Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 31, 2022, which we refer to as the 2021 10-K.
Overview
We are a clinical-stage microbiome therapeutics company leveraging our Human-First Discovery platform to develop a novel class of orally administered biological drugs. The microbiome consists of trillions of microbes that live symbiotically in and on every human and are essential to our health. When key microbes are lost, the resulting dysbiosis can increase susceptibility to immune disorders, infections, neurological conditions, cancer and other serious diseases. We are developing novel therapeutics designed to deliver missing microbes and their clinically relevant biochemical functions to correct dysbiosis and the diseases that emerge from it. Our Human-First Discovery platform uses reverse translation to identify diseases of dysbiosis and to design microbiome therapeutics that address them. We believe that our differentiated platform, rich pipeline and the broad therapeutic potential of this new field of medicine position us to transform care for a wide range of unmet medical needs.
Our lead product candidate, CP101, is an orally administered complete microbiome therapeutic in development for the prevention of recurrent Clostridioides difficile infection, or CDI. In June 2020, we reported positive topline data from our Phase 2 placebo-controlled clinical trial of CP101 for the prevention of recurrent CDI, which we refer to as the PRISM3 trial, and in November 2021, we reported positive topline data from our open-label, Phase 2 clinical trial of CP101 for the prevention of recurrent CDI, which we refer to as the PRISM-EXT trial. We have designed a Phase 3 clinical trial, which we refer to as the PRISM4 trial, to serve as our second pivotal trial of CP101 for the prevention of recurrent CDI. On March 1, 2022, we announced that enrollment in PRISM4 was paused following receipt of a clinical hold letter on February 24, 2022 from the U.S. Food and Drug Administration, or the FDA, in connection with our investigational new drug application, or IND, for CP101, requesting additional information regarding our SARS-CoV-2 donor screening procedures and associated informed consent language. On April 27, 2022, the FDA removed the clinical hold. We expect to proceed with enrollment in PRISM4 in the second half of this year after we complete certain manufacturing activities and quality system updates related to the recently resolved clinical hold, and subject to the FDA's feedback on the validation package for one of our release tests and a PRISM4 protocol amendment. We anticipate that topline data from PRISM4 will be available in the first half of 2024.
We are also preparing for the submission of an IND for FIN-211 and a Phase 1b clinical trial of FIN-211 in autism spectrum disorder, or ASD, which we refer to as AUSPIRE. We anticipate submitting the IND for FIN-211 in the fourth quarter of this year. The IND submission is expected to reflect recent changes in the AUSPIRE trial design and certain manufacturing updates. We plan to provide further guidance on the expected timing of the AUSPIRE trial and data readouts in the future.
We continue to partner with Takeda Pharmaceutical Company Limited, or Takeda, on the development of targeted microbiome therapeutics for inflammatory bowel disease, or IBD. These include TAK-524, a product candidate designed for the treatment of ulcerative colitis, and FIN-525, a program to develop a live biotherapeutic product optimized for the treatment of Crohn's disease. As the TAK-524 program nears the next decision point in development, Takeda has informed us that they are conducting a review of the plans, timeline, and budget for the TAK-524 program as part of their portfolio review process.
Since our inception, we have focused primarily on developing and progressing our product candidates through clinical development, organizing and staffing our company, research and development activities, establishing and protecting our intellectual property portfolio, including for our Human-First Discovery platform, and raising capital. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since our inception, we have funded our operations primarily with proceeds from our initial public offering, or the IPO, the sale of convertible preferred stock and from collaboration revenue.
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
22
As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all.
If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
We believe that our existing cash and cash equivalents of $104.7 million as of June 30, 2022, together with anticipated income under an executed sublease for a portion of one of our office and lab facilities, will fund our operations into the first quarter of 2024. 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. See “—Liquidity and Capital Resources.” As described above, Takeda is conducting a review of the TAK-524 program and, as a result, we have removed the associated near-term milestones from our cash runway analysis until Takeda has completed this review.
