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 consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the “Risk Factors” section of our Annual Report on Form 10-K, filed with the SEC on March 11, 2021, or the 2020 Form 10-K, and this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.
Overview
We are a clinical stage biopharmaceutical company focused on developing and commercializing a pipeline of novel, proprietary therapeutics that have the potential to transform radiotherapy in cancer. We leverage our expertise in superoxide dismutase mimetics to design drugs to reduce normal tissue toxicity from radiotherapy and to increase the anti-cancer efficacy of radiotherapy. Avasopasem manganese (GC4419, also referred to as avasopasem) is a potent and highly selective small molecule dismutase mimetic in development for the reduction of severe oral mucositis, or SOM, in patients with head and neck cancer, or HNC, and for the reduction of esophagitis in patients with lung cancer. SOM is a common, debilitating complication of radiotherapy in patients with HNC. In February 2018, the U.S. Food and Drug Administration, or FDA, granted Breakthrough Therapy Designation to avasopasem for the reduction of SOM induced by radiotherapy, with or without systemic therapy. Our second dismutase mimetic product candidate, rucosopasem manganese (GC4711, also referred to as rucosopasem), is in clinical-stage development to augment the anti-cancer efficacy of stereotactic body radiation therapy, or SBRT, in patients with non-small cell lung cancer, or NSCLC, and locally advanced pancreatic cancer, or LAPC.
In October 2021, we announced topline results from a Phase 3 trial, which we refer to as the ROMAN trial, evaluating avasopasem for radiotherapy-induced SOM in patients with locally advanced HNC. The trial demonstrated relative reductions in the incidence, duration and severity of SOM but did not achieve statistical significance in the primary endpoint of reduction in incidence of SOM. Avasopasem was generally well tolerated compared to placebo. Avasopasem is also being studied in a Phase 2a multi-center trial in Europe assessing the safety of avasopasem in patients with HNC undergoing standard-of-care radiotherapy, which we refer to as the EUSOM trial, and in a Phase 2a trial for its ability to reduce the incidence of radiotherapy-induced esophagitis in patients with lung cancer, which we refer to as the AESOP trial. We expect to report topline data from the EUSOM and AESOP trials in the fourth quarter of 2021 and the first half of 2022, respectively. We are continuing to analyze the results from the ROMAN trial and evaluating next steps for our programs focused on reducing radiotherapy-induced toxicity.
In addition to developing avasopasem for the reduction of normal tissue toxicity from radiotherapy, we are developing our dismutase mimetics to increase the anti-cancer efficacy of higher daily doses of radiotherapy, including SBRT. Our second dismutase mimetic product candidate, rucosopasem, is being developed to increase the anti-cancer efficacy of SBRT and we have successfully completed Phase 1 trials of intravenous rucosopasem in healthy volunteers. In September 2021, we announced final results from our pilot Phase 1/2 safety and anti-cancer efficacy trial of avasopasem in combination with SBRT in patients with unresectable or borderline resectable LAPC. The results included a minimum follow up of one year on all 42 patients enrolled in the trial and were consistent with the positive interim results reported with a minimum follow up of six months. In this proof-of-concept trial, relative improvements were observed in overall survival, progression-free survival, local tumor control and time to distant metastases. 46% of patients in the active arm were alive at last follow-up (11 out of 24) compared to 33% in the placebo arm (6 out of 18). As previously reported, 29% of patients in the active arm achieved a 30% or greater decrease in primary tumor size (partial response) compared to 11% of patients in the placebo arm. Avasopasem was well tolerated, with similar rates of early and late adverse events in the active and placebo arms.
We leveraged our observations from the pilot LAPC trial of avasopasem to prepare our rucosopasem clinical trials in combination with SBRT. We initiated a Phase 1/2 trial in patients with non-small cell lung cancer, or NSCLC, in October 2020, which we refer to as the GRECO-1 trial. The GRECO-1 trial is supported in part by a Small Business Innovation Research grant from the National Cancer Institute of the National Institutes of Health for the investigation of our dismutase mimetics in combination with SBRT for the treatment of lung cancer. We intend for this trial to assess the anti-cancer efficacy and safety of rucosopasem in combination with SBRT. We expect to report initial data from this trial in the first half of 2022. We initiated a Phase 2b trial of rucosopasem in combination with SBRT in patients with LAPC in May 2021, which we refer to as the GRECO-2 trial. In the future, we intend to assess the anti-cancer efficacy and safety of rucosopasem in combination with SBRT and a checkpoint inhibitor.
