ACERAGEN, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with:
? our unaudited condensed financial statements and accompanying notes included in
Part I, Item 1 of this Quarterly Report on Form 10-Q; and
our audited financial statements and accompanying notes included in the 2019
? Form 10-K, as well as the information contained under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
our 2019 Form 10-K.
In addition to historical information, this discussion and analysis contains forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those discussed in the section titled "Risk Factors," set forth in Item 1A of our 2019 Form 10-K, that could cause actual results to differ materially from historical results or anticipated results. In particular, we encourage you to review the risk factor related to the impact of the coronavirus pandemic titled "We face risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt our operations and may materially and adversely affect our business and financial condition." Overview
We are a clinical-stage biopharmaceutical company with a business strategy
focused on the clinical development, and ultimately the commercialization, of
drug candidates for both oncology and rare disease indications characterized by
small, well-defined patient populations with serious unmet medical needs. Our
current focus is on our Toll-like receptor ("TLR") agonist, tilsotolimod
(IMO-2125), for oncology. We believe we can develop and commercialize targeted
therapies on our own. To the extent we seek to develop drug candidates for
broader disease indications, we have entered into and may explore additional
collaborative alliances to support development and commercialization.
TLRs are key receptors of the immune system and play a role in innate and
adaptive immunity. As a result, we believe TLRs are potential therapeutic
targets for the treatment of a broad range of diseases. Using our
chemistry-based platform, we designed both TLR agonists and antagonists to act
by modulating the activity of targeted TLRs. A TLR agonist is a compound that
stimulates an immune response through the targeted TLR. A TLR antagonist is a
compound that inhibits an immune response by blocking the targeted TLR.
Our current TLR-targeted clinical-stage drug candidate, tilsotolimod, is an
agonist of TLR9. We are currently developing tilsotolimod, via intratumoral
injection, for the treatment of anti-PD1 refractory metastatic melanoma in
combination with ipilimumab, an anti-CTLA4 antibody marketed as Yervoy® by
Bristol Myers Squibb Company ("BMS") in a Phase 3 registration trial. We are
also evaluating intratumoral tilsotolimod in combination with nivolumab, an
anti-PD1 antibody marketed as Opdivo® by BMS, and ipilimumab for the treatment
of multiple solid tumors in a multicohort Phase 2 trial.
Recent Developments
In April 2020 and July 2020 , we entered into two private placement financing
transactions, each with Pillar Partners , an existing stockholder and related
party, collectively providing for up to an aggregate of $40.7 million in gross
proceeds, in which $5.0 million was received in connection with the April 2020
private placement and $5.1 million was received in connection with the July 2020
private placement. Please refer to Note 8 and Note 13 of the notes to the
condensed financial statements in this Quarterly Report on Form 10-Q for more
information about these private placements.
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Clinical Development
Tilsotolimod (IMO-2125)
Tilsotolimod is a synthetic phosphorothioate oligonucleotide that acts as a
direct agonist of TLR9 to stimulate the innate and adaptive immune systems.
Tilsotolimod is being developed for administration via intratumoral injection in
combination with systemically administered checkpoint inhibitors and
costimulation therapies for the treatment of various solid tumors, including (i)
anti-PD1 refractory metastatic melanoma in combination with ipilimumab, (ii)
microsatellite stable ("MSS") colorectal cancer ("CRC") in combination with
nivolumab and ipilimumab, and (iii) squamous cell carcinoma of the head and neck
("SCCHN") in combination with ABBV-368 and other combinations. We refer to our
tilsotolimod development program as the ILLUMINATE development program. See
additional information under the heading "Collaborative Alliances" for
information on the development of tilsotolimod in collaboration with AbbVie Inc.
("AbbVie") for patients with SCCHN.