COVID-19 Business Update
We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy. The extent of the impact of the COVID-19 pandemic, including variants of COVID-19, on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our clinical trial enrollment, trial sites, contract research organizations, or CROs, contract manufacturing organizations, and other third parties with whom we do business, as well as regulatory authorities and our key scientific and management personnel.
Components of Our Results of Operations
Revenue
We have no products approved for commercial sale. We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of licensed products for the foreseeable future. Our revenue to date has been generated primarily through collaboration and license agreements. We recognize revenue over our expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreement and any additional collaborations that we may enter into in the future, and any collaboration revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments. To date, we have not received any royalties under our collaboration agreement with Takeda. Additionally, we will continue to earn royalties under our Asset Purchase Agreement, dated as of November 19, 2020, or the OpenBiome Agreement, with Microbiome Health Research Institute, Inc., doing business as OpenBiome, or OpenBiome, based on sales of fecal microbiota transplantation, or FMT, materials.
Collaboration and License Agreement with Takeda
In January 2017, we entered into a research collaboration and exclusive license agreement, or as amended and restated, the Takeda Agreement, with Takeda, pursuant to which we granted Takeda a worldwide, exclusive license, with the right to grant sublicenses, under our rights in certain patents, patent applications and know-how to develop, have developed, manufacture, have manufactured, make, have made, use, have used, offer for sale, sell, have sold, commercialize, have commercialized and import our microbiome therapeutic candidate TAK-524, for the prevention, diagnosis, theragnosis or treatment of diseases in humans. We subsequently amended and restated the Takeda Agreement in October 2019 to provide a similar worldwide, exclusive license to a second microbiome therapeutic candidate, FIN-525. We amended the Takeda Agreement in August 2021 to transition primary responsibility for further development and manufacturing activities with respect to TAK-524 from us to Takeda in accordance with a transition plan, and Takeda will assume sole responsibility for regulatory matters with respect to TAK-524. In November 2021, we amended the Takeda Agreement to enable us to carry out certain FIN-525 preliminary evaluation activities.
In connection with entry into the Takeda Agreement, we received a one-time, upfront payment from Takeda in the amount of $10.0 million. Additionally, we have received an aggregate of $4.0 million in additional payments upon the achievement of certain development milestones for TAK-524 therapeutic products, and we are entitled to receive up to an aggregate of $176.0 million for
23
additional milestone payments upon the achievement of specified development, regulatory and commercial sale milestones for TAK-524 therapeutic products. We are also entitled to receive up to $177.7 million in the aggregate, upon the achievement of specified development, regulatory and commercial sale milestones for FIN-525 therapeutic products, subject, to certain specified reductions based upon the nature of the FIN-525 product and certain additional milestones to be negotiated by the parties. We are also entitled to receive up to $10.0 million upon achievement of certain milestone events for the first diagnostic product for each of TAK-524 and FIN-525, subject to certain reductions in the event that Takeda uses a third party to develop such diagnostic products. None of these milestones were impacted by the amendments to the Takeda Agreement noted above. Revenue under the Takeda Agreement is recognized as our research and development services are provided and is recorded as collaboration revenue on our condensed consolidated statement of operations.
Agreements with OpenBiome
We have historically collaborated with OpenBiome under several agreements related to, among other things, the license of various technology and intellectual property rights, and the supply of certain materials, as further described below.
On November 19, 2020, we entered into the LMIC License Agreement, or the LMIC Agreement, with OpenBiome, pursuant to which we granted OpenBiome a non-exclusive royalty-bearing license, with the right to grant sublicenses, under certain patents, patent applications, and know-how that are reasonably necessary or useful for the exploitation of products manufactured directly from stool from a stool donor source without the use of culturing or replication, or certain natural products. The license granted to OpenBiome excludes a license under our intellectual property to exploit a lyophilized natural product (such as CP101) where processed stool is lyophilized. The only consideration provided to us under the LMIC Agreement is in the form of future royalties on net sales of these products, which are not currently commercially viable. We are entitled to receive tiered royalties on net sales of certain products, ranging from mid-single digit to low second decile digits on a product-by-product and country-by-country basis. We did not recognize any revenue related to the LMIC Agreement for the three and six months ended June 30, 2022 and 2021, as there are currently no products available for sale.
