ALLAKOS INC. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. These statements generally relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The following discussion and analysis contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those discussed below and those discussed in the section entitled "Risk Factors" included in this Quarterly Report on Form 10-Q.
Forward-looking statements include, but are not limited to, statements about:
• risks related to the COVID-19 pandemic;
• our plans and ability to manufacture, or have manufactured, sufficient
quantities of lirentelimab (AK002) for preclinical studies and to conduct
clinical trials and to eventually commercialize the product, and our
reliance on third parties in relation to the foregoing;
• the impact that the adoption of new accounting pronouncements will have on
our financial statements;
• the ability of our clinical trials to demonstrate safety and efficacy of
our product candidates, and other positive results;
• the timing and focus of our future clinical trials, and the reporting of
data from those trials;
• our plans relating to commercializing lirentelimab (AK002), if approved,
including the geographic areas of focus and sales strategy;
• the size of the market opportunity for lirentelimab (AK002) in each of the
diseases we are targeting;
• the number of diseases represented in the patient population enrolled in
our clinical trials, and our ability to evaluate response to treatment of
lirentelimab (AK002) in diseases other than the primary indication in our
clinical trials;
• our estimates of the number of patients in
from the diseases we are targeting and the number of patients that will
enroll in our clinical trials;
• the beneficial characteristics, safety, efficacy and therapeutic effects
of lirentelimab (AK002);
• the timing or likelihood of regulatory filings and approvals, including
our expectation to seek special designations, such as orphan drug
designation, for lirentelimab (AK002) or our other product candidates for
various diseases;
• our ability to obtain and maintain regulatory approval of lirentelimab
(AK002) or our other product candidates;
• our plans relating to the further development of lirentelimab (AK002) and
our other product candidates;
• existing regulations and regulatory developments in
other jurisdictions;
• our plans and ability to obtain or protect intellectual property rights,
including extensions of existing patent terms where available;
• our continued reliance on third-parties to conduct additional clinical
trials of lirentelimab (AK002) and our other product candidates;
• the need to hire additional personnel and our ability to attract and
retain such personnel;
• the accuracy of our estimates regarding expenses, future revenue, capital
requirements and needs for additional financing;
• our financial performance;
• the sufficiency of our existing cash, cash equivalents and marketable
securities to fund our future operating expenses and capital expenditure
requirements; and
• our anticipated use of the proceeds from our initial public offering and
the concurrent private placement in
offerings in August 2019 and November 2020 .
17
-------------------------------------------------------------------------------- These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including, but not limited to, those described in "Risk Factors". In some cases, you can identify these statements by terms such as "anticipate," "believe," "could," "estimate," "expects," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section entitled "Risk Factors" included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.
Summary Risks Associated with Our Business
Investing in our common stock involves numerous risks described in "Risk
Factors" and elsewhere in this Quarterly Report on Form 10-
• we are engaged in clinical drug development and have a limited operating
history and no products approved for commercial sale, which may make it
difficult for you to evaluate our current business and predict our future
success and viability;
• we have incurred significant net losses since inception and we expect to
continue to incur significant net losses for the foreseeable future;
• our ability to generate revenue and achieve profitability depends
significantly on our ability to achieve a number of objectives;
• our business may be adversely affected by health epidemics, including the
recent coronavirus outbreak;
• we are dependent on the success of our lead compound, lirentelimab
(AK002), which is currently in multiple clinical trials, and if we are
unable to obtain approval for and commercialize lirentelimab (AK002) for
one or more indications in a timely manner, our business could be
materially harmed;
• if we experience delays or difficulties in the enrollment of patients in
clinical trials, our receipt of necessary marketing approvals could be
delayed or prevented;
• the regulatory approval processes of the FDA,
("EMA") and comparable foreign regulatory authorities are lengthy,
time-consuming and inherently unpredictable, and if we are ultimately
unable to obtain regulatory approval for our product candidates, we will
be unable to generate product revenue and our business will be
substantially harmed;
• we may be unable to obtain
result, unable to commercialize our product candidates;
• our clinical trials may reveal significant adverse events, toxicities or
other side effects and may result in a safety profile that could inhibit
regulatory approval or market acceptance of any of our product candidates;
• our success is highly dependent on the services of our Chief Executive
Officer, Dr.
