TRACON PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and future financial performance, includes forward-looking statements that are based upon current beliefs, plans and expectations and involve risks, uncertainties and assumptions. You should review the "Risk Factors" section of this Annual Report for a discussion of important factors that could cause our actual results and the timing of selected events to differ materially from those described in or implied by the forward-looking statements contained in the following discussion and analysis. Please also see the section within Part I of this Annual Report entitled "Forward-Looking Statements."
Overview
We are a biopharmaceutical company focused on the development and commercialization of novel targeted therapeutics for cancer, wet age-related macular degeneration, or wet AMD, through our license to Santen Pharmaceutical Co. Ltd. (Santen ), and utilizing our product development platform to partner with ex-U.S. companies to develop and commercialize innovative products inthe United States . InDecember 2019 , we entered into a collaboration and clinical trial agreement (the Envafolimab Collaboration Agreement) with 3DMedicines Co., Ltd. (3D Medicines) andJiangsu Alphamab Biopharmaceuticals Co., Ltd. (Alphamab) for the development of envafolimab, also known as KN035, an investigational PD-L1 single-domain antibody (sdAb) administered by subcutaneous injection for the treatment of soft tissue sarcoma inNorth America . We intend to file an investigational new drug (IND) application and apply for orphan drug status in the first half of 2020, and initiate a registration-enabling study of envafolimab in the sarcoma subtype of undifferentiated pleomorphic sarcoma (UPS) and other select soft tissue sarcoma (STS) subtypes in the second half of 2020. Subject to input from theU.S. Food and Drug Administration (FDA), we expect that the trial will include one cohort of approximately 80 patients who will receive single agent treatment with envafolimab and a second cohort of approximately 80 patients who will receive envafolimab in combination with Yervoy® (ipilimumab), a checkpoint inhibitor marketed by Bristol-Meyers Squib (BMS), with the primary endpoint in each of the cohorts being overall response rate (ORR), which could be the basis for accelerated approval of envafolimab by the FDA as a single agent and/or in combination with Yervoy. We estimate disclosing a summary of the independent data monitoring committee decisions following reviews of interim data in 2021, having a final response assessment in early 2022, and, assuming positive data, submitting a biologics license application (BLA) for accelerated approval in early 2023. Additionally, assuming positive data from the initialUPS trial, we plan to initiate a randomized trial for multiple soft tissue sarcoma subtypes, which could include biomarker directed enrollment, to expand the target patient population. We continue to supportSanten's development of the ophthalmic formulation of carotuximab, called DE-122, for the treatment of wet AMD, the leading cause of blindness in the Western world. InMarch 2014 ,Santen licensed from us exclusive worldwide rights to develop and commercialize our endoglin antibodies for ophthalmology indications and inJuly 2017 ,Santen initiated dosing in the randomized Phase 2a AVANTE study of DE-122, which is a randomized controlled trial assessing the efficacy and safety of repeated intravitreal injections of DE-122 in combination with Lucentis® (ranibizumab) compared to Lucentis single agent therapy in patients with wet AMD.Santen completed enrollment in the randomized Phase 2a AVANTE study in 2019 and we expect top-line data in the first half of 2020. Other clinical stage oncology product candidates include TRC102, which is a small molecule that is in Phase 1 and Phase 2 clinical development for the treatment of mesothelioma, lung cancer and solid tumors, TRC253, which is a small molecule that is in a Phase 1/2 clinical trial for the treatment of metastatic castration-resistant prostate cancer, that we licensed fromJanssen Pharmaceutica N.V. (Janssen) inSeptember 2016 , and TJ004309, which is a CD73 antibody in Phase 1 clinical development for the treatment of solid tumors, that we licensed from I-Mab Biopharma (I-Mab ) inNovember 2018 . TRC102 is a small molecule in clinical development to reverse resistance to specific chemotherapeutics by inhibiting base excision repair, or BER. In initial clinical trials of more than 100 patients, TRC102 has shown good tolerability and promising anti-tumor activity in combination with alkylating and antimetabolite chemotherapy in the treatment of cancer patients. TRC102 began Phase 2 testing in mesothelioma in combination with the approved chemotherapeutic Alimta in 2015. TRC102 is also being studied in three Phase 1 clinical trials: in combination with Alimta and cisplatin in solid tumor patients, in combination with chemoradiation in lung cancer patients, and in combination with Temodar in ovarian, lung and colorectal cancer patients. All current TRC102 trials are sponsored and funded by theNational Cancer Institute (NCI). We retain global rights to develop and commercialize TRC102 in all indications. TRC253 is being developed for the treatment of men with prostate cancer and is a novel small molecule high affinity competitive inhibitor of wild type androgen receptor (AR) and multiple AR mutant receptors containing point mutations that cause drug resistance 60
-------------------------------------------------------------------------------- to currently approved treatments. InNovember 2019 , following review of available Phase 2 data indicating a lower than expected initial response rate and prevalence of the F877L mutation, we agreed with Janssen that the more than 70 currently enrolled patients in the Phase 1/2 clinical trial of TRC253 are sufficient to determine the risk-benefit profile of the drug in three cohorts of metastatic castrate resistant prostate cancer patients: those with a F877L mutation, those with another undisclosed androgen receptor point mutation, and those with another basis for resistance to Xtandi or Erleada. We expect to provide Phase 2 proof of concept data to Janssen in the first half of 2020. Until 90 days after receiving Phase 2 proof of concept data, Janssen has an exclusive option to reacquire full rights to TRC253 for an upfront payment of$45.0 million to us, and obligations to make regulatory and commercialization milestone payments totaling up to$137.5 million upon achievement of specified events and a low single-digit royalty. If Janssen does not exercise its exclusive option to reacquire the program, we would then have the ability to retain worldwide development and commercialization rights, in which case we would be obligated to pay Janssen a total of up to$45.0 million in development and regulatory milestones upon achievement of specified events, in addition to a low single digit royalty. TJ004309, also known as TJD5, is a novel humanized antibody against CD73 expressed on stromal cells and tumors that converts extracellular adenosine monophosphate (AMP) to the immunosuppressive metabolite adenosine. We are developing TJ004309 in collaboration withI-Mab under a strategic collaboration and clinical trial agreement that we entered into inNovember 2018 (the TJ004309 Agreement). InJuly 2019 , we began enrollment in a Phase 1 clinical trial to assess safety and preliminary efficacy of TJ004309 as a single agent and when combined with the PD-L1 checkpoint inhibitor Tecentriq® in patients with advanced solid tumors. We also entered into a separate strategic collaboration and clinical trial agreement (the Bispecific Agreement) which allows for the development of up to five ofI-Mab's proprietary bispecific antibody product candidates to be nominated within a five-year period for development and commercialization inNorth America , with the option to opt-in and acquire product rights outside ofGreater China andKorea prior to completing the first pivotal clinical trial for any bispecific product candidate.
