You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K. 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. You should review the "Risk Factors" section of this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery,
development and commercialization of novel therapeutics. Our lead product
candidate is edasalonexent, an oral small molecule that inhibits NF-kB, or
nuclear factor kappa-light-chain-enhancer of activated B cells, in development
for the treatment of Duchenne muscular dystrophy, or DMD. We believe
edasalonexent has the potential to be a foundational therapy for all patients
affected by DMD regardless of the underlying dystrophin mutation. DMD is an
ultimately fatal genetic disorder involving progressive muscle degeneration.
We initiated a global Phase 3 trial of edasalonexent for the treatment of DMD in
We initiated an open-label extension trial in
We are closely monitoring the impact of COVID-19. Advantages of our Phase 3 clinical trial include that enrollment was completed in 2019, clinical trial site visits are only every three months and patients take the oral study drug at home. In the current environment our priorities are focused on the safety of patients as well as maintaining study integrity. Together with our clinical trial sites consistent with recent regulatory guidance, we have developed contingency plans that we are implementing as needed to enable the continued conduct of the Phase 3 trial and the open-label GalaxyDMD trial. The contingency plans include the delivery of study drug to patients' homes, increased flexibility in the timing of patient visits, and use of telehealth for remote visits to monitor safety and assess patients where in-person visits are not available. The full extent to which COVID-19 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. For additional information on risks posed by COVID-19, please see Part II, Item 1A - Risk Factors, included elsewhere in this Quarterly Report on Form 10-Q.
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Our previous trial, the MoveDMD Phase 1/2 trial, enrolled ambulatory boys four
to seven years old, up to their eighth birthday, with DMD who had not used
steroids for at least six months prior to the trial. The MoveDMD trial was
conducted in three sequential parts, Phase 1, Phase 2, and an open-label
extension. In Phase 1 of the MoveDMD trial, we assessed the safety, tolerability
and pharmacokinetics of edasalonexent in 17 patients, following seven days of
dosing, and we reported in
In
In addition, we are exploring the potential of edasalonexent as a therapy in
other indications where the inhibition of NF-kB may provide clinical benefit. In
In addition to edasalonexent, we have developed CAT-5571 as a potential treatment for cystic fibrosis, or CF. CAT-5571 is an oral small molecule that is designed to activate autophagy, a mechanism for recycling cellular components and digesting pathogens, which is important for host defenses and is depressed in CF. We have completed investigational new drug, or IND, application-enabling activities for CAT-5571.
As of
Since our inception in
15 Financial Overview
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:
· employee-related expenses including salaries, benefits and stock-based
compensation expense;
· expenses incurred under agreements with third parties, including contract
research organizations that conduct clinical trials and research and
development and preclinical activities on our behalf;
· the cost of consultants;
· the cost of acquiring, developing and manufacturing study materials; and
· facilities and other expenses, which include direct and allocated expenses for
rent and maintenance of facilities, insurance and other supplies.
Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
The following summarizes our most advanced current research and development programs:
· Edasalonexent for the treatment of DMD - Edasalonexent is a conjugate of
salicylic acid and the omega-3 fatty acid docosahexaenoic acid, or DHA, a
naturally occurring unsaturated fatty acid with anti-inflammatory properties,
based on our proprietary Safely Metabolized And Rationally Targeted linker, or
SMART Linker, drug discovery platform. We designed edasalonexent to inhibit
NF-kB. In DMD the loss of dystrophin leads to chronic activation of NF-kB, which
is a key driver of skeletal and cardiac muscle disease progression. We reported
results from the Phase 1 portion of the MoveDMD trial in
· Edasalonexent for the treatment of Becker Muscular Dystrophy, or BMD - We are evaluating the potential benefits of edasalonexent treatment in BMD and investigating potential approaches for clinical trials in BMD.
· Edasalonexent for the treatment of dysferlinopathy - We are evaluating the
potential benefits of edasalonexent treatment in dysferlinopathy, which includes
limb-girdle muscular dystrophy type 2B and Miyoshi myopathy, through a
preclinical study in collaboration with the
· CAT-5571 - CAT-5571 is a SMART Linker conjugate that contains cysteamine, a naturally occurring molecule that is a degradation product of the amino acid cysteine, and DHA. CAT-5571 is a potential oral therapy to treat CF. CAT-5571 is a small molecule designed to activate autophagy, a mechanism for recycling cellular components and digesting pathogens, which is important for host defenses and is depressed in CF. We have completed IND-enabling activities for CAT-5571.
We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or development programs. We record our research and development expenses net of any research and development tax incentives we are entitled to receive from government authorities.
