INVIVYD, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with theSecurities and Exchange Commission , orSEC , onAugust 6, 2021 (the "Prospectus"). Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," and "our" refer toAdagio Therapeutics, Inc. together with its consolidated subsidiaries.
Forward-Looking Statements
The information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements and information within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements, including, without limitation, the risks set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in our other filings with theSEC . These forward-looking statements are applicable only as of the date on which they are made and we do not assume any obligation to update any forward-looking statements.
Overview
Adagio Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of antibody-based solutions for infectious diseases with pandemic potential. We are developing our lead product candidate, ADG20, for the treatment and prevention of coronavirus disease 2019, or COVID-19, the disease caused by the virus SARS-CoV-2 and its variants. COVID-19 has caused the current global pandemic that remains a significant global health crisis and has resulted in millions of deaths and lasting health problems in many survivors. We believe that COVID-19 will become an endemic disease requiring a variety of effective, safe and convenient treatment and prevention options for years to come. We aim to address COVID-19 and future potential viral outbreaks by building a portfolio of antibodies with broadly neutralizing activity against multiple members of the coronavirus family or additional viruses with pandemic potential. Our portfolio of antibodies was discovered byAdimab, LLC , orAdimab , an industry leader in translating target hypotheses into therapeutically relevant antibodies with their proprietary platform, which has resulted in more than 385 antibody discovery programs. ADG20 is designed to be a potent, long-acting and broadly neutralizing antibody for both the treatment and prevention of COVID-19 as either a single or combination agent. Unlike other antibody-based therapies specifically targeting SARS-CoV-2, ADG20 has demonstrated an ability in non-clinical studies to neutralize SARS-CoV-2, including variants of concern, as well as a broad range of SARS-like viruses with neutralization potency at IC50 (half maximal inhibitory concentrations) of approximately 0.01 mcg/mL or less in live-virus cellular assays. We believe this demonstrated in vitro neutralization activity will translate into a low-clinical dose which, in turn, may translate into the ability to conveniently deliver ADG20 as a single intramuscular, or IM, injection. We believe these and other attributes of ADG20 differentiate it from other antibodies that are either available under Emergency Use Authorization, or EUA, or in development to address COVID-19. We have completed enrollment in our first-in-human Phase 1 clinical trial of ADG20. Interim data demonstrated that ADG20 was well tolerated and displayed a pharmacokinetic profile consistent with an extended half-life monoclonal antibody, or mAb. Serum virus neutralizing antibody titers measured the day following administration of ADG20 were similar to or exceeded peak serum neutralizing antibody titers generated after two doses of mRNA or adenovirus-based COVID-19 vaccines. Based on these data, we are conducting two separate Phase 2/3 clinical trials: our STAMP trial to evaluate ADG20 for the treatment of COVID-19 and our EVADE trial to evaluate ADG20 for the prevention of COVID-19. Additionally, our portfolio includes multiple broadly neutralizing antibodies, including ADG10, for potential use with ADG20 as a combination therapy for the treatment and prevention of COVID-19 and future coronavirus outbreaks. We were formed inJune 2020 . InJuly 2020 , we entered into an assignment and license agreement, or the Adimab Assignment Agreement, withAdimab , pursuant to which we acquired certain rights toAdimab's antibodies relating to COVID-19 and severe acute respiratory syndrome, or SARS, as well as related provisional patent applications, know-how and data generated with respect to the associated antibodies. In addition,Adimab granted to us a non-exclusive, worldwide license to certain ofAdimab's platform patents and technology for use in research and development. In connection with the rights and license acquired, we issued 5,000,000 shares of our Series A preferred stock toAdimab . 24 -------------------------------------------------------------------------------- Since our inception, we have devoted substantially all of our resources to organizing and staffing, building an intellectual property portfolio, business planning, conducting research and development, establishing arrangements with third parties for the manufacture of our product candidates and raising capital. We rely heavily on external consultants and contract research organizations, or CROs, to conduct our non-clinical, preclinical and clinical activities. Additionally, we are currently dependent on WuXi Biologics (Hong Kong ) Limited, or WuXi, a contract development and manufacturing organization, or CDMO, for the manufacture of our product candidates for clinical and commercial use. We expect to continue to rely on third parties for clinical trials and the manufacture and testing of our product candidates. Since our inception, we have financed our operations with proceeds from sales of our preferred stock, and most recently, with proceeds from our completed initial public offering, or IPO. ThroughJune 30, 2021 , we had received net proceeds of$464.7 million from the sales of our preferred stock. To date, we have not generated any revenue from any sources, including product sales. InFebruary 2021 , we advanced ADG20 into a Phase 1 clinical trial. We have not yet commenced significant development activities with respect to other product candidates. