ALX ONCOLOGY HOLDINGS INC. You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis generally addresses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theSEC onMarch 18, 2021 . Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a clinical-stage immuno-oncology company focused on helping patients fight cancer by developing a pipeline of product candidates based on expertise in protein engineering and oncology led by the CD47 blocker, evorpacept (evorpacept is the recommended United States Adopted Name (USAN); this product is also known as ALX148), currently in phase 1 and 2 clinical trials. Cancer cells leverage CD47, a cell surface protein, as a "don't eat me" signal to evade detection by the immune system. Our company is developing a next-generation checkpoint inhibitor designed to have a high affinity for CD47 and to avoid the limitations caused by hematologic toxicities inherent in other CD47 blocking approaches. We believe our lead product candidate, evorpacept will have a wide therapeutic window to block the "don't eat me" signal on cancer cells, and will leverage the immune activation of broadly used anti-cancer agents through combination strategies. As ofDecember 31, 2021 , we had dosed over 185 subjects with evorpacept across a range of hematologic and solid malignancies in combination with a number of leading anti-cancer agents. We plan to initiate additional studies in combination with leading anti-cancer agents. In solid tumors, we have initiated two randomized Phase 2 trials of evorpacept for the treatment of first-line advanced head and neck squamous cell carcinoma, or HNSCC, and enrolled the first subject in the first trial inMay 2021 and enrolled the first subject in the second trial inJuly 2021 . Our collaborator, Zymeworks, also initiated a Phase 1 trial for the treatment of advanced HER2-expressing breast cancer and enrolled the first subject inOctober 2021 . We intend to initiate a randomized Phase 2 trial of evorpacept for the treatment of second line advanced HER2-overexpressing gastric/gastroesophageal junction, or GEJ, cancer in the first quarter of 2022. In hematologic malignancies, we have dosed 13 subjects with myelodysplastic syndromes, or MDS, and also advanced evorpacept into clinical development for the treatment of acute myeloid leukemia, or AML, enrolling the first patient in a Phase 1 trial inOctober 2021 . Based on our early clinical results to date in multiple oncology indications showing encouraging anti-tumor activity and tolerability and our clinical development plans, our strategy is to pursue evorpacept as a potentially critical component of future oncology combination treatments. Our second program, which is a collaboration betweenALX Oncology (ALX) and Tallac Therapeutics (Tallac), combines our company's SIRP? antibodies with Tallac's toll-like receptor 9 agonist antibody conjugate to deliver ALTA-002, a potent immune activator to myeloid cells in the tumor to promote innate and adaptive anti-cancer immune responses. This novel Toll-like receptor agonist antibody conjugation platform (TRAAC) enables systemic delivery of targeted TLR9 activation. An IND for ALTA-002 is planned for 2023. Additionally, with our recent acquisition ofScalmiBio, Inc , we seek to expand our pipeline of drug candidates to antibody drug conjugates based on expertise in protein engineering and oncology. Our predecessor company,ALX Oncology Limited , an Irish private company limited by shares, was initially incorporated inIreland onMarch 13, 2015 under the nameAlexo Therapeutics Limited and changed its name toALX Oncology Limited onOctober 11, 2018 . We were then incorporated inDelaware onApril 1, 2020 under the nameALX Oncology Holdings Inc. and completed an internal reorganization effective as of the same date wherebyALX Oncology Limited became our wholly-owned subsidiary and all of the stockholders, warrant holders and option holders ofALX Oncology Limited became our stockholders, warrant holders and option holders, holding the same number of corresponding shares, warrants and/or options in us as they did inALX Oncology Limited immediately prior to the internal reorganization. The information included herein are presented as that ofALX Oncology Holdings Inc. , unless such information refers to a date prior toApril 1, 2020 , in which case it will reflect that of our predecessor company. 100 -------------------------------------------------------------------------------- Since our founding, we have devoted substantially all of our resources to identifying and developing evorpacept, advancing preclinical programs, scaling up manufacturing, conducting clinical trials and providing general and administrative support for these operations. We have no products approved for marketing and we have never received any revenue from drug product sales. InJuly 2020 , we consummated our initial public offering, raising net proceeds of$169.5 million , after deducting underwriting discounts and commissions of$13.0 million and offering-related expenses of$3.2 million . InDecember 2020 , we consummated a follow-on public offering, raising net proceeds of$194.9 million , after deducting underwriting discounts and commissions of$12.5 million and offering-related expenses of$0.7 million . From inception throughDecember 31, 2021 , we have raised an aggregate of$545.3 million to fund our operations, of which$175.1 million were net proceeds from sales of our convertible preferred stock,$5.8 million were net proceeds from borrowings under a term loan,$169.5 million were net proceeds from our initial public offering and$194.9 million were net proceeds from our follow-on public offering. InDecember 2021 , we entered into a sales agreement withCantor Fitzgerald & Co. andCredit Suisse Securities (USA) LLC , under which we may offer and sell our common stock, having aggregate gross proceeds of up to$150.0 million , from time to time through them as our sales agent in our At the Market, or ATM Offering Program. We have incurred net losses in each year since inception. Our net losses were$83.5 million ,$45.7 million and$19.2 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$202.0 million . Substantially all of our operating losses are a result of expenses incurred in connection with our research and development programs, primarily evorpacept, and from general and administrative expenses associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses over at least the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:
• advance evorpacept through multiple clinical trials in multiple indications;
• pursue regulatory approval of evorpacept in hematological malignancies
and solid tumors;
• continue our discovery and preclinical and clinical development efforts,
including our collaborations with Tallac Therapeutics and Zymeworks and
our recent acquisition of ScalmiBio;
• obtain and maintain patent, trade secret and other intellectual property
protection and regulatory exclusivity for our product candidates;
• manufacture supplies for our preclinical studies and clinical trials; and
• continue to add operational, financial and management information
systems to support ongoing operations as a public company.
Components of Results of Operations
Related-Party Revenue
To date, we have not generated any revenue from product sales, licenses or collaborations and do not expect to generate any revenue from the sale of products in the foreseeable future. We recognized related-party revenue related to research and development services to Tallac Therapeutics, which ceased as ofJuly 1, 2020 . If our clinical development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue from future product sales. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates including evorpacept. We may never succeed in obtaining regulatory approval for any of our product candidates. 101 --------------------------------------------------------------------------------
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our lead product candidate, evorpacept, which include:
• expenses incurred in connection with the preclinical and clinical
development, including expenses incurred under agreements with contract
research organizations, or CROs;
• expenses incurred in connection with the preclinical and clinical
development, including expenses incurred under collaboration
agreements;
• employee-related expenses, including salaries, related benefits, travel
and stock-based compensation expense for employees engaged in research
and development functions;
• expenses related to production of clinical materials, including fees
paid to contract manufacturing organizations, or CMOs;
• laboratory, vendor expenses and third-party drugs related to the
execution of preclinical studies and clinical trials;
• facilities and other expenses, which include expenses for rent and
maintenance of facilities, depreciation and amortization expense and
other supplies; and
• acquired in-process research and development (IPR&D) related to our
ScalmiBio acquisition.
We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or as services are performed. We record accruals for estimated costs of research, preclinical studies and clinical trials and manufacturing development, which are a significant component of research and development expenses. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services. Our research and development expenses consist primarily of costs associated with the development of our lead product candidate, evorpacept, and include external costs, such as fees paid to consultants, central laboratories, contractors, collaborators, CMOs and CROs in connection with our preclinical and clinical development activities. Almost all of our research and development expenses to date related to the clinical development of our lead product candidate, evorpacept. 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 progress on our existing product candidates and developing new product candidates. As our product candidates advance into later stages of development, we begin to conduct larger clinical trials. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. In addition, we will incur expenses related to the preclinical research conducted internally and through the contract with Tallac Therapeutics, as further described in Note 11 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
The successful development of our current and future product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:
• successful completion of preclinical studies and clinical trials;
• delays in regulators or institutional review boards authorizing us or
our investigators to commence our clinical trials or in our ability to
negotiate agreements with clinical trial sites or CROs;
• the number and location of clinical sites included in the trials;
• raising additional funds necessary to complete clinical development of
our product candidates;
• obtaining and maintaining patent, trade secret and other intellectual
property protection and regulatory exclusivity for our product
candidates;
102--------------------------------------------------------------------------------
• contracting with third-party manufacturers for clinical supplies of our
product candidates;
• protecting and enforcing our rights in our intellectual property
portfolio, including, if necessary, litigation; and
• maintaining a continued acceptable safety profile of the products
following approval.