Melanoma
Melanoma is a cancer that begins in a type of skin cell called melanocytes. While melanoma is one of the least common types of skin cancer, it has a poor prognosis when not detected and treated early. As is the case in many forms of cancer, melanoma becomes more difficult to treat once the disease has spread, or metastasized, beyond the skin to other parts of the body. Checkpoint inhibitors have changed the treatment of advanced melanoma and have become the standard of care, with anti-PD-1 agents being the most commonly used immunotherapy in the first-line setting. However, due to primary or acquired resistance mechanisms that exclude or inhibit anti-tumor immune cells, as many as 60% of patients do not benefit from this type of therapy, and up to one-third of initial responders develop resistance to the therapy and ultimately experience disease progression. Today, these refractory patients are left with few options for further treatment, paving the way for novel investigational therapies such as tilsotolimod. We are currently developing tilsotolimod for use in combination with checkpoint inhibitors for the treatment of patients with anti-PD1 refractory metastatic melanoma. Tilsotolimod has received Orphan Drug Designation for the treatment of melanoma Stages IIb to IV and Fast Track designation for the treatment of anti-PD1 refractory metastatic melanoma in combination with ipilimumab therapy from theU.S. Food and Drug Administration ("FDA"). [[Image Removed: Graphic]]
ILLUMINATE-301 - Phase 3 Trial of Tilsotolimod (IMO-2125) in Combination with Ipilimumab in Patients with Anti-PD1 Refractory Metastatic Melanoma
In the first quarter of 2018, we initiated a Phase 3 trial of the tilsotolimod-ipilimumab combination in patients with anti-PD-1 refractory metastatic melanoma, which we refer to as ILLUMINATE-301. This trial, which completed target enrollment inMarch 2020 , will compare the results of the tilsotolimod-ipilimumab combination to those of ipilimumab alone in a 1:1 randomization. The family of primary endpoints of the trial consists of overall response rate ("ORR") by blinded independent central review using Response Evaluation Criteria in Solid Tumors ("RECIST v1.1") and median overall survival ("OS"). We believe positive results in either of the primary endpoints could lead to approval inthe United States . Key secondary endpoints include durable response rate, duration of response, median time to response, median progression free survival ("PFS") and patient-reported outcomes using a validated scale. ILLUMINATE-301 is being monitored by an Independent Data Monitoring Committee. As further discussed under the caption "Item 1. Business - Collaborative Alliances" in our 2019 Form 10-K, inMay 2018 , we entered into a clinical trial collaboration and supply agreement with BMS under which BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to use YERVOY® in ILLUMINATE-301 and has agreed to manufacture and supply YERVOY®, at its cost and for no charge to us, for use in ILLUMINATE-301. 24 Table of Contents [[Image Removed: Graphic]]
ILLUMINATE-204 - Phase 1/2 Trial of Tilsotolimod (IMO-2125) in Combination with Ipilimumab or Pembrolizumab in Patients with Anti-PD1 Refractory Metastatic Melanoma
InDecember 2015 , we initiated a Phase 1/2 clinical trial to assess the safety and efficacy of intratumoral tilsotolimod in combination with ipilimumab in patients with anti-PD-1 refractory metastatic melanoma, which we refer to as ILLUMINATE-204. We subsequently amended the trial protocol to include an additional treatment arm to study the combination of tilsotolimod with pembrolizumab, an anti-PD1 antibody marketed as Keytruda® by Merck & Co., Inc., in the same patient population. The primary objectives of the Phase 1 portion of the trial included characterizing the safety of the combinations and determining the recommended Phase 2 dose. A secondary objective of the Phase 1 portion of the trial was to describe the antitumor activity of tilsotolimod when administered intratumorally in combination with ipilimumab or pembrolizumab. Objectives of the Phase 2 portion of the trial included evaluation of the ORR of the tilsotolimod-ipilimumab combination using RECIST v1.1 criteria and immune-related response criteria ("irRC"), median OS, other efficacy measures, and to continue to characterize the safety of the combination. InApril 2017 , we initiated enrollment in the Phase 2 portion of the ipilimumab arm of our Phase 1/2 clinical trial of tilsotolimod with the 8 mg dose of intratumoral tilsotolimod as the recommended dose level based on the safety and efficacy data from the Phase 1 portion of the trial and data from translational immune parameters. The Phase 2 portion of the trial utilized a two-stage design to evaluate the ORR of tilsotolimod in combination with ipilimumab, compared to historical data for ipilimumab alone in the anti-PD1 refractory metastatic melanoma population. Based on the responses observed, the trial advanced with the expansion of the tilsotolimod-ipilimumab combination arm of ILLUMINATE-204 at the recommended Phase 2 dose of 8 mg tilsotolimod. Final topline data from the trial was reported inApril 2020 . A total of 52 subjects were treated with the tilsotolimod-ipilimumab combination at the recommended Phase 2 dose of 8 mg tilsotolimod. Of the 49 subjects evaluable for efficacy, 11 had a confirmed response per RECIST v1.1, representing an ORR of 22.4%. Additionally, 35 of the 49 patients achieved stable disease or better, representing a disease control rate of 71.4%. Durable responses (>6 months) were observed in 7 of 11 confirmed responses per RECIST v1.1. Median OS was 21.0 months. The combination regimen was generally well-tolerated among the 62 ILLUMINATE-204 patients receiving tilsotolimod at any dose in combination with ipilimumab. Refractory Solid Tumors [[Image Removed: Graphic]]
