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ALX ONCOLOGY HOLDINGS INC.

(ALXO)
  Report
Delayed Nasdaq  -  04:00 2022-09-23 pm EDT
9.790 USD   -7.47%
09/21ALX Oncology to Participate in the Cantor Oncology, Hematology & HemeOnc Conference
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ALX ONCOLOGY HOLDINGS INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/08/2022 | 04:25pm EDT
You should read the following discussion of our financial condition and results
of operations together with our unaudited condensed consolidated financial
statements and related notes included elsewhere in this Quarterly Report on Form
10-Q. 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 Quarterly Report on Form 10-Q.

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 multiple 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 enhance the immune activation of broadly used anti-cancer agents
through combination treatment strategies. As of June 30, 2022, we had dosed over
260 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 are conducting two ongoing randomized Phase 2 trials
(ASPEN-03 and ASPEN-04) of evorpacept for the treatment of first-line advanced
head and neck squamous cell carcinoma, or HNSCC, with the first subject enrolled
in the first trial in May 2021 and the first subject enrolled in the second
trial in July 2021. The Food and Drug Administration, or the FDA, granted Fast
Track designation for evorpacept in combination with pembrolizumab, platinum,
and fluorouracil for the first-line treatment of adult patients with metastatic
or unresectable, recurrent HNSCC in February 2020. In July 2022, the FDA granted
Fast Track designation for evorpacept in combination with pembrolizumab for
first-line treatment of adult patients with metastatic or unresectable,
recurrent HNSCC whose tumors express PD-L1. We are also conducting a randomized
Phase 2/3 trial (ASPEN-06) of evorpacept for the treatment of second and third
line advanced HER2-overexpressing gastric/gastroesophageal junction, or GEJ,
cancer and dosed the first patient in March 2022. The FDA granted Fast Track
designation for evorpacept in combination with trastuzumab, ramucirumab and
paclitaxel for the treatment of patients with HER2-overexpressing advanced
gastric or GEJ adenocarcinoma with disease progression on or after prior
trastuzumab and fluoropyrimidine or platinum containing chemotherapy in January
2020. In January 2022, the FDA's Office of Orphan Products Development granted
Orphan Drug Designation to evorpacept for the treatment of patients with
gastric/GEJ cancer. We recently announced we will initiate a new clinical study
(ASPEN-07) to investigate evorpacept in combination with an antibody-drug
conjugate or ADC, PADCEV® (enfortumab vedotin-ejfv), for the second-line
treatment of locally advanced or metastatic urothelial cancer, or UC, in the
fourth quarter of 2022. Our collaborator, Zymeworks, is conducting an ongoing
Phase 1 trial for the treatment of advanced HER2-expressing breast cancer and
other solid tumors and enrolled the first subject in October 2021.

In hematologic malignancies, we have initiated two Phase 1 trials of evorpacept
for the treatment of myelodysplastic syndromes, or MDS (ASPEN-02), and acute
myeloid leukemia, or AML (ASPEN-05), with the first patient dosed in each trial
in October 2020 and October 2021, respectively. In June 2022, we paused
enrollment into the ASPEN-05 AML trial based on the desire to leverage upcoming
dose optimization data from the ASPEN-02 MDS study to inform dose optimization
in ASPEN-05. In June 2022, the FDA's Office of Orphan Drug Products Development
granted Orphan Drug Designation to evorpacept for the treatment of patients with
AML.

In 2021, an investigator-sponsored trial (IST) of evorpacept was initiated in
combination with rituximab and lenalidomide for the treatment of patients with
indolent and aggressive non-Hodgkin lymphoma, or NHL, at MD Anderson Cancer
Center.

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, ALTA-002, is a collaboration between us and Tallac
Therapeutics, Inc. (Tallac) that combines our company's SIRP? antibody with
Tallac's toll-like receptor 9 (TLR9) agonist, resulting in a potent immune
activator targeted 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 investigational new drug, or IND, for ALTA-002 is planned for
2023. Additionally, with our acquisition of ScalmiBio, Inc. (ScalmiBio), we are
planning 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 in Ireland on March 13, 2015 under the
name Alexo Therapeutics Limited and changed its name to ALX Oncology Limited on
October 11, 2018. We were then incorporated in Delaware on April 1, 2020 under
the name ALX Oncology Holdings Inc.
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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.

In July 2020, we completed 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. In December 2020, we
completed a follow-on 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 through June 30, 2022,
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 offering.