Officer, Dr.
skilled executive officers and employees;
• if we are unable to establish sales or marketing capabilities or enter
into agreements with third-parties to sell or market our product
candidates, we may not be able to successfully sell or market our product
candidates that obtain regulatory approval;
• in order to successfully implement our plans and strategies, we will need
to grow the size of our organization, and we may experience difficulties
in managing this growth;
• if we are unable to obtain or protect intellectual property rights, we may
not be able to compete effectively in our market;
• we may not be able to protect our intellectual property rights throughout
the world;
18
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• changes in patent law could diminish the value of patents in general,
thereby impairing our ability to protect our product candidates;
• we rely on third-parties to conduct our clinical trials and those
third-parties may not perform satisfactorily, including failing to meet
deadlines for the completion of such trials, research and studies;
• we contract with third-parties for the production of our product
candidates for preclinical studies and, in the case of lirentelimab(AK002), our ongoing clinical trials, and expect to continue to do so for
additional clinical trials and ultimately for commercialization, and this
reliance on third-parties increases the risk that we will not have
sufficient quantities of our product candidates or drugs or such
quantities at an acceptable cost, which could delay, prevent or impair our
development or commercialization efforts;
• we may not gain the efficiencies we expect from further scale-up ofmanufacturing of lirentelimab (AK002), and our third-party manufacturers
may be unable to successfully scale-up manufacturing in sufficient quality
and quantity for lirentelimab (AK002) or our other product candidates,
which could delay or prevent the conducting of our clinical trials or the
development or commercialization of our other product candidates;
• if we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur costs
that could have a material adverse effect on our business;
• our business activities may be subject to the Foreign Corrupt Practices
Act ("FCPA"), the UK Bribery Act 2010 ("UK Bribery Act"), and other
similar anti-bribery and anti-corruption laws of other countries in which
we operate;
• we may experience disruptions and delays or incur financial damages as a
result of system failures or security breaches;
• the market price of our stock may continue to be volatile, which could
result in substantial losses for investors;
• our operating results may fluctuate significantly, which makes our future
operating results difficult to predict and could cause our operating
results to fall below expectations or our guidance; and
• the other factors discussed under "Risk Factors".
Impact of COVID-19 on Our Business
The pandemic caused by an outbreak of a novel coronavirus causing a disease
known as COVID-19 ("COVID-19") has resulted, and is likely to continue to
result, in significant national and global economic disruption and may have an
adverse impact on our operations, supply chains and distribution systems or
those of our contractors, and increase our expenses, including as a result of
impacts associated with preventive and precautionary measures that are being
taken, such as restrictions on travel, quarantine polices and social distancing.
For example, the ability of our employees or those of our contractors to work
has been and is likely to continue to be adversely affected. Moreover, we and
our contractors may experience disruptions in supply of items that are essential
for our research and development activities, including, for example, raw
materials used in the manufacturing of our product candidates or medical and
laboratory supplies used in our clinical trials or preclinical studies, in each
case, for which there may be shortages because of ongoing efforts to address the
outbreak. In addition, enrollment for our clinical studies may be adversely
affected and the completion of such studies may be delayed. Given the daily
evolution of the COVID-19 outbreak and the response to curb its spread,
currently we are not able to estimate the effects of the COVID-19 outbreak to
our results of operations or financial condition. For additional information,
see "Risk Factors-Risks Related to Our Financial Position and Need for
Additional Capital-Our business may be adversely affected by health epidemics,
including the recent coronavirus outbreak."
Overview
We are a clinical stage biotechnology company developing lirentelimab (AK002),
formerly known as antolimab, our wholly owned monoclonal antibody, for the
treatment of various mast cell and eosinophil related diseases. Lirentelimab
(AK002) selectively targets both mast cells and eosinophils, two types of white
blood cells that are widely distributed in the body and play a central role in
the inflammatory response. Inappropriately activated mast cells and eosinophils
have been identified as key drivers in a number of severe diseases affecting the
gastrointestinal tract, eyes, skin, lungs and other organs. As such,
lirentelimab (AK002) has the potential to treat a large number of severe
diseases. Lirentelimab (AK002) completed a double-blind, randomized,
placebo-controlled Phase 2 study in patients with eosinophilic gastritis ("EG")
and/or eosinophilic duodenitis ("EoD", referred to as eosinophilic
gastroenteritis or "EGE" in this study; the "ENIGMA study"). The ENIGMA study
met all prespecified primary and secondary endpoints when compared to placebo
and results were recently published in the New England Journal of Medicine .