ILLUMINATE-101 - Phase 1b Trial of Intratumoral Tilsotolimod (IMO-2125) Monotherapy in Patients with Refractory Solid Tumors
InMarch 2017 , we initiated a Phase 1b dose escalation trial of intratumoral tilsotolimod as a single agent in multiple tumor types, which we refer to as ILLUMINATE-101. We completed enrollment of a total of 38 patients in four dose-escalation cohorts at doses of 8mg (cohort 1, n=11), 16mg (cohort 2, n=8), 23mg (cohort 3, n=10) and 32mg (cohort 4, n=9). There were no dose-limiting toxicities observed and tilsotolimod appeared to be generally well-tolerated at each of the dose levels tested. We also completed enrollment of 16 patients in a melanoma expansion cohort, which utilized a Simon's optimal two-stage design, to assess whether tilsotolimod as a single agent (8mg dose) has any statistically relevant clinical activity, as demonstrated for objective response according to RECIST v1.1 criteria, in patients with metastatic melanoma who have progressed on or after treatment with a PD-(L)1 inhibitor. The study was completed in
October 2019 . 25 Table of Contents At theAmerican Association for Cancer Research Annual Meeting inApril 2020 , we provided final results of ILLUMINATE-101, noting that a total of 54 patients had been dosed, including 38 patients in the dose-evaluation portion of the trial and 16 patients in the melanoma dose-expansion cohort. Of the 51 evaluable patients, 29% (n=15) had a best response of stable disease. Duration of stable disease ranged from 1.5 to 12+ months from the start of treatment, with stable disease ongoing beyond 12 months for one patient as of the close of the study. There were no correlations between dose and efficacy observed. An additional purpose of this study was to obtain tumor biopsies to assess the effect of tilsotolimod on the tumor microenvironment in multiple types of solid tumors and inform the expansion of the development program beyond melanoma. Translational research in ILLUMINATE-101 demonstrated that tilsotolimod increased dendritic cell activation and upregulated MHC class II and IFN-? signaling, which suggests improved antigen presentation, and is similar to that observed and previously reported in the tumor biopsies from the ILLUMINATE-204 melanoma subjects. This observation provided additional rationale to expand the tilsotolimod clinical development program to additional solid tumors. Other Solid Tumors
Advancements in cancer immunotherapy have included the approval and late-stage development of multiple checkpoint inhibitors, as single agents or in combination, for other solid tumors including, among others, microsatellite instability high/deficient mismatch repair ("MSI-H/dMMR") colorectal cancer ("CRC") and squamous cell carcinoma of the head and neck ("SCCHN").
In patients with CRC, nivolumab administered as monotherapy or in combination
with ipilimumab has demonstrated benefit and is approved for the treatment of
MSI-H/dMMR mCRC. However, in a previously treated microsatellite stable ("MSS")
CRC patient population, nivolumab + ipilimumab combination therapy did not
produce objective responses. MSS-CRC has been shown to be highly
immunosuppressive. Moreover, the tumor microenvironment in MSS-CRC has been
shown to keep dendritic cells in an immature state. Given tilsotolimod's
mechanism of action of activating dendritic cells, it may serve a complementary
function to nivolumab and ipilimumab within the immunosuppressive tumor
microenvironment ("TME") of MSS-CRC patients.
In patients with relapsed or metastatic SCCHN ("RM-SCCHN"), results from
prospectively conducted trials employing the immune-modulating antibodies
nivolumab and pembrolizumab following chemotherapy heralded a new era of
treatment for patients with RM-SCCHN. Patients responding to these agents have
seen durable responses, and in controlled studies, an overall survival benefit
has been demonstrated for the anti-PD-1 antibodies versus standard of care
chemotherapy. The challenge remains to increase the percentage of patients
responding to these treatments, which currently ranges from 13% to 23%,
depending on the line of therapy.
See information on our clinical trial and supply agreement with AbbVie under the heading "Collaborative Alliances" which discusses the development of tilsotolimod in combination with ABBV-368 and other combinations for the treatment of SCCHN.