In
The following table summarizes key information regarding ongoing and planned development of clinical stage product candidates:
Phase Data Expected
Envafolimab (3D Medicines and Alphamab)
Soft Tissue Sarcoma Planned Pivotal Final data - 2022 DE-122 (Santen ) Wet AMD Randomized Phase 2 2020 TRC253 Prostate Cancer Phase 2 2020 TJ004309 (I-Mab) Solid Tumors Phase 1 2020 TRC102 Mesothelioma Phase 2 2020 Solid tumors Phase 1 2020 Solid tumors and Lymphomas Phase 1/2 2021 Lung Cancer Phase 1 2020 We utilize a product development platform that emphasizes capital efficiency. Our experienced clinical operations, data management, quality assurance, product development and regulatory affairs groups manage significant aspects of our clinical trials with internal resources. We use these internal resources to minimize the costs associated with utilizing contract research organizations, or CROs, to conduct clinical trials. In our experience, this model has resulted in capital efficiencies and improved communication with clinical trial sites, which expedites patient enrollment and improves the quality of patient data as compared to a CRO-managed model. We have leveraged this platform in all of our sponsored clinical trials. We have also leveraged our product development platform to diversify our product pipeline without payment of upfront license fees through license agreements with 3D Medicines and Alphamab,I-Mab , and Janssen. We continue to evaluate ex-U.S. companies who would benefit from a rapid and capital-efficientU.S. drug development solution that includesU.S. andEuropean Union (EU) clinical development expertise. We believe we will continue to be recognized as a preferredU.S. clinical development partner through a cost- and risk-sharing partnership structure which may includeU.S. commercialization. 61
-------------------------------------------------------------------------------- Since our inception in 2004, we have devoted substantially all of our resources to research and development efforts relating to our product candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, providing general and administrative support for these operations, and protecting our intellectual property. To date, we have not generated any revenue from product sales and instead, have funded our operations from the sales of equity securities, payments received in connection with our collaboration agreements, and commercial bank debt under our credit facilities withSilicon Valley Bank (SVB). AtDecember 31, 2019 , we had cash and cash equivalents totaling$16.4 million . We do not own or operate, nor do we expect to own or operate, facilitates for product manufacturing, storage, distribution or testing. We contract with third parties or our collaboration partners for the manufacture of our product candidates and we intend to continue to do so in the future.
We have incurred losses from operations in each year since our inception. Our
net losses were
We expect to continue to incur significant expenses and operating losses for at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses to decrease slightly due to the termination of carotuximab development in oncology as we expect to initiate a registration enabling study of envafolimab inUPS and as we: • continue to conduct clinical trials of product candidates; • continue our research and development efforts; • maintain, expand and protect our intellectual property portfolio; and
• seek regulatory approvals for product candidates that successfully
complete clinical trials.
We do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more product candidates, which we expect will take a number of years. If we obtain regulatory approval for any product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additional capital. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process for product candidates. We anticipate that we will seek to fund our operations through public or private equity or debt financings or other sources. Debt financing, if available, may involve covenants further restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Further, 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 when needed would have a negative impact on our financial condition and ability to develop product candidates.
Collaboration and License Agreements
Collaboration Agreement with 3D Medicines and Alphamab
InDecember 2019 , we, 3D Medicines, and Alphamab entered into the Envafolimab Collaboration Agreement for the development of envafolimab, an investigational PD-L1 sdAb, or nanobody, administered by subcutaneous injection, for the treatment of soft tissue sarcoma inNorth America . Pursuant to the Envafolimab Collaboration Agreement, we were granted an exclusive license to develop and commercialize envafolimab for the treatment of sarcoma inNorth America . We are responsible for conducting and will bear the costs of any Phase 1, Phase 2, Phase 3, or post-approval clinical trial inNorth America for envafolimab in the indications of refractory and first line treatment of soft tissue sarcoma. 3D Medicines and Alphamab are responsible for conducting and will bear the costs of investigational new drug (IND)-enabling studies (other than those specific to the sarcoma indication) and the preparation of chemical, manufacturing and controls (CMC) activities sections of an IND application for envafolimab. 3D Medicines and Alphamab have agreed to manufacture and supply, or to arrange for a third party manufacturer to manufacture and supply, envafolimab to us at pre-negotiated prices that vary based on clinical or commercial use. 3D Medicines and Alphamab retained the right to develop envafolimab in all territories outside ofNorth America as well as withinNorth America for all indications other than soft tissue sarcoma. We will be responsible for commercializing envafolimab for sarcoma inNorth America , including booking of sales revenue, unless (a) envafolimab is first approved inNorth America for an indication other than soft tissue sarcoma and launched inNorth America , or (b) envafolimab is first approved inNorth America for soft tissue sarcoma and subsequently approved inNorth America for an additional non-orphan indication and sold commercially by 3D Medicines and/or Alphamab, in which case 3D Medicines and Alphamab will be responsible for commercializing envafolimab for soft tissue sarcoma inNorth America , including booking of sales 62
-------------------------------------------------------------------------------- revenue. If 3D Medicines and Alphamab become responsible for commercialization under the Envafolimab Collaboration Agreement, we have the option to co-market envafolimab for sarcoma inNorth America . In the event that envafolimab is first approved inNorth America for sarcoma and within three years of the commercial launch of envafolimab inNorth America for sarcoma 3D Medicines and Alphamab replace us as the party responsible for commercialization, and we elect and 3D Medicines and Alphamab agree for us to not co-market envafolimab for sarcoma inNorth America , then 3D Medicines and Alphamab will be required to compensate us for our costs associated with preparing for and conducting commercial activities. If we have the responsibility for commercialization under the Envafolimab Collaboration Agreement, we will owe 3D Medicines and Alphamab tiered double digit royalties on net sales of envafolimab for sarcoma inNorth America ranging from the teens to mid-double digits. If 3D Medicines and Alphamab have responsibility for commercialization under the Envafolimab Collaboration Agreement, we will be entitled to (a) tiered double digit royalties on net sales of envafolimab for sarcoma inNorth America ranging from the teens to mid-double digits if we have elected to not co-market envafolimab in sarcoma or (b) a 50% royalty on net sales of envafolimab for sarcoma inNorth America if we have chosen to co-market envafolimab in sarcoma. Payment obligations under the Envafolimab Collaboration Agreement continue on a country-by-country basis until the last to expire licensed patent covering envafolimab expires. 3D Medicines and Alphamab retain the right to reacquire the rights to envafolimab for sarcoma inNorth America in connection with an arm's length sale to a third party of the rights to develop and commercialize envafolimab inNorth America for all indications, provided that the sale may not occur prior to completion of a pivotal trial of envafolimab in sarcoma without our written consent and the parties must negotiate in good faith and agree to fair compensation be paid to us for the value of and opportunity represented by the reacquired rights.
