FORMA THERAPEUTICS HOLDINGS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the
Prospectus for our initial public offering filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933, as amended, or the Securities Act, with the
Overview
We are a clinical-stage biopharmaceutical company focused on the development and
commercialization of novel therapeutics to transform the lives of patients with
rare hematologic diseases and cancers. Our drug discovery expertise has
generated a pipeline of small molecule product candidates focused on indications
with significant unmet patient need. Our pipeline consists of six product
candidates, two of which we are pursuing as core product candidates for
development, FT-4202 for the treatment of sickle cell disease, or SCD, and other
hemoglobinopathies, and FT-7051 for the treatment of metastatic
castration-resistant prostate cancer, or mCRPC. In addition to our core product
candidates, we are simultaneously pursuing partnerships for our non-core product
candidates, which include FT-2102, a selective inhibitor for cancers with
isocitrate dehydrogenase 1 gene mutations, or IDH1m, and FT-4101 and FT-8225,
both of which are selective fatty acid synthase, or FASN, inhibitors.
Additionally, we have licensed exclusively two programs each to
Since our founding in 2007, we have devoted substantially all of our resources to the research and development of our drug discovery technology, developing our pipeline, building our intellectual property portfolio and raising capital. To date, we have financed our operations primarily with proceeds from our license and collaboration agreements and through the issuance and sale of our preferred shares and preferred stock to outside investors.
We are a
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On
To date, we have not had any products approved for sale and have not generated
any revenue from product sales, and do not expect to do so for several years, if
at all. All of our programs are still in preclinical or clinical development.
Our ability to generate product revenue will depend on the successful
development and eventual commercialization of one or more of our product
candidates. Since our inception, all of our revenue has been generated from our
license and collaboration agreements with third parties. We have experienced
periods of both income and loss and positive and negative cash flows from
operations since inception. Our net income (loss) was
? complete preclinical studies, initiate and complete clinical trials for
product candidates;
? continue enrollment in and proceed with the expansion cohorts of our
ongoing Phase I clinical trial for FT-4202 for the treatment of SCD;
? prepare for and initiate our planned, global pivotal Phase II/III clinical
trial of FT-4202 in SCD;
? prepare for and initiate our planned clinical trial of FT-4202 in patients
with beta thalassemia;
? advance our planned clinical programs for FT-7051 for the treatment of mCRPC;
? contract to manufacture our product candidates;
? advance research and development related activities to expand our product
pipeline;
? seek regulatory approval for our core product candidates that successfully
complete clinical development;
? develop and scale up our capabilities to support our ongoing preclinical
activities and clinical trials for our drug candidates and
commercialization of any of our drug candidates for which we obtain
marketing approval;
? maintain, expand, enforce, defend and protect our intellectual property
portfolio;
? hire additional staff, including clinical, scientific and management
personnel;
? take temporary precautionary measures to help minimize the risk of the
coronavirus disease, or COVID-19, to our employees and patients who enroll
in our studies;
? secure facilities to support continued growth in our research, development
and commercialization efforts; and
? incur additional costs associated with operating as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain marketing approval for our drug candidates. Business interruptions resulting from the coronavirus outbreak or similar public health crises could cause a disruption of the development of our product candidates and our business. 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.
The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any delay or failure to obtain regulatory approvals would materially adversely affect our product candidate development efforts and our business overall. Given the inherent uncertainties of pharmaceutical product development, we cannot estimate with any degree of certainty the likelihood, timing or cost of obtaining regulatory approval and marketing our product candidates.
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As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other collaboration agreements or strategic transactions when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to delay, scale back or discontinue the development and commercialization of one or more of our 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 have determined that our of cash, cash equivalents and marketable securities
of
COVID-19 Pandemic
In
Financial Operations Overview
Revenue
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products in the foreseeable future.
Historically, our revenue has been primarily derived from collaboration
agreements to discover, develop, and commercialize drug candidates. During the
six months ended
Operating Expenses
Research and Development Expense
Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates, including the conduct of preclinical and clinical studies and product development, which are expensed as they are incurred. These expenses consist primarily of:
? compensation, benefits, including equity-based compensation, and other
employee related expenses;
? supplies to support our internal research and development efforts;
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? research and development related facility and depreciation costs; and
? third-party contract costs relating to research, process and formulation
development, preclinical and clinical studies and regulatory operations.
