4D MOLECULAR THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K (this "report"). This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled "Risk Factors" and elsewhere in this report.
Overview
We are a clinical-stage biotherapeutics company harnessing the power of directed evolution for targeted genetic medicines. We seek to unlock the full potential of genetic medicines using our platform, Therapeutic Vector Evolution, which combines the power of directed evolution with our approximately one billion synthetic AAV capsid-derived sequences to invent evolved vectors for use in our products. We believe key features of our targeted and evolved vectors will help us to potentially create targeted genetic medicine product candidates with improved therapeutic profiles. These profiles will allow us to treat a broad range of large market diseases, unlike most current genetic medicines that generally focus on rare or small market diseases.
We have built a deep portfolio of genetic medicine product candidates, with five product candidates in clinical trials: 4D-150 for the treatment of wet age-related macular degeneration ("wet AMD") and diabetic macular edema ("DME"), 4D-125 for the treatment of X-linked retinitis pigmentosa ("XLRP"), 4D-110 for the treatment of choroideremia, 4D-710 for the treatment of cystic fibrosis lung disease, and 4D-310 for the treatment of Fabry disease cardiomyopathy. In addition, we have two product candidates in preclinical studies: 4D-175 for geographic atrophy ("GA") and 4D-725 for alpha-1 antitrypsin deficiency lung disease.
We have funded our operations primarily through the sale and issuance of equity securities and to a lesser extent from cash received pursuant to our collaboration and license agreements.
We have incurred significant operating losses and expect that our operating losses will increase significantly as we, among other things, continue to advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for, and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; maintain, protect and enforce our intellectual property portfolio; and hire additional personnel.
Our net losses were
We do not have any products approved for sale and have not generated any revenue from product sales since our inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates, if approved.
We will require substantial additional funding to support our continuing operations and further the development of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships, or other
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strategic arrangements, for the foreseeable future. Adequate funding may not be
available when needed or on terms acceptable to us, or at all. Our ability to
raise additional funds may be adversely impacted by potential worsening global
economic conditions and the recent disruptions to, and volatility in, the credit
and financial markets in
The extent of the impact of the continuing COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our clinical trial enrollment, trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on our key scientific and management personnel.
Components of Results of Operations
Revenue
Our revenue to date has been generated through payments from our collaboration and license agreements, primarily from upfront and milestone payments and expense reimbursement. We have not generated any revenue from the sale of approved products and do not expect to do so for the foreseeable future. The primary drivers for revenue consist of the following:
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uniQure: In
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Roche: In
Future collaboration and license revenue is highly dependent on the successful development and commercialization of products by our collaboration partners, which is uncertain, and revenue may fluctuate significantly from period to period. Additionally, we may never receive the consideration from our license agreements that is contemplated for option fees, development and sales-based milestone payments or royalties on sales of licensed products, given the contingent nature of these payments. Our collaboration and license revenue in 2022 was primarily from uniQure.
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Operating Expenses Research and Development
Our research and development expenses primarily consist of costs incurred for the discovery and preclinical and clinical development of our product candidates. These expenses include salaries and personnel-related costs, including stock-based compensation of our scientific personnel performing research and development activities; laboratory supplies; research materials; fees paid to CROs to execute preclinical studies and clinical trials; fees paid to CMOs to manufacture materials for preclinical studies and clinical trials; fees related to obtaining technology licenses; consulting costs; costs related to seeking regulatory approval of our product candidates; and allocated facility-related costs, information technology costs, depreciation expense, and other overhead.
We expense all research and development costs in the periods in which they are incurred. We have entered into various agreements with CROs and CMOs. Costs of certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed.
We do not allocate our costs by product candidate, as a significant amount of research and development expenses includes internal costs, such as salary and other personnel-related expenses, laboratory supplies and allocated overhead, and external costs, such as fees paid to third parties to conduct research and development activities on our behalf, none of which are tracked by product candidate. In particular, with respect to internal costs, several of our departments support multiple product candidate research and development programs and, therefore, the costs cannot be allocated to a particular product candidate or development program.
At this time, we cannot reasonably estimate or know the nature, timing or estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We expect our research and development expenses to increase for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. See the section titled "Risk Factors" for additional risks regarding regulatory development and approval.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense for our personnel in executive, finance and accounting, human resources, business development, and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.