In March 2022, we filed a universal shelf registration statement (Shelf
Registration Statement), which provides for aggregate offerings of up to $450.0
million of the Company's securities. In May 2022, we filed an amendment to the
Shelf Registration Statement, which was declared effective by the Securities and
Exchange Commission (SEC) on May 31, 2022. We believe that our Shelf
Registration Statement will provide us with the flexibility to raise additional
capital to finance our operations as needed. In December 2021, we entered into a
sales agreement (Sales Agreement) with Cantor Fitzgerald & Co. and Credit Suisse
Securities (USA) LLC, under which we may, subject to the effectiveness of the
Shelf Registration Statement, 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 an at-the-market offering. No securities have been sold pursuant
to the Shelf Registration Statement or Sales Agreement.

We have incurred net losses in each year since inception. Our net losses were
$32.9 million and $16.3 million for the three months ended June 30, 2022 and
2021, respectively, and $57.5 million and $30.5 million for the six months ended
June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated
deficit of $259.4 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 for 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, 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

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 collaboration agreements and under agreements
with contract research organizations, or CROs;

employee-related expenses, including salaries, related benefits, travel and stock-based compensation expenses 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

milestone payments related to our ScalmiBio acquisition.

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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, 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 have been 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 8 to our condensed consolidated
financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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;

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 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 expenses. 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 and SEC requirements, audit
and investor relations costs, director and officer insurance premiums and other
costs associated with being a public company.

Interest Income

Our interest income consists primarily of interest income on cash, cash equivalents and short-term and long-term investments.

                                       21
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Other Income (Expense), Net

Our other income (expense), net, consists primarily of interest expense on finance leases.

Results of Operations

The following table summarizes our results of operations for the three months and six months ended June 30, 2022 and 2021 (dollars in thousands):

                          Three Months Ended                                    Six Months Ended
                               June 30,                    Change                   June 30,                    Change
                          2022          2021            $           %          2022          2021            $           %
Operating expenses:
Research and
development             $  26,748     $  11,213     $  15,535        139 %   $  43,821     $  21,062     $  22,759        108 %
General and
administrative              7,041         5,086         1,955         38 %      14,715         9,445         5,270         56 %
Total operating
expenses                   33,789        16,299        17,490        107 %  

58,536 30,507 28,029 92 % Loss from operations (33,789 ) (16,299 ) (17,490 ) 107 %

     (58,536 )     (30,507 )     (28,029 )       92 %
Interest income               876            23           853       3709 %       1,101            48         1,053       2194 %
Other income
(expense), net                 (7 )           2            (9 )     -450 %         (18 )           -           (18 )      100 %
Net loss                $ (32,920 )   $ (16,274 )   $ (16,646 )      102 % 

$ (57,453 ) $ (30,459 ) $ (26,994 ) 89 %

Research and Development Expenses


The following table summarizes our research and development expenses incurred
for the three months and six months ended June 30, 2022 and 2021 (dollars in
thousands):

                         Three Months Ended                                 Six Months Ended
                              June 30,                   Change                 June 30,                  Change
                          2022          2021          $           %         2022         2021          $           %
Clinical and
development costs      $   17,729     $  7,448     $ 10,281       138 %   $ 27,720     $ 14,798     $ 12,922        87 %
Preclinical costs           1,007          577          430        75 %      1,848        1,048          800        76 %
Personnel and
related costs               3,681        1,921        1,760        92 %      7,046        3,210        3,836       120 %
Stock-based
compensation expense        2,690          715        1,975       276 %      4,765        1,294        3,471       268 %
Other research costs        1,641          552        1,089       197 %      2,442          712        1,730       243 %
Total research and
development expenses   $   26,748     $ 11,213     $ 15,535       139 %   $ 43,821     $ 21,062     $ 22,759       108 %


Research and development expenses increased by $15.5 million during the three
months ended June 30, 2022 compared to the three months ended June 30, 2021. The
increase was primarily attributable to (i) an increase of $10.3 million in
clinical and development costs primarily due to manufacturing of clinical trial
materials to support a higher number of active clinical trials and future
expected patient enrollment related to the advancement of our lead product
candidate, as well as an increase of $1.6 million related to the Tallac
Collaboration for work related to the IND filing planned for 2023, (ii) an
increase of $0.4 million in preclinical costs primarily related to development
of new targets, (iii) an increase of $1.8 million in personnel and related costs
due primarily to an increase driven by headcount growth and a portion of a
retention bonus payable to ScalmiBio stockholders, (iv) an increase of $2.0
million in stock-based compensation expense due to additional awards granted
since June 30, 2021 and (v) an increase of $1.1 million in other research costs
due primarily to an increase of $0.5 million in facility costs related to the
expansion of our new laboratory space and remaining increase of $0.5 million in
VAT fees related to companion drug purchased for use in our clinical trials.