16 The following table summarizes our research and development expenses by program (in thousands): Three Months Ended March 31, 2020 2019 Edasalonexent$ 3,200 $ 2,681 CAT-5571 4 8 Other research and platform programs - 45
Costs not directly allocated to programs: Employee expenses including cash compensation, benefits and stock-based compensation
1,536 1,263 Facilities 163 53 Consultants and professional expenses, including stock-based compensation 262 114 Other 124 33 Total costs not directly allocated to programs 2,085 1,463 Total research and development expenses$ 5,289 $ 4,197
Since inception of the edasalonexent and the CAT-5571 programs, total direct
expenses to support the programs have been
The successful development of our product candidates is highly uncertain. Accordingly, at this time, we cannot reasonably estimate the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from edasalonexent or any of our other current or potential product candidates. This is due to our need to raise additional capital to fund further clinical trials of our product candidates and the numerous risks and uncertainties associated with developing medicines, including the uncertainties of:
· establishing an appropriate safety profile with IND-enabling toxicology
studies;
· successful enrollment in, and completion of clinical trials;
· receipt of marketing approvals from applicable regulatory authorities;
· establishing commercial manufacturing capabilities or making arrangements with
third-party manufacturers;
· obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for our product candidates;
· launching commercial sales of the products, if and when approved, whether alone
or in collaboration with others; and
· a continued acceptable safety profile of the products following approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
Research and development activities are central to our business model. Product candidates in later stages of clinical development 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. We expect to incur significant research and development costs for the foreseeable future. We expect that our research and development expenses will increase significantly in the near term in connection with the substantial activities required to conduct our Phase 3 PolarisDMD trial and prepare for registration of edasalonexent for the treatment of DMD. We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. Further, while we currently do not anticipate any interruptions in our clinical development due to COVID-19, it is possible that the COVID-19 pandemic and response efforts could delay our clinical development programs and plans and increase our associated costs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, commercial, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services.
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We anticipate that in the near term our general and administrative expenses will remain relatively consistent with their current levels. As we approach the anticipated read out of top-line results from our Phase 3 PolarisDMD trial in the fourth quarter of 2020, we may increase our general and administrative expenditures to hire personnel to support potential commercialization of edasalonexent, dependent on our available capital resources and our prospects for obtaining additional financing.
Other Income (Expense)
Other income (expense), net consists of interest income earned on our cash, cash equivalents, and short-term investments, amortized deferred financing costs, foreign currency fluctuations, and amortized debt discount and net amortization expense on short-term investments.
Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of
operations is based on our financial statements, which we have prepared in
accordance with
During the three months ended
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months endedMarch 31, 2020 and 2019, together with the dollar change in those items (in thousands): Three Months Ended March 31, Period-to- 2020 2019 Period Change Operating expenses: Research and development 5,289 4,197 1,092 General and administrative 2,753 2,137 616 Total operating expenses 8,042 6,334 1,708 Loss from operations (8,042 ) (6,334 ) (1,708 ) Other income, net 90 296 (206 ) Net loss$ (7,952 ) $ (6,038 ) $ (1,914 )
Research and Development Expenses
Research and development expenses increased by
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General and Administrative Expenses
General and administrative expenses increased by
Other Income, Net
Other income, net decreased by
Liquidity and Capital Resources
From our inception through
January 2020 Financing
On
At-the-Market Offering
During the three months ended
Cash Flows
Comparison of the Three Months Ended
The following table provides information regarding our cash flows for the three
months ended
Three Months Ended March 31, 2020 2019 Net cash used in operating activities$ (6,989 ) $ (6,587 ) Net cash used in investing activities (15,432 ) (17,738 ) Net cash provided by financing activities 25,624 20,683 Net increase (decrease) in cash, cash equivalents and restricted cash$ 3,203 $ (3,642 )
Net cash used in operating activities was
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Net cash used in operating activities was
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Funding Requirements
Our primary uses of capital are for compensation and related expenses, manufacturing costs for pre-clinical and clinical materials, third party clinical trial research and development services, clinical costs, pre-commercialization activities, legal and other regulatory expenses, and general overhead.
As of
As of
Our estimate as to how long we expect our cash, cash equivalents and short-term investments to be able to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements will depend on many factors, including:
• any unanticipated costs or expenses related to our Phase 3 PolarisDMD and
GalaxyDMD trials, including costs and expenses for any additional research or
preclinical or clinical development efforts related to this trial;
• the progress, timing, costs and results of clinical trials of, and research and
preclinical development efforts for, our product candidates and potential
product candidates, including current and future clinical trials;
• the impact of COVID-19 on our operations, business and prospects;
• our ability to enter into and the terms and timing of any additional
collaborations, licensing or other arrangements that we may establish;
• the number and characteristics of future product candidates that we pursue and
their development requirements;
• the outcome, timing and costs of seeking regulatory approvals;
• the costs of commercialization activities for any of our product candidates
that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
• subject to receipt of marketing approval, revenue, if any, received from
commercial sales of our product candidates;
• our headcount growth and associated costs as we expand our research and
development and establish a commercial infrastructure;
• the costs of preparing, filing and prosecuting patent applications, maintaining
and protecting our intellectual property rights and defending against
intellectual property related claims; and
• the costs of operating as a public company.
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Identifying potential product candidates and conducting preclinical testing 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 medicines that we do not expect to be commercially available for 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.
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. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders' ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
If we raise funds through 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 through equity or debt financings 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.
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 under applicable
Contractual Obligations
As of
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