Also on November 19, 2020, we entered into the OpenBiome Agreement. The OpenBiome Agreement effectively terminated certain existing agreements with OpenBiome and internalized certain functions for which we previously relied on OpenBiome. Pursuant to the OpenBiome Agreement, we acquired certain biological samples and obtained a license to certain OpenBiome technology, and, upon closing of the transaction, which occurred on March 1, 2021, we acquired certain additional assets, including biological samples, capital equipment and contracts. As of June 30, 2022, we have made payments of $5.0 million to OpenBiome related to the OpenBiome Agreement, which is the full amount agreed upon. We are also required to pay certain milestones up to $26.0 million upon the occurrence of certain research and development events, regulatory approvals, and commercial sales, and low single digit royalties on net sales of products on a product-by-product and country-by-country basis, as well as a mid-single digit royalties on sublicensing revenue related to such products.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•upfront, milestone and maintenance fees incurred under license, acquisition and other third-party agreements;
•costs of laboratory supplies and acquiring, developing and manufacturing study materials;
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs; and
•costs of outside consultants, including their fees and related travel expenses engaged in research and development functions.
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which
24
may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed. We do not allocate certain employee-related costs, external costs directly related to our Human First Discovery platform, and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under development and, as such, are classified as costs of our platform research.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we initiate and continue our planned clinical trials for our product candidates and continue to discover and develop additional product candidates. If any of our product candidates enter into later stages of clinical development, they will 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. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates and expand our corporate headquarters. We also expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.
Restructuring Expense
Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes one-time severance payments, healthcare coverage, outplacement services and related expenses.
Total Other Income (Expense), Net
Interest Income (Expense)
Interest income primarily consists of interest earned on our cash and cash equivalents. Our interest income has not been significant due to low interest earned on cash balances related to our money market account. Interest expense consists primarily of interest on borrowings under our Loan Agreement.
25
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
REVENUE: |
|
|
|
|
|
|
Collaboration revenue |
|
$ |
361 |
|
|
$ |
2,830 |
|
Total revenue |
|
|
361 |
|
|
|
2,830 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
Research and development |
|
|
(13,923 |
) |
|
|
(13,964 |
) |
General and administrative |
|
|
(8,164 |
) |
|
|
(5,882 |
) |
Restructuring expense |
|
|
(903 |
) |
|
|
— |
|
Total operating expenses |
|
|
(22,990 |
) |
|
|
(19,846 |
) |
Net operating loss |
|
|
(22,629 |
) |
|
|
(17,016 |
) |
OTHER (EXPENSE) INCOME: |
|
|
|
|
|
|
Gain on extinguishment of PPP Loan |
|
|
— |
|
|
|
1,827 |
|
Interest (expense) income, net |
|
|
(65 |
) |
|
|
7 |
|
(Loss) gain on disposal of fixed assets, net |
|
|
(6 |
) |
|
|
28 |
|
Other expense, net |
|
|
— |
|
|
|
(15 |
) |
Total other (expense) income |
|
|
(71 |
) |
|
|
1,847 |
|
Net loss |
|
$ |
(22,700 |
) |
|
$ |
(15,169 |
) |
Revenue
Revenue of $0.4 million and $2.8 million for the three months ended June 30, 2022 and 2021, respectively, primarily consisted of collaboration revenue earned under the Takeda Agreement. Our collaboration revenue decreased by $2.5 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021, primarily due to the August 2021 amendment to the Takeda Agreement, pursuant to which we transitioned primary responsibilities for TAK-524 to Takeda in the third quarter of 2021, resulting in a decrease in collaboration revenue in the current quarter.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Increase
