ANAPTYSBIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the historical consolidated financial statements and the notes thereto included in Part II, Item 8-Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K. This discussion and other sections of this Annual Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" included in Part I, Item 1A of this Annual Report. You should also carefully read "Special Note Regarding Forward-Looking Statements".
Overview
We are a clinical stage biotechnology company developing first-in-class
immunology therapeutic product candidates focused on emerging immune control
mechanisms applicable to inflammation and immuno-oncology indications. We
develop our product candidates using our proprietary antibody discovery
technology platform, which is based upon a breakthrough understanding of the
natural process of antibody generation, known as somatic hypermutation ("SHM"),
and replicates this natural process of antibody generation in vitro. Our
strategy is to advance the development of our proprietary product candidates,
and where applicable, establish partnerships with leading biopharmaceutical
companies where we retain certain development and commercialization rights. Our
most advanced wholly-owned antibody programs, imsidolimab, rosnilimab,
previously referred to as ANB030, and ANB032, are designed to modulate
therapeutic targets that are genetically associated with human inflammatory
disorders.
Imsidolimab, our IL-36R antibody previously referred to as ANB019, inhibits the
interleukin-36 receptor ("IL-36R"), and is being developed for the treatment of
multiple dermatological inflammatory diseases. We completed a Phase 1 clinical
trial in healthy volunteers, which was presented at the European Academy of
Allergy and Clinical Immunology in 2018, where imsidolimab was well-tolerated by
all subjects, no dose-limiting toxicities were observed, and no serious adverse
events were reported among any subjects in the clinical trial. In July 2020 , the
U.S. Food and Drug Administration (the "FDA") granted Orphan Drug Designation
for imsidolimab for the treatment of patients with GPP. We completed an
open-label, multi-dose, single-arm Phase 2 clinical trial of imsidolimab in 8
GPP patients, also referred to as the GALLOP clinical trial, where top-line data
through week 16 was presented at the European Academy of Dermatology and
Venerology (EADV) Congress on October 2, 2021 . In this trial, 6 of 8 (75%)
patients treated with imsidolimab monotherapy achieved the primary endpoint of
response on the clinical global impression ("CGI") scale at week 4 and week 16,
without requiring rescue medication. Two of 8 (25%) patients were considered to
have not met the primary endpoint because they dropped out of the trial prior to
Day 29. The Modified Japanese Dermatology Association severity index total score
("mJDA-SI"), which incorporates both dermatological and systemic aspects of GPP,
decreased for patients on average by 29% at week 1, 54% at week 4 and 58% at
week 16. Erythema with pustules, which clinically defines GPP, decreased by 60%
at week 1, 94% by week 4 and 98% by week 16. Patients achieved a reduction in
the Dermatology Life Quality Index (DLQI), which is a patient-reported measure,
of 6 points at week 4 and 11 points by week 16, each of which exceeded the
minimal clinically importance difference (MCID) of 4 points. GPP Physician
Global Assessment (GPPPGA) scale was implemented by protocol amendment during
the course of the trial and was assessed in 4 of the 8 enrolled patients, where
zero (clear) or 1 (almost clear) response was achieved in 2 (50%) patients at
week 4 and 3 (75%) patients at week 16. Genotypic testing indicated homozygous
wild-type IL-36RN, CARD14 and AP1S3 alleles for all 8 patients. Through week 16,
anti-drug antibodies were only detected in one patient, which occurred at week
12 and did not impact imsidolimab pharmacokinetics or efficacy. Imsidolimab was
generally well-tolerated, and most treatment-emergent adverse events were mild
to moderate in severity and resolved without sequelae. No infusion or injection
site reactions were observed. One patient dropped out of the clinical trial due
to a diagnosis of Staphylococcal aureus bacteremia in the first week, which was
a serious adverse event deemed to be possibly drug-related. Because the patient
was symptomatic prior to dosing and had a prior medical history of bacteremia, a
common comorbidity of GPP, we do not believe this event is likely attributable
to imsidolimab. Another patient dropped out of the study on Day 22 due to
investigator reported inadequate efficacy. One patient contracted COVID-19
during the course of the clinical trial, which was deemed a serious adverse
event unrelated to imsidolimab, and did not lead to study discontinuation. While
initial GPP epidemiology studies suggested at least 3,000 GPP patients in the
United States , medical claims analyses conducted by IQVIA indicate approximately
37,000 unique patients were diagnosed with GPP at least once, and approximately
15,000 unique patients were diagnosed with GPP at least twice, by a physician
between 2017 and 2019 using the International Classification of Diseases 10th
Revision (ICD-10) billing code pertaining to GPP (L40.1).