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. InAugust 2021 , we completed our IPO pursuant to which we issued and sold 20,930,000 shares of our common stock, including 2,730,000 shares of common stock pursuant to the full exercise of the underwriters' option to purchase additional shares. We received aggregate net proceeds from our IPO of approximately$330.9 million , after deducting underwriting discounts and commissions, but before deducting estimated offering expenses payable by the Company, which are estimated to be$3.8 million . Since our inception, we have incurred significant losses, including net losses of$65.3 million for the period fromJune 3, 2020 (inception) toDecember 31, 2020 and of$83.4 million for six months endedJune 30, 2021 . As ofJune 30, 2021 , we had an accumulated deficit of$148.7 million . We expect to continue to incur significant expenses and recognize substantial losses in the foreseeable future as we expand and progress our research and development activities as well as the associated manufacturing activities and commercialization efforts. In addition, our losses from operations may fluctuate significantly from period to period depending on the timing of our clinical trials and our expenditures on other research and development activities, including any associated manufacturing activities, and potential commercialization efforts. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: ? continue to conduct our ongoing clinical trials of ADG20, including advancement into late-stage global clinical trials, as well as initiate and complete additional clinical trials of future product candidates or current product candidates in new indications or patient populations; ? continue to advance the preclinical development of our other product candidates and our preclinical and discovery programs; ? seek regulatory approval for any product candidates that successfully complete clinical trials; ? pursue marketing approvals or EUA and reimbursement for our product candidates; ? acquire or in-license other product candidates, intellectual property and/or technologies; ? develop, establish and validate our commercial-scale current good manufacturing practices, or cGMP, manufacturing process; ? manufacture material under cGMP, for clinical trials and potential EUA and commercial sales at our contracted manufacturing facilities; ? maintain, expand, enforce, defend and protect our intellectual property portfolio; ? comply with regulatory requirements established by the applicable regulatory authorities; ? establish a sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval or EUA; ? hire and retain additional personnel, including research, clinical, development, manufacturing, quality control, quality assurance, regulatory and scientific personnel; ? add operational, financial, corporate development, management information systems and administrative personnel, including personnel to support our product development and planned future commercialization efforts; and ? incur additional legal, accounting and other expenses in operating as a public company. We do not anticipate generating revenue from product sales, including government supply contracts, unless and until we successfully complete clinical development and obtain marketing approvals or EUA for one or more of our product candidates. We are currently establishing our commercial infrastructure to support the anticipated marketing and distribution of our product candidates. Subject to receiving marketing approval or EUA, we expect to enter into arrangements with third parties for the sale, marketing and distribution of our product candidates. Accordingly, if we obtain marketing approval or EUA for any of our product candidates, we will incur significant additional commercialization expenses related to product manufacturing, marketing, sales and distribution. 25 -------------------------------------------------------------------------------- As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, government or private-party grants, debt financings, collaborations with other companies and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. We may never obtain regulatory approval for any of our product candidates. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. We believe that our existing cash and cash equivalents, including the net proceeds from our IPO received inAugust 2021 , will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "-Liquidity and Capital Resources."