We expect our general and administrative expenses to increase as a result of
increased personnel-related costs, patent costs for our product candidates,
consulting, legal and accounting services associated with maintaining compliance
with stock exchange listing and requirements of the
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Other Income (Expense), Net
Our other income (expense) primarily consists of interest income earned on our cash equivalents, and marketable securities and adjustments for the change in the fair value of our derivative liability which must be remeasured at each reporting period.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods indicated (dollars in thousands):
Year Ended
December 31,
2022 2021 $ Change % Change
Revenue:
Collaboration and license revenue$ 3,129 $ 18,038 $ (14,909 ) -83 % Operating expenses: Research and development 80,253 61,360 18,893 31 % General and administrative 32,908 28,011 4,897 17 % Total operating expenses 113,161 89,371 23,790 27 % Loss from operations (110,032 ) (71,333 ) (38,699 ) 54 % Other income (expense), net 2,538 16 2,522 15763 % Net loss$ (107,494 ) $ (71,317 ) $ (36,177 ) 51 % Revenue
Revenue for the year ended
Research and Development Expenses
The following table provides a breakout of research and development expenses for the periods indicated (dollars in thousands):
Year Ended
December 31,
2022 2021 $ Change % Change
Research and development
trials and consumables
expenses $ 30,886 $ 26,335 $ 4,551 17 %
Payroll and personnel
expenses 38,037 26,448 11,589 44 %
Facilities and other
research and development
expenses 11,330 8,577 2,753 32 %
Total research and
development expenses $ 80,253 $ 61,360 $ 18,893 31 %
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Research and development expenses for the year ended
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General and Administrative Expenses
General and administrative expenses for the year ended
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Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through the sale and issuance of our equity securities, including from the sale of our common stock in our IPO and Follow-on Offering and the sale of our Series A, Series A-1, Series B and Series C redeemable preferred stock, and to a lesser extent from cash received pursuant to our collaboration and license agreements.
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As of
Future Funding Requirements
We have experienced recurring net losses and had an accumulated deficit of
We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future. Additionally, we expect our capital expenditures will increase significantly in the future for costs associated with building commercial manufacturing capacity. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements.
Because of the numerous risks and uncertainties associated with the development and commercialization of gene therapy product candidates, we are unable to estimate the amount of increased capital we will need to raise to support our operations and the outlays and operating expenditures necessary to complete the development of our product candidates and build additional manufacturing capacity, and we may use our available capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
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the progress of our current and future product candidates through preclinical and clinical development;
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potential delays in our preclinical studies and clinical trials, whether current or planned, due to the COVID-19 pandemic, or other factors;
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expanding our manufacturing facilities and working with our contract manufacturers to scale up the manufacturing processes for our product candidates;
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continuing our research and discovery activities;
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continuing the development of our Therapeutic Vector Evolution platform;
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initiating and conducting additional preclinical, clinical or other studies for our product candidates;
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changing or adding additional contract manufacturers or suppliers;
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seeking regulatory approvals and marketing authorizations for our product candidates;
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establishing sales, marketing and distribution infrastructure to commercialize any products for which we obtain approval;
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acquiring or in-licensing product candidates, intellectual property and technologies;
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making milestone, royalty or other payments due under any current or future collaboration or license agreements;
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obtaining, maintaining, expanding, protecting and enforcing our intellectual property portfolio;
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attracting, hiring and retaining qualified personnel;
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potential delays or other issues related to our operations;
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meeting the requirements and demands of being a public company;
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defending against any product liability claims or other lawsuits related to our products; and
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the impact of the COVID-19 pandemic and adverse macroeconomic conditions such as, but not limited to, higher inflation and increased interest rates, each of which may exacerbate the magnitude of the factors discussed above.
We believe that our existing cash and cash equivalents will allow us to fund our
planned operations for at least one year from the date of the issuance of the
financial statements for the year ended
We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. See the section titled "Risk Factors" for additional risks associated with our substantial capital requirements.
We do not have any committed external sources of funds. Accordingly, we will be
required to obtain further funding through public or private equity offerings,
debt financings, collaborations and licensing arrangements or other sources to
complete the clinical development for the product candidates for treatment of
wet AMD, DME, GA, cystic fibrosis lung disease, alpha-1 antitrypsin deficiency
lung disease, Fabry disease cardiomyopathy, XLRP, choroideremia or any other
indication we may pursue. If we raise additional funds by issuing equity
securities, our stockholders may experience dilution. Any future debt financing
into which we enter would result in fixed payment obligations and may involve
agreements that include grants of security interests on our assets and
restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures, granting liens over our
assets, redeeming stock or declaring dividends, that could adversely impact our
ability to conduct our business. Any debt financing or additional equity that we
raise may contain terms that could adversely affect our common stockholders.
Further, additional funds may not be available when we need them, on terms that
are acceptable to us, or at all. Our ability to raise additional capital may be
adversely impacted by potential worsening global economic conditions and the
recent disruptions to and volatility in the credit and financial markets in
If we are unable to obtain additional funding, we expect to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or investment in internal manufacturing capabilities, which could adversely affect our business. If we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.