[[Image Removed: A picture containing drawing Description automatically generated]]
ILLUMINATE-206 - Phase 2 Trial of Tilsotolimod (IMO-2125) in Combination with Nivolumab and Ipilimumab for the treatment of Solid Tumors
InSeptember 2019 , we initiated a Phase 2, open-label, global, multicohort study to evaluate tilsotolimod administered intratumorally in combination with nivolumab and ipilimumab for the treatment of solid tumors. The basis for this study is supported by data generated from our ILLUMINATE-101 and ILLUMINATE-204 trials, which suggest the mechanism of action for tilsotolimod may be tumor-type agnostic and potentially beneficial in combination with checkpoint modulation in a variety of tumor types. We refer to this study as ILLUMINATE-206. The objectives of ILLUMINATE-206 are to test the safety and effectiveness of intratumoral tilsotolimod in combination with nivolumab and ipilimumab for the treatment of solid tumors. During the second quarter of 2020, 26
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we changed the study design and eliminated the statistical methodology to allow for flexibility in cohort-specific study designs and optimize the signal finding objective of the study. Currently, we are evaluating relapsed/refractory MSS-CRC in immunotherapy-naïve patients treated with tilsotolimod in combination with nivolumab and ipilimumab (the "MSS-CRC Cohort"). An initial group of ten patients was enrolled to evaluate the safety of administering the combination of tilsotolimod, nivolumab and ipilimumab. To investigate the safety profile of this triplet combination, ILLUMINATE-206 was designed with a stepwise approach to Yervoy® dosage. Patients in this initial safety cohort of the study, many of whom were heavily pre-treated and rapidly progressing, received 8 mg of intratumoral tilsotolimod and 3 mg/kg of intravenous (IV) Opdivo® every 2 weeks, along with 1 mg/kg of IV Yervoy® every 8 weeks. This regimen was generally well tolerated; no patients discontinued treatment due to adverse events (AEs) and none experienced Grade 4 or 5 AEs. One patient experienced stable disease per RECIST v1.1 criteria and 9 patients progressed as defined by RECIST v1.1. Investigators reported that 6 of the progressing patients had stability or reduction in size of injected lesions and 6 had stability or reduction in overall size of uninjected lesions. Based on these results, we plan to enroll additional patients in the MSS-CRC cohort of ILLUMINATE-206. Planned changes in the study design intended to improve potential outcomes in this patient population include increasing the frequency of Yervoy® dosing to every 3 weeks and limiting the number of allowed prior lines of treatment to two. Enrollment of the next 10 patients is targeted to begin in the fourth quarter of 2020. Pending data from those patients, the trial may be expanded further. As further discussed under the caption "Item 1. Business - Collaborative Alliances" in our 2019 Form 10-K, inMay 2018 , we entered into a clinical trial collaboration and supply agreement with BMS under which BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to use YERVOY® and OPDIVO® in ILLUMINATE-206 and has agreed to manufacture and supply YERVOY® and OPDIVO®, at its cost and for no charge to us, for use in ILLUMINATE-206. Collaborative Alliances
Our current alliances include collaborations with AbbVie, described below, and BMS, as described under the caption "Item 1. Business - Collaborative Alliances" in our 2019 Form 10-K. In addition to our current alliances, we may seek to enter into additional collaborative alliances to support development and commercialization of our TLR agonists and antagonists.
Collaboration with AbbVie
EffectiveAugust 27, 2019 , we entered into a clinical trial collaboration and supply agreement with AbbVie, a global, research-based biopharmaceutical company, to conduct a clinical study to evaluate the efficacy and safety of combinations of an OX40 agonist (ABBV-368), tilsotolimod, nab-paclitaxel and/or an anti-programmed cell death 1 (PD-1) antagonist (ABBV-181), which we refer to as the AbbVie Agreement. Under the AbbVie Agreement, we will provide a clinical trial supply of tilsotolimod to AbbVie and AbbVie will sponsor, fund and conduct the study entitled "A Phase 1b, Multicenter, Open-Label Study to Determine the Safety, Tolerability, Pharmacokinetics, and Preliminary Efficacy of ABBV-368 plus Tilsotolimod and Other Therapy Combinations in Subjects with Recurrent/Metastatic Head and Neck Squamous Cell Carcinoma" (the "AbbVie Study"). We have agreed to manufacture and supply tilsotolimod at its cost and for no charge to AbbVie, for use in the AbbVie Study. 27 Table of Contents
Critical Accounting Policies and Estimates
This management's discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments which are affected by the application of our accounting policies Management bases its estimates and judgments on historical experience and on various other factors that are believed to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" where:
the nature of the estimate or assumption is material due to the level of
(i) subjectivity and judgment necessary to account for highly uncertain matters
or the susceptibility of such matters to change; and
(ii) the impact of the estimates and assumptions on financial condition or
operating performance is material.