Impact of COVID-19 on Our Operations
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. The evolving and constantly changing impact of the pandemic will directly affect the potential commercial prospects of ADG20 for the treatment and prevention of COVID-19. The severity of the COVID-19 pandemic and the continued emergence of variants of concern (such as the widespread Delta variant), the availability, administration and acceptance of vaccines, monoclonal antibodies and other treatment modalities and the potential development of "herd immunity" by the global population will affect the design and enrollment of our clinical trials, the potential regulatory authorization or approval of our product candidates and the commercialization of our product candidates, if approved. In addition, our business and operations may be more broadly adversely affected by the COVID-19 pandemic. The COVID-19 outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The global COVID-19 pandemic continues to evolve rapidly, and we will continue to monitor it closely. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, operations and product development timelines and plans remains highly uncertain and will depend on future developments, including the duration and spread of the outbreak and its impact on our clinical trial design and enrollment, trial sites, CROs, CDMOs and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To date, we have experienced some delays and disruptions in our development activities as a result of the COVID-19 pandemic. In the future, we anticipate there could be additional or even significant disruptions, delays or uncertainties in our development activities as a result of the COVID-19 pandemic as the outbreak progresses and some of our CROs, CDMOs and other service providers continue to be impacted. We will continue to monitor developments as we address the disruptions, delays and uncertainties relating to the COVID-19 pandemic. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results and operations may be materially adversely affected and may affect our ability to raise capital.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales, including
government supply contracts, or any other sources. If our development efforts
for our product candidates are successful and result in regulatory approval or
collaboration or license agreements with third parties, we may generate revenue
in the future from product sales or payments from collaboration or license
agreements that we may enter into with third parties, or any combination
thereof.
26
--------------------------------------------------------------------------------Research and Development Expenses
The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for:
? the non-clinical and preclinical development of our product candidates, including our discovery efforts; ? the procurement of our product candidates from third-party manufacturers; and ? the global clinical development of our product candidates.
Such costs consist of:
? personnel-related expenses, including salaries, bonuses, benefits and other compensation-related costs, including stock-based compensation expense, for employees engaged in research and development functions; ? expenses incurred under agreements with third parties, such as consultants, contractors and CROs, that conduct the non-clinical and preclinical studies and clinical trials of our product candidates and research programs; ? costs of procuring manufactured product candidates for use in non-clinical studies, preclinical studies and clinical trials from third-party CDMOs; ? costs of outside consultants and advisors, including their fees and stock-based compensation; ? payments made under third-party licensing agreements; and ? other expenses incurred as a result of research and development activities. We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered. Our primary focus since inception has been the development of ADG20. Our research and development costs consist primarily of external costs, such as fees paid to CDMOs, CROs and consultants in connection with our non-clinical studies, preclinical studies and clinical trials. To date, external research and development costs for any individual product candidate have been tracked commencing upon product candidate nomination. We do not allocate employee-related costs, costs associated with our discovery efforts and other internal or indirect costs to specific research and development programs or product candidates because these resources are used and these costs are deployed across multiple programs under development and, as such, are not separately classified. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher and more variable development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in the near term as we advance ADG20 through clinical development on a global basis, pursue regulatory approval of ADG20, continue to discover and develop additional product candidates and incur expenses associated with hiring additional personnel to support our research and development efforts, including the associated manufacturing activities. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of: ? the timing and progress of preclinical and clinical development activities; ? the number and scope of preclinical and clinical programs we decide to pursue; ? filing acceptable investigational new drug applications with theU.S. Food and Drug Administration or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for our product candidates; ? sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials, manufacture the product candidates and complete associated regulatory activities; ? our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and successfully develop, obtain regulatory approval or EUA for our product candidates; ? successful enrollment and timely completion of clinical trials, including our ability to generate positive data from any such clinical trials; 27 -------------------------------------------------------------------------------- ? the costs associated with the development of any additional development programs and product candidates we identify in-house or acquire through collaborations; ? the prevalence and severity of adverse events experienced with ADG20 or any other product candidates; ? the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; ? our ability to obtain and maintain patent, trademark and trade secret protection and regulatory exclusivity for our product candidates, if and when approved, and otherwise protecting our rights in our intellectual property portfolio; ? receipt of timely marketing approvals from applicable regulatory authorities; ? our ability to maintain compliance with regulatory requirements, including good clinical practices, current good laboratory practices and cGMPs, and to comply effectively with other rules, regulations and procedures applicable to the development and sale of pharmaceutical products; ? potential significant and changing government regulation, regulatory guidance and requirements and evolving treatment guidelines; and ? the impact of any business interruptions to our operations or those of third parties with which we work, particularly in light of the current COVID-19 pandemic. A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. In addition, we may never succeed in obtaining regulatory approval or EUA for any of our product candidates.