Summary Statement of Cash Flows
The following is a summary of cash flows for the periods indicated below (in
thousands):
Year Ended
December 31,
2022 2021
Net cash used in operating activities
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Net cash used in operating activities was
Net cash used in operating activities was
Net cash used in investing activities was
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Contractual Obligations, Commitments and Contingencies
Our commitments include obligations under vendor contracts to provide research services and other purchase commitments with our vendors. In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of the services to be provided. These amounts are not fixed and determinable.
As of
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Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements have been prepared in accordance with generally
accepted accounting principles in
Our significant accounting policies are described in Note 2 to our financial statements included elsewhere in this report. We believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.
Revenue Recognition
We determine revenue recognition for arrangements within the scope of ASC 606 by performing the following five steps: (i) identification of the promised goods or services in the contract; (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 the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.
Our revenue is primarily derived through our license, research, development and commercialization agreements. The terms of these types of agreements may include (i) licenses to our technology, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to us under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products. Arrangements that include upfront payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until performance obligations are met. The event-based milestone payments, royalties and cost reimbursements represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Royalty payments are recognized when earned or as the sales occur. We record cost reimbursements as accounts receivable when right to consideration is unconditional.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. We allocate the total transaction price to each performance obligation based on the estimated selling price and recognize revenue when, or as, the performance obligation is satisfied. We include the unconstrained amount of estimated variable consideration in the transaction price. At the end of each reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price.
Significant management judgment is required to determine the level of effort required under an arrangement, and the period over which the Company expects to complete its performance obligations under the arrangement. Changes in these estimates can have a material effect on revenue recognized.
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We estimate our accrued research and development expenses as of each balance sheet date. This process involves reviewing contracts and purchase orders with service providers, identifying services that have been performed on our behalf and estimating the level of service performed, the expected remaining period of performance and the associated expenses incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. Depending on the timing of payments to the service providers and the estimated expenses incurred, we may record net prepaid or accrued research and development expenses relating to these costs.
Examples of estimated accrued research and development expenses include fees paid to:
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CROs in connection with preclinical development and clinical studies; and
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CMOs and other vendors related to process development and manufacturing of materials for use in preclinical development and clinical studies.
Our understanding of the status and timing of services performed relative to the actual status and timing may vary and may result in us reporting changes in estimates in any particular period. To date, there have been no material differences from our estimates to the amounts actually incurred.
Stock-Based Compensation Expense
We use a fair value-based method to account for all stock-based compensation arrangements with employees and nonemployees including stock options and stock awards. Our determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option pricing model.
The fair value of the option granted is recognized on a straight-line basis over
the period during which an optionee is required to provide services in exchange
for the option award, known as the requisite service period, which usually is
the vesting period. Prior to
Estimates of the fair value of equity awards as of the grant date using valuation models such as the Black-Scholes option pricing model are affected by assumptions with a number of complex variables.
Changes in the following assumptions can materially affect the estimate of fair value and ultimately how much stock-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in our statements of operations during the period the related services are rendered. These inputs are subjective and generally require significant analysis and judgment to develop:
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Expected Term-The expected term for employee options is calculated using the simplified method as we do not have sufficient historical information to provide a basis for estimate. The simplified method is based on the average of the vesting tranches and the contractual life of each grant.
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Expected Volatility-For all stock options granted to date, the expected volatility was estimated based on a study of publicly traded industry peer companies as we did not have sufficient trading history for our common stock. We selected the peer group based on similarities in industry, stage of development, size and financial leverage with our principal business operations. For each grant, we measured historical volatility over a period equivalent to the expected term.
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Risk-Free Interest Rate-The risk-free interest rate is based on the yield
available on
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Expected Dividend Yield-We have not paid and do not currently anticipate paying any dividends on our common stock. Accordingly, we have estimated the dividend yield to be zero.
As of
Common Stock Valuations
Prior to our IPO in
Income Taxes
We account for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the financial statement reporting and tax basis of our assets and liabilities. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.
We account for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.
NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (IRS) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements
as defined in the rules and regulations of the
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JOBS Act
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, while we are an emerging growth company, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earlier of (i)
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we will present only two years of audited financial statements for any interim period, and related management's discussion and analysis of financial condition and results of operations;
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we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act");
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we will provide less extensive disclosure about our executive compensation arrangements;
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we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements; and
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we will take advantage of extended transition periods to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies.
As a result, the information in this report in the future may be different from what you might receive from other public reporting companies.
Recent Accounting Pronouncements
See Note 2 to our financial statements included elsewhere in this report for information.
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