Our significant accounting policies are described in Note 2 of the notes to our
financial statements included in our 2019 Form 10-K. However, please refer to
Note 2 in the accompanying notes to the condensed financial statements contained
in this Quarterly Report on Form 10-Q for updated policies and estimates, if
applicable, that could impact our results of operations, financial position, and
cash flows. Not all of these significant policies, however, fit the definition
of critical accounting policies and estimates. We believe that our accounting
policies relating to (i) research and development prepayments, accruals and
related expenses, (ii) stock-based compensation, and (iii) warrant and future
tranche right liabilities and related revaluation gain (loss), as described
under the caption "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and
Estimates" in our 2019 Form 10-K, fit the description of critical accounting
estimates and judgments.
The full extent to which the novel coronavirus disease ("COVID-19") pandemic
will directly or indirectly impact our business, results of operations and
financial condition, including expenses and manufacturing, clinical trials and
research and development costs, will depend on future developments that are
highly uncertain at this time.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 2 in the notes to the condensed financial statements in this Quarterly Report on Form 10-Q.
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Financial Condition, Liquidity and Capital Resources
Financial Condition As ofJune 30, 2020 , we had an accumulated deficit of$736.3 million . To date, substantially all of our revenues have been from collaboration and license agreements and we have received no revenues from the sale of commercial products. We have devoted substantially all of our efforts to research and development, including clinical trials, and we have not completed development of any commercial products. Our research and development activities, together with our general and administrative expenses, are expected to continue to result in substantial operating losses for the foreseeable future. These losses, among other things, have had and will continue to have an adverse effect on our stockholders' equity (deficit), total assets and working capital. Because of the numerous risks and uncertainties associated with developing drug candidates, and if approved, commercial products, we are unable to predict the extent of any future losses, whether or when any of our drug candidates will become commercially available or when we will become profitable, if at all.
Liquidity and Capital Resources
Overview
We require cash to fund our operating expenses and to make capital expenditures. Historically, we have funded our cash requirements primarily through the following:
(i) sale of common stock, preferred stock, future tranche rights and warrants
(including pre-funded warrants);
(ii) exercise of warrants;
(iii) debt financing, including capital leases;
(iv) license fees, research funding and milestone payments under collaborative
and license agreements; and
(v) interest income. We filed a shelf registration statement on Form S-3 onAugust 10, 2017 , which was declared effective onSeptember 8, 2017 , relating to the sale, from time to time, in one or more transactions, up to$250.0 million of common stock, preferred stock, depository shares and warrants. As ofJuly 31, 2020 , approximately$107.5 million remained available for issuance under this registration statement, taking into account the full contractual amounts provided for under our Common Stock Purchase Agreement withLincoln Park Capital Fund LLC (the "LPC Purchase Agreement") and our "At-The-Market" Equity Program pursuant to a Equity Distribution Agreement withJMP Securities LLC (the "ATM Agreement"), which are more fully described in Note 8 of the notes to our condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q. As described in Note 8, during the six months endedJune 30, 2020 , we sold 600,000 shares of common stock pursuant to the LPC Purchase Agreement resulting in$1.1 million in net proceeds, 821,018 shares of common stock pursuant to the ATM Agreement resulting in$1.4 million in net proceeds and 3,039,514 shares of common stock with accompanying warrants resulting in net proceeds of$4.7 million . In addition to the potential funding under the LPC Purchase Agreement and the ATM Agreement, theDecember 2019 Securities Purchase Agreement (more fully described in Note 7 to the condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q), under which we received$10.1 million in gross proceeds inDecember 2019 , provides for up to$87.6 million additional aggregate gross proceeds at the sole discretion ofBaker Brothers in connection with additional sales of securities and warrant exercises. Additionally, theApril 2020 Securities Purchase Agreement (more fully described in Note 8 to the condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q), under which we received$5.0 million gross proceeds inApril 2020 , provides for up to$15.7 million additional aggregate gross proceeds at the sole discretion ofPillar Partners in connection with sales of additional securities and warrant exercises. Further, theJuly 2020 Securities Purchase Agreement (more fully described in Note 13 to the condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q), under which we received$5.1 million gross proceeds inJuly 2020 , provides for up to$14.9 million additional aggregate gross proceeds at the sole 29