Acquired in-process research and development, or IPR&D, expenses consist primarily of the upfront costs we incurred inJuly 2020 , as well as any costs of contingent milestone payments and royalties we incurred in subsequent periods, to acquire rights toAdimab's antibodies relating to COVID-19 and SARS and related intellectual property and a license to certain ofAdimab's platform patents and technology, or the IPR&D assets, for use in the research and development of our product candidates. We expensed the cost of the IPR&D assets because they had no alternative future use as of the acquisition date. We will recognize additional acquired IPR&D expenses in the future if and when we become obligated to make contingent milestone and royalty payments toAdimab under the terms of the agreement by which we acquired the IPR&D assets.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, third-party fees and other related costs, including stock-based compensation, for our personnel and external contractors involved in our executive, finance, legal, business development and other administrative functions as well as our commercial function. Selling, general and administrative expenses also include costs incurred for outside services associated with such functions, including legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; market research costs; and other selling, general and administrative expenses. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program. We anticipate that our selling, general and administrative expenses will increase significantly in the future as our business expands and we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. In particular, we expect to incur additional commercialization expenses prior to any regulatory approval or EUA of our product candidates as we continue to expand our commercial function to support potential future product launches. We also anticipate that we will incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services, director and officer insurance premiums, and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file additional patent applications to protect innovations arising from our research and development activities. ThroughJune 30, 2021 , we have operated as a virtual company. Therefore, we do not incur material operating expenses for the rent, maintenance and insurance of facilities or for depreciation of fixed assets.
Interest Income
Interest income consists of interest earned from our cash and cash equivalents. We expect our interest income will increase slightly as we invest the cash received from our sales of Series C preferred stock inApril 2021 and the net proceeds from our IPO. 28
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Income Taxes
For the three and six months ended
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months endedJune 30, 2021 and for the period fromJune 3, 2020 (inception) toJune 30, 2020 : Period from Three Months June 3, 2020 Ended (Inception) to June 30, June 30, (in thousands) 2021 2020 Change Operating expenses: Research and development$ 35,067 $ 48$ 35,019 Acquired in-process research and development 2,500 - 2,500 Selling, general and administrative 7,124 50 7,074 Total operating expenses 44,691 98 44,593 Loss from operations (44,691 ) (98 ) (44,593 ) Other income (expense): Interest income 23 - 23 Other expense (5 ) - (5 ) Total other income (expense), net 18 - 18 Net loss and comprehensive loss$ (44,673 ) $
(98 )
The following discussion presents the components of our expenses for the periods presented:
Research and Development Expenses
Period from
Three Months June 3, 2020
Ended (Inception) to
June 30, June 30,
(in thousands) 2021 2020 Change
Direct, external research and development
expenses by program:
ADG20 $ 28,031 $ - $ 28,031
Unallocated research and development
expenses:
Personnel-related costs 5,340 48 5,292
External discovery-related and other costs 1,696 - 1,696
Total research and development expenses $ 35,067 $
48
Research and development expenses were$35.1 million for the three months endedJune 30, 2021 , compared to less than$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The increase of$28.0 million in direct costs related to our ADG20 program was primarily due to overall increases in our clinical study costs and manufacturing expenses, for which there were no costs incurred during the period fromJune 3, 2020 (inception) toJune 30, 2020 . Personnel-related costs, including salaries, bonuses, benefits and other compensation-related costs, were$4.1 million and stock-based compensation expense was$1.2 million for the three months endedJune 30, 2021 , compared to personnel-related costs of less than$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The overall increase in personnel-related costs is attributable to the hiring of individuals to support the development of ADG20. The increase in external discovery related costs and other of$1.7 million was primarily driven by$1.2 million in professional services and consulting costs and$0.5 million of other research and development related costs. 29