We met with the FDA during the second quarter of 2021 for an end-of-Phase 2
meeting to review an orphan disease registration plan for imsidolimab for the
treatment of GPP. We have initiated our first Phase 3 trial for imsidolimab for
GPP, called GEMINI-1, during the third quarter of 2021. GEMINI-1 will enroll
approximately 45 moderate-to-severe GPP patients, each undergoing an active
flare at baseline, which will be randomized equally to receive a single dose of
750mg intravenous
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(IV) imsidolimab, 300mg IV imsidolimab, or placebo. The primary endpoint of the
Phase 3 program is the proportion of patients achieving clear or almost clear
skin as determined by a Generalized Pustular Psoriasis Physician's Global
Assessment (GPPPGA) score of zero or 1 at week 4 of GEMINI-1. Patients
completing the GEMINI-1 trial will subsequently be enrolled in GEMINI-2, our
second Phase 3 trial for imsidolimab in GPP, where they will receive monthly
doses of 200mg subcutaneous imsidolimab or placebo depending upon whether they
are responders, partial responders or non-responders to treatment under
GEMINI-1. The objective of GEMINI-2 is to assess the efficacy and safety of
imsidolimab after 6 months of monthly dosing.
We are conducting a global registry of GPP patients, also referred to as the
RADIANCE study, which we anticipate will improve understanding of the patient
journey and assist in enrollment of future GPP clinical trials.
We are conducting clinical development of imsidolimab in moderate-to-severe
acne. Acne is the most common skin disorder in the United States , with
approximately 3 million patients diagnosed with moderate-to-severe disease.
Moderate-to-severe acne typically presents with painful papules, pustules,
nodules, cysts and scarring. A key contributing factor to the pathogenesis of
acne is the immune response to Propionibacterium acnes, or P. acnes, which is
associated with upregulated IL-36 cytokine activity, localized inflammation and
neutrophil infiltration of the skin. Existing therapies, including isotretinoin
and systemic antibiotics, provide variable efficacy for moderate-to-severe acne
patients and have practical limitations to their use given potential for
clinically meaningful side effects.
We are conducting a Phase 2 clinical trial of imsidolimab, called ACORN, where
120 patients will be randomized equally between two dose levels of imsidolimab
and placebo, for the treatment of moderate-to-severe acne, and we anticipate
top-line data during the first half of 2022.
We are conducting clinical development of imsidolimab in hidradenitis
suppurativa, also known as acne inversa, which is a chronic inflammatory skin
disease characterized by painful nodules in intertriginous areas that can
progress to abscesses, sinus tracks and scarring. Current treatment options for
hidradenitis suppurativa, including antibiotics, corticosteroids and anti-TNF
therapy, have variable efficacy in moderate-to-severe patients, which often
leads to surgery for removal of hidradenitis suppurativa nodules. Human
translational studies have demonstrated elevated IL-36 cytokine expression in
hidradenitis suppurativa skin biopsies, and we believe treatment of
moderate-to-severe hidradenitis suppurativa with imsidolimab may lead to
therapeutic benefit for this patient population. Moderate-to-severe hidradenitis
suppurativa affects approximately 150,000 adults in the United States . We are
conducting a Phase 2 clinical trial of imsidolimab in moderate-to-severe
hidradenitis suppurativa, called HARP, where 120 patients will be randomized
equally between two dose levels of imsidolimab and placebo, and we anticipate
top-line data during the second half of 2022.