Research and development expenses increased by $22.8 million during the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
increase was primarily attributable to (i) an increase of $12.9 million in
clinical and development costs primarily due to manufacturing of clinical trial
materials to support a higher number of active clinical trials and future
expected patient enrollment related to the advancement of our lead product
candidate, as well as an increase of $2.6 million related to the Tallac
Collaboration for work related to the IND filing planned for 2023, (ii) an
increase of $0.8 million in preclinical costs primarily due to development of
new targets and costs related to Tallac Collaboration, (iii) an increase of $3.8
million in personnel and related costs due primarily to an increase driven by
headcount growth and a portion of a retention bonus payable to ScalmiBio
stockholders, (iv) an increase of $3.5 million in stock-based compensation
expense due to additional awards granted since June 30, 2021 and (v) an increase
of $1.7 million in other research costs due primarily to an increase of $1.0
million in facility costs related to the expansion of our new laboratory space
and remaining increase of $0.6 million in VAT fees related to companion drug
purchased for use in our clinical trials.
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General and Administrative Expenses


The following table summarizes our general and administrative expenses incurred
for the three months and six months ended June 30, 2022 and 2021 (dollars in
thousands):

                          Three Months Ended                                 Six Months Ended
                               June 30,                  Change                  June 30,                 Change
                          2022           2021          $          %         2022          2021          $          %
Personnel and
related costs          $    1,508      $  1,209     $   299        25 %   $   2,978     $  2,396     $   582        24 %
Stock-based                 3,146         1,522       1,624                   6,572        2,743       3,829
compensation expense                                              107 %                                            140 %
Other general and
administrative costs        2,387         2,355          32         1 %       5,165        4,306         859        20 %
Total general and
administrative
expenses               $    7,041      $  5,086     $ 1,955        38 %   $  14,715     $  9,445     $ 5,270        56 %


General and administrative expenses increased by $2.0 million during the three
months ended June 30, 2022 compared to the three months ended June 30, 2021. The
increase was primarily attributable to (i) an increase of $1.6 million in
stock-based compensation expense due to additional stock option awards granted
since June 30, 2021 and (ii) an increase of $0.3 million in personnel and
related costs primarily driven by headcount growth.

General and administrative expenses increased by $5.3 million during the six
months ended June 30, 2022 compared to the six months ended June 30, 2021. The
increase was primarily attributable to (i) an increase of $3.8 million in
stock-based compensation expense due to additional stock option awards granted
since June 30, 2021, (ii) an increase of $0.6 million in personnel and related
costs primarily driven by headcount growth and (iii) an increase of $0.9 million
in other costs primarily driven by an increase in legal patent fees, SEC related
filing fees and facility and information technology costs.

Liquidity and Capital Resources

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 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 June 30, 2022, we had cash, cash
equivalents and short-term and long-term investments of $324.2 million.

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 of June 30, 2022, we had an accumulated deficit of $259.4 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;

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macroeconomic conditions, such as inflation, economic downturns, disasters, and medical or public health crises; and

the impact of the ongoing COVID-19 pandemic or geopolitical risks, 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 in the 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 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.

In July 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.

In December 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.

In December 2021, we entered into a sales agreement with Cantor Fitzgerald & Co.
and Credit 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. On March 25, 2022, we filed a Shelf
Registration Statement with the SEC. In May 2022, we filed an amendment to the
Shelf Registration Statement, which was declared effective by the SEC on May 31,
2022. No sales have been made under the ATM Offering Program as of the date of
this report.

We believe our existing cash, cash equivalents and short-term and long-term
investments will enable us to fund our operating expenses and capital
expenditure requirements through the fourth quarter of 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 six months ended June 30, 2022 and 2021:

                                                                 Six Months Ended
                                                                     June 30,
                                                                2022          2021
Net cash provided by (used in):
Operating activities                                         $  (37,672 )   $ (25,757 )
Investing activities                                           (260,053 )          (7 )
Financing activities                                                502         1,509

Net decrease in cash, cash equivalents and restricted cash $ (297,223 ) $ (24,255 )