Additionally, patients in the ENIGMA study with co-morbid EoE showed histologic
and symptomatic improvement when treated with lirentelimab (AK002) compared to
placebo. We recently announced positive results from our prospective prevalence
study showing that 45% (181/405) of symptomatic patients biopsied with chronic
unexplained gastrointestinal (GI) symptoms or functional gastrointestinal
disorders
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-------------------------------------------------------------------------------- (FGIDs) such as irritable bowel syndrome (IBS) and functional dyspepsia (FD) met the histologic criteria for eosinophilic gastritis (EG) and/or eosinophilic duodenitis (EoD). Since many people inthe United States and worldwide suffer from chronic unexplained gastrointestinal symptoms or FGIDs, the results from this study suggest that the commercial opportunity for lirentelimab in EG and/or EoD may be larger than literature-based estimates. Based on the results from the ENIGMA study and end of Phase 2 meeting with the FDA, we began enrollment of a Phase 3 study in patients with EG and/or EoD and a Phase 2/3 study in patients with EoE. We expect results from these trials in the second half of 2021. Lirentelimab (AK002) also showed promising activity in clinical studies in chronic urticaria ("CU"), indolent systemic mastocytosis ("ISM"), and severe allergic conjunctivitis ("SAC"). In addition, improvements were also observed in atopic comorbidities such as asthma, atopic dermatitis, and allergic rhinitis. The activity observed in these studies suggests that lirentelimab (AK002) could provide significant benefit to patients suffering from these diseases and highlights the potential of lirentelimab (AK002) to broadly inhibit mast cells and deplete eosinophils in different disease settings. Despite the knowledge that mast cells and eosinophils drive many pathological conditions, there are no approved therapies that selectively target both mast cells and eosinophils. Lirentelimab (AK002) binds to Siglec-8, an inhibitory receptor found on mast cells and eosinophils, which represents a novel way to selectively deplete or inhibit these important immune cells and thereby potentially resolve inflammation. We believe lirentelimab (AK002) is the only Siglec-8 targeting antibody currently in clinical development and may have advantages over current treatment options available to patients for the diseases we are pursuing. Since our inception in 2012, we have devoted substantially all of our resources and efforts towards the research and development of our product candidates. Our lead product candidate, lirentelimab (AK002), a monoclonal antibody targeting Siglec-8, entered clinical trials in 2016. In addition to activities conducted internally at our facilities, we have utilized significant financial resources to engage contractors, consultants and other third parties to conduct various preclinical and clinical development activities on our behalf. To date, we have not had any products approved for sale and have not generated any revenue nor been profitable. Further, we do not expect to generate revenue from product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one of our product candidates. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We have incurred significant operating losses to date and expect to incur significant operating losses for the foreseeable future. Our net losses were$109.2 million and$60.8 million for the nine months endedSeptember 30, 2020 and 2019, respectively. As ofSeptember 30, 2020 , we had an accumulated deficit of$298.7 million . Prior to completing our IPO inJuly 2018 and subsequent follow-on offering inAugust 2019 , our operations had been historically financed primarily through the private placements of convertible debt instruments and convertible preferred stock. These private placements provided gross proceeds of$146.9 million . As ofSeptember 30, 2020 , we had cash, cash equivalents and marketable securities of$419.8 million , which we believe will be sufficient to fund our planned operations for at least the next 12 months from the issuance of our financial statements.
OnJuly 23, 2018 , we completed an IPO, selling 8,203,332 shares of common stock at$18.00 per share (the "July 2018 IPO"). Proceeds from ourJuly 2018 IPO, net of underwriting discounts and commissions, were$137.3 million . Concurrently with ourJuly 2018 IPO, we completed a private placement of 250,000 shares of common stock at$18.00 per share to an existing stockholder. Proceeds from this private placement were$4.5 million . In connection with the completion of theJuly 2018 IPO, all then outstanding shares of convertible preferred stock converted into 30,971,627 shares of common stock.
OnAugust 9, 2019 , we closed an underwritten public offering (the "August 2019 Offering") under our shelf registration statement on Form S-3 (File No. 333-233018) pursuant to which we sold an aggregate of 5,227,272 shares of our common stock at a public offering price of$77.00 per share. We received aggregate net proceeds of$377.5 million , after deducting the underwriting discounts and commissions and offering expenses.