Our second wholly-owned program, rosnilimab, previously referred to as ANB030,
is an anti-PD-1 agonist antibody program designed to augment PD-1 signaling
through rosnilimab treatment to suppress T-cell driven human inflammatory
diseases. Genetic mutations in the PD-1 pathway are known to be associated with
increased susceptibility to human inflammatory diseases, and hence we believe
that rosnilimab is applicable to diseases where PD-1 checkpoint receptor
function may be under-represented. We presented preclinical data for rosnilimab
at the Festival of Biologics Annual Meeting in March 2020 , including
translational data demonstrating in vitro activity of rosnilimab in alopecia
areata patient samples. We announced positive top-line data from a healthy
volunteer Phase 1 clinical trial of rosnilimab in November 2021 . A total of 144
subjects were enrolled in the randomized, double-blind, placebo-controlled
healthy volunteer Phase 1 trial, where single ascending dose (SAD) cohorts were
administered single subcutaneous or intravenous doses of rosnilimab ranging
between 0.02mg to 600mg or placebo, while multiple ascending dose (MAD) cohorts
received four weekly subcutaneous doses of rosnilimab ranging between 60mg and
400mg or placebo. Dose escalation was conducted subsequent to data safety
monitoring board review of safety and tolerability parameters following each
single and multiple ascending dose level. Rosnilimab was generally
well-tolerated and no dose limiting toxicities were observed. The most frequent
adverse event reported among SAD cohorts was increased circulating C-reactive
protein levels of mild severity in nine (10%) rosnilimab-dosed subjects
occurring sporadically in a dose-independent manner and a severe occurrence in
one (3.3%) placebo-dosed subject. MAD cohorts reported headache as the most
frequent adverse event with mild occurrences in three (12.5%) rosnilimab-dosed
subjects and none in placebo subjects. Mild injection site reactions were
observed in two subjects (11.1%) administered with multiple subcutaneous
rosnilimab doses. Two serious adverse events were reported in single dose
cohorts, including obstructive pancreatitis in a placebo-dosed subject and
COVID-19 infection in a rosnilimab-dosed subject leading to discontinuation
which was deemed unrelated to treatment. No serious adverse events were reported
in subjects receiving multiple doses of rosnilimab or placebo.
Pharmacokinetic analyses demonstrated a favorable profile for rosnilimab with an
estimated two-week half-life for subcutaneous and intravenous routes of
administration and approximately 80% bioavailability. Low-titer anti-drug
antibodies were detected at low single dose levels in 19 (21%) rosnilimab-dosed
subjects, but none were detected in high single dose or multiple dose subjects.
Full PD-1 receptor occupancy was observed rapidly during the first week
following single subcutaneous rosnilimab doses at or above 60mg, and was
maintained for at least 30 days at or above 200mg single subcutaneous doses.
These data support monthly subcutaneous dosing of rosnilimab for future patient
trials. Rosnilimab's pharmacodynamic activity resulted in rapid and sustained
reduction in the quantity and functional activity of PD-1+ T cells, which are
known to be
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pathogenic drivers of inflammatory diseases. Conventional T (Tcon) cells (CD3+,
CD25 low) expressing PD-1, which represented approximately 25% of peripheral T
cells at baseline, were reduced by 50%, including in both CD4+ and CD8+ subsets,
in a dose-dependent manner and in correlation with receptor occupancy. This
effect was maximized on high-PD-1 expressing Tcon cells, which represented
approximately 5% of peripheral T cells, with 90% reduction relative to baseline.
Conversely, total T cells (CD3+), total Tcon cells (CD3+, CD25low) and total
regulatory T (Treg) cells (CD3+, CD4+, CD25 bright, CD127-) were unchanged (<5%
change from baseline), resulting in a favorable shift in the ratio of PD-1+ Tcon
cells to total Treg cells post-treatment. No effect (<5% reduction from
baseline) was observed on any of the aforementioned cell types in placebo-dosed
subjects. In addition, an antigen-specific functional T cell recall response,
measured as ex vivo interferon-gamma released in response to tetanus toxoid
challenge, was inhibited in a receptor occupancy dependent manner and was
consistent with the observed reduction of PD-1+ Tcon cells, to a maximum of
approximately 90% relative to baseline within 30 days following single
rosnilimab dose, while placebo administration had no effect. Based upon these
data, we believe rosnilimab's in vivo mechanism has the potential to treat
T-cell driven human inflammatory diseases. During the fourth quarter of 2021, we
initiated AZURE, a randomized placebo-controlled 45-patient Phase 2 trial of
rosnilimab in moderate-to-severe alopecia areata patients with at least 50%
scalp hair loss for at least 6 months prior to enrollment, where the primary
endpoint is change in severity of alopecia tool (SALT) relative to baseline. We
continue to assess clinical development opportunities for rosnilimab in
additional indications, including vitiligo and rheumatoid arthritis, and will
make decisions pending additional data.
Our third wholly-owned program is an anti-BTLA modulator antibody, known as
ANB032, which is broadly applicable to human inflammatory diseases associated
with lymphoid and myeloid immune cell dysregulation. Mutations in the BTLA
signaling pathway are associated with human inflammatory disease, and we believe
ANB032 silences pro-inflammatory signaling by modulating BTLA binding to HVEM.