Each party agreed that during the term of the Envafolimab Collaboration Agreement, it would not develop or license from any third party a monospecific inhibitor to PD-L1 or PD-1.
The term of the Envafolimab Collaboration Agreement continues until the later of the date the parties cease further development and commercialization of envafolimab for sarcoma inNorth America or the expiration of all payment obligations. The Envafolimab Collaboration Agreement may be terminated earlier by a party in the event of an uncured material breach by the other party or bankruptcy of the other party, or for safety reasons related to envafolimab. In the event we elect, or a joint steering committee (JSC) determines, to cease further development or commercialization of envafolimab, or if we fail to use commercially reasonable efforts to develop (including progress in clinical trials) and commercialize envafolimab and do not cure such failure within a specified time period, then our rights and obligations under the Envafolimab Collaboration Agreement will revert to 3D Medicines and Alphamab.
Collaboration Agreements with I-Mab Biopharma
InNovember 2018 , we entered into separate strategic collaboration and clinical trial agreements (the Collaboration Agreements) withI-Mab for the development of multiple immuno-oncology programs, includingI-Mab's proprietary CD73 antibody TJ004309 (the TJ4309 Agreement) as well as up to five proprietary bispecific antibodies currently under development byI-Mab (the Bispecific Agreement). In the TJ004309 Agreement, we are collaborating withI-Mab on developing TJ004309, also known as TJD5, and will bear the costs of filing an IND and for Phase 1 clinical trials, share costs equally for Phase 2 clinical trials, and we will bear 40% andI-Mab 60% of the costs for pivotal clinical trials.I-Mab will also be responsible for the cost of certain non-clinical activities and the supply of TJ004309 and any reference drugs used in the development activities. In the event thatI-Mab licenses rights to TJ004309 to a third party, we would be entitled to receive escalating portions of royalty and non-royalty consideration received byI-Mab with respect to territories outside ofGreater China . In the event thatI-Mab commercializes TJ004309, we would be entitled to receive a royalty on net sales byI-Mab inNorth America ranging from the mid-single digits to low double digits, and in the EU andJapan in the mid-single digits. The portions of certain third party royalty and non-royalty consideration and the royalty from net sales byI-Mab to which we would be entitled escalate based on the phase of development and relevant clinical trial obligations we complete under the TJ004309 Agreement, ranging from a high-single digit to a mid-teen percentage of non-royalty consideration as well as a double digit percentage of royalty consideration. The TJ004309 Agreement may be terminated by either party in the event of an uncured material breach by the other party or bankruptcy of the other party, or for safety reasons related to TJ004309.I-Mab may also terminate the TJ004309 Agreement if we cause certain delays in completing a Phase 1 clinical trial. In addition,I-Mab may terminate the TJ004309 Agreement for any reason within 90 days following the completion of the first Phase 1 clinical trial, in which case we would be entitled to a minimum termination fee of$9.0 million , or following the completion of the first Phase 2 clinical trial, in which case we would be entitled to a pre-specified termination fee of$15.0 million and either a percentage of non-royalty considerationI-Mab may receive as part of a license to a third party or an additional payment if TJ004309 is approved for marketing outsideGreater China before a third party license is executed, in addition to a double digit percentage of royalty consideration. 63
--------------------------------------------------------------------------------
Pursuant to the Bispecific Agreement, we and
For each product candidate selected by the JSC for development under the Bispecific Agreement,I-Mab will be responsible and bear the costs for IND-enabling studies and establishing manufacturing for the product candidate, we will be responsible for and bear the costs of filing an IND and conducting Phase 1 and Phase 2 clinical trials, and we will be responsible for and will share equally withI-Mab in the costs of conducting Phase 3 or pivotal clinical trials, in each case withinNorth America . Subject toI-Mab's right to co-promote an approved product candidate, we will be responsible for commercializing any approved product candidates inNorth America , and we will share profits and losses equally withI-Mab inNorth America . We would also be entitled to receive tiered low single digit royalties on net sales of product candidates in the EU andJapan . At any time prior to completing the first pivotal clinical study for a product candidate or ifI-Mab ceases to support development costs or pay its portion of Phase 3 clinical trial costs for a product candidate or the JSC decides to cease development over our objections after initiating Phase 3 clinical trials, we will have an option to obtain an exclusive license to such product candidate in all territories exceptGreater China andKorea and any other territories in whichI-Mab previously licensed rights to a third party subject to our right of first refusal for any licensesI-Mab may grant to third-parties. If we exercise our licensing option, we would assume sole responsibility for developing and commercializing the product candidate in the licensed territory, and in lieu of profit or loss sharing withI-Mab with respect to such product candidate, we would oweI-Mab pre-specified upfront and milestone payments and royalties on net sales, with the payments and royalties escalating depending on the phase of development the product candidate reached at the time we obtained the exclusive license as follows: (i) if before IND-enabling studies and the preparation of the CMC activities of the collaborative product, we would oweI-Mab a one-time upfront payment of$10.0 million , development and regulatory based milestone payments totaling up to$90.0 million that begin upon completion of a pivotal study, sales milestones totaling up to$250.0 million , and royalties in the mid-single digits on annual net sales; (ii) if after IND submission but before completion of a Phase 1a clinical trial of the collaborative product, we would oweI-Mab a one-time upfront payment of$25.0 million , development and regulatory based milestone payments totaling up to$125.0 million that begin upon completion of a pivotal study, sales milestones totaling up to$250.0 million , and royalties in the high single digits on annual net sales; (iii) if after completion of a Phase 1a clinical trial but before completion of a Phase 2 proof of concept clinical trial for the collaborative product, we would oweI-Mab a one-time upfront payment of$50.0 million , development and regulatory based milestone payments totaling up to$250.0 million that begin upon completion of a pivotal study, sales milestones totaling up to$250.0 million , and royalties in the low double digits on annual net sales; and (iv) if after completion of a Phase 2 proof of concept clinical trial and before completion of a pivotal study for the collaborative product, we would oweI-Mab a one-time upfront payment of$80.0 million , development and regulatory based milestone payments totaling up to$420.0 million that begin upon completion of a pivotal study, sales milestones totaling up to$250.0 million , and royalties in the high-teens on annual net sales.