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discretion ofPillar Partners in connection with sales of additional securities and warrant exercises. AssumingBaker Brothers and Pillar Partners exercise their rights under their respective securities purchase agreement and no other forms of external funding, we expect the proceeds could fund operations beyond an NDA filing for tilsotolimod. See Notes 7, 8, and 13 to the condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information regarding our recent equity financing activities. Funding Requirements
We had cash, cash equivalents, and short-term investments of approximately$31.0 million atJune 30, 2020 . We believe that, based on our current operating plan, our existing cash, cash equivalents, and short-term investments on hand as ofJune 30, 2020 will enable us to fund our operations into the second quarter of 2021 allowing us to: (i)continue to execute on our ongoing Phase 3 clinical trial of tilsotolimod in combination with ipilimumab for the treatment of anti-PD1 refractory metastatic melanoma (ILLUMINATE-301), including announcing key topline data and beginning the filing of a New Drug Application with the FDA; (ii)initiate and continue enrollment in the signal-finding stage of our Phase 2 study of tilsotolimod in combination with nivolumab and ipilimumab for the treatment of MSS-CRC (ILLUMINATE-206); (iii)fund certain investigator initiated clinical trials of tilsotolimod; and (iv)maintain our current level of general and administrative expenses in order to support the business.
We expect that we will need to raise additional funds in order to complete our ongoing clinical trials of tilsotolimod and to continue to fund our operations. We are seeking and expect to continue to seek additional funding through collaborations, the sale or license of assets or financings of equity or debt securities. We believe that the key factors that will affect our ability to obtain funding are: (i)the results of our clinical development activities in our tilsotolimod program or any other drug candidates we develop on the timelines anticipated; (ii)the cost, timing, and outcome of regulatory reviews; (iii)competitive and potentially competitive products and technologies and investors' receptivity to tilsotolimod or any other drug candidates we develop and the technology underlying them in light of competitive products and technologies; (iv)the receptivity of the capital markets to financings by biotechnology companies generally and companies with drug candidates and technologies similar to ours specifically; (v)the receptivity of the capital markets to any in-licensing, product acquisition or other transaction we may enter into; (vi)our ability to enter into additional collaborations with biotechnology and pharmaceutical companies and the success of such collaborations; and (vii)the impact of the novel coronavirus disease, COVID-19, to global economy and capital markets, and to our business and our financial results.
In addition, increases in expenses or delays in clinical development may adversely impact our cash position and require additional funds or cost reductions.
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Financing may not be available to us when we need it or may not be available to
us on favorable or acceptable terms or at all. Additionally, Baker Brothers may
not exercise their right to purchase shares of convertible preferred stock and
common warrants or exercise warrants in connection with the December 2019
Securities Purchase Agreement and Pillar Partners may not exercise their right
to purchase shares of common stock (or pre-funded warrants) and common warrants,
or exercise common warrants in connection with the April 2020 Securities
Purchase Agreement or the July 2020 Securities Purchase Agreement. We could be
required to seek funds through collaborative alliances or through other means
that may require us to relinquish rights to some of our technologies, drug
candidates or drugs that we would otherwise pursue on our own. In addition, if
we raise additional funds by issuing equity securities, our then existing
stockholders may experience dilution. The terms of any financing may adversely
affect the holdings or the rights of existing stockholders. An equity financing
that involves existing stockholders may cause a concentration of ownership. 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, and are
likely to include rights that are senior to the holders of our common stock. Any
additional debt or equity financing may contain terms which are not favorable to
us or to our stockholders, such as liquidation and other preferences, or liens
or other restrictions on our assets. As discussed in Note 14 to the financial
statements included in our 2019 Form 10-K, additional equity financings may also
result in cumulative changes in ownership over a three-year period in excess of
50% which would limit the amount of net operating loss and tax credit
carryforwards that we may utilize in any one year.