We are conducting a healthy volunteer Phase 1 trial of ANB032, under an
Australian Clinical Trial Notification ("CTN") and anticipate top-line data from
this trial during the first half of 2022. We presented preclinical data
regarding ANB032 at the 2020 Federation of Clinical Immunology Societies (FOCIS)
Virtual Annual Meeting in October 2020 .
In addition to our wholly-owned antibody programs, multiple Company-developed
antibody programs have been advanced to preclinical and clinical milestones
under our collaborations. We have received to date approximately $226.9 million
in cash receipts from collaborations. Our collaborations include an
immuno-oncology-focused collaboration with GlaxoSmithKline, Inc. ("GSK") and an
inflammation-focused collaboration with Bristol-Myers Squibb ("BMS"). A
Biologics License Application ("BLA") for our most advanced partnered program,
which is an anti-PD-1 antagonist antibody called JEMPERLI (dostarlimab), was
approved by the FDA in April 2021 for the treatment of advanced or recurrent
deficient mismatch repair endometrial cancer ("dMMREC"). This is the first
AnaptysBio -generated antibody, of eight currently under clinical development, to
obtain FDA approval. We earned a $20.0 million milestone payment as a result of
this FDA approval. In addition, in April 2021 the European Medicines Agency
("EMA") granted conditional marketing authorization in the European Union ("EU")
for JEMPERLI for use in women with mismatch repair deficient
(dMMR)/microsatellite instability-high (MSI-H) recurrent or advanced endometrial
cancer who have progressed on or following prior treatment with a platinum
containing regimen, which approval makes JEMPERLI the first anti-PD-1 therapy
available for endometrial cancer in Europe . We earned a $10.0 million milestone
payment as a result of this approval. A second BLA submitted by GSK was accepted
by the FDA during the first quarter of 2021 for JEMPERLI in pan-deficient
mismatch repair tumors ("PdMMRT"). We received a $10.0 million cash milestone
payment upon the FDA acceptance of GSK's second FDA BLA for JEMPERLI and
received $20.0 million cash milestone payment in September 2021 , upon FDA
approval of this second FDA BLA of JEMPERLI in August. JEMPERLI is currently in
clinical development for various solid tumor indications, including dMMREC,
PdMMRT, colorectal cancer, ovarian cancer, non-small cell lung cancer, cervical
cancer, rectal cancer, clear cell sarcoma and head-and-neck squamous cell
carcinoma. GSK is conducting combination trials of dostarlimab with Zejula,
belantamab mafodotin (BCMA ADC), GSK6097608 (anti-CD96) and GSK3745417 (STING
agonist). In addition, under GSK's collaboration with iTeos Therapeutics,
dostarlimab is being developed in combination with EOS-448 (anti-TIGIT) and
inupadenant (A2A receptor antagonist) in various solid tumor indications,
including registration-directed trials combining dostarlimab and EOS-448 for
first-line PD-L1 high non-small cell lung cancer (NSCLC) patients, head and neck
squamous cell cancer (HNSCC) and a third undisclosed indication. In June 2021 ,
GSK estimated potential peak annual global JEMPERLI sales on a non-risk adjusted
basis of £1-£2 billion, which is currently equal to approximately $1.4 to $2.7
billion based on the GBP to USD exchange rate as of December 31, 2021 , for
currently approved indications and first-line use in endometrial and ovarian
cancer only. In October 2020 , we amended our GSK collaboration to increase
royalties on global net sales of JEMPERLI to 8% on annual global net sales below
$1.0 billion and 12-25% of annual global net sales above $1.0 billion , add a 1%
royalty rate on GSK's global net sales of Zejula and received a one-time cash
payment of $60.0 million . In October 2021 , we signed a royalty monetization
agreement ("Royalty Monetization Agreement") with Sagard Healthcare Royalty
Partners ("Sagard"). Pursuant to this transaction, we received a $250.0 million
payment upon closing in December 2021 , in exchange for JEMPERLI royalties due to
us on annual commercial sales below $1.0 billion and certain future milestones
starting in October 2021 . The aggregate JEMPERLI royalties and milestones to be
received by Sagard under the Royalty Monetization Agreement is capped at certain
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fixed multiples of the upfront payment based upon time. For more information
about these collaborations, see "- Collaborations" included in Part I, Item 1 of
this Annual Report.
Following the closing of the Sagard royalty monetization transaction, we ended
2021 with $615.2 million in cash, cash equivalents and investments and intend to
continue to operate in a capital-efficient manner.