License Agreement with
InSeptember 2016 , we entered into a strategic licensing collaboration with Janssen for two novel oncology assets from Janssen's early oncology development portfolio. The agreement, as amended, grants us the right to develop TRC253 (formerly JNJ-63576253), a novel small molecule high affinity competitive inhibitor of wild type androgen receptor (AR Mutant Program) and multiple AR mutant receptors which display drug resistance to approved treatments, which is intended for the treatment of men with prostate cancer. Janssen maintains an option, which is exercisable until 90 days after we demonstrate clinical proof of concept with respect to the AR Mutant Program, to regain the rights to the licensed intellectual property and to obtain an exclusive license to commercialize the compounds and certain other specified intellectual property developed under the AR Mutant Program. If Janssen exercises the option, Janssen will be obligated to pay us (i) a one-time option exercise fee of$45.0 million ; (ii) regulatory and commercial based milestone payments totaling up to$137.5 million upon achievement of specified events; and (iii) royalties in the low single digits on annual net sales of AR Mutant Program products. If Janssen does not exercise the option, we would then have the right to retain worldwide development and commercialization rights to the AR Mutant Program, in which case, we would be obligated to pay to Janssen (x) development and regulatory based milestone payments totaling up to$45.0 million upon achievement of specified events, and (y) royalties in the low single digits based on annual net sales of AR Mutant Program products, subject to certain specified reductions.
License Agreement with
InMarch 2014 , we entered into a license agreement withSanten , under which we grantedSanten an exclusive, worldwide license to certain patents, information and know-how related to carotuximab, or the Carotuximab Technology. Under the agreement, as amended,Santen is permitted to use, develop, manufacture and commercialize carotuximab products for ophthalmology indications, excluding systemic treatment of ocular tumors.Santen also has the right to grant sublicenses to affiliates and third party 64 -------------------------------------------------------------------------------- collaborators, provided such sublicenses are consistent with the terms of our agreement. In the eventSanten sublicenses any of its rights under the agreement relating to the Carotuximab Technology,Santen will be obligated to pay us a portion of any upfront and certain milestone payments received under such sublicense.Santen has sole responsibility for funding, developing, seeking regulatory approval for and commercializing carotuximab products in the field of ophthalmology. In the event thatSanten fails to meet certain commercial diligence obligations, we will have the option to co-promote carotuximab products in the field of ophthalmology inthe United States withSanten . If we exercise this option, we will paySanten a percentage of certain development expenses, and we will receive a percentage of profits from sales of the licensed products in the ophthalmology field inthe United States , but will not also receive royalties on such sales. In consideration of the rights granted toSanten under the agreement, we received a one-time upfront fee of$10.0 million . In addition, we are eligible to receive up to a total of$155.0 million in milestone payments upon the achievement of certain milestones, of which$20.0 million relates to the initiation of certain development activities,$52.5 million relates to the submission of certain regulatory filings and receipt of certain regulatory approvals and$82.5 million relates to commercialization activities and the achievement of specified levels of product sales. If carotuximab products are successfully commercialized in the field of ophthalmology,Santen will be required to pay us tiered royalties on net sales ranging from high single digits to low teens, depending on the volume of sales, subject to adjustments in certain circumstances. In addition,Santen will reimburse us for all royalties due by us under certain third party agreements with respect to the use, manufacture or commercialization of carotuximab products in the field of ophthalmology bySanten and its affiliates and sublicensees. Royalties will continue on a country-by-country basis through the later of the expiration of our patent rights applicable to the carotuximab products in a given country or 12 years after the first commercial sale of the first carotuximab product commercially launched in such country. As ofDecember 31, 2019 ,$10.0 million of the development milestones have been achieved and received in accordance with the agreement. Other License Agreements As further described in the "Contractual Obligations and Commitments" section below, certain of our other license agreements have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones, and we may be required to make milestone payments and royalty payments in connection with the sale of products developed under these agreements. We do not currently have any significant ongoing annual payment obligations under these agreements.
Financial Operations Overview
Revenue
Our revenue to date has been derived from ourMarch 2014 collaboration withSanten and ourDecember 2017 collaboration withAmbrx . InFebruary 2019 ,Ambrx notified us that it had elected to terminate the agreement, which became effective 90 days after the notice. The terms of these arrangements contain multiple promised goods and services. The license agreements provide for the receipt of multiple types of payments, including a non-refundable upfront payment, payment for various technical and regulatory support, payments for delivery of drug substance and drug product, reimbursement of certain development costs, milestone payments, and royalties on net product sales. In accordance with our revenue recognition policy, we have identified one performance obligation for all the promised goods or services under the agreements and recognized revenue for the fixed or determinable collaboration consideration on a straight-line basis over the estimated development period for theSanten license, and at a point in time for theAmbrx license. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing of any future achievement of milestones, the timing of any additional collaboration agreements and recognition of associated upfront and milestone payments, such as from our license withSanten , whether and when Janssen reacquires rights to the AR Mutant Program, and the extent to which any of our products are approved and successfully commercialized by us or our partners. If we or our partners fail to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues, our results of operations and our financial position could be adversely affected.