In September 2020, we initiated a pilot Phase 2 clinical trial of avasopasem to evaluate its ability to improve 28-day mortality in hospitalized patients who are critically ill with COVID-19. The randomized, double-blind, placebo-controlled Phase 2 trial is designed to assess the safety and efficacy of avasopasem in improving 28-day mortality, compared to placebo. The trial aimed
15
to enroll up to 50 hospitalized adult patients critically ill with COVID-19 at several sites across the U.S. On June 16, 2021, we ceased enrolling subjects in this trial. Enrollment in the trial was limited at the three centers that participated. Due to the overall decline in COVID-related hospitalizations in the United States at the time, we determined that it was not feasible to complete the trial.
Since our inception, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring and developing product and technology rights, and conducting research and development. We have incurred recurring losses and negative cash flows from operations and have funded our operations primarily through the sale and issuance of equity and proceeds received under the Amended and Restated Purchase and Sale Agreement, which we refer to as the Royalty Agreement, with Clarus IV Galera Royalty AIV, L.P., Clarus IV-A, L.P., Clarus IV-B, L.P., Clarus IV-C, L.P. and Clarus IV-D, L.P., or collectively, Blackstone or Blackstone Life Sciences (formerly known as Clarus Ventures).
Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net loss was $74.2 million and $51.9 million for the years ended December 31, 2020 and 2019, respectively, and $22.6 million and $63.7 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2021, we had $88.7 million in cash, cash equivalents and short-term investments and an accumulated deficit of $299.3 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we operate as a public company, advance our product candidates through all stages of development and clinical trials, build our commercial infrastructure and, ultimately, seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
As a result, we will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There is no assurance that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
We expect our existing cash, cash equivalents and short-term investments as of September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements into 2023, assuming limited future development and commercial activities for avasopasem during this period. These assumptions may change as a result of many factors currently unknown to us, including without limitation the results of further analyses of data from the ROMAN trial and potential next steps for our radiotherapy-induced toxicity programs.
Business Update Regarding COVID-19
The current COVID-19 pandemic continues to present a substantial public health and economic challenge around the world and is affecting our employees, communities, clinical trial sites and business operations, as well as the U.S. economy and international financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact, including the effectiveness of vaccines and vaccine distribution efforts, the impact of new variants of COVID-19 and the economic impact on local, regional, national and international markets. See “Risk Factors—Other Risks Related to Our Business—The COVID-19 pandemic caused by the novel strain of coronavirus has adversely impacted, and could continue to adversely impact, our business, including our preclinical studies and clinical trials, results of operations and financial condition” in Part I, Item 1A of the 2020 Form 10-K.
While we are currently continuing our ongoing clinical trials, the COVID-19 pandemic and related precautions have directly or indirectly impacted the timeline for our clinical trials. We delayed the initiation of the EUSOM trial due to concerns with clinical trial enrollment in Europe during the COVID-19 pandemic. The first patient was dosed in this trial in June 2020, and target enrollment was decreased to approximately 35 patients due to the delay. This trial was expected to contribute to the safety database for avasopasem in patients with HNC receiving radiotherapy. As a result of the delay in initiating the trial in Europe, the target enrollment for the ROMAN trial was increased to approximately 450 patients to ensure we were positioned to maintain the planned size of the
16
safety database in a timely manner. We reported topline data from the ROMAN trial in October 2021 and expect to report topline data from the EUSOM trial in the fourth quarter of 2021.
Mitigation activities to minimize COVID-19-related operation disruptions are ongoing given the severity and evolving nature of the situation, and we are continuing to monitor the impact of the COVID-19 pandemic on our operations and ongoing clinical development activity.
Our third-party contract manufacturing partners continue to operate at or near normal levels. While we currently do not anticipate any material interruptions in our clinical trial supply or manufacturing scale-up activities, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners' ability to manufacture our clinical trials supply or progress manufacturing scale-up activities.
We have also implemented measures designed to protect the health and safety of our workforce. Essential activities at our facilities are continuing and we are taking precautionary measures to protect our employees working in our facilities in such capacities.
Critical Accounting Policies
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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. Actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the 2020 Form 10-K and the notes to the unaudited interim consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2021 there were no material changes to our critical accounting policies from those discussed in the 2020 Form 10-K.