(Decrease) |
|
CDI (CP101) |
|
|
4,066 |
|
|
$ |
3,733 |
|
|
$ |
333 |
|
Inflammatory Bowel Diseases (IBD) (TAK-524 and FIN-525) |
|
|
398 |
|
|
|
2,098 |
|
|
|
(1,700 |
) |
Autism Spectrum Disorder (ASD) (FIN-211) |
|
|
1,409 |
|
|
|
1,771 |
|
|
|
(362 |
) |
Hepatitis B (HBV) (CP101) |
|
|
(3 |
) |
|
|
875 |
|
|
|
(878 |
) |
Platform |
|
|
7,002 |
|
|
|
4,955 |
|
|
|
2,047 |
|
Unallocated |
|
|
1,051 |
|
|
|
532 |
|
|
|
519 |
|
|
|
|
13,923 |
|
|
$ |
13,964 |
|
|
$ |
(41 |
) |
Research and development expenses for the three months ended June 30, 2022 were $13.9 million, compared to $14.0 million for the three months ended June 30, 2021. The expenses remained relatively flat for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The June 30, 2022 figures included an increase in our platform-related costs of $2.0 million, primarily driven by a $1.3 million increase in manufacturing related expenses and a $0.6 million increase in personnel expenses. With the closing of the OpenBiome Agreement in the first quarter of 2021, we enhanced our internal manufacturing and platform research capabilities, which drove an overall increase in platform related costs, as we continue to build out our manufacturing platform.
26
Additionally, there was a $0.5 million increase in unallocated costs due to an increase in stock-based compensation expense, in addition to a $0.3 million increase in expenses related to the CP101 program driven by a $0.3 million increase in personnel expenses and a $0.2 million increase in manufacturing-related costs, offset by a $0.2 million decrease in consulting costs.
This increase was offset by a decrease of $1.7 million in IBD program expenses, driven primarily by a decrease of $1.2 million in contract research costs and $0.4 million in personnel costs due to the transition of primary responsibilities with respect to TAK-524 from Finch to Takeda in the third quarter of 2021. Additionally, there was a $0.9 million decrease in our HBV program expenses due to our decision to suspend this program, and a decrease of $0.4 million in our ASD program, driven by a decrease of $0.4 million in contract research and manufacturing costs and a $0.1 million decrease in consulting costs, offset by a $0.1 million increase in personnel expenses.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Increase |
|
Personnel expenses (including stock-based compensation) |
|
$ |
3,233 |
|
|
$ |
2,989 |
|
|
$ |
244 |
|
Facilities and supplies |
|
|
443 |
|
|
|
48 |
|
|
|
395 |
|
Professional fees |
|
|
3,032 |
|
|
|
1,587 |
|
|
|
1,445 |
|
Other expenses |
|
|
1,456 |
|
|
|
1,258 |
|
|
|
198 |
|
|
|
$ |
8,164 |
|
|
$ |
5,882 |
|
|
$ |
2,282 |
|
General and administrative expenses were $8.2 million for the three months ended June 30, 2022, compared to $5.9 million for the three months ended June 30, 2021. The increase of $2.3 million for the three months ended June 30, 2022 was primarily due to a $1.4 million increase in professional fees, a $0.4 million increase in facilities and supplies, a $0.2 million increase in personnel expenses and a $0.2 million increase in other expenses. The increase in professional fees was primarily related to $2.1 million increase in legal expenses, partially offset by a $0.4 million decrease in consulting expenses.
Other (Expense) Income, Net
Total other expense, net for the three months ended June 30, 2022 was $0.1 million, compared to income of $1.8 million for the three months ended June 30, 2021. The decrease of $1.7 million for the three months ended June 30, 2022 was primarily due to the forgiveness of the PPP Loan of $1.8 million in May 2021.
Restructuring Expense
Restructuring expense for the three months ended June 30, 2022 was $0.9 million, compared to zero for the three months ended June 30, 2021. The increase is due to the costs associated with the implementation of certain expense reduction measures in April 2022. Refer to Note 8 within the condensed consolidated financial statements for further information.