A change in the outcome of any of these variables with respect to the development of our product candidates may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. Research and development activities are essential to our business model. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact the success, cost or timing of our clinical development programs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, business development expenses, facilities expenses, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, accounting and tax-related services, and directors and officers liability insurance premiums. Personnel and related costs consist of salaries, benefits and stock-based compensation expense. Facilities costs consist of rent and maintenance of facilities. We anticipate that our general and administrative expenses will continue to increase as a result of increased headcount, expanded infrastructure and higher consulting, legal, tax and regulatory-related services associated with maintaining compliance with stock exchange listing andSEC requirements, audit and investor relations costs, director and officer insurance premiums and other costs associated with being a public company.
Cost of Services for Related-Party Revenue
We incurred costs associated with related-party contract research services including direct labor and associated employee benefits, laboratory supplies and other expenses with Tallac Therapeutics, which ceased as ofJuly 1, 2020 . These costs are recorded in cost of services for related-party transactions as a component of total operating expenses in the accompanying consolidated statements of operations and comprehensive loss.
Interest Expense
Our interest expense consisted primarily of interest expense on the term loan, amortization of deferred debt issuance costs, and interest related to finance leases. Other Income (Expense), Net Our other expense, net, consists of interest income on cash balances, changes in the fair value of our convertible preferred stock warrant liability and compound derivative liability, gain on assignment of lease, and foreign currency re-measurement and transaction gains and losses. Prior to our initial public offering, the underlying shares of our Series B convertible preferred stock warrants were contingently redeemable, and we accounted for these warrants as a liability at fair value and re-measured the fair value at each balance sheet date. As a result of the completion of our initial public offering, the Series B convertible preferred stock warrant liability was reclassified to stockholders' equity and re-measurement was no longer required. The compound derivative liability was extinguished upon the extinguishment of the host instrument inDecember 2020 .
Loss on Early Debt Extinguishment
InDecember 2020 , we used approximately$6.5 million of the net proceeds from our follow-on public offering to repay the outstanding principal amount of$6.0 million and early extinguish the outstanding Term Loan with SVB and WestRiver. As a result of the early repayment, we recognized a$0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff. 103 --------------------------------------------------------------------------------
Results of Operations and Net Loss
Comparisons of the Years Ended
The following table summarizes our results of operations for the years ended
Year Ended December 31, Change
2021 2020 $ %
Related-party revenue $ - $ 1,182 $ (1,182 ) (100 ) %
Operating expenses
Research and development 60,170 28,961 31,209 108 %
General and administrative 23,385 14,809 8,576 58 %
Cost of services for related-party
revenue - 1,075 (1,075 ) (100 ) %
Total operating expenses 83,555 44,845 38,710 86 %
Loss from operations (83,555 ) (43,663 ) (39,892 ) 91 %
Interest expense (13 ) (811 ) 798 (98 ) %
Other income (expense), net 84 (404 ) 488 (121 ) %
Loss on early debt extinguishment - (621 ) 621 (100 ) %
Loss before income taxes (83,484 ) (45,499 ) (37,985 ) 83 %
Income tax benefit (provision) 21 (241 ) 262 (109 ) %
Net loss and comprehensive loss (83,463 ) (45,740 ) (37,723 ) 82 %
Cumulative dividends allocated to
preferred stockholders - (5,202 ) 5,202 (100 ) %
Net loss attributable to common
stockholders $ (83,463 ) $ (50,942 ) $ (32,521 ) 64 %
Related-Party Revenue
Related-party revenue for the years ended December 31, 2021 and 2020 was zero
and $1.2 million , respectively, which was generated solely from payments
received for reimbursement of research and development expenses pursuant to the
Research and Development Services Agreement with Tallac Therapeutics, or the
Tollnine Agreement, as further described in Note 11 to our consolidated
financial statements appearing elsewhere in this Annual Report on Form 10-K. The
decrease of $1.2 million from 2020 to 2021 related to decreased fee-for-service
hours provided to Tallac Therapeutics as a result of winding down the Tollnine
Agreement, which was terminated on July 1, 2020 .