17
Components of Results of Operations
Research and Development Expense
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
personnel expenses, including salaries, benefits and share-based compensation expense for employees engaged in research and development functions;
costs of funding research performed by third parties, including pursuant to agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;
expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
fees paid to consultants who assist with research and development activities;
expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We track our external research and development expenses on a program-by-program basis, such as fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to personnel-related and share-based compensation expense, early-stage research expenses and other costs that are deployed across multiple projects under development.
The following table summarizes our research and development expenses by program for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Avasopasem manganese (GC4419)
|
|
$
|
7,860
|
|
|
$
|
7,867
|
|
|
$
|
25,051
|
|
|
$
|
25,776
|
|
Rucosopasem manganese (GC4711)
|
|
|
1,782
|
|
|
|
966
|
|
|
|
4,271
|
|
|
|
3,935
|
|
Other research and development expense
|
|
|
2,409
|
|
|
|
898
|
|
|
|
6,207
|
|
|
|
3,180
|
|
Personnel related and share-based compensation expense
|
|
|
2,762
|
|
|
|
2,402
|
|
|
|
7,674
|
|
|
|
7,334
|
|
|
|
$
|
14,813
|
|
|
$
|
12,133
|
|
|
$
|
43,203
|
|
|
$
|
40,225
|
|
Research and development activities are central to our business model. Product candidates in later stages of clinical development, such as avasopasem, 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. Our research and development expenses may increase over the next several years as we increase personnel costs, including stock-based compensation, conduct our later-stage clinical trials for avasopasem and rucosopasem, if applicable, conduct other clinical trials for current and future product candidates and prepare regulatory filings for our product candidates.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates, including the significant costs associated with our ongoing and planned clinical trials, which likely will vary significantly as a result of many factors, including:
delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials, or in our ability to negotiate agreements with clinical trial sites or CROs;
18
our ability to secure adequate supply of our product candidates for our trials;
the number of clinical sites included in the trials;
the ability and the length of time required to enroll suitable patients;
the number of patients that ultimately participate in the trials;
the number of doses patients receive;
any side effects associated with our product candidates;
the duration of patient follow-up;
the results of our clinical trials;
significant and changing government regulations; and
the impact of unforeseen events, such as the COVID-19 pandemic, on the initiation and completion of our preclinical studies, clinical trials and manufacturing scale-up.
Our research and development expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs of and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits and share-based compensation expense for employees in executive, finance, accounting, legal, information technology, commercial, business development and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property and corporate matters and fees for accounting and consulting services.
We expect that our general and administrative expense will increase in the future to support our continued research and development activities, potential commercialization efforts, and to expand our operations and organizational capabilities. These increases will likely include increased costs related to the hiring of additional personnel, fees to outside consultants, lawyers and accountants and expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the SEC, insurance and investor relations costs. Should we commercialize our product candidates, we expect to incur significantly increased expenses associated with building our commercial infrastructure.
Interest Income
Interest income consists of amounts earned on our cash and cash equivalents held with large institutional banks, U.S. Treasury obligations and a money market mutual fund invested in U.S. Treasury obligations, and our short-term investments in U.S. Treasury and government agency obligations.
19
Interest Expense
Interest expense consists of non-cash interest on proceeds received under the Royalty Agreement with Blackstone and non-cash interest expense associated with the amortization of the debt discount recorded for the Blackstone warrants.
Foreign Currency Gains (Losses)
Foreign currency gains (losses) consist primarily of exchange rate fluctuations on transactions denominated in a currency other than the U.S. dollar.
Net Operating Loss and Research and Development Tax Credit Carryforwards
As of December 31, 2020, we had federal and state tax net operating loss carryforwards of $135.6 million and $157.5 million, respectively, which each begin to expire in 2032 unless previously utilized. Approximately $73.0 million of these federal net operating loss carryforwards are available to be carried forward indefinitely. We also had foreign net operating loss carryforwards of $1.6 million which do not expire. As of December 31, 2020, we also had federal, state and foreign research and development tax credit carryforwards of $7.5 million. The federal research and development tax credit carryforwards will begin to expire in 2032 unless previously utilized. The foreign research and development tax credit carryforwards do not have an expiration date.
Utilization of the federal and state net operating losses and credits may be subject to a substantial annual limitation. The annual limitation may result in the expiration of our net operating losses and credits before we can use them. We have recorded a valuation allowance on substantially all of our deferred tax assets, including our deferred tax assets related to our net operating loss and research and development tax credit carryforwards, given the current uncertainty over our ability to utilize such amounts.
