LEAP THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10 -K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report.
Overview
We are a biopharmaceutical company developing biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells. Our strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes.
Our lead clinical stage program is DKN-01, a monoclonal antibody that inhibits
Dickkopf-related protein 1, or
We intend to apply our extensive experience identifying and developing transformational products to build a pipeline of programs that have the potential to change the practice of cancer medicine.
We have devoted substantially all of our resources to development efforts relating to our product candidates, including manufacturing and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through proceeds from our sales of common stock and preferred stock and proceeds from the issuance of notes payable.
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We have incurred net losses in each year since our inception in 2011. Our net
loss was
? continue the development of our product candidates, DKN-01, FL-301, FL-302 and
FL-501;
? seek to obtain regulatory approvals for our product candidates;
? outsource the manufacturing of our product candidates for clinical trials and
any indications for which we receive regulatory approval;
? contract with third parties for the sales, marketing and distribution of DKN-01
for any indications for which we receive regulatory approval;
? maintain, expand and protect our intellectual property portfolio;
? continue our research and development efforts;
? add operational, financial and management information systems and personnel,
including personnel to support our product development efforts; and
? operate as a public company.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of DKN-01 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and 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. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.
As of
In connection with the merger with Flame and pursuant to the Certificate of Designation of the Series X non-voting convertible preferred stock ("Series X Preferred Stock"), if stockholder approval for the conversion of the Series X Preferred Stock to common stock (the "Stockholder Approval") is not obtained from the holders of our common stock within six months from the date of issuance of the Series X Preferred Stock, the holders of the Series X Preferred Stock may require us to settle all of the then-outstanding shares of Series X Preferred Stock for cash at fair value. We fully expect the vote to pass and for the Series X Preferred Stock to convert into common stock. However, there can be no assurance that the Stockholder Approval will be received. If we fail to receive the Stockholder Approval within six months from the date of issuance of the Series X Preferred Stock and are required to settle then-outstanding shares of Series X Preferred Stock for cash at fair value, our financial position would be materially adversely affected and we would be forced to seek additional funding, which may not be available on acceptable terms or at all, or reduce or eliminate certain clinical trials, programs and operating expenses, which would adversely affect our business prospects.
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Financial Overview
Research and Development Expenses
Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates, primarily DKN-01. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
? salaries and related overhead expenses for personnel in research and
development functions, including costs related to stock-based compensation;
fees paid to consultants and CROs for our nonclinical and clinical trials, and
? other related clinical trial fees, including, but not limited, to laboratory
work, clinical trial database management, clinical trial material management
and statistical compilation and analysis;
? costs related to acquiring and manufacturing clinical trial materials; and
? costs related to compliance with regulatory requirements.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of DKN-01 and any other product candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such as employee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs in connection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities.
We participate, through our subsidiary in
The table below summarizes our research and development expenses incurred by development program and the R&D incentive income for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 (in thousands) Direct research and development by program: DKN-01 program$ 44,884 $ 32,107 TRX518 program 81 53 Total research and development expenses$ 44,965 $ 32,160
Australian research and development incentives
The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
? the scope, rate of progress and expense of our ongoing, as well as any
additional, clinical trials and other research and development activities;
? future clinical trial results; and
? the timing and receipt of any regulatory approvals.
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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 and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, 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 Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Interest income
Interest income consists primarily of interest income earned on cash and cash equivalents.
Research and development incentive income
Research and development incentive income includes payments under the R&D
Incentive program from the government of
Companies engaged in research and development may be eligible for either:
? a 43.5% refundable tax offset for entities with an aggregated turnover of less
than
? a 38.5% non-refundable tax offset for all other entities.
We recognize as other income the amount we expect to be reimbursed for qualified expenses.
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our Australian subsidiary.
Income taxes
Since our inception, we have not recorded any
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As of
There is no provision for income taxes in
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 consolidated financial statements, which we have
prepared in accordance with
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
As part of the process of preparing consolidated financial statements, we are required to estimate accrued research and development expenses. This process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly for services performed. We make estimates of our accrued research and development expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with selected service providers and make adjustments, if necessary. To date, we have not adjusted our estimate at any particular balance sheet date by any material amount. Examples of estimated accrued research and development expenses include:
? fees paid to CROs for management of our clinical trial activities;
? fees paid to investigative sites in connection with clinical trials;
? fees paid to contract manufacturers in connection with the production of
clinical trial supplies; and
? professional services and fees.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If we do not accurately identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.