Research and Development Expenses
Research and development expenses consist of costs associated with the preclinical and clinical development of product candidates. These costs consist primarily of:
• salaries and employee-related expenses, including stock-based compensation
and benefits for personnel in research and development functions;
• costs incurred under clinical trial agreements with investigative sites;
65
--------------------------------------------------------------------------------
• costs to acquire, develop and manufacture preclinical study and clinical
trial materials;
• costs associated with conducting our preclinical, development andregulatory activities, including fees paid to third party professional
consultants, service providers and our scientific advisory board;
• payments related to licensed products and technologies; and
• facilities, depreciation and other expenses, including allocated expenses
for rent and maintenance of facilities.
Research and development costs, including third party costs reimbursed bySanten andI-Mab as part of such collaborations, are expensed as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.
The following table summarizes our research and development expenses by product candidate for the periods indicated:
Years Ended December 31,
2019 2018 2017
(in thousands)
Third-party research and development expenses:
TRC105 $ 4,596 $ 18,732 $ 10,684
TRC253 3,752 3,573 1,494
TRC102 161 164 87
TRC694 115 1,401 355
TRC205 - - 16
TJ004309 517 21 -
Envafolimab 4 - -Total third-party research and development expenses 9,145 23,891 12,636 Unallocated expenses
5,385 6,569 6,719
Total research and development expenses $ 14,530 $
30,460
Unallocated expenses consist primarily of our internal personnel related and facility costs.
We expect our current level of research and development expenses to decrease slightly due to the termination of carotuximab development in oncology as we expect to initiate a registration enabling study of envafolimab inUPS . We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
The costs of clinical trials to us may vary significantly based on factors such as:
• the extent to which costs for comparator drugs are borne by third parties;
• per patient trial costs; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients;
• potential additional safety monitoring or other studies requested
by
regulatory agencies;
66
--------------------------------------------------------------------------------
• the duration of patient participation in the trials and follow-up; • the phase of development of the product candidate; • the efficacy and safety profile of the product candidate; and • the extent to which costs are borne by third parties such as NCI.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include legal services, including those associated with obtaining and maintaining patents, insurance, occupancy costs, accounting services, and the cost of various consultants.
We anticipate that our general and administrative expenses will remain relatively constant in the near term.
Other Income (Expense)
Other income (expense) primarily consists of interest related to our loan agreement with SVB offset in part by interest income from our short-term investments and cash equivalents.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States (GAAP). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies related to revenue recognition, expense accruals, and stock-based compensation are most critical to understanding and evaluating our reported financial results.
Revenue Recognition
InMay 2014 , the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes all existing revenue recognition requirements, which we adoptedJanuary 1, 2018 , using the modified retrospective approach. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. We did not identify any accounting changes that impacted the amount of historically reported retained earnings, therefore no adjustment to retained earnings was required upon adoption. 67 -------------------------------------------------------------------------------- To date, substantially all of our revenue has been derived from our license agreements withSanten andAmbrx as described in Note 7 to the consolidated financial statements. The terms of these arrangements include payments to us for the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments; payments for manufacturing supply services we may provide through our contract manufacturers; and royalties on net sales of licensed products. In accordance with ASU 2014-09, we perform the following five steps in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of these agreements: (i) identification of the contract(s) with a customer; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including any constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as, we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. Once a contract is determined to be within the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers, at contract inception, we assess the goods or services promised within the contract to determine those that are performance obligations and assess whether each promised good is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied. As part of the accounting for these arrangements, we develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. Licenses of intellectual property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Milestone Payments: At the inception of each arrangement that includes development, commercialization, and regulatory milestone payments, we evaluate whether the achievement of the milestones is considered probable and estimate the amount to be included in the transaction price using the most likely amount method. Performance milestone payments represent a form of variable consideration. If it is probable that a significant revenue reversal would not occur, the associated milestone payment is included in the transaction price. Achievement of milestones that are not within our control or the licensee, such as regulatory approvals, are not considered probable until the approvals are achieved. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achieving such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Manufacturing Supply Services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the customer's discretion are generally considered options. We assess if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations at the outset of the arrangement. Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from any of our out-licensing arrangements. We receive payments from our collaborators based on billing schedules established in each contract. Up-front payments and fees may require deferral of revenue recognition to a future period until we perform our obligations under the collaboration arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
Clinical Trial Expense Accruals
As part of the process of preparing our financial statements, we are required to
estimate expenses resulting from our obligations under contracts with vendors,
contract research organizations, or CROs, and consultants and under clinical
site agreements in
68
--------------------------------------------------------------------------------
connection with conducting clinical trials. The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.
Our objective is to reflect the appropriate trial expenses in our financial statements by recording those expenses in the period in which services are performed and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials. During the course of a clinical trial, we adjust the clinical expense recognition if actual results differ from our estimates. We make estimates of accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. Our clinical accruals are dependent upon accurate reporting by CROs or other third-party vendors. Although we do not expect our estimates to differ materially from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low for any particular period. For the three years in the period endedDecember 31, 2019 , there were no material adjustments to our prior period estimates of accrued expenses for clinical trials.
Stock-Based Compensation
Stock-based compensation expense represents the grant date fair value of employee stock option and award grants recognized as expense over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net of actual forfeitures. We estimate the fair value of stock option grants using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, including the risk-free interest rate, the expected dividend yield of our common stock, the expected volatility of the price of our common stock and the expected term of the option. These estimates involve inherent uncertainties and the application of management's judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. See Note 6 to our consolidated financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our employee stock options granted for all periods presented.
The following table summarizes the stock-based compensation expense recognized in our consolidated financial statements:
Years Ended December 31,
2019 2018 2017
(in thousands)
Research and development $ 776 $ 1,462 $ 1,482
General and administrative 848 1,205 1,712
Total stock-based compensation expense
As of
Other Company Information
Net Operating Loss and Research and Development Tax Credit Carryforwards
AtDecember 31, 2019 , we had federal andCalifornia net operating loss, or NOL, carryforwards, of approximately$137.1 million and$117.7 million , respectively. The federal and California NOL carryforwards will begin expiring in 2030, unless previously utilized. The federal NOL generated after 2017 of$53.9 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year. AtDecember 31, 2019 , we had federal andCalifornia research and development and Orphan Drug credit carryforwards of approximately$10.0 million and$2.3 million , respectively. The federal research and development and Orphan Drug credit carryforwards will begin expiring in 2031, unless previously utilized. TheCalifornia research and development credit carryforwards do not expire. Pursuant to Sections 382 and 383 of the Internal Revenue Code (Code), our annual use of our NOL and research and development credit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. We completed a Section 382/383 analysis regarding the limitation of our NOL and research and development credit carryforwards as ofDecember 31, 2018 and did not identify a cumulative change in ownership of more than 50% within the proceeding three-year period. Future ownership changes, including changes during the year endedDecember 31, 2019 , may limit our ability to utilize our remaining NOL and research and development tax credit carryforwards. As ofDecember 31, 2019 , we had a full valuation allowance against our deferred tax assets. 69
--------------------------------------------------------------------------------
JOBS Act
OnApril 5, 2012 , the Jumpstart our Business Startups Act of 2012 (JOBS Act) was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. We are relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an "emerging growth company," we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering (which is fiscal year 2020), (b) in which we have total annual gross revenue of at least$1.07 billion , or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th , and (2) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period.