OnNovember 2, 2020 , we closed an underwritten public offering (the "November 2020 Offering") under our shelf registration statement on Form S-3 (File No. 333-233018) pursuant to which we sold an aggregate of 3,506,098 shares of our common stock at a public offering price of$82.00 per share. We received aggregate net proceeds of$271.7 million , after deducting the underwriting discounts and commissions. 20
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Components of Operating Results
Revenue
We have not generated any revenue from product sales or otherwise, and do not expect to generate any revenue for at least the next several years.
Operating Expenses
We classify operating expenses into two categories: (i) research and development and (ii) general and administrative.
Research and Development Expenses
Research and development expenses represent the following costs incurred by us for the discovery, development and manufacturing of our product candidates:
• consultant and personnel-related costs including salaries, benefits,
travel and stock-based compensation expense;
• costs incurred under service agreements with contract researchorganizations ("CROs") that conduct nonclinical and clinical research
activities on our behalf;
• costs incurred under service agreements with contract development and
manufacturing organizations ("CDMOs") for the manufacture and fill finish
of our preclinical and clinical materials;
• costs related to in-house research and development activities conducted at
our facilities including laboratory supplies, non-capital laboratory
equipment and depreciation of capital laboratory equipment and leasehold
improvements to laboratories;
• costs incurred under exclusive and non-exclusive license agreements with
third-parties; and
• allocated facility and other costs including the rent and maintenance of
our facilities, insurance premiums, depreciation of shared-use leasehold
improvements and general office supplies.
We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations, patient enrollment or information provided to us by our vendors and our clinical investigative sites, along with analysis by our in-house clinical operations personnel. Advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized as prepaid expenses, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. The successful development of our product candidates is highly uncertain. Accordingly, it is difficult to estimate the nature, timing and extent of costs necessary to complete the remainder of the development of our product candidates. We are also unable to predict when, if ever, we will be able to generate revenue from our product candidates. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty surrounding:
• demonstrating sufficient safety and tolerability profiles of product
candidates;
• successful enrollment and completion of clinical trials;
• requisite clearance and approvals from applicable regulatory authorities;
• establishing and maintaining commercial manufacturing capabilities with
CDMOs;
• obtaining and maintaining protection of intellectual property; and
• commercializing product candidates, if and when approved, alone or in
collaboration with third-parties.
A change pertaining to any of these variables would significantly impact the timing and extent of costs incurred with respect to the development and commercialization of our product candidates.
External costs incurred from CROs and CDMOs have comprised a significant portion
of our research and development expenses since inception. We track CRO and CDMO
costs on a program-by-program basis following the advancement of a product
candidate into clinical development. Consulting and personnel-related costs,
laboratory supplies and non-capital equipment utilized in the conduct of
in-house research, in-licensing fees and general overhead, are not tracked on a
program-by-program basis, nor are they allocated, as they commonly benefit
multiple projects, including those still in our pipeline.
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--------------------------------------------------------------------------------The following table summarizes our research and development expenses for the periods indicated (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Lirentelimab (AK002) contract
research and development $ 18,438 $ 8,831 $ 41,441 $ 23,550
Consulting and personnel-related
costs 9,831 5,703 25,844 16,502
Other unallocated research and
development costs 2,111 1,533 9,726 5,224
Total $ 30,380 $ 16,067 $ 77,011 $ 45,276 General and Administrative Expenses
General and administrative expenses consist of fees paid to consultants, salaries, benefits and other personnel-related costs, including stock-based compensation, for our personnel in executive, finance, accounting and other administrative functions, legal costs, fees paid for accounting and tax services, pre-commercialization costs and facility costs not otherwise included in research and development expenses. Legal costs include general corporate and patent legal fees and related costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities including costs related to personnel, outside consultants, attorneys and accountants, among others. Additionally, we expect to incur costs associated with continuing to operate as a public company, including expenses related to maintaining compliance with the rules and regulations of theSEC , and those of any national securities exchange on which our securities are traded, additional insurance premiums, investor relations activities and other ancillary administrative and professional services. Interest Income, Net Interest income, net primarily consists of interest and investment income earned on our cash, cash equivalents and marketable securities included on the balance sheets.
Other Income (Expense), Net
Other income (expense), net, primarily consists of amounts realized from gains and losses related to fluctuations in foreign currencies.