Research and Development Expenses
The following table summarizes our research and development expenses incurred
for the years ended
Year Ended December 31 , Change
2021 2020 $ %
Clinical and development costs $ 41,033 $ 21,743 $ 19,290 89 %
Personnel and related costs 8,471 4,504 3,967 88 %
Stock-based compensation expense 5,211 2,551 2,660 104 %
Other research and development costs 5,455 163 5,292 3,247 %
Total research and development expenses $ 60,170 $ 28,961 $ 31,209 108 %
Research and development expenses for the year ended December 31, 2021 were
$60.2 million , compared to $29.0 million for the year ended December 31, 2020 .
The increase of $31.2 million was primarily attributable to (i) an increase of
$19.3 million in clinical and development costs due to $14.7 million higher
clinical costs mainly associated with a higher number of active clinical trials
and increased patient enrollment and other research costs in advancement of our
current lead product candidate, evorpacept, $2.8 million related to
collaborations, of which $2.1 million was related to the Tallac Collaboration,
and $1.7 million related to regulatory expenses and other research
104
--------------------------------------------------------------------------------
costs, (ii) an increase of $5.3 million in other research and development costs
due to $4.7 million of acquired in-process research and development that was
immediately expensed related to the ScalmiBio acquisition, an increase of $0.3
million milestone payments triggered by the initiation of our Phase 2 trials and
an increase of $0.1 million clinical trial insurance as we continue to initiate
our trials, (iii) an increase of $4.0 million in personnel expense due to $2.3
million increase driven by headcount growth, our share of Tallac's personnel
expenses of $0.6 million related to the collaboration and, $0.5 million increase
in recruiting expenses, and an $0.5 million retention bonus related to the
ScalmiBio acquisition, and (iv) an increase of $2.7 million in stock-based
compensation expense mainly due to an increase of $4.0 million in stock-based
compensation expense driven by additional stock option awards granted in 2021 at
higher fair values, offset by a decrease of $1.3 million expense as we modified
stock option awards for former employees who transferred to Tallac Therapeutics
in 2020.
General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred
for the years ended
Year Ended December 31, Change
2021 2020 $ %
Personnel and related costs $ 5,347 $ 4,893 $ 454 9 %
Stock-based compensation expense 8,703 2,885 5,818 202 %
Other general and administrative costs 9,335 7,031 2,304 33 %
Total general and administrative
expenses $ 23,385 $ 14,809 $ 8,576 58 %
General and administrative expenses for the year ended December 31, 2021 were
$23.4 million , compared to $14.8 million for the year ended December 31, 2020 .
The increase of $8.6 million was primarily attributable to (i) an increase of
$5.8 million in stock-based compensation expense driven by an increase of $6.2
million due to additional stock option awards granted in 2021 at higher fair
values, offset by a decrease of $0.4 million as we recorded additional expense
related to the modification of stock option awards for former employees in 2020,
(ii) an increase of $2.3 million in other general and administrative costs
primarily driven $1.1 million increase in directors and officers liability
insurance premiums and $1.7 million increase in various other expenses including
SEC filing related fees, SOX consulting, legal expenses, recruiting fees,
information system related expenses, board service fees, and other expenses;
partially offset by a decrease of $0.7 million in accounting and consulting
service fees, which were higher in 2020 due to the IPO, and (iii) an increase of
$0.5 million personnel and related costs primarily driven $1.6 million increase
by headcount growth, offset by a decrease of $1.1 million driven by special
bonus in 2020 related to the IPO.