27
Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
REVENUE: |
|
|
|
|
|
|
Collaboration revenue |
|
$ |
715 |
|
|
$ |
6,383 |
|
Total revenue |
|
|
715 |
|
|
|
6,383 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
Research and development |
|
|
(29,453 |
) |
|
|
(26,939 |
) |
General and administrative |
|
|
(17,568 |
) |
|
|
(10,433 |
) |
Restructuring expense |
|
|
(903 |
) |
|
|
— |
|
Total operating expenses |
|
|
(47,924 |
) |
|
|
(37,372 |
) |
Net operating loss |
|
|
(47,209 |
) |
|
|
(30,989 |
) |
OTHER (EXPENSE) INCOME, NET: |
|
|
|
|
|
|
Gain on extinguishment of PPP Loan |
|
|
— |
|
|
|
1,827 |
|
Interest (expense) income, net |
|
|
(52 |
) |
|
|
6 |
|
(Loss) gain on disposal of fixed assets, net |
|
|
(6 |
) |
|
|
28 |
|
Other expense, net |
|
|
— |
|
|
|
(22 |
) |
Total other (expense) income, net |
|
|
(58 |
) |
|
|
1,839 |
|
Net loss |
|
$ |
(47,267 |
) |
|
$ |
(29,150 |
) |
Revenue of $0.7 million and $6.4 million for the six months ended June 30, 2022 and 2021, respectively, primarily consisted of collaboration revenue earned under the Takeda Agreement. Our collaboration revenue decreased by $5.7 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021, primarily due to the August 2021 amendment to the Takeda Agreement, pursuant to which we transitioned primary responsibilities for TAK-524 to Takeda in the third quarter of 2021, resulting in a decrease in collaboration revenue in the current fiscal year.
Research and Development Expenses
The following table summarizes our research and development expenses for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Increase
(Decrease) |
|
CDI (CP101) |
|
$ |
7,596 |
|
|
$ |
8,034 |
|
|
$ |
(438 |
) |
Inflammatory Bowel Diseases (IBD) (TAK-524 and FIN-525) |
|
|
890 |
|
|
|
4,902 |
|
|
|
(4,012 |
) |
Autism Spectrum Disorder (ASD) (FIN-211) |
|
|
3,275 |
|
|
|
3,230 |
|
|
|
45 |
|
Hepatitis B (HBV) (CP101) |
|
|
295 |
|
|
|
1,451 |
|
|
|
(1,156 |
) |
Platform |
|
|
15,146 |
|
|
|
8,465 |
|
|
|
6,681 |
|
Unallocated |
|
|
2,251 |
|
|
|
857 |
|
|
|
1,394 |
|
|
|
$ |
29,453 |
|
|
$ |
26,939 |
|
|
$ |
2,514 |
|
Research and development expenses for the six months ended June 30, 2022 were $29.5 million compared to $26.9 million for the six months ended June 30, 2021.The increase of $2.5 million for the six months ended June 30, 2022 included a $6.7 million increase in our platform-related costs, primarily driven by a $3.2 million increase in personnel expenses, a $3.2 million increase in manufacturing-related expenses, a $0.4 million increase in consulting costs, and a $0.2 million increase in donor related costs, partially offset by a $0.6 million decrease in contract manufacturing costs. With the closing of the OpenBiome Agreement in the first quarter of 2021, we enhanced our internal manufacturing and platform research capabilities, which drove an overall increase in platform related costs, as we continue to build out our manufacturing platform. Additionally, unallocated costs increased by $1.4 million, driven by an increase in stock-based compensation expense, while expenses related to our ASD program remained flat.