In-Licensing Agreements
We have entered into a number of exclusive and nonexclusive, royalty bearing license agreements with third-parties for certain intellectual property. Under the terms of the license agreements described below, we are obligated to pay milestone payments upon the achievement of specified clinical, regulatory and commercial milestones. Actual amounts due under the license agreements vary depending on factors including, but not limited to, the number of product candidates we develop and our ability to successfully develop and commercialize our product candidates covered under the respective agreements. In addition to milestone payments, we are also subject to future royalty payments based on sales of our product candidates covered under the agreements, as well as certain minimum annual royalty and commercial reservation fees. Because the achievement of milestones and the timing and extent of future royalties is not probable, these contingent amounts have not been included on our balance sheets or as part of Contractual Obligations and Commitments discussion below. We incurred$3.4 million of milestone expense for the nine months endedSeptember 30, 2020 related to development milestones associated with the first patient dosed in our Phase 3 study with lirentelimab (AK002). We did not incur any milestone expense for the three and nine months endedSeptember 30, 2019 . Milestone payments are not creditable against royalties. As ofSeptember 30, 2020 , we have not incurred any royalty liabilities related to our license agreements, as product sales have not yet commenced.
Exclusive License Agreement with The
InDecember 2013 , we entered into a license agreement with JHU for a worldwide exclusive license to develop, use, manufacture and commercialize covered product candidates including lirentelimab (AK002), which was amended inSeptember 2016 . Under the terms of the agreement, we have made upfront and milestone payments of$0.7 million throughSeptember 30, 2020 and we may be required to make aggregate additional milestone payments of up to$3.6 million . We also issued 88,887 shares of common stock as consideration under the JHU license agreement. In addition to milestone payments, we are also subject to single-digit 22 -------------------------------------------------------------------------------- royalties to JHU based on future net sales of each licensed therapeutic product candidate by us and our affiliates and sublicensees, with up to a low six-digit dollar minimum annual royalty payment.
Non-exclusive License Agreement with
InOctober 2013 , we entered into a tripartite agreement with BioWa and Lonza for the non-exclusive worldwide license to develop and commercialize product candidates including lirentelimab (AK002) that are manufactured using a technology jointly developed and owned by BioWa and Lonza. Under the terms of the agreement, we have made milestone payments of$3.4 million throughSeptember 30, 2020 and we may be required to make aggregate additional milestone payments of up to$38.0 million . In addition to milestone payments, we are also subject to minimum annual commercial license fees of$40,000 per year to BioWa until such time as BioWa receives royalty payments, as well as low single-digit royalties to BioWa and to Lonza. Royalties are based on future net sales by us and our affiliates and sublicensees and vary dependent on Lonza's participation as sole manufacturer for commercial production.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. During the three and nine months endedSeptember 30, 2020 , there were no other changes to our critical accounting policies as disclosed in our 2019 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 to our financial statements for recently issued accounting pronouncements, including the respective effective dates of adoption and effects on our results of operations and financial condition.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods
indicated (in thousands):
Three Months Ended September 30,
2020 2019
Operating expenses
Research and development $ 30,380 $ 16,067
General and administrative 12,055 7,517
Total operating expenses 42,435 23,584
Loss from operations (42,435 ) (23,584 )
Interest income, net 766 1,887
Other expense, net (417 ) (35 )
Net loss (42,086 ) (21,732 )
Unrealized loss on marketable securities (620 ) (12 )
Comprehensive loss $ (42,706 ) $ (21,744 ) Research and Development Expenses
Research and development expenses were$30.4 million for the three months endedSeptember 30, 2020 compared to$16.1 million for the three months endedSeptember 30, 2019 , an increase of$14.3 million . The period-over-period increase in research and development expenses is comprised of an additional$9.6 million of lirentelimab (AK002) contract research and development costs,$4.1 million of consulting and personnel-related costs primarily associated with increased hiring of R&D personnel and$0.6 million of other unallocated research and development costs primarily related to the conduct of in-house research. 23
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General and Administrative Expenses
General and administrative expenses were$12.1 million for the three months endedSeptember 30, 2020 compared to$7.5 million for the three months endedSeptember 30, 2019 , an increase of$4.6 million . The period-over-period increase in general and administrative expenses includes an additional$3.8 million of consulting and personnel-related costs associated primarily attributable to increased hiring of G&A personnel, including associated stock-based compensation expense. Other period-over-period changes included increases to G&A outside spend of$0.5 million related to legal costs, accounting and financial service costs, and costs incurred by our early commercial development efforts. Finally, we incurred incremental facilities and other administrative costs of$0.3 million not otherwise included in research and development expenses.
