changes in operating assets and liabilities of $2.4 million and depreciation expense of $0.5 million, partially offset by a $1.6 million change in fair value of the preferred stock purchase right liability. Net cash provided by changes in operating assets and liabilities consisted primarily of increases in accounts payable, accrued expenses and other current liabilities of $7.6 million, partially offset by an increase in prepaid expenses and other current and long-term assets of $5.6 million.
34
Investing activities
Net cash used in investing activities was $66.2 million during the nine months ended September 30, 2022 as compared to cash used in investing activities of $0.6 million during the nine months ended September 30, 2021. The increase in cash used in investing activities of $65.6 million was primarily the result of an increase in purchases of marketable securities of $52.7 million, an increase in purchases of property and equipment of $8.3 million, a decrease in maturities of marketable securities of $8.2 million, and the $2.0 million payment made for our investment in Affini-T Therapeutics, Inc., partially offset by a $5.7 million decrease in in-process research and development.
Financing activities
Net cash generated from financing activities was $1.9 million during the nine months ended September 30, 2022 as compared to $438.3 million during the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we received $1.3 million from the exercise of stock options and $0.6 million from the issuance of common stock under our Employee Stock Purchase Plan. During the nine months ended September 30, 2021, we received $317.0 million from the issuance of common stock in our IPO, net of underwriting discounts and commissions and offering costs, $119.4 million from the sale of shares of our Series B-2 convertible preferred stock, net of issuance costs, $1.3 million from the exercise of stock options and $0.6 million from the disgorgement of a stockholder's short-swing profits.
Contractual obligations and commitments
As of September 30, 2022, there have been no material changes outside the ordinary course of our business to the contractual obligations we reported in “Management’s discussion and analysis of financial condition and results of operations – Cash requirements due to contractual obligations and other commitments,” included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.
Off-balance sheet arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical accounting policies and estimates
This management discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. As of September 30, 2022, there have been no material changes to our critical accounting policies and estimates from those disclosed in “Management’s discussion and analysis of financial condition and results of operations – Critical accounting policies and estimates,” included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 24, 2022.
Recently issued and adopted accounting pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued and adopted accounting pronouncements.
35
Emerging growth company and smaller reporting company status
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley).
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion; (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.