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 Quarterly Report on Form 10-Q (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 gene therapy company pioneering the development of
product candidates using our targeted and evolved AAV vectors. We seek to unlock
the full potential of gene therapy using our platform, Therapeutic Vector
Evolution, which combines the power of directed evolution with our approximately
one billion synthetic capsid sequences to invent evolved vectors for use in
targeted gene therapy products. Our targeted and evolved vectors are invented
with the goal of being delivered through clinically routine, well-tolerated and
minimally invasive routes of administration, of transducing diseased cells in
target tissues efficiently, of having reduced immunogenicity and, where
relevant, of having resistance to pre-existing antibodies. We believe these key
design features will help us to potentially create targeted gene therapy product
candidates with improved therapeutic profiles, and address a broad range of
diseases from rare to large patient populations, including those that other gene
therapies are unable to address. Each of our product candidates is created with
our targeted and evolved AAV vectors. Our platform is designed to be modular, in
that an evolved vector invented for a given set of diseases can be equipped with
different transgene payloads to treat other diseases affecting the same tissue
types. We believe this modularity will help inform the clinical development of
subsequent product candidates using the same vector.
We have built a deep portfolio of gene therapy product candidates initially
focused in three therapeutic areas: ophthalmology (intravitreal vector),
cardiology (intravenous vector) and pulmonology (aerosol vector). We have three
product candidates that are in clinical trials. We are developing 4D-125 for the
treatment of X-linked retinitis pigmentosa ("XLRP"), currently in Phase 1/2
clinical trial with initial clinical data expected in the second half of 2021.
We are advancing 4D-110 for the treatment of choroideremia, currently in a Phase
1 clinical trial with initial clinical data expected in 2022. Roche holds an
exclusive worldwide license to 4D-110 and has the exclusive option to in-license
4D-125 prior to initiation of pivotal clinical trials. We received FDA Fast
Track designation for 4D-310 for the treatment of Fabry disease, which is
currently in a Phase 1/2 clinical trial, with initial clinical data expected in
the second half of 2021. Our two IND candidates are 4D-150 for the treatment of
wet age-related macular degeneration ("wet AMD"), and 4D-710 for the treatment
of cystic fibrosis lung disease. We expect to file the IND and to initiate
clinical trials for both of these programs in the second half of 2021.
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. In December 2020 , we completed our IPO and
issued and sold 9,660,000 shares of common stock at a price to the public of
$23.00 per share. The aggregate net proceeds from our IPO were $204.7 million
after deducting underwriting discounts and commissions and other offering costs.
As of March 31, 2021 , we had cash and cash equivalents of $259.9 million .
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. In addition, we
expect to incur additional costs associated with operating as a public company.
Our net losses were
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expect positive cash flows from operations in the foreseeable future. Our net
losses may fluctuate significantly from quarter-to-quarter and year-to-year,
depending on the timing of our clinical trials and our expenditures on other
research and development activities.
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 strategic arrangements, for the foreseeable future.
Adequate funding may not be available when needed or on terms acceptable to us,
or at all. If we are unable to raise additional capital as needed, we may have
to significantly delay, scale back or discontinue development of our product
candidates. 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 United States and
worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we fail
to obtain necessary capital when needed on acceptable terms, or at all, it could
force us to delay, limit, reduce or terminate our product development programs,
commercialization efforts or other operations. Insufficient liquidity may also
require us to relinquish rights to product candidates at an earlier stage of
development or on less favorable terms than we would otherwise choose. We cannot
assure you that we will ever be profitable or generate positive cash flow from
operating activities.
The global COVID-19 pandemic continues to rapidly evolve, and we will continue
to monitor the COVID-19 situation closely. The extent of the impact of the
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 regulatory
authorities and our key scientific and management personnel. To the extent
possible, we are conducting business as usual, with necessary or advisable
modifications to employee travel and the majority of our employees working
remotely. We will continue to actively monitor the rapidly evolving situation
related to the COVID-19 pandemic and may take further actions that alter our
operations, including those that may be required by federal, state or local
authorities, or that we determine are in the best interests of our employees and
other third parties with whom we do business. At this point, the extent to which
the COVID-19 pandemic may affect our business, operations and clinical
development timelines and plans, including the resulting impact on our
expenditures and capital needs, remains uncertain.
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:
• Roche: In
agreement with
(together, "Roche"). We received an upfront payment of
2017 and are reimbursed for our internal and third-party costs and are
entitled to contingent payments, including milestone payments. In 2020,
we received milestone payments totaling $10.0 million , which were
comprised of a $5.0 million milestone payment upon the release of
clinical trial material for our Phase 1 clinical trial for 4D-110 to
treat choroideremia in the second quarter of 2020 and an additional
million milestone payment upon dosing our first patient in the trial in
the third quarter of 2020. We began recognizing revenue related to this
agreement in 2017 and expect to continue to recognize revenue over the
next three to four years.
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See Note 6 to our unaudited condensed financial statements included
elsewhere in this report for further discussion regarding the accounting
treatment of this agreement.
• uniQure: In August 2019 , we amended our agreement with uniQure and
entered into a separate new collaboration and license agreement with
uniQure. Neither party was required to pay monetary consideration in
connection with the amendment or new agreement. We determined the
incremental transaction price of the amendment and new agreement to be
$5.1 million and recorded the amount as deferred revenue. We began
recognizing revenue related to the amendment and new agreement in 2020and expect to recognize revenue over the next 1.5 to 2.5 years. See Note
6 to our unaudited condensed financial statements included elsewhere in
this report for further discussion regarding the accounting treatment of
this transaction.