We track direct research and development expenses, consisting principally of external costs, such as costs associated with contract research organizations and manufacturing of preclinical and clinical drug product and other outsourced research and development expenses to specific product programs once a product candidate has been selected. We do not allocate internal research and development expenses consisting of employee and contractor-related costs, costs associated with our research and facility expenses, including depreciation or other indirect costs, to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development and, as such, are separately classified. The table below summarizes our research and development direct expenses for non-partnered product candidates and both external and internal costs for partnered programs and those costs that were unallocated to programs for the periods presented (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
FT-4202 $ 7,876 $ 2,013 $ 11,585 $ 3,434
FT-7051 1,227 1,836 1,797 3,311
FT-2102 4,328 9,370 11,553 16,432
FT-4101 159 1,212 471 1,918
FT-8225 (83 ) 1,642 979 2,810
External predevelopment and
unallocated expenses 880 2,931 2,101 8,347
Internal research and development
expenses 6,124 9,061 15,235 20,463
$ 20,511 $ 28,065 $ 43,721 $ 56,715 We invest carefully in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear, supportive data. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as the competitive landscape and ongoing assessments of such product candidate's commercial potential. We expect our research and development costs will be substantial for the foreseeable future. We expect costs associated with our core FT-4202 and FT-7051 programs to increase as the programs progress through clinical trials. We expect costs associated with FT-2102, FT-4101 and FT-8225 to decrease in the second half of the year as we complete clinical trial and IND preparation activities for FT-4101 and FT-8225 and progress the ongoing clinical trials for FT-2102 in AML and solid tumors towards completion. We do not expect costs associated with these programs to increase meaningfully after these activities are completed unless and until a partnership or collaboration arrangement is established.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
? our ability to add and retain key research and development personnel;
? our ability to successfully develop, obtain regulatory approval for, and
then successfully commercialize FT-4202 and FT-7051;
? our successful enrollment in and completion of clinical trials, including
our ability to generate positive data from any such clinical trials;
? our ability to establish an appropriate safety profile with IND-enabling
toxicology and other preclinical studies for FT-7051;
? the costs associated with the development of any additional development
programs we identify in-house or acquire through collaborations or other
arrangements;
? our ability to discover, develop and utilize biomarkers to demonstrate
target engagement, pathway engagement and the impact on disease
progression, as applicable, of our product candidates;
? our ability to establish and maintain agreements with third-party
manufacturers for clinical supply for our clinical trials and commercial
manufacturing;
? the ability to obtain clearance or approval of companion diagnostic tests,
if required, on a timely basis, or at all;
? obtaining and maintaining third-party coverage and adequate reimbursement,
if FT-4202 or FT-7051 is approved;
? acceptance of our core lead product candidates, if and when approved, by
patients, the medical community and third-party payors;
? effectively competing with other therapies, if FT-4202 or FT-7051 is
approved;
? our ability to obtain and maintain patent, trade secret and other
intellectual property protection for FT-4202 and FT-7051 and regulatory
exclusivity for FT-4202 and FT-7051 if and when approved;
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? our receipt of marketing approvals for FT-4202 and FT-7051 from applicable
regulatory authorities; and
? the continued acceptable safety profiles of our core lead products
following approval.
A change in any of these variables with respect to any of our programs would significantly change the costs, timing and viability associated with that program.
General and Administrative Expense
General and administrative expense consists primarily of salaries and other related costs, including equity-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.
Our general and administrative expenses may increase in the future as our
organization and headcount needed to support our research and development
activities grows and the potential commercialization of our product candidates,
if approved. We also expect to incur increased expenses associated with being a
public company, including increased costs of accounting, audit, legal,
regulatory and tax-related services associated with maintaining compliance with
exchange listing and
Restructuring Charges
Restructuring charges consist of termination costs, including employee
severance, health benefits, and outplacement services, incurred as a result of
our
Interest Income
Interest income consists of interest generated from our cash and cash
equivalents, marketable securities, amortization and accretion of purchase
premiums and discounts associated with our investments, and the accretion of the
carrying value of the installment receivable from the divestiture of Hit
Discovery capabilities to
Gain on Hit Discovery Divestiture
Gain on Hit Discovery divestiture consists of the gain recognized on the divestiture of our Hit Discovery capabilities and represents the fair value of the consideration received in excess of net assets sold.