Cost of Services for Related-Party Revenue
Cost of services for related-party revenue for the years endedDecember 31, 2021 and 2020 was zero and$1.1 million , respectively. The decrease of$1.1 million from 2020 to 2021 was attributable to decreased fee-for-service hours provided to Tallac Therapeutics as a result of winding down the Tollnine Agreement, which was terminated onJuly 1, 2020 .
Loss on Early Debt Extinguishment
For the year-endedDecember 31, 2020 we recognized a$0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff.
Liquidity and Capital Resources; Plan of Operations
Sources of Liquidity
Since our inception, we have incurred significant operating losses and have not
generated any product revenue. We have not yet commercialized any of our product
candidates and we do not expect to generate revenue
105
--------------------------------------------------------------------------------
from sales of any product candidates for several years, if at all, subject to
marketing approval of any of our product candidates. To date, we have funded our
operations with proceeds from the sales of shares of our common stock and
convertible preferred stock and borrowings under our term loan. As of December
31, 2021 , we had cash and cash equivalents of $363.7 million .
Debt Extinguishment
InDecember 2020 , we used approximately$6.5 million of the net proceeds from our follow-on public offering to repay the outstanding principal amount of$6.0 million and early extinguish the outstanding Term Loan with SVB and WestRiver. As a result, we recognized a$0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff.
Funding Requirements
We have incurred losses and negative cash flows from operations since inception and anticipate that we will continue to incur net losses for the foreseeable future. As ofDecember 31, 2021 , we had an accumulated deficit of$202.0 million . We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. Management recognizes the need to raise additional capital to fully implement its business plan. The timing and amount of such future capital requirements are difficult to forecast and will depend on many factors, including:
• the timing and progress of preclinical and clinical development activities;
• successful enrollment in and completion of clinical trials;
• the timing and outcome of regulatory review of our product candidates;
• our ability to establish agreements with third-party manufacturers for
clinical supply for our clinical trials and, if any of our product
candidates are approved, commercial manufacturing;
• addition and retention of key research and development personnel;
• our efforts to enhance operational, financial and information management
systems, and hire additional personnel, including personnel to support
development of our product candidates;
• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any of our
product candidates for which we obtain marketing approval;
• the legal patent costs involved in prosecuting patent applications and
enforcing patent claims and other intellectual property claims;
• the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone and royalty payments
thereunder; and
• the impact of the COVID-19 pandemic, which may exacerbate the magnitude
of the factors discussed above.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution 106 -------------------------------------------------------------------------------- or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug 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 other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. InJuly 2020 , we completed our initial public offering pursuant to a registration statement on Form S-1. In the initial public offering, we issued and sold an aggregate of 9,775,000 shares of common stock, including the underwriters' exercise in full of their overallotment option, under the registration statement at a public offering price of$19.00 per share. Net proceeds were approximately$169.5 million , after deducting underwriting discounts and commissions of$13.0 million and offering-related expenses of$3.2 million . InDecember 2020 , we completed our follow-on public offering pursuant to a registration statement on Form S-1. In the follow-on public offering, we issued and sold an aggregate of 2,737,000 shares of common stock, including the underwriters' exercise in full of their overallotment option, under the registration statement at a public offering price of$76.00 per share. Net proceeds were approximately$194.9 million , after deducting underwriting discounts and commissions of$12.5 million and offering-related expenses of$0.7 million . InDecember 2021 , we entered into a sales agreement withCantor Fitzgerald & Co. andCredit Suisse Securities (USA) LLC , under which we may offer and sell our common stock, having aggregate gross proceeds of up to$150.0 million , from time to time through them as our sales agent in our at-the-market equity offering program, or the ATM Offering Program. We believe our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through 2024. We have based these estimates on assumptions in which actuals may materially differ, and we could utilize our available capital resources sooner than we expect.