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Acquired IPR&D expenses of$2.5 million for three months endedJune 30, 2021 consisted of the cost we incurred in the period under the Adimab Assignment Agreement for a milestone payment that became due toAdimab inApril 2021 upon the dosing of the first patient in a Phase 2 clinical trial evaluating ADG20. The amount of this contingent payment was recognized as an IPR&D expense based on the nature of the associated assets acquired fromAdimab on the date of the milestone achievement. We expensed the cost of the IPR&D assets because they had no alternative future use as of the acquisition date. The Company did not incur any IPR&D expense for the period fromJune 3, 2020 (inception) toJune 30, 2020 .
Selling, General and Administrative Expenses
Period from
Three Months June 3, 2020
Ended (Inception) to
June 30, June 30,
(in thousands) 2021 2020 Change
Personnel-related costs $ 4,054 $ 48 $ 4,006
Professional and consultant fees 2,949 2 2,947
Other 121 - 121
Total selling, general and administrative expenses
50
Selling, general and administrative expenses for the three months endedJune 30, 2021 were$7.1 million , compared to$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . Personnel-related costs increased by$4.0 million due to increased hiring to support general and administrative functions. Personnel-related costs included salaries and wages and stock-based compensation expense of$1.9 million and$2.2 million , respectively, for the three months endedJune 30, 2021 , compared to$0 for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The increase of$2.9 million in professional services and consultant fees and$0.1 million of other expenses is attributable to costs incurred as we prepared to become a public company.
Other Income
Other income was less than$0.1 million for the three months endedJune 30, 2021 and$0 for the period fromJune 3, 2020 (inception) toJune 30, 2020 , consisting primarily of interest earned on invested cash balances.
Comparison of the six months ended
The following table summarizes our results of operations for the six months endedJune 30, 2021 and for the period fromJune 3, 2020 (inception) toJune 30, 2020 : Period from Six Months June 3, 2020 Ended (Inception) to June 30, June 30, (in thousands) 2021 2020 Change Operating expenses: Research and development$ 69,204 $ 48$ 69,156 Acquired in-process research and development 3,500 - 3,500 Selling, general and administrative 10,695 50 10,645 Total operating expenses 83,399 98 83,301 Loss from operations (83,399 ) (98 ) (83,301 ) Other income (expense): Interest income 32 - 32 Other expense (6 ) - (6 ) Total other income (expense), net 26 - 26 Net loss and comprehensive loss$ (83,373 ) $ (98 )$ (83,275 ) 30
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Research and Development Expenses
Period from
Six Months June 3, 2020
Ended (Inception) to
June 30, June 30,
(in thousands) 2021 2020 Change
Direct, external research and development
expenses by program:
ADG20 $ 58,683 $ - $ 58,683
Unallocated research and development
expenses:
Personnel-related costs 7,601 48 7,553
External discovery-related and other costs 2,920 - 2,920
Total research and development expenses $ 69,204 $
48
Research and development expenses were$69.2 million for the six months endedJune 30, 2021 , compared to less than$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The increase of$58.7 million in direct costs related to our ADG20 program was primarily due to overall increases in our clinical study costs and manufacturing expenses, for which there were no costs incurred for the period fromJune 3, 2020 (inception) toJune 30, 2020 . Personnel-related costs, including salaries, bonuses, benefits and other compensation-related costs, were$6.2 million and stock-based compensation expense was$1.4 million for the six months endedJune 30, 2021 , compared to personnel-related costs of less than$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The overall increase in personnel-related costs is attributable to the hiring of more individuals to support the development of ADG20. The increase in external discovery-related and other costs and other of$2.9 million was primarily driven by$2.1 million in professional services and consulting services and$0.8 million of other research and development related costs.