Recently Adopted Accounting Standards
InFebruary 2016 , the FASB issued ASU 2016-02, Leases, which outlines a comprehensive lease accounting model and supersedes the then current lease guidance. The new accounting standard requires lessees to recognize lease liabilities and corresponding right-of-use (ROU) assets for all leases with lease terms of greater than twelve months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. We adopted ASU 2016-02 onJanuary 1, 2019 , using the modified retrospective method. Under this approach, financial information and the disclosures required under the new standard will not be provided for dates and periods beforeJanuary 1, 2019 . We elected the "package of practical expedients" upon adoption, which permits it to not reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use of hindsight or the practical expedient pertaining to land easements, the latter of which not being applicable. Upon adoption, we (i) recognized a ROU asset and lease liability on our balance sheet for our corporate office operating lease and (ii) derecognized the deferred rent balance as ofDecember 31, 2018 under the superseded lease guidance. The ROU asset has been recorded in other assets and the short-term and long-term lease liability has been recorded in accounts payable and accrued expenses and other long-term liabilities, respectively, within the consolidated balance sheet. There was no impact on retained earnings or other components of equity, nor was there any impact on the statement of operations, upon adoption. InJune 2018 , the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Accounting Standards Codification 718, Compensation-Stock Compensation, to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. We adopted ASU 2018-07 onJanuary 1, 2019 , which did not have a material impact on our consolidated financial statements and notes thereto. Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2019 and 2018: Years Ended December 31, 2019 2018 Change (in thousands) Collaboration revenue $ -$ 3,000 $ (3,000 ) Research and development expenses 14,530 30,460
(15,930 )
General and administrative expenses 7,766 7,280 486 Other expense 378 219 159 Collaboration revenue. Collaboration revenue was$0 and$3.0 million for the years endedDecember 31, 2019 and 2018, respectively. The decrease of$3.0 million was due to revenue recognized under theAmbrx license agreement in the year endedDecember 31, 2018 with no corresponding revenue in the comparable period in 2019. 70
--------------------------------------------------------------------------------
Research and development expenses. Research and development expenses were
General and administrative expenses. General and administrative expenses were$7.8 million and$7.3 million for the years endedDecember 31, 2019 and 2018, respectively.
Other expense, net. Other expense, net was
Comparison of the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2018 and 2017: Years Ended December 31, 2018 2017 Change (in thousands) Collaboration revenue$ 3,000 $ 8,755 $ (5,755 ) Research and development expenses 30,460 19,355
11,105
General and administrative expenses 7,280 7,610 (330 ) Other expense 219 893 (674 ) Collaboration revenue. Collaboration revenue was$3.0 million and$8.8 million for the years endedDecember 31, 2018 and 2017, respectively. The decrease of$5.8 million was due to the$3.0 million non-refundable upfront payment received in connection with theAmbrx agreement recorded as revenue in the year endedDecember 31, 2018 , compared to$8.8 million recognized under theSanten license agreement in the year endedDecember 31, 2017 . Research and development expenses. Research and development expenses were$30.5 million and$19.4 million for the years endedDecember 31, 2018 and 2017, respectively. The increase of$11.1 million was primarily due to increased drug manufacturing expenses and direct clinical trial expenses for TRC105 and TRC253. General and administrative expenses. General and administrative expenses were$7.3 million and$7.6 million for the years endedDecember 31, 2018 and 2017, respectively.
Other expense, net. Other expense, net was
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our inception. As ofDecember 31, 2019 , we had an accumulated deficit of$162.3 million , and we expect to continue to incur net losses for the foreseeable future. We expect our current level of research and development expenses to decrease slightly due to the termination of carotuximab development in oncology as we expect to initiate a registration enabling study of envafolimab inUPS . Given we do not anticipate any revenues from product sales in the foreseeable future, we will need additional capital to fund our operations, which we may seek to obtain through one or more equity offerings, debt financings, government or other third party funding, and licensing or collaboration arrangements. OnFebruary 4, 2015 , we completed our initial public offering and a concurrent private placement of our common stock, which resulted in net proceeds to us of approximately$35.0 million . InSeptember 2016 , we sold shares of our common stock in a private placement for net proceeds of approximately$5.0 million and inNovember 2016 , we completed an underwritten public offering which resulted in net proceeds of approximately$16.1 million . InMarch 2017 , we sold shares of our common stock toAspire Capital for net proceeds of approximately$0.9 million , and throughout 2017, we sold shares through our previous At-the-market (ATM) facility withStifel, Nicolaus & Company, Incorporated (Stifel) for net proceeds of approximately$3.4 million . In March andApril 2018 , we sold shares of our common stock and common warrants in a private placement for net proceeds of approximately$36.5 million . InDecember 2019 andJanuary 2020 , we sold shares of our common stock for gross proceeds of approximately$2.4 million and$2.9 million , respectively, through our Capital on Demand agreement with JonesTrading. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements into early 2021, presuming our payment 71 -------------------------------------------------------------------------------- obligations under the 2018 Amended SVB Loan continue to follow the contractual maturity schedule. Based on our current business plan, we believe that there is substantial doubt as to whether our existing cash and cash equivalents will be sufficient to meet our obligations as they become due within one year from the date the financial statements are issued.