Other Income (Loss), Net
Other income (loss), net primarily consists of gains and losses recognized from recording our warrants at fair value.
Income Taxes
Prior to the Reorganization, we were treated as a "pass-through" entity for federal income tax purposes and thus did not pay federal income taxes. However, our subsidiaries were corporations for income tax purposes and recorded income taxes using the asset and liability method. Income, gains and losses distributed from our subsidiaries was allocated to the holders of our preferred shares and Common 1 shares. Subsequent to the Reorganization, we are a corporation for federal income tax purposes and subject to income taxes.
On
Income tax expense is comprised of domestic (US federal and state) income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands):
Three Months Ended
June 30, Change
2020 2019 $
Collaboration revenue $ - $ 17,727 $ (17,727 )
Operating expenses:
Research and development 20,511 28,065 (7,554 )
General and administrative 6,448 5,688 760
Restructuring charges (20 ) 849 (869 )
Total operating expenses 26,939 34,602 (7,663 )
Loss from operations (26,939 ) (16,875 ) (10,064 )
Other income (loss):
Interest income 895 782 113
Other income (loss), net (2,634 ) 11 (2,645 )
Total other income (loss), net (1,739 ) 793 (2,532 )
Loss before taxes (28,678 ) (16,082 ) (12,596 )
Income tax benefit (3,238 ) (1,325 ) (1,913 )
Net loss $ (25,440 ) $ (14,757 ) $ (10,683 )
Collaboration Revenue
We recognized
Research and Development Expense
The following table summarizes our research and development expenses for each period presented (in thousands):
Three Months Ended
June 30, Change
2020 2019 ($)
FT-4202 $ 7,876 $ 2,013 $ 5,863
FT-7051 1,227 1,836 (609 )
FT-2102 4,328 9,370 (5,042 )
FT-4101 159 1,212 (1,053 )
FT-8225 (83 ) 1,642 (1,725 )External predevelopment and unallocated expenses 880 2,931 (2,051 )
Internal research and development expenses 6,124 9,061 (2,937 ) Total research and development expense$ 20,511 $ 28,065 $ (7,554 )
Research and development expense decreased by
The decrease in research and development expense was primarily attributable to a
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General and Administrative Expense
General and administrative expense increased by approximately
The increase in general and administrative expense was primarily attributable to
a
Restructuring Charges
In the quarter ended
Interest Income
Interest income increased by approximately
Other Income (Loss), Net
In the quarter ended
Income Taxes
In the quarter ended
Comparison of the Six Months Ended
The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands):
Six Months Ended
June 30, Change
2020 2019 $
Collaboration revenue $ - $ 89,736 $ (89,736 )
Operating expenses:
Research and development 43,721 56,715 (12,994 )
General and administrative 15,381 10,606 4,775
Restructuring charges 63 5,075 (5,012 )
Total operating expenses 59,165 72,396 (13,231 )
Income (loss) from operations (59,165 ) 17,340 (76,505 )
Other income (loss):
Gain on Hit Discovery divestiture 23,312 - 23,312
Interest income 1,536 1,979 (443 )
Other income (loss), net (2,616 ) 312 (2,928 )
Total other income, net 22,232 2,291 19,941
Income (loss) before taxes (36,933 ) 19,631 (56,564 )
Income tax benefit (22,723 ) (1,217 ) (21,506 )
Net income (loss) $ (14,210 ) $ 20,848 $ (35,058 )
Collaboration Revenue
We recognized
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Research and Development Expense
The following table summarizes our research and development expenses for each period presented (in thousands):
Six Months Ended
June 30, Change
2020 2019 ($)
FT-4202 $ 11,585 $ 3,434 $ 8,151
FT-7051 1,797 3,311 (1,514 )
FT-2102 11,553 16,432 (4,879 )
FT-4101 471 1,918 (1,447 )
FT-8225 979 2,810 (1,831 )
External predevelopment and unallocated expenses 2,101 8,347 (6,246 )
Internal research and development expenses 15,235 20,463 (5,228 )
Total research and development expense $ 43,721 $ 56,715 $ (12,994 ) Research and development expense decreased by
The decrease in research and development expense was primarily attributable to a
General and Administrative Expense
General and administrative expense increased by approximately
The increase in general and administrative expense was primarily attributable to
a
Restructuring Charges
In the six months ended
Interest Income
Interest income decreased by approximately
Gain on Hit Discovery divestiture
In the six months ended
Other Income (Loss), Net
In the six months ended
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Income Taxes
In the six months ended
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily with proceeds from our
license and collaboration agreements, through the issuance and sale of our
preferred shares and preferred stock to outside investors and completion of the
IPO. From inception through
Continued cash generation is highly dependent on our ability to establish new