28
This increase was offset by a $4.0 million decrease in IBD program expenses driven primarily by a decrease of $2.8 million in contract research costs and $1.0 million decrease in personnel expenses due to the transition of primary responsibilities with respect to TAK-524 from Finch to Takeda in the third quarter of 2021. Additionally, there was a $0.4 million decrease in costs related to our CDI program, driven by a $0.8 million decrease in external costs and a $0.4 million decrease in consulting costs. This was partially offset by a $0.6 million increase in personnel expenses in addition to a $0.3 million increase in manufacturing related costs as we brought more of our development activities in-house upon execution of the OpenBiome Agreement. Costs related to HBV decreased by $1.2 million in connection with our decision to suspend this program.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
|
Increase |
|
Personnel expenses (including stock-based compensation) |
|
$ |
6,891 |
|
|
$ |
5,357 |
|
|
$ |
1,534 |
|
Facilities and supplies |
|
|
661 |
|
|
|
137 |
|
|
|
524 |
|
Professional fees |
|
|
6,286 |
|
|
|
3,411 |
|
|
|
2,875 |
|
Other expenses |
|
|
3,730 |
|
|
|
1,528 |
|
|
|
2,202 |
|
|
|
$ |
17,568 |
|
|
$ |
10,433 |
|
|
$ |
7,135 |
|
General and administrative expenses were $17.6 million for the six months ended June 30, 2022 compared to $10.4 million for the six months ended June 30, 2021. The increase of $7.1 million for the six months ended June 30, 2022 was primarily due to a $2.9 million increase in professional fees, a $2.2 million increase in other expenses, a $1.5 million increase in personnel expenses, and a $0.5 million increase in facilities and supplies. The increase in professional fees was primarily related to $4.4 million increase in legal expenses, partially offset by a $1.0 million decrease in consulting expenses and a $0.4 million decrease in audit and tax services. The increase in other expenses was primarily related to $1.1 million in business insurance and $0.6 million in state excises taxes, while the increase in personnel expenses is related to an increase in stock-based compensation expense of $1.3 million.
Other (Expense) Income, Net
Total other expense, net for the six months ended June 30, 2022 was $0.1 million, compared to $1.8 million for the six months ended June 30, 2021. The decrease of $1.7 million for the six months ended June 30, 2022 was primarily due to the forgiveness of the PPP Loan of $1.8 million in May 2021.
Restructuring Expense
Restructuring expense for the six months ended June 30, 2022 was $0.9 million, compared to zero for the six months ended June 30, 2021. The increase is due to the costs associated with the implementation of certain expense reduction measures in April 2022. Refer to Note 8 within the condensed consolidated financial statements for further information.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not recognized any product revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. We have funded our operations primarily through equity financings, the Loan Agreement, and from collaboration revenue. We have raised an aggregate of approximately $177.0 million from the sale of convertible preferred stock and $14.0 million in collaboration revenue from the upfront payment and milestone payments received under our collaboration agreement with Takeda. In May 2022, we borrowed $15.0 million under the Loan Agreement. In March 2021, we completed our IPO whereby we sold an aggregate of 7,500,000 shares of our common stock. In April 2021, we sold an additional 192,877 shares of our common stock, pursuant to the underwriters’ partial exercise of their overallotment option, at a public offering price of $17.00 per share, for aggregate gross proceeds of $3.3 million. In aggregate, we received approximately $118.8 million in net proceeds related to our IPO after deducting $9.2 million of underwriting discounts and commissions and $2.9 million of offering expenses.
29
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
SIX MONTHS ENDED
JUNE 30, |
|
|
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(41,485 |
) |
|
$ |
(38,997 |
) |
Net cash used in investing activities |
|
|
(1,803 |
) |
|
|
(11,555 |
) |
Net cash provided by financing activities |
|
|
14,780 |
|
|
|
118,995 |
|
Net (decrease) increase in cash and cash equivalents, and restricted cash |
|
$ |
(28,508 |
) |
|
$ |
68,443 |
|
Operating Activities
During the six months ended June 30, 2022, cash used in operating activities was $41.5 million. This cash outflow was primarily related to our net loss of $47.3 million in addition to a net decrease in our operating assets and liabilities of $1.9 million. The cash outflow included $4.0 million in stock-based compensation expense, $2.7 million in non-cash depreciation and amortization, and $1.0 million in other non-cash operating lease cost. The net decrease in our operating assets and liabilities of $1.9 million included a $4.9 million decrease in prepaid expenses and other current assets, a $2.4 million decrease in accounts payable and a $0.5 million decrease in accrued expenses and other current liabilities. This was offset by a $5.2 million increase in operating lease liabilities, a $0.3 million decrease in other non-current assets, and a $0.3 million decrease in accounts receivable.