Stock-Based Compensation
We have issued options to purchase our common stock. We account for stock based compensation in accordance with ASC 718, Compensation-Stock Compensation. ASC 718 establishes accounting for stock-based awards exchanged for employee and non-employee services. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility.
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We estimate the grant date fair value of stock options and the related compensation expense, using the Black-Scholes option valuation model. This option valuation model requires the input of subjective assumptions including: (1) expected life (estimated period of time outstanding) of the options granted, (2) volatility, (3) risk-free rate and (4) dividends. In general, the assumptions used in calculating the fair value of stock-based payment awards represent management's best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
JOBS Act
Previously, we were an "emerging growth company", or EGC, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act permits an "emerging growth company" to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b) (1) of the JOBS Act. This election allowed us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.
We were able to take advantage of these reporting exemptions until we were no
longer an emerging growth company. We were an EGC until the last day of our 2022
fiscal year, containing the fifth anniversary of the date on which shares of our
common stock became publicly traded in the
Results of Operations
Comparison of the Years Ended
The following tables summarize our results of operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 Change (in thousands) License revenue $ -$ 1,500 $ (1,500) Operating expenses: Research and development 44,965 32,160 12,805 General and administrative 11,798 10,766 1,032 Total operating expenses 56,763 42,926 13,837 Loss from operations (56,763) (41,426) (15,337) Interest income 925 9 916 Interest expense (54) (41) (13) Australian research and development incentives 2,051 1,226 825 Foreign currency losses (608) (379) (229) Loss before income taxes (54,449) (40,611) (13,838) Benefit from (provision for) income taxes (147) 24 (171) Net loss$ (54,596) $ (40,587) $ (14,009) Revenues
License revenue for the year ended
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Research and Development Expenses
Year Ended December 31, Increase
2022 2021 (Decrease)
(in thousands)
Direct research and development by program:
DKN-01 program $ 44,884 $ 32,107 $ 12,777
TRX518 program 81 53 28
Total research and development expenses $ 44,965 $ 32,160 $ 12,805 Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Interest Income
We recorded interest income of
We recorded R&D incentive income of
We perform certain supporting research and development activity outside of
During the year ended
The remaining R&D incentive receivable has been recorded as "Research and development incentive receivable" in the consolidated balance sheets.
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Foreign Currency Losses
We recorded foreign currency losses of
Interest Expense
We recorded an immaterial amount of interest expense for the years ended
Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities,
including raising capital, and research and development activities. We do not
yet have a product that has been approved by the
In accordance with Accounting Standards Codification ("ASC") 205-40, Going
Concern, we have evaluated whether there are conditions and events, considered
in the aggregate, that raise substantial doubt about our ability to continue as
a going concern within one year after the date that the consolidated financial
statements are issued. As of
We believe that our cash and cash equivalents of
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year Ended December 31,
2022 2021
(in thousands)
Cash used in operating activities $ (49,044) $ (35,157)
Cash provided by (used in) financing activities (210) 98,035
Effect of exchange rate changes on cash and cash
equivalents (162) (33)
Net increase(decrease) in cash and cash equivalents
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Operating activities.
Net cash used in operating activities for the year ended
Net cash used in operating activities for the year ended
Investing Activities.
There were no investing activities during the years ended
Financing Activities.
Net cash used in financing activities for the year ended
Net cash provided by financing activities for the year ended
Capital Requirements
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 in development.
Our expenses will also increase as we:
? pursue the clinical development of our most advanced product candidate, DKN-01,
and our newly acquired product candidates, FL-301, FL-302 and FL-501;
? maintain, expand and protect our intellectual property portfolio;
expand our operational, financial and management systems and increase
? personnel, including personnel to support our clinical development,
manufacturing and commercialization efforts and our operations as a public
company; and
Additional funding may not be available at the time needed on commercially reasonable terms, if at all.
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Contractual Obligations and Contingent Liabilities
On
We remain committed to
This description of our contractual obligations does not include potential future milestones or royalties that we may be required to make under license and collaboration agreements due to the uncertainty of events requiring payment under these agreements.
We enter into contracts in the normal course of business with clinical research organizations for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included as contractual commitments.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
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