third-party collaborators, through out-licensing of non-core assets and from
potential milestones from existing out-licensed programs with Celgene and
Boehringer Ingelheim, in addition to our ability to finance our operations
through a combination of equity offerings, debt financings, collaboration
arrangements and strategic transactions. Although we have been profitable in
prior years, due to our significant research and development expenditures and
the termination of certain collaboration arrangements, we have experienced
periods of negative cash flows from operations, even in periods of operating
income. For the six months ended
Cash Flows
The following table summarizes our sources and uses of cash for each period
presented (in thousands):
Six Months Ended
June 30,
2020 2019
Net cash provided by (used in):
Operating activities $ (56,825 ) $ 3,422
Investing activities (36,552 ) (19,406 )
Financing activities 295,023 (43,850 )
Net increase (decrease) in cash, cash equivalents and
restricted cash $ 201,646 $ (59,834 )
Operating Activities
We derive cash flows from operating activities primarily from cash collected from collaboration agreements and strategic transactions. Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our platform, drug discovery efforts and related infrastructure.
Net cash provided by (used in) operating activities increased by approximately
Investing Activities
Net cash used in investing activities increased by approximately
Financing Activities
For the six months ended
Plan of Operation and Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical and clinical activities of our programs. 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, which costs we might offset through entry into collaboration agreements with third parties. In addition, as
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a result of the completion of the IPO, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows in the foreseeable future.
As of
Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may receive payments under collaboration arrangements or enter into collaborations with third parties is unknown, we may incorrectly estimate the timing and amounts of operating expenses and capital expenditures. Our future capital requirements will depend on many factors, including, but not limited to:
? the scope, progress, results and costs of preclinical studies and clinical
trials for our programs;
? the number and characteristics of programs and technologies that we
develop or may in-license;
? the costs and timing of future commercialization activities, including
manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval;
? the costs necessary to obtain regulatory approvals, if any, for products
in the United States and other jurisdictions, and the costs of
post-marketing studies that could be required by regulatory authorities in
jurisdictions where approval is obtained;
? the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims;
? the continuation of our existing licensing arrangements and entry into new
collaborations and licensing arrangements;
? the costs we incur in maintaining business operations;
? the costs associated with being a public company;
? the revenue, if any, received from commercial sales of any product
candidates for which we receive marketing approval;
? the effect of competing technological and market developments;
? the impact of any business interruptions to our operations or to those of
our manufacturers, suppliers, or other vendors resulting from the COVID-19
pandemic or similar public health crisis; and
? the extent to which we acquire or invest in businesses, products and
technologies, including entering into licensing or collaboration
arrangements for programs.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes 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 products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity offerings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock.
If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity offerings or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Contractual Obligations
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There have been no material changes to our contractual obligations from those
described under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Contractual Obligations" in our final
Prospectus filed with the
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
There have been no material changes to our critical accounting policies from
those described under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies and
Significant Judgments and Estimates" in our final Prospectus filed with the
JOBS Act and Emerging Growth Company Status
In
We will remain classified as an EGC until the earlier of: (i) the last day of
our first fiscal year in which we have total annual gross revenues of
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our operations.
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