Operating Activities

In the six months ended June 30, 2022, net cash used in operating activities of
$37.7 million was attributable to a net loss of $57.5 million, offset by
non-cash charges of $12.1 million and a change in our net operating assets and
liabilities of $7.7 million. Non-cash charges consisted primarily of stock-based
compensation expense of $11.3 million and non-cash lease costs of $0.5 million.
The change in operating assets and liabilities was primarily due to (i) an
increase in accounts payable and accrued expenses and other current liabilities
of $8.8 million primarily due to timing of invoices and payments, (ii) a
decrease in other non-current liabilities of $0.6 million and (iii) a decrease
in other assets of $0.3 million.
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In the six months ended June 30, 2021, net cash used in operating activities of
$25.8 million was attributable to a net loss of $30.5 million, offset by
non-cash charges of $4.3 million and a change in our net operating assets and
liabilities of $0.5 million. Non-cash charges consisted primarily of stock-based
compensation expense of $4.0 million and non-cash lease costs of $0.2 million.
The change in operating assets and liabilities was primarily due to (i) an
increase of $5.8 million in accounts payable, (ii) an increase of $2.3 million
in other non-current liabilities due to the recognition of lease liabilities as
a result of ASC 842 adoption as well as the commencement of new leases, (iii) an
increase of $1.2 million in accrued expenses and other current liabilities, (iv)
$0.7 million increase in payable and accrued liabilities due to related party,
(v) a decrease of $9.0 million in other assets of which $5.7 million related to
certain clinical activities and $3.3 million related to right-of-use assets due
to the recognition of right-of-use assets as a result of ASC 842 adoption as
well as the commencement of new leases and (vi) a decrease of $0.5 million in
prepaids expenses and other current assets.

Investing Activities


In the six months ended June 30, 2022, net cash used in investing activities of
$260.1 million was attributable to purchases of short-term and long-term
investments of $279.2 million offset by cash received for sales and maturities
of investments of $20.0 million and purchases of property and equipment of $0.8
million.

In the six months ended June 30, 2021, net cash used in investing activities was nominal.


Financing Activities

In the six months ended June 30, 2022, net cash provided by financing activities
was $0.5 million and was attributable to proceeds from the exercise of stock
options under equity incentive plans of $0.3 million and proceeds from issuance
of common stock pursuant to employee stock purchase plan of $0.3 million offset
by principal payments on finance leases of $0.1 million.

In the six months ended June 30, 2021, net cash provided by financing activities
was $1.5 million and was attributable to proceeds from the exercise of stock
options under equity incentive plans.

Contractual Obligations and Commitments

We have contractual obligations from our operating leases, finance leases, manufacturing and service contracts and other research and development activities. The following table aggregates our material expected contractual obligations and commitments as of June 30, 2022 (in thousands):


                                                          June 30, 2022
                              Total           2022         2023-2024       2025-2026       Thereafter
Operating lease             $    8,572     $      549     $     2,519     $     2,504     $      3,000
obligations (i)
Finance lease obligations          504            216             288
(ii)                                                                                -                -
Manufacturing and service
contracts (iii)                 49,150         17,205          31,727             218                -
Total                       $   58,226     $   17,970     $    34,534     $     2,722     $      3,000


(i)
The payments consist of (i) payments due for the office space in Burlingame,
California under a single operating sub-lease agreement that expires in 2023,
(ii) payments due for the office space in South San Francisco, California under
a single operating lease agreement that expires in 2026 and (iii) payments due
for the office and laboratory space in Palo Alto, California under a single
operating lease agreement that expires in 2030. See Note 5 to our condensed
consolidated financial statements appearing elsewhere in this Quarterly Report
on Form 10-Q for details of related commitments.

(ii)

Payments due for embedded finance leases related to a pharmaceutical support
service contract. See Note 5 to our condensed consolidated financial statements
appearing elsewhere in this Quarterly Report on Form 10-Q for details of related
commitments.

(iii)

In November 2015, we entered into a Master Service Agreement, or the MSA, with
KBI Biopharma, Inc. relating to formulation development, process development and
current good manufacturing practices, or 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 $46.5 million. In addition, we have
commitments with two other drug product manufacturers that commit us to certain
future purchase obligations of approximately $2.6 million. We expect to make
payments for these commitments through 2026 based on non-cancellable commitments
and forecasts that include estimates of future 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 SEC.

                                       25
--------------------------------------------------------------------------------

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 condensed consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in the United States, or GAAP. The preparation of these condensed consolidated
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.

Our critical accounting policies are more fully described in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Significant Judgments and Estimates"
in the Company's Annual Report on Form 10-K for the year ended December 31,
2021. During the six months ended June 30, 2022, there were no material changes
to our critical accounting policies from those discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on
February 28, 2022.

Recent Accounting Pronouncements


See "Note 2. Significant Accounting Policies - Recent Accounting Pronouncements"
to our condensed consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q for more information.

© Edgar Online, source Glimpses

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