Acquired IPR&D expenses of$3.5 million for the six months endedJune 30, 2021 consisted of the costs we incurred in the period under the Adimab Assignment Agreement for a$1.0 million milestone payment that became due toAdimab inFebruary 2021 upon the dosing of the first patient in a Phase 1 clinical trial evaluating ADG20 and a$2.5 million milestone payment that became due toAdimab inApril 2021 upon the dosing of the first patient in the first Phase 3 clinical trial of a product licensed under the agreement. The amounts of these contingent payments were recognized as an IPR&D expense based on the nature of the associated assets acquired fromAdimab on the date of the milestone achievement. We expensed the cost of the IPR&D assets because they had no alternative future use as of the acquisition date. The Company did not incur any IPR&D expense for the period fromJune 3, 2020 (inception) toJune 30, 2020 .
Selling, General and Administrative Expenses
Period from
Six Months June 3, 2020
Ended (Inception) to
June 30, June 30,
(in thousands) 2021 2020 Change
Personnel-related costs $ 5,549 $ 48 $ 5,501
Professional and consultant fees 4,918 2 4,916
Other 228 - 228
Total selling, general and administrative expenses
50
Selling, general and administrative expenses for the six months endedJune 30, 2021 were$10.7 million , compared to$0.1 million for the period fromJune 3, 2020 (inception) toJune 30, 2020 . Personnel-related costs increased by$5.5 million due to increased hiring to support general and administrative functions. Personnel-related costs included salaries and wages and stock-based compensation expense of$3.0 million and$2.5 million , respectively, for the six months endedJune 30, 2021 , compared to$0 for the period fromJune 3, 2020 (inception) toJune 30, 2020 . The increase of$4.9 million in professional services and consultant fees and$0.2 million in other expenses is attributable to costs incurred as we prepared to operate as a public company.
Other Income
Other income was less than$0.1 million for the six months endedJune 30, 2021 and$0 for the period fromJune 3, 2020 (inception) toJune 30, 2020 , consisting of primarily of interest earned on invested cash balances. 31 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
Since our inception inJune 2020 , we have not generated any revenue from any sources, including from product sales, and have incurred significant operating losses and negative cash flows from operations. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. To date, we have funded our operations with proceeds from sales of our preferred stock, and most recently, with proceeds from our IPO completed inAugust 2021 . ThroughJune 30, 2021 , we had received net proceeds of$464.7 million from sales of our preferred stock. As ofJune 30, 2021 , we had cash and cash equivalents of$392.5 million .
In
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Period from
Six Months June 3, 2020
Ended (Inception) to
June 30, June 30,
(in thousands) 2021 2020
Net cash used in operating activities $ (57,311 ) $ -
Net cash provided by financing activities 334,832 -
Net increase in cash and cash equivalents $ 277,521 $ -
Operating Activities
During the six months ended June 30, 2021 , operating activities used $57.3
million of cash, primarily due to our net loss of $83.4 million , partially
offset by non-cash stock-based compensation expense of $3.9 million and net cash
provided by changes in our operating assets and liabilities of $22.1 million .