If we are unable to obtain adequate funding on a timely basis or at all, we will
be required to terminate, modify or delay our clinical trials of tilsotolimod,
or relinquish rights to portions of our technology, drug candidates and/orproducts. Cash Flows
The following table presents a summary of the primary sources and uses of cash
for the six months ended
Six Months Ended
June 30,
(in thousands) 2020 2019
Net cash provided by (used in):
Operating activities $ (19,100) $ (23,330)
Investing activities (393) (12,136)
Financing activities 7,284 3,919
Decrease in cash and cash equivalents
Operating Activities. The net cash used in operating activities for all periods presented consists primarily of net loss adjusted for non-cash charges and changes in components of working capital. The decrease in cash used in operating activities for the six months endedJune 30, 2020 , as compared to 2019, was primarily due to timing of cash outflows related to our current IMO-2125 development program, including payments to contract research organizations, and lower severance payments related to the reduction in workforce associated with the closure of our priorCambridge, Massachusetts facility.
Investing Activities. Cash used in investing activities primarily consisted of the following amounts relating to our investments in available-for-sale securities and purchases and disposals of property and equipment:
for the six months ended
? available-for-sale securities, partially offset by
received from the maturity of available-for-sale securities; and
for the six months ended
? available-for-sale securities, partially offset by
from available-for-sale securities.
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Financing Activities. Net cash provided by financing activities primarily consisted of the following amounts received in connection with the following transactions:
for the six months ended
from financing arrangements consisting of
? pursuant to the
pursuant to the ATM Agreement and
pursuant to the LPC Purchase Agreement, and
from employee stock purchases under our 2017 ESPP; and
for the six months ended
from financing arrangements consisting of
? pursuant to the ATM Agreement and
pursuant to the LPC Purchase Agreement, and
from employee stock purchases under our 2017 ESPP. Contractual Obligations
During the six months ended
Off-Balance Sheet Arrangements
As of
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Results of Operations
Three and Six Months Ended
Research and Development Expenses
For each of our research and development programs, we incur both direct and indirect expenses. We track direct research and development expenses by program, which include third party costs such as contract research, consulting and clinical trial and manufacturing costs. We do not allocate indirect research and development expenses, which may include regulatory, laboratory (equipment and supplies), personnel, facility and other overhead costs (including depreciation and amortization), to specific programs.
In the table below, research and development expenses are set forth in the following categories which are discussed beneath the table:
Three months ended Six months ended
June 30, % June 30, %
($ in thousands) 2020 2019 Change 2020 2019 ChangeIMO-2125 external development expense$ 3,491 $ 7,686 (55%)$ 10,562 $ 13,100 (19%) (1) IMO-8400 external development expense - 7 (100%) - 45 (100%) Other drug development expense 1,888 2,331 (19%) 4,327 4,981 (13%) (2) Total research and development expenses$ 5,379 $ 10,024 (46%)
$ 14,889 $ 18,126 (18%)
IMO-2125 External Development Expenses. These expenses include external
expenses incurred in connection with the development of tilsotolimod as part
of our immuno-oncology program. These external expenses include payments to
independent contractors and vendors for drug development activities conducted
after the initiation of tilsotolimod clinical development in immuno-oncology,
but exclude internal costs such as payroll and overhead expenses. We
(1) commenced clinical development of tilsotolimod as part of our immuno-oncology
program in
approximately
part of our immuno-oncology program, including costs associated with the
preparation for and conduct of ILLUMINATE-204, ILLUMINATE-101,
ILLUMINATE-301, ILLUMINATE-206, and the manufacture of additional drugsubstance for use in our clinical trials and additional nonclinical studies.
The decreases in our IMO-2125 external development expenses during both the three and six months endedJune 30, 2020 , as compared to corresponding 2019 period, was primarily due to decreases in costs incurred with contract research and manufacturing organizations and outside consultants related to our ILLUMINATE development program, including costs to support our ongoing ILLUMINATE-301 trial, which we initiated in the first quarter of 2018, and ongoing ILLUMINATE-206 trial, which we initiated in the second quarter of 2019, as well as costs to support our ILLUMINATE-101 and ILLUMINATE-204 trials. Going forward, we expect ongoing IMO-2125 external development expenses to continue to be significant as our focus in 2020 is on the clinical development of tilsotolimod (IMO-2125), including preparing for an NDA submission with the FDA. See additional information under the heading "Financial Condition, Liquidity and Capital Resources" regarding our future funding requirements.
Other Drug Development Expenses. These expenses include external expenses,
such as payments to contract vendors, associated with compounds that were
(2) previously being developed but are not currently being developed. In
addition, these expenses include internal costs, such as payroll and overhead
expenses, associated with our clinical development programs.