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2021 and 2020
The following table sets forth our results of operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
(unaudited)
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
14,813
|
|
|
$
|
12,133
|
|
|
$
|
2,680
|
|
|
$
|
43,203
|
|
|
$
|
40,225
|
|
|
$
|
2,978
|
|
General and administrative
|
|
|
5,487
|
|
|
|
3,945
|
|
|
|
1,542
|
|
|
|
15,667
|
|
|
|
11,384
|
|
|
|
4,283
|
|
Loss from operations
|
|
|
(20,300
|
)
|
|
|
(16,078
|
)
|
|
|
(4,222
|
)
|
|
|
(58,870
|
)
|
|
|
(51,609
|
)
|
|
|
(7,261
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
3
|
|
|
|
235
|
|
|
|
(232
|
)
|
|
|
28
|
|
|
|
1,055
|
|
|
|
(1,027
|
)
|
Interest expense
|
|
|
(2,327
|
)
|
|
|
(1,235
|
)
|
|
|
(1,092
|
)
|
|
|
(4,882
|
)
|
|
|
(3,625
|
)
|
|
|
(1,257
|
)
|
Foreign currency gain (loss)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
27
|
|
|
|
(30
|
)
|
Net loss
|
|
$
|
(22,626
|
)
|
|
$
|
(17,078
|
)
|
|
$
|
(5,548
|
)
|
|
$
|
(63,727
|
)
|
|
$
|
(54,152
|
)
|
|
$
|
(9,575
|
)
|
20
Research and Development Expense
Research and development expense increased by $2.7 million from $12.1 million for the three months ended September 30, 2020 to $14.8 million for the three months ended September 30, 2021. Rucosopasem development costs increased by $0.8 million, due principally to increased expenses in our GRECO trials. Other research and development expenses increased by $1.5 million including costs for independent contractors and consultants primarily associated with the avasopasem SOM program, and the costs for development of additional product candidates.
Research and development expense increased by $3.0 million from $40.2 million for the nine months ended September 30, 2020 to $43.2 million for the nine months ended September 30, 2021. Other research and development expenses increased by $3.0 million, including costs for independent contractors and consultants primarily associated with the avasopasem SOM program, recruiting expenses, and the costs for development of additional product candidates. Rucosopasem development costs increased by $0.3 million due to expenses for our GRECO-1 and GRECO-2 trials. Partially offsetting these increases was a decrease in avasopasem development costs of $0.7 million, due to reduced preclinical expenses following the conclusion of toxicology studies and reduced expenses for clinical trials with the completion of enrollment in the ROMAN trial and completion of the pilot Phase 1/2 trial of avasopasem in conjunction with SBRT in patients with LAPC.
General and Administrative Expense
General and administrative expense increased by $1.6 million from $3.9 million for the three months ended September 30, 2020 to $5.5 million for the three months ended September 30, 2021. The increase was primarily due to increased employee headcount, increased share-based compensation expense due to grants of stock options to new and existing employees, an increase in expenses related to preparation for potential commercialization of avasopasem, and increased legal and insurance expenses.
General and administrative expense increased by $4.3 million from $11.4 million for the nine months ended September 30, 2020 to $15.7 million for the nine months ended September 30, 2021. The increase was primarily due to increased employee headcount, increased share-based compensation expense due to grants of stock options to new and existing employees, an increase in expenses related to potential commercialization of avasopasem, and increased insurance, legal and recruiting expenses.
Interest Income
Interest income decreased from $0.2 million for the three months ended September 30, 2020 to $3,000 for the three months ended September 30, 2021 and decreased from $1.1 million for the nine months ended September 30, 2020 to $28,000 for the nine months ended September 30, 2021, respectively. Lower average invested cash balances during the three and nine months ended September 30, 2021 were compounded by lower average interest rates.
Interest Expense
We recognized $2.3 million and $1.2 million in non-cash interest expense during the three months ended September 30, 2021 and 2020, respectively, and $4.9 million and $3.6 million in non-cash interest expense during the nine months ended September 30, 2021 and 2020, respectively, in connection with the Royalty Agreement with Blackstone Life Sciences.