Credit Facility with SVB
InMay 2018 , we entered into a third amendment to our Amended and Restated Loan and Security Agreement with SVB (the 2018 Amended SVB Loan) under which we borrowed$7.0 million , all of which was used to refinance previously outstanding amounts under the loan and security agreement. In connection with the 2018 Amended SVB Loan, we issued warrants to purchase up to 5,363 shares of common stock at an exercise price of$26.10 per share. The warrants are fully exercisable and expire onMay 3, 2025 . The 2018 Amended SVB Loan provides for interest to be paid at a rate of 9.0% per annum, with interest-only payments due monthly throughJune 30, 2019 . Thereafter, in addition to interest accrued during such period, the monthly payments will include an amount equal to the outstanding principal atJune 30, 2019 divided by 30 months. At maturity (or earlier prepayment), we are also required to make a final payment equal to 4.0% of the original principal amount of the amounts borrowed. The 2018 Amended SVB Loan provides for prepayment fees of 2.0% of the amount prepaid if the prepayment occurs afterMay 3, 2019 but prior toMay 3, 2020 and 1.0% of the amount prepaid if the prepayment occurs thereafter. The 2018 Amended SVB Loan is collateralized by substantially all of our assets, other than our intellectual property, and contains customary conditions of borrowing, events of default and covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of our capital stock. Should an event of default occur, including the occurrence of a material adverse change, we could be required to immediately repay all obligations under the 2018 Amended SVB Loan. As ofDecember 31, 2019 , we were in compliance with all covenants and conditions of the 2018 Amended SVB Loan.
Private Placement of Common Shares and Warrants
InMarch 2018 , we entered into a securities purchase agreement with new and certain existing investors for the purchase of$38.7 million of our common stock and warrants. We sold approximately 1.2 million shares of common stock at a purchase price of$27.00 per share, pre-funded warrants to purchase approximately 0.2 million shares of common stock at a purchase price of$26.90 per share and an exercise price of$0.10 per share, and warrants to purchase approximately 1.4 million shares of common stock at a purchase price of$1.25 per share and an exercise price of$27.00 per share. We received total gross proceeds of$38.7 million .
Common Stock Purchase Agreement with
InOctober 2019 , we entered into the 2019 Purchase Agreement withAspire Capital which provides that, upon the terms and subject to the conditions and limitations of the 2019 Purchase Agreement,Aspire Capital is committed to purchase up to an aggregate of$15.0 million of shares of our common stock at our request from time to time during the 30 month term of the 2019 Purchase Agreement and at prices based on the market price of our common stock at the time of each sale. In consideration for entering into the 2019 Purchase Agreement and concurrently with the execution of the 2019 Purchase Agreement, we issued toAspire Capital 142,658 shares of our common stock. As ofDecember 31, 2019 , we had not sold any shares of common stock toAspire Capital under the 2019 Purchase Agreement. As of the date of this report, we have sold 0.2 million shares of common stock under the 2019 Purchase Agreement withAspire Capital for gross proceeds of$0.8 million . InMarch 2017 , we entered into a common stock purchase agreement (the 2017 Purchase Agreement) withAspire Capital which provided that, upon the terms and subject to the conditions and limitations of the 2017 Purchase Agreement,Aspire Capital was committed to purchase up to an aggregate of$21.0 million of shares of common stock. Upon execution of the 2017 Purchase Agreement, we sold toAspire Capital 22,222 shares of common stock at$45.00 per share for proceeds of$1.0 million andAspire Capital was committed to purchase up to$20.0 million of additional shares of our common stock at our request from time to time during a 30 month period that began onMay 1, 2017 and at prices based on the market price of our common stock at the time of each sale, subject to certain conditions. In consideration for entering into the 2017 Purchase Agreement and concurrently with the execution of the 2017 Purchase Agreement, we issued toAspire Capital 19,573 shares of our common stock. As ofDecember 31, 2019 , we had issued 41,795 shares of common stock toAspire Capital under the 2017 Purchase Agreement for net proceeds of approximately$0.9 million after offering expenses. Upon execution of the 2019 Purchase Agreement, the 2017 Purchase Agreement was terminated in its entirety and no further sales of our common stock will occur under the 2017 Purchase Agreement. 72
--------------------------------------------------------------------------------
ATM Facility
InSeptember 2018 , as amended inFebruary 2019 , we entered into a Sales Agreement with JonesTrading pursuant to which we may sell from time to time, at our option, up to an aggregate of$11.6 million of shares of our common stock through JonesTrading, as sales agent, subject to limitations on the amount of securities we may sell under our effective registration statement on Form S-3 within any 12 month period. Sales of our common stock made pursuant to the Sales Agreement, if any, will be made on the Nasdaq Capital Market under our effective registration statement on Form S-3, by means of ordinary brokers' transactions at market prices. Additionally, under the terms of the Sales Agreement, we may also sell shares of our common stock through JonesTrading, on theNasdaq Capital Market or otherwise, at negotiated prices or at prices related to the prevailing market price. JonesTrading will use its commercially reasonable efforts to sell our common stock from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions we may impose). We are required to pay JonesTrading 2.5% of gross proceeds from the common stock sold through the Sales Agreement. As ofDecember 31, 2019 , we had sold 0.9 million shares of common stock through the Sales Agreement with JonesTrading for gross proceeds of$2.4 million and$9.2 million of common stock remained available for sale under the Sales Agreement as ofDecember 31, 2019 . As of the date of this report, we have sold 2.1 million shares of common stock through the Sales Agreement with JonesTrading for gross proceeds of$5.3 million . InSeptember 2018 , we terminated a similar at-the-market sales agreement we had entered into with Stifel. We had sold approximately 103,700 shares of common stock for aggregate proceeds of approximately$3.5 million under the Stifel agreement prior to it being terminated.
Cash Flows
The following table summarizes our net cash flow activity for each of the
periods set forth below:
Years Ended December 31,
2019 2018 2017
(in thousands)
Net cash provided by (used in):
Operating activities $ (23,650 ) $ (30,783 ) $ (13,243 )
Investing activities 14,020 (8,869 ) 3,674
Financing activities 906 35,321 3,326
Decrease in cash and cash equivalents $ (8,724 ) $ (4,331 ) $ (6,243 )
Operating activities. Net cash used in operating activities was $23.7 million ,
$30.8 million , and $13.2 million for the years ended December 31, 2019 , 2018 and
2017, respectively, and was primarily due to our net loss for the respective
year, adjusted for noncash items and offset by changes in our working capital.