Interest Income, Net
Interest income, net, was$0.8 million for the three months endedSeptember 30, 2020 compared to$1.9 million for the three months endedSeptember 30, 2019 , a decrease of$1.1 million . The period-over-period change was primarily attributable to lower interest rates.
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the periods
indicated (in thousands):
Nine Months Ended September 30,
2020 2019
Operating expenses
Research and development $ 77,011 $ 45,276
General and administrative 35,701 19,292
Total operating expenses 112,712 64,568
Loss from operations (112,712 ) (64,568 )
Interest income, net 4,039 3,888
Other expense, net (529 ) (77 )
Net loss (109,202 ) (60,757 )
Unrealized gain on marketable securities 30 117
Comprehensive loss $ (109,172 ) $ (60,640 ) Research and Development Expenses
Research and development expenses were$77.0 million for the nine months endedSeptember 30, 2020 compared to$45.3 million for the nine months endedSeptember 30, 2019 , an increase of$31.7 million . The period-over-period increase in research and development expenses is comprised of an additional$17.9 million of lirentelimab (AK002) contract research and development costs,$9.3 million of consulting and personnel-related costs primarily associated with increased hiring of R&D personnel,$3.4 million related to a one-time in-licensing milestone expense incurred during the current year, and$1.1 million of other unallocated research and development costs primarily related to the conduct of in-house research.
General and Administrative Expenses
General and administrative expenses were$35.7 million for the nine months endedSeptember 30, 2020 compared to$19.3 million for the nine months endedSeptember 30, 2019 , an increase of$16.4 million . The period-over-period increase in general and administrative expenses was primarily attributable to an additional$13.6 million of personnel-related costs, including associated stock-based compensation expense. Other period-over-period changes included increases to G&A outside spend of$2.0 million related to legal costs, accounting and financial service costs, and costs incurred by our early commercial development efforts. Finally, we incurred incremental facilities and other administrative costs of$0.8 million not otherwise included in research and development expenses.
Liquidity and Capital Resources
Sources of Liquidity
We are a clinical stage biotechnology company with a limited operating history. As a result of our significant research and development expenditures, we have generated net losses since our inception. Prior to completing ourJuly 2018 IPO,August 2019 Offering andNovember 2020 Offering, we historically financed our operations primarily through the private placement of convertible 24 --------------------------------------------------------------------------------
preferred stock. These private placements provided gross proceeds of
In connection with ourJuly 2018 IPO, we sold 8,203,332 shares of common stock at a price of$18.00 per share. Proceeds from theJuly 2018 IPO, net of underwriting discounts and commissions, were$137.3 million . Concurrently with ourJuly 2018 IPO, we completed a private placement of 250,000 shares of common stock at$18.00 per share to an existing stockholder. Proceeds from this private placement were$4.5 million . We closed theAugust 2019 Offering under our shelf registration statement on Form S-3 (File No. 333-233018) pursuant to which we sold an aggregate of 5,227,272 shares of our common stock at a public offering price of$77.00 per share. We received aggregate net proceeds of$377.5 million , after deducting the underwriting discounts and commissions and offering expenses. We closed theNovember 2020 Offering under our shelf registration statement on Form S-3 (File No. 333-233018) pursuant to which we sold an aggregate of 3,506,098 shares of our common stock at a public offering price of$82.00 per share. We received aggregate net proceeds of$271.7 million , after deducting underwriting discounts and commissions.