Liquidity and Capital Resources
We do not currently have any approved products and have never generated any revenue from product sales. Through September 30, 2021, we have funded our operations primarily through the sale and issuance of equity and $117.5 million of proceeds received under the Royalty Agreement with Blackstone Life Sciences, receiving aggregate gross proceeds of $338.9 million. In November 2019, we completed our IPO, which resulted in the issuance and sale of 5,000,000 shares of common stock at a public offering price of $12.00 per share, generating net proceeds of $53.0 million after deducting underwriting discounts and other offering costs. On December 9, 2019, in connection with the partial exercise of the over-allotment option granted to the underwriters of our IPO, 445,690 additional shares of common stock were sold at the IPO price of $12.00 per share, generating net proceeds of approximately $5.0 million after deducting underwriting discounts and other offering costs.
In December 2020, we entered into an Open Market Sales Agreement, or the Sales Agreement, with Jefferies LLC, or Jefferies, as sales agent, pursuant to which we may, from time to time, issue and sell common stock with an aggregate value of up to $50.0 million in “at-the-market” offerings under our Registration Statement on Form S-3 (File No. 333-251061) filed with the SEC on December 1, 2020. Sales of common stock, if any, pursuant to the Sales Agreement, may be made in sales deemed to be an “at the
21
market offering” as defined in Rule 415(a) of the Securities Act, including sales made directly through the Nasdaq Global Market or on any other existing trading market for our common stock. During the nine months ended September 30, 2021, 891,368 shares were sold under this Sales Agreement at a weighted average price per share of $9.27. Net proceeds after deducting fees, commissions and other expenses related to the offering were approximately $7.9 million. As of September 30, 2021, there was $41.7 million of common stock remaining available for sale under the Sales Agreement.
As of September 30, 2021, we had $88.7 million in cash, cash equivalents and short-term investments and an accumulated deficit of $299.3 million. We have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net cash used in operating activities
|
|
$
|
(50,512
|
)
|
|
$
|
(43,087
|
)
|
Net cash provided by (used in) investing activities
|
|
|
(14,413
|
)
|
|
|
19,689
|
|
Net cash provided by financing activities
|
|
|
66,685
|
|
|
|
20,274
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
1,760
|
|
|
$
|
(3,124
|
)
|
Operating Activities
During the nine months ended September 30, 2021, we used $50.5 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $63.7 million, partially offset by non-cash charges of $10.5 million related to share-based compensation, interest expense on our Royalty Agreement with Blackstone Life Sciences and depreciation expense, and $2.7 million in cash from changes in operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates.
During the nine months ended September 30, 2020, we used $43.1 million of net cash in operating activities. Cash used in operating activities reflected our net loss of $54.2 million, partially offset by non-cash charges of $8.1 million related to share-based compensation, interest expense on our Royalty Agreement with Blackstone Life Sciences and depreciation expense, and $3.0 million in cash from changes in operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates.
Investing Activities
During the nine months ended September 30, 2021, we used $14.4 million of net cash in investing activities, primarily attributable to $14.2 million in net purchases of our short-term investments and $0.2 million for the purchase of property and equipment.
During the nine months ended September 30, 2020, investing activities provided $19.7 million in net cash proceeds, primarily attributable to $20.1 million in net sales of our short-term investments, partially offset by $0.4 million for the purchase of property and equipment.
Financing Activities
During the nine months ended September 30, 2021, financing activities provided $66.7 million, primarily attributable to $57.5 million in proceeds received in connection with the Royalty Agreement with Blackstone Life Sciences, as disclosed below, $7.9 million in net proceeds from the sale of our common stock under the Sales Agreement with Jefferies, and $1.2 million in proceeds from the exercise of stock options.
During the nine months ended September 30, 2020, financing activities provided $20.3 million, primarily attributable to the proceeds received in connection with the Royalty Agreement with Blackstone Life Sciences, as disclosed below.
22
Funding Requirements
Our operating expenses increased substantially in 2020 and for the nine months ended September 30, 2021, and our expenses may continue to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we expect to continue to incur significant costs associated with operating as a public company. Accordingly, we would need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We expect our existing cash, cash equivalents and short-term investments as of September 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements into 2023, assuming limited future development and commercial activities for avasopasem during this period. These assumptions may change as a result of many factors currently unknown to us, including without limitation the results of further analyses of data from the ROMAN trial and potential next steps for the Company’s radiotherapy-induced toxicity programs.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
the direct and indirect impact of COVID-19 on our business and operations;
the scope, progress, results and costs of preclinical studies and clinical trials;
the scope, prioritization and number of our research and development programs;
the costs, timing and outcome of regulatory review of our product candidates;
our ability to establish and maintain collaborations on favorable terms, if at all;
the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under collaboration agreements, if any;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
the extent to which we acquire or in-license other product candidates and technologies;
the costs of securing manufacturing arrangements for commercial production; and
the costs of scaling-up or contracting for sales and marketing capabilities as we prepare for the potential commercialization of our product candidates.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available for the next couple of years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. For example, the trading prices for our and other biopharmaceutical companies’ stock have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock and any such sales may be on unfavorable terms. See “Risk Factors” in Part I, Item 1A of the December 31, 2020 Form 10-K.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights.