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. We expect that our collaboration and license revenue in 2021 will primarily be from Roche and uniQure. If our agreements with Roche or uniQure were terminated, it could materially impact the amount of license revenue we recognize in future periods.
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 performed by these CROs and CMOs 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 payroll and
other personnel 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
substantially 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
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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 facility-related costs, information technology costs, depreciation expense and other overhead related to our executive, finance and accounting, human resources, business development and other administrative functions. 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 theSEC , investor relations costs, director and officer insurance premiums and other costs associated with being a public company. Other Income (Expense)
Our other income (expense) primarily consists of interest income earned on our cash equivalents 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 Three Months Ended
The following table summarizes our results of operations for the periods indicated (dollars in thousands):
Three Months Ended March 31,
2021 2020 $ Change % Change
Revenue:
Collaboration and license revenue $ 2,000 $ 3,411 $ (1,411 ) (41.4 )%
Collaboration and license revenue,
related
parties - 124 (124 ) (100.0 )%
Total revenue 2,000 3,535 (1,535 ) (43.4 )%
Operating Expenses:
Research and development 12,769 13,158 (389 ) (3.0 )%
General and administrative 5,543 3,654 1,889 51.7 %
Total operating expenses 18,312 16,812 1,500 8.9 %
Loss from operations (16,312 ) (13,277 ) (3,035 ) 22.9 %
Other Income (Expense) (94 ) 117 (211 ) (180.3 )%
Net loss and comprehensive loss $ (16,406 ) $ (13,160 ) $ (3,246 ) 24.7 %
Revenue
Revenue decreased $1.5 million , or 43%, from the three months ended March 31,
2020 to the three months ended March 31, 2021 due to a $1.8 million decrease in
revenue recognized under our collaboration
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and license agreement with Roche, partially offset by a
Research and Development Expenses
The following table provides a breakout of research and development expenses for the periods indicated (dollars in thousands):
Three Months Ended March 31,
2021 2020 $ Change % Change
External expenses $ 6,312 $ 7,949 (1,637 ) -21 %
Payroll and personnel expenses 5,101 3,873 1,228 32 %
Other research and development
expenses 1,356 1,336 20 1 %
Total research and development
expenses$ 12,769 $ 13,158 $ (389 ) -3 %
Research and development expense decreased
• a
manufacturing expense for clinical trial material; which was partially
offset by
• a $1.2 million increase in payroll and personnel expenses due toincreased headcount of research and development personnel, including a
General and Administrative Expenses
General and administrative expenses increased$1.9 million , or 52%, from the three months endedMarch 31, 2020 to the three months endedMarch 31, 2021 . The increase was due to the following:
• a
• a
increased directors and officer insurance premiums incurred in connection
with being a public company.
Other Income (Expense)
Other income (expense) decreased$0.2 million from the three months endedMarch 31, 2020 to the three months endedMarch 31, 2021 primarily due to lower interest income due to lower interest rates and increased expense due to the adjustment for the change in the fair value of our derivative liability.
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 the sale of our redeemable preferred stock, which converted into common stock upon our IPO, and to a lesser extent from cash received pursuant to our collaboration and license agreements. InDecember 2020 , we completed our IPO. We issued and sold 9,660,000 shares of common stock at a price to the public of$23.00 per share. The aggregate net proceeds from our IPO were$204.7 million after deducting underwriting discounts and commissions and other offering costs. As ofMarch 31, 2021 , we had cash and cash equivalents of$259.9 million . 31
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Future Funding Requirements
We have experienced recurring net losses and had an accumulated deficit of$152.1 million as ofMarch 31, 2021 . Our transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and those of our collaboration partners and achieving a level of revenue adequate to support our cost structure. We expect to continue to incur losses for the foreseeable future. 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 additional 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:
• the progress of our current and future product candidates through
preclinical and clinical development;
• potential delays in our preclinical studies and clinical trials, whether
current or planned, due to the COVID-19 pandemic, or other factors;
• expanding our manufacturing facilities and working with our contractmanufacturers to scale up the manufacturing processes for our product
candidates;
• continuing our research and discovery activities;
• continuing the development of our Therapeutic Vector Evolution platform;
• initiating and conducting additional preclinical, clinical or other
studies for our product candidates;
• changing or adding additional contract manufacturers or suppliers;
• seeking regulatory approvals and marketing authorizations for our product
candidates;
• establishing sales, marketing and distribution infrastructure to
commercialize any products for which we obtain approval;
• acquiring or in-licensing product candidates, intellectual property and
technologies;
• making milestone, royalty or other payments due under any current or
future collaboration or license agreements;
• obtaining, maintaining, expanding, protecting and enforcing our
intellectual property portfolio;
• attracting, hiring and retaining qualified personnel;
• potential delays or other issues related to our operations;
• meeting the requirements and demands of being a public company;
• defending against any product liability claims or other lawsuits related
to our products; and
• the impact of the COVID-19 pandemic, 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 unaudited condensed financial statements for the three months endedMarch 31, 2021 . 32
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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 in treatment of Fabry disease, XLRP or 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 inthe United States and worldwide resulting from the ongoing COVID-19 pandemic. 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.
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