Net cash provided by changes in our operating assets and liabilities consisted
of a $2.2 million increase in accounts payable and a $21.1 million increase in
accrued expenses, both partially offset by a $1.2 million increase in prepaid
expenses and other current assets. The increases in accounts payable and accrued
expenses were primarily due to amounts owed to vendors in connection with our
research and development activities, including increased external costs
associated with clinical trials and manufacturing, as well as increases in
accrued employee bonuses. The increase in prepaid expenses and other current
assets was primarily due to prepayments for external research and development
activities. We had no cash used in or provided by operating activities for the
period from June 3, 2020 (inception) to June 30, 2020 .
Investing Activities
We had no cash used in or provided by investing activities for six months ended
Financing Activities
During the six months endedJune 30, 2021 net cash provided by financing activities was$335.3 million , which is primarily related to net proceeds from the issuance of our Series C preferred stock inApril 2021 . We had no cash used in or provided by financing activities for the period fromJune 3, 2020 (inception) toJune 30, 2020 . 32 --------------------------------------------------------------------------------
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the non-clinical and preclinical studies and the current and future clinical trials of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including: ? the rate of progress in the development of AGD20 and our other product candidates; ? the scope, progress, results and costs of non-clinical studies, preclinical development, laboratory testing and clinical trials for ADG20 and future product candidates and associated development programs; ? the extent to which we develop, in-license or acquire other product candidates and technologies in our pipeline; ? the scope, progress, results and costs as well as timing of process development and manufacturing scale-up and validation activities associated with ADG20 and our future product candidates and other programs as we advance them through preclinical and clinical development; ? the number and development requirements of product candidates that we may pursue; ? the costs, timing and outcome of regulatory review of our product candidates; ? our headcount growth and associated costs as we expand our research and development capabilities and establish a commercial infrastructure; ? the timing and costs of securing sufficient capacity for commercial supply of our product candidates, or the raw material components thereof; ? the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval or EUA; ? the costs necessary to obtain regulatory approvals, if any, for products inthe United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained; 33
-------------------------------------------------------------------------------- ? the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; ? the continuation of our existing licensing and collaboration arrangements and entry into new collaborations and licensing arrangements, if at all; ? the need and ability to hire additional research, clinical, development, scientific and manufacturing personnel; ? the costs we incur in maintaining business operations; ? the need to implement additional internal systems and infrastructure; ? the effect of competing technological, product and market developments; ? the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; ? the costs of operating as a public company; and ? the progression of the COVID-19 pandemic and emergence of potential outbreaks of other coronaviruses, including the impact of any business interruptions to our operations or to those of our contract manufacturers, suppliers or other vendors resulting from the COVID-19 pandemic or other similar public health crises. As ofSeptember 20, 2021 , we believe that our existing cash, cash equivalents and short-term investments, including the net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, government or private-party grants, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences and anti-dilution protections that adversely affect as a common stockholders' rights. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making acquisitions or capital expenditures or declaring dividends, which could adversely constrain our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through other sources, when needed, we may be required to delay, limit, reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations from those described in the Prospectus. For additional information, see Note 7 to our consolidated financial statements appearing in this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Prospectus. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting policies from those described in the Prospectus.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission .
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position, results of operations and cash flows is disclosed
in Note 2 to our consolidated financial statements appearing elsewhere in this
Quarterly Report on Form 10-Q.
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--------------------------------------------------------------------------------Internal Control over Financial Reporting
We identified a material weakness in our internal control over financial reporting that existed as ofJune 30, 2021 . See Item 4, Controls and Procedures. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth
company" such as us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public companies until
those standards would otherwise apply to private companies. We have elected not
to "opt out" of such extended transition period, which means that when a
standard is issued or revised and it has different application dates for public
or private companies, we will adopt the new or revised standard at the time
private companies adopt the new or revised standard and will do so until such
time that we either (i) irrevocably elect to "opt out" of such extended
transition period or (ii) no longer qualify as an emerging growth company. We
may choose to early adopt any new or revised accounting standards whenever such
early adoption is permitted for private companies.
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