Cash Flows
The following table presents a summary of the net cash flow activity for the
years ended
Year Ended December 31,
2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (68,101 ) $ (38,289 )
Investing activities (4,923 ) 610
Financing activities 2,472 462,881
Net (decrease) increase in cash and cash equivalents
Operating Activities In the year endedDecember 31, 2021 , cash used in operating activities of$68.1 million was attributable to a net loss of$83.5 million and a net change of$4.0 million in our operating assets and liabilities, partially offset by$19.4 million in non-cash charges. The change in operating assets and liabilities was due to$9.7 million increase in other assets primarily related to long-term prepaid clinical costs and$1.7 million increases in prepaid expenses and other current assets, offset by$7.3 million increase in accounts payable and other accrued liabilities primarily due to timing of invoice and payments. The non-cash charges consisted of stock-based compensation of$13.9 million , acquired in-process research and development of$4.7 million , and non-cash lease costs of$0.7 million . In the year endedDecember 31, 2020 , cash used in operating activities of$38.3 million was attributable to a net loss of$45.7 million and a net change of$0.2 million in our net operating assets and liabilities, partially offset by$7.2 million in non-cash charges. The non-cash charges consisted of stock-based compensation expense of$5.4 million , change in fair value of Series B convertible preferred stock warrant liability and term loan compound derivative of$0.7 million , a loss on debt extinguishment of$0.6 million , amortization of term loan discount and 107 -------------------------------------------------------------------------------- issuance costs of$0.4 million , and depreciation and amortization of$0.2 million , partially offset by a gain on assignment of lease of$0.1 million . The change in operating assets and liabilities was primarily due to a$3.7 million decrease in accounts payable and$1.5 million increase in prepaid expenses and other current assets, partially offset by a$5.0 million increase in accrued expenses and other current liabilities, which was primarily due to timing of cash payments for clinical-related activities.
Investing Activities
In the year endedDecember 31, 2021 , cash used in investing activities was$4.9 million due to the acquisition of in-process research and development of$4.3 million and purchase of property and equipment of$0.7 million .
In the year ended
Financing Activities
In the year endedDecember 31, 2021 , cash provided by financing activities was$2.5 million , which were driven by$2.6 million proceeds from exercise of common stock under equity incentive plans and$0.2 million proceeds from issuance of common stock pursuant to employee stock purchase plan, offset by$0.3 million of principal payments on finance leases. In the year endedDecember 31, 2020 , cash provided by financing activities was$462.9 million , primarily from the net proceeds from our common stock offerings of$368.3 million , the net proceeds from the sale and issuance of Series C convertible preferred stock of$104.7 million and the proceeds from exercise of common stock options under equity incentive plans of$0.3 million . These cash inflows were partially offset by payments for early debt extinguishment of$6.5 million and payments of offering costs of$3.8 million .
Contractual Obligations and Commitments
We have contractual obligations from our operating lease, manufacturing and service contracts and other research and development activities. The following table aggregates our material expected contractual obligations and commitments as ofDecember 31, 2021 (in thousands): December
31, 2021
Total 2022 2023 - 2024 2025 - 2026
Operating lease obligations (1) $ 2,181 $ 519 $ 915 $ 747
Finance lease obligations (2) 720 432 288 -
Manufacturing and service contracts (3) 21,211 17,578
3,550 83 Total$ 24,112 $ 18,529 $ 4,753 $ 830 (1) The payments consist of (i) payments due for the office space in
expires in 2023, and (ii) payments due for the office space in South San
Francisco,
expires in 2026. See Note 6 to our consolidated financial statements
appearing elsewhere in this Annual Report on Form 10-K for details of
related commitments.
(2) Payments due for embedded finance leases related to a pharmaceutical
support service contract. See Note 6 to our consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K for
details of related commitments.
(3) In November 2015 , we entered into a Master Service Agreement, or the
MSA, with
process development and cGMP manufacturing of evorpacept for use in
clinical trials on a project basis. The MSA had an initial term of three
years with successive one-year renewal periods, is cancellable upon
notice and is non-exclusive. Statements of work under the MSA commit us
to certain future purchase obligations of approximately
In addition, we have commitments with two other drug product
manufacturers that commit us to certain future purchase
108--------------------------------------------------------------------------------
obligations of approximately $0.5 million . These amounts are based on
non-cancellable commitments and forecasts that include estimates offuture market demand, quantity discounts and manufacturing efficiencies
that may impact timing of purchases.
We enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. These payments are not included in the table of contractual obligations above.
Off-Balance Sheet Arrangements
During the period presented, we did not have, nor do we currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of these 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 during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on 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. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ significantly from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our audited consolidated financial statements elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results.
Clinical and Manufacturing Accruals
We record accruals for estimated costs of research, preclinical studies and clinical trials, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of our ongoing research and development activities are conducted by third-party service providers, including CROs and contract manufacturing organizations, or CMOs. Our contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services. We make significant judgments and estimates in determining the accrual balance at the end of each reporting period. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in our reporting amounts that are too high or too low in any particular period. To assist in our estimates, we rely upon the receipt of timely and accurate reporting from our clinical and non-clinical studies and other third-party vendors. ThroughDecember 31, 2021 , there have been no material differences from our accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to, the number of patients enrolled, the rate of patient enrollment, and the actual services performed, and related 109 -------------------------------------------------------------------------------- costs may vary from our estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect its financial position and results of operations.
Stock-Based Compensation
Stock-based compensation expense represents the grant-date fair value of awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The grant-date fair value of restricted stock units is the fair value of the underlying stock on the award's grant date. For stock options and shares purchased under our Employee Stock Purchase Plan, or ESPP, we estimate the grant-date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the derivation and use of subjective assumptions to determine the estimated fair value of stock option awards. These assumptions include:
• Expected Term-We have concluded that our stock option exercise history
does not provide a reasonable basis upon which to estimate expected
term, and therefore we use the simplified method for estimating the
expected term of stock option grants. Under this approach, the
weighted-average expected term is presumed to be the average of the
vesting term and the contractual term of the option.
• Expected Volatility-Since we do not have significant trading history for
our common stock, the expected volatility is estimated based on the
average volatility for comparable publicly traded biopharmaceutical
companies over a period equal to the expected term of the stock option
grants. The comparable companies were chosen based on their similar
size, stage in the life cycle or area of specialty. We will continue to
use comparable company information until the historical volatility of
our common stock is sufficient to measure expected volatility for future
option grants.
• Risk-Free Interest Rate-The risk-free interest rate is based on the U.S.
Treasury zero coupon issues in effect at the time of grant for periods
corresponding with the expected term of the award.
• Dividend Yield-We have not paid dividends on our common stock and do not
anticipate paying dividends for the foreseeable future, and we therefore
used an expected dividend yield of zero.
In addition to the Black-Scholes assumptions, we include the effect of forfeitures as they occur.
We expect the impact of our stock-based compensation expense to grow in future
periods due to the potential increases in the value of our common stock and the
number of awards we expect to grant.
We issue incentive and non-statutory stock options under the 2020 Amended and
Restated Equity Incentive Plan, or 2020 Plan, to certain directors, officers,
employees and consultants in consideration for services provided to us. To date,
all incentive stock options have provided for vesting over a four year period
from either the date of grant or the commencement of service. To date, all
non-statutory stock options have provided for vesting over periods ranging from
one to four years from either the date of grant or commencement of service. To
date, all non-statutory stock options have been granted to directors and vest
over a one year or a three year period from the award's date of grant, or the
date of the Company's next annual meeting of stockholders that occurs following
the date of grant. New grants issued under the 2020 Plan do not allow the option
holders to exercise their options prior to vesting.
Prior to our initial public offering, the fair value of the common stock
underlying our stock-based awards was determined on each grant date by our board
of directors, with input from management, considering our most recently
available third-party valuation of common shares. In the absence of a public
trading market for our common stock, our board of directors made a reasonable
determination of the fair value of our common stock based on the information
known to us on the date of grant, upon a review of any recent events and their
potential impact on the estimated fair value per share of the common stock, and
timely valuations from an independent third-party valuation
110
--------------------------------------------------------------------------------
in accordance with guidance provided by the
Recent Accounting Pronouncements
See "Note 2. Significant Accounting Policies" of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" for a full description of recent accounting pronouncements, including the respective expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
© Edgar Online, source