The decreases in other drug development expenses for each of the three and six months endedJune 30, 2020 , compared to the corresponding prior period, were primarily due to lower internal payroll costs. 33 Table of Contents
General and Administrative Expenses
General and administrative expenses consist primarily of payroll, stock-based compensation expense, consulting fees and professional legal fees associated with our patent applications and maintenance, our corporate regulatory filing requirements, our corporate legal matters, and our business development initiatives. For the three months endedJune 30, 2020 and 2019, general and administrative expenses totaled$2.6 million and$2.9 million , respectively. For the six months endedJune 30, 2020 and 2019, general and administrative expenses totaled$6.3 million and$6.0 million , respectively. The decrease in general and administrative expenses during the three months endedJune 30, 2020 , as compared to the 2019 period, was primarily due to lower employee expense related to former executives and lower legal costs. The increase in general and administrative expenses during the six months endedJune 30, 2020 , as compared to the 2019 period, was primarily due to severance expense for former executives and increased commercial costs, offset by lower stock compensation expense, legal fees and consulting costs. Restructuring Costs Restructuring costs for the three and six months endedJune 30, 2019 totaled less than$0.1 million and approximately$0.2 million , respectively, and are comprised primarily of severance and related benefit costs related to our decision inJuly 2018 to wind-down our discovery operations, reduce the workforce inCambridge, Massachusetts that supported such operations, and close ourCambridge facility. No such costs were incurred during the three or six
months endedJune 30, 2020 . Interest Income Interest income for the three months endedJune 30, 2020 and 2019 totaled less than$0.1 million and approximately$0.3 million , respectively. Interest income for the six months endedJune 30, 2020 and 2019 totaled approximately$0.2 million and$0.7 million , respectively. The period-over-period decreases were primarily due to a decrease in average short-term investment balances. Amounts may fluctuate from period to period due to changes in average investment balances, including commercial paper and money market funds classified as cash equivalents, and composition of investments.
Warrant Revaluation (Loss) Gain
During the three months endedJune 30, 2020 , we recorded a non-cash warrant revaluation loss of approximately$0.9 million . During the six months endedJune 30, 2020 , we recorded a non-cash warrant revaluation gain of approximately$0.2 million . The non-cash charges for all periods relate to the change in fair value during the respective period of our liability-classified warrants, which were issued in connection with theDecember 2019 Private Placement. Due to the nature of and inputs in the model used to assess the fair value of our outstanding warrants, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the remaining life of the warrants. Changes in the fair value of our liability-classified warrants for all periods presented was driven primarily by changes in our stock price. No such non-cash revaluation gain (loss) was recognized during the corresponding 2019 periods.
Future Tranche Right Revaluation (Loss) Gain
During the three months endedJune 30, 2020 , we recorded a non-cash future tranche right revaluation loss of approximately$15.3 million . During the six months endedJune 30, 2020 , we recorded a non-cash future tranche right revaluation gain of approximately$5.4 million . The non-cash charges for all periods relate to the change in fair value during the respective period of the future tranche right liability (right to purchase preferred stock and warrants to an investor at future dates), associated with the Future Tranche Rights issued in connection with theDecember 2019 Securities Purchase Agreement. Due to the nature of and inputs in the model used to assess the fair value of the future tranche rights, it is not abnormal to experience significant fluctuations during each remeasurement period. These fluctuations may be due to a variety of factors, including changes in our stock price and changes in estimated stock price volatility over the remaining estimated lives of the future tranche rights. Changes in the fair value of the future tranche right liability during all periods presented was driven primarily by changes in our stock price. No such non-cash revaluation gain (loss) was recognized during the corresponding 2019 periods. 34 Table of Contents
Net Loss Applicable to Common Stockholders
As a result of the factors discussed above, our net loss applicable to common stockholders for the three and six months endedJune 30, 2020 was$24.2 million and$15.4 million , respectively, compared to a net loss applicable to common stockholders of$11.2 million and$22.2 million for the three and six months endedJune 30, 2019 , respectively. Excluding the non-cash warrant revaluation loss of$0.9 million and future tranche right revaluation loss of$15.3 million for the three months endedJune 30, 2020 , net loss applicable to common stockholders was$8.0 million . Excluding the non-cash warrant revaluation gain of$0.2 million and future tranche right revaluation gain of$5.4 million for the six months endedJune 30, 2020 , net loss applicable to common stockholders was$21.0 million .
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