As of
Based on our existing business plan, we believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our anticipated level of operations through at least the next 12 months from the issuance of our financial statements. There can be no assurances that new sources of capital will be available to us on commercially acceptable terms, if at all. Also, any future collaborations, strategic alliances and marketing, distribution or licensing arrangements may require us to give up some or all rights to a product or technology at less than its full potential value. If we are unable to enter into new arrangements or to perform under current or future agreements or obtain additional capital, we will assess our capital resources and may be required to delay, reduce the scope of, or eliminate one or more of our product research and development programs or clinical studies, and/or downsize our organization. Similar to the other risk factors pertinent to our business, the COVID-19 outbreak might unfavorably impact our ability to generate such additional funding. Given the uncertainty in the rapidly changing market and economic conditions related to the COVID-19 pandemic, we will continue to evaluate the nature and extent of the impact of the outbreak on our business and financial position. Summary Cash Flows
Comparison of the Nine Months Ended
The following table summarizes the primary sources and uses of our cash, cash equivalents, and restricted cash for the periods indicated (in thousands):
Nine Months Ended September 30,
2020 2019
Net cash used in operating activities $ (79,509 ) $ (43,901 )
Net cash provided by (used in) investing
activities 141,422 (62,109 )
Net cash provided by financing activities 4,023 381,155
Net increase in cash, cash equivalents and
restricted cash $ 65,936 Cash Used in Operating Activities
Net cash used in operating activities was$79.5 million for the nine months endedSeptember 30, 2020 , which was primarily attributable to our net loss of$109.2 million adjusted for net noncash charges of$26.3 million and net changes in operating assets and liabilities of$3.4 million . Noncash charges included approximately$23.2 million in stock-based compensation expense,$1.2 million in depreciation and amortization expense,$1.7 million in amortization of premiums and discounts on marketable securities and$0.2 million in noncash lease expense. 25
-------------------------------------------------------------------------------- Net cash used in operating activities was$43.9 million for the nine months endedSeptember 30, 2019 which was primarily attributable to our net loss of$60.8 million adjusted for net noncash charges of$9.1 million and net changes in operating assets and liabilities of$7.7 million . Noncash charges included$9.9 million in stock-based compensation expense,$1.1 million in depreciation and amortization expense and$0.2 million in amortization of right-of-use assets, partially offset by$2.1 million in net amortization of premiums and discounts on marketable securities.
Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities was$141.4 million for the nine months endedSeptember 30, 2020 , which consisted of$411.8 million in proceeds from maturities of marketable securities, partially offset by$270.3 million for the purchases of marketable securities and$0.1 million for the purchases of property and equipment. Net cash used in investing activities was$62.1 million for the nine months endedSeptember 30, 2019 , which consisted of$259.4 million for the purchases of marketable securities and$0.7 million for the purchases of property and equipment, partially offset by$198.0 million in proceeds from maturities of marketable securities.
Cash Provided by Financing Activities
Net cash provided by financing activities was$4.0 million for the nine months endedSeptember 30, 2020 primarily related to proceeds of$2.6 million received from employees for the exercise of stock options and$1.5 million received from employees for the purchase of common stock through the 2018 ESPP. Net cash provided by financing activities was$381.2 million for the nine months endedSeptember 30, 2019 , which consisted primarily of$377.5 million in proceeds from ourAugust 2019 Offering,$2.4 million in proceeds from employees for the exercise of stock options and$1.2 million received from employees for the purchase of shares of common stock through the 2018 ESPP.
Funding Requirements
We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise funding through private or public equity or debt financings, or other sources such as strategic collaborations. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies.
The timing and amount of our capital expenditures will depend on many factors, including:
• the number and scope of clinical indications and clinical trials we decide
to pursue;
• the scope and costs of commercial manufacturing activities;
• the extent to which we acquire or in-license other product candidates and
technologies, if any;
• the cost, timing and outcome of regulatory review of our product candidates;
• the cost and timing of establishing sales and marketing capabilities for
product candidates receiving marketing approval, if any;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• our efforts to enhance operational systems and our ability to attract,
hire and retain qualified personnel, including personnel to support the
development of our product candidates; and
• the costs associated with being a public company.
If we are unable to raise additional funds when needed, we may be required to
delay, reduce or terminate some or all of our development and commercialization
efforts. We may also be required to sell or license to others rights to our
product candidates in certain territories or indications that we would prefer to
develop and commercialize ourselves.
The issuance of additional equity securities may cause our stockholders to
experience dilution. Future equity or debt financings may contain terms that are
not favorable to us or our stockholders including debt instruments imposing
covenants that restrict our operations and limit our ability to incur liens,
issue additional debt, pay dividends, repurchase our common stock, make certain
investments or engage in certain merger, consolidation, licensing or asset sale
transactions.
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Contractual Obligations and Commitments
Our contractual obligations and commitments relate primarily to our operating leases and non-cancelable purchase obligations under agreements with various research and development organizations and suppliers in the ordinary course of business. See Note 6, Commitments and Contingencies, to our financial statements for further information.
Off-Balance Sheet Arrangements
Since our inception, we have not entered into any off-balance sheet arrangements
as defined in the rules and regulations of the
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