During the six months ended June 30, 2021, cash used in operating activities was $39.0 million. This cash outflow was primarily related to our net loss of $29.2 million. The cash outflow included $1.2 million in stock-based compensation expense, $1.0 million in non-cash depreciation and amortization, and $0.4 million in non-cash lease expense. This was offset by an inflow of $1.8 million due to the gain on extinguishment of the PPP Loan. The cash outflow was also impacted by a net decrease in our operating assets and liabilities of $10.7 million. The net decrease includes a $3.8 million increase in other non-current assets, a $2.8 million decrease in deferred revenue related to our Takeda Agreement, a $1.5 million decrease in accounts payable, and a $1.2 million increase in accounts receivable.
Investing Activities
During the six months ended June 30, 2022 and 2021, we used $1.8 million and $11.6 million, respectively, of cash in investing activities. The $1.8 million used during the six months ended June 30, 2022 was due to purchases of property and equipment. The $11.6 million used during the six months ended June 30, 2021 was related to the purchase of property and equipment, including $3.9 million in purchases from a related party.
Financing Activities
During the six months ended June 30, 2022, net cash provided by financing activities of $14.8 million was due to proceeds from borrowings under the Loan Agreement in addition to the exercise of company stock options offset by principal payments on finance lease obligations and payments of debt issuance costs.
During the six months ended June 30, 2021, net cash provided by financing activities was $119.0 million, primarily related to $118.6 million of proceeds received from the IPO, net of underwriting discounts and commissions and $3.0 million of proceeds from the underwriters’ exercise of their overallotment option, net of underwriting discounts and commissions. The proceeds are partially offset by $2.7 million of payments of issuance costs related to the IPO.
30
Funding Requirements
As of June 30, 2022, our cash and cash equivalents were $104.7 million. We believe that our existing cash and cash equivalents, together with anticipated income under an executed sublease for a portion of one of our office and lab facilities, will fund our operations into the first quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect.
Since our inception, we have incurred significant operating losses. Our net losses were $47.3 million and $29.2 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $208.3 million. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. We expect that our expenses will increase substantially if and as we:
•continue the research and development of our product candidates;
•initiate and conduct clinical trials for, or additional preclinical development of, our product candidates;
•further develop and refine the manufacturing process for our product candidates;
•change or add manufacturers or suppliers of product candidate materials;
•seek regulatory and marketing authorizations for any of our product candidates that successfully complete development;
•seek to identify and validate additional product candidates;
•acquire or license other product candidates, technologies or biological materials;
•make milestone, royalty or other payments under any current or future license agreements;
•obtain, maintain, protect and enforce our intellectual property portfolio;
•seek to attract and retain new and existing skilled personnel;
•incur lease expenses in connection with the expansion of our corporate headquarters;
•create additional infrastructure to support our operations and incur increased legal, accounting, investor relations and other expenses; and
•experience delays or encounter issues with any of the above.
Material Cash Requirements
During the six months ended June 30, 2022, there were no other material changes to our material cash requirements from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discussed in the 2021 10-K.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our unaudited interim condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. However, even though we believe we have used reasonable estimates and assumptions in preparing our interim condensed consolidated financial statements, the future effects of the COVID-19 pandemic on our results of operations, cash flows, and financial position are unclear. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2021 10-K.
31
Recently Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until December 31, 2026 or, if earlier, (i) the last day of our first fiscal year in which we have total annual gross revenues of at least $1.07 billion, (ii) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.