23
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 funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Royalty Agreement with Blackstone Life Sciences (Formerly Known as Clarus Ventures)
In November 2018, we entered into the Royalty Agreement with Blackstone Life Sciences. Pursuant to the Royalty Agreement, Blackstone agreed to pay us, in the aggregate, up to $80.0 million, or the Royalty Purchase Price, in four tranches of $20.0 million each upon the achievement of specified clinical milestones in our ROMAN trial. We agreed to apply the proceeds from such payments primarily to support clinical development and regulatory activities for avasopasem, rucosopasem and any pharmaceutical product comprising or containing avasopasem or rucosopasem, or, collectively, the Products, as well as to satisfy working capital obligations and for general corporate expenses. We received the first tranche of the Royalty Purchase Price in November 2018, the second tranche of the Royalty Purchase Price in April 2019, and the third tranche of the Royalty Purchase Price in February 2020, in each case in connection with the achievement of the first three milestones, respectively, under the Royalty Agreement.
In May 2020, we entered into Amendment No. 1 to the Royalty Agreement, or the Amendment, with Clarus IV Galera Royalty AIV, L.P., or the Blackstone Purchaser. The Blackstone Purchaser is affiliated with Blackstone Life Sciences, successor in interest to Clarus Ventures. The Amendment increased the Royalty Purchase Price by $37.5 million to $117.5 million by increasing the fourth tranche from $20.0 million to $37.5 million and adding a new $20.0 million tranche upon the achievement of an additional clinical enrollment milestone. We received the new $20.0 million tranche of the Amendment in June 2021, in connection with the enrollment of the first patient in the GRECO-2 trial. Also in June 2021, we completed enrollment in the ROMAN trial, thereby achieving the milestone associated with the fourth tranche, and received the associated $37.5 million in July 2021.
Pursuant to the amended Royalty Agreement, in connection with the payment of each tranche of the Royalty Purchase Price, we have agreed to sell, convey, transfer and assign to Blackstone all of our right, title and interest in a high single-digit percentage of (i) worldwide net sales of the Products and (ii) all amounts received by us or our affiliates, licensees and sublicensees with respect to Product-related damages (collectively, the Product Payments) during the Royalty Period. The Royalty Period means, on a Product-by-Product and country-by-country basis, the period of time commencing on the commercial launch of such Product in such country and ending on the latest to occur of (i) the 12th anniversary of such commercial launch, (ii) the expiration of all valid claims of our patents covering such Product in such country, and (iii) the expiration of regulatory data protection or market exclusivity or similar regulatory protection afforded by the health authorities in such country, to the extent such protection or exclusivity effectively prevents generic versions of such Product from entering the market in such country.
The amended Royalty Agreement will remain in effect until the date on which the aggregate amount of the Product Payments paid to Blackstone exceeds a fixed single-digit multiple of the actual amount of the Royalty Purchase Price received by us, unless earlier terminated pursuant to the mutual written agreement of us and Blackstone. If no Products are commercialized, we would not have an obligation to make Product Payments to Blackstone, which is the sole mechanism for repaying the liability.
In May 2020, as partial consideration for the Amendment, we issued two warrants to the Blackstone Purchaser to purchase an aggregate of 550,661 shares of our common stock at an exercise price equal to $13.62 per share, each of which became exercisable upon the receipt by Galera of the applicable specified milestone payment. The issued warrants expire six years after the initial exercise date of each respective warrant.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
24
Effect of Inflation
Inflation did not have a significant impact on our net loss for the three and nine months ended September 30, 2021 and 2020.
Recent Accounting Pronouncements
See Note 2 to our interim consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our consolidated financial statements.
JOBS Act Transition Period
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to opt out of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. However, we may take advantage of the other exemptions discussed below.
Subject to certain conditions, as an emerging growth company we may rely on certain exemptions and reduced reporting requirements, including, without limitation, (1) not being required to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, or December 31, 2024, (b) in which we have total annual gross revenues of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our outstanding common stock held by non-affiliates exceeds $700 million as of last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years.