Investing activities. Net cash provided by investing activities was $14.0
million for the year ended December 31, 2019 and was due to maturities of
short-term investments partially offset by purchases of these investments. Net
cash used in investing activities was $8.9 million for the year ended December
31, 2018 and was related to purchases of short-term investments, partially
offset by proceeds from investments. Net cash provided by investing activities
was $3.7 million for the year ended December 31, 2017 and was related to
proceeds from the maturities of short-term investments, offset by the purchases
of investments.
Financing activities. Net cash provided by financing activities was $0.9 million
for the year ended December 31, 2019 and primarily resulted from $2.3 million in
net proceeds received from the issuance of common stock through our ATM facility
with JonesTrading, offset by $1.4 million in net repayments on borrowings under
our SVB loan agreement. Net cash provided by financing activities was $35.3
million for the year ended December 31, 2018 and primarily resulted from $36.5
million in net proceeds received from the issuance of common stock and warrants,
offset by $1.3 million in net repayments on borrowings under our SVB loan
agreement. Net cash provided by financing activities was $3.3 million for the
year ended December 31, 2017 and resulted from net proceeds received totaling
$4.1 million from sales of shares of common stock to Aspire Capital and through
our ATM facility, partially offset by repayments of our loan under our credit
facility with SVB.
Funding Requirements
At December 31, 2019 , we had cash and cash equivalents totaling $16.4 million .
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash requirements into early 2021, presuming our payment
obligations under the 2018 Amended SVB Loan continue to follow the contractual
maturity schedule. We will need additional funding to complete the development
and commercialization of our product candidates or those of our partners. In
addition, we may evaluate in-licensing and acquisition opportunities to gain
access to new product candidates that fit with our strategy. Any such
transaction will likely increase
73--------------------------------------------------------------------------------
our future funding requirements. These uncertainties raise substantial doubt about our ability to continue as a going concern for a period of one year following the date that the accompanying financial statements were issued.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors, including:
• our ability to initiate, and the progress and results of, our planned
clinical trials;
• the ability and willingness of our collaboration partners and licensees to
continue clinical development of product candidates;
• our ability to enter into and maintain our collaborations, including our
collaborations with 3D Medicines and Alphamab, Santen , Janssen, and I-Mab ;
• our ability to achieve, and our obligations to make, milestone paymentsunder our collaboration and license agreements;
• the costs and timing of procuring supplies of product candidates for
clinical trials and regulatory submissions;
• the scope, progress, results and costs of preclinical development, and
clinical trials of product candidates;
• whether and when Janssen reacquires the rights to the AR Mutant Program;
• the costs, timing and outcome of regulatory review of product candidates;
• the revenue, if any, received from commercial sales of product candidates
for which we or any of our partners, including Santen or I-Mab , may
receive marketing approval;
• the costs and timing of preparing, filing and prosecuting patentapplications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims;
• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any product
candidates for which we receive marketing approval and do not partner for
commercialization; and
• the extent to which we acquire or in-license other products and technologies.
Until we can generate substantial product revenues, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and licensing arrangements. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans or programs which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations atDecember 31, 2019 : Payments Due by Period Less than 1-3 3-5 More than Total 1 Year Years Years 5 Years (in thousands) Long-term debt obligations, including interest and final payment (1)$ 6,413 $ 3,195 $ 3,218 $ - $ - Operating lease obligations (2) 1,059 442 617 - - Total$ 7,472 $ 3,637 $ 3,835 $ - $ -
(1) We will make principal and interest payments to SVB in accordance with the
required payment schedule.
(2) Our operating lease obligations relate to our corporate headquarters in San
Diego, California . We lease 10,458 square feet of office space under an
operating lease that expires in April 2022 .
Under each of our license agreements we may have payment obligations that are
contingent upon future events such as our achievement of specified development,
regulatory and commercial milestones and are required to make development
milestone payments and royalty payments in connection with the sale of products
developed under these agreements. We do not have any
74
--------------------------------------------------------------------------------
significant ongoing annual payment obligations under these license agreements.
As of December 31, 2019 , we were unable to estimate the timing or likelihood of
achieving the milestones or making future product sales and, therefore, any
related payments are not included in the table above. These commitments include
the following:
• Under our license agreement with
pay up to an aggregate of approximately
of certain milestones for products utilizing a patent owned by us covering
humanized endoglin antibodies, including TRC205, of which approximately
and
commercialization, we will be required to pay RPCI mid-single-digit
royalties based on net sales of products utilizing the RPCI Technology in
each calendar quarter, subject to adjustments in certain circumstances. In
addition, we will be required to pay RPCI low single-digit royalties based
on net sales in each calendar quarter of products utilizing our patent
covering humanized endoglin antibodies. Our royalty obligations continue
until the expiration of the last valid claim in a patent subject to the
agreement, which we expect to occur in 2029, based on the patents
currently subject to the agreement.
• Under our license agreement with Case Western, we may be required to pay
up to an aggregate of approximately
which
activities (
receipt of certain regulatory approvals. If products utilizing certain
intellectual property licensed from Case Western, or the TRC102
Technology, are successfully commercialized, we will be required to pay
Case Western a single-digit royalty on net sales, subject to adjustments
in certain circumstances. Beginning on the earlier of a specified number
of years from the effective date of the agreement and the anniversary of
the effective date following the occurrence of a specified event, we will
be required to make a minimum annual royalty payment of
will be credited against our royalty obligations. In the event we
sublicense any of our rights under the agreement relating to the TRC102
Technology, we will be obligated to pay Case Western a portion of certain
fees we may receive under the sublicense. Our royalty obligations will
continue on a country-by-country basis through the later of the expiration
of the last valid claim under the TRC102 Technology or 14 years after the
first commercial sale of a product utilizing the TRC102 Technology in a
given country.
• Under our license agreement with Janssen for TRC253, as amended, we may be
required to pay up to an aggregate of
of which
activities and $30.0 million relates to the submission of certain
regulatory filings and receipt of certain regulatory approvals. If TRC253
is successfully commercialized, we will be required to pay Janssen a low
single-digit royalty on net sales, subject to reductions in certain
circumstances.
We enter into contracts in the normal course of business with clinical trial
sites and clinical supply manufacturing organizations and with vendors for
preclinical safety and research studies, research supplies and other services
and products for operating purposes. These contracts generally provide for
termination on notice, and therefore are cancelable contracts and not included
in the table of contractual obligations and commitments.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the applicable rules of the
© Edgar Online, source