As of December 31, 2021 , we had an accumulated deficit of $321.8 million ,
primarily as a result of losses incurred since our inception in 2005. We expect
to continue to incur net operating losses for at least the next several years as
we advance our products through clinical development, seek regulatory approval,
prepare for and, if approved, proceed to, commercialization, expand our
operations and facilities and grow in new and existing markets, territories and
industries.
For our discussion related to the results of our operations and liquidity and
capital resources for fiscal year ended December 31, 2020 compared to the year
ended December 31, 2019 , please refer to Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2020 .
COVID-19
We are continuing to proactively monitor and assess the COVID-19 global pandemic. The full impact of the COVID-19 pandemic is inherently uncertain. Our ongoing clinical trials have been, and may continue to be, affected by the closure of offices, or country borders, among other measures being put in place around the world. The COVID-19 pandemic has caused us to modify our business practices (including but not limited to curtailing or modifying employee travel, moving to full remote work, and cancelling physical participation in meetings, events, and conferences). While we have begun to re-open our offices, we continue to allow remote work, we continue to monitor developments of the COVID-19 pandemic and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, patients, and business partners. We have implemented appropriate safety measures, following guidance from theCenter for Disease Control and the Occupational Safety andHealth Administration . The extent of the impact of the COVID-19 pandemic on our future liquidity and operational performance will depend on certain developments, including the duration and spread of the outbreak, including its variants, the availability and effectiveness of vaccines, the impact on our clinical trials, patients, and collaboration partners, and the effect on our suppliers.
Financial Overview
Collaboration Revenue
We have not generated any revenue from product sales. Our revenue has been derived from amortization of upfront license payments, research and development funding, milestone and royalty payments under collaboration and license agreements with our collaborators. From inception throughDecember 31, 2021 , we have received$226.9 million in cash in non-dilutive funding from our collaborators.
Collaboration and Exclusive License Agreement with GSK
InMarch 2014 , we entered into a Collaboration and Exclusive License Agreement GSK (the "GSK Agreement") for the development and commercialization of therapeutic monospecific and bispecific antibodies that antagonize PD-1, TIM-3, LAG-3 and/or a fourth undisclosed checkpoint receptor. We received$17.0 million in upfront fees from GSK inMarch 2014 , and inNovember 2014 , we amended the agreement with GSK to include the development and commercialization of bispecific antibodies to another undisclosed target, for an additional upfront fee of$2.0 million . Both upfront fees were recognized over the same period that our research and development services for which we were reimbursed were performed, which was extended throughDecember 31, 2016 by amendment of the GSK Agreement inFebruary 2016 . For each of the four targets under the GSK agreement, we are eligible to receive up to$273.0 million in milestone payments, which are comprised of$18.0 million for preclinical and clinical development milestone payments,$90.0 million upon certain regulatory events and$165.0 million upon worldwide commercial sales thresholds. In addition, GSK is obligated to pay us tiered royalties, ranging from 4% to 8%, for each product developed under the agreement, except in the case of JEMPERLI where the royalties payable will be 8% to 25% as amended below, on annualized net sales of each antibody commercialized from the collaboration. OnOctober 23, 2020 , we amended the GSK Agreement (the "Amendment"). Under the Amendment, we agreed to permit GSK to conduct development and commercialization of Zejula, an oral, once-daily poly (ADP-ribose) polymerase (PARP) inhibitor, which has received US approval for the maintenance treatment of adult patients with advanced epithelial 65 -------------------------------------------------------------------------------- ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to first-line platinum-based chemotherapy and is under development for additional cancer indications. In addition, under the Amendment, we were granted increased royalties upon sales of JEMPERLI, an anti-PD-1 antagonist antibody under development by GSK for multiple oncological disorders, including endometrial cancer, non-small cell lung cancer, ovarian cancer, colorectal cancer, and mismatch repair deficient solid tumors, equal to 8% ofNet Sales (as defined in the GSK Agreement) below$1.0 billion and from 12% up to 25% ofNet Sales above$1.0 billion . The Amendment also provided for a one-time non-refundable cash payment of$60.0 million that we received in the fourth quarter of 2020. GSK also agreed, startingJanuary 1, 2021 , to pay us a 1% royalty less third-party royalty deduction on all GSK Net Sales of Zejula. The$1.1 billion in cash milestone payments due under the GSK Agreement remain unchanged. Additionally, under the terms of the Amendment, GSK has agreed to certain diligence commitments with respect to the future development of JEMPERLI, and the parties have agreed to review such commitments under regular joint review committee meetings going forward. From inception of the agreement throughDecember 31, 2021 , we have recognized$204.6 million in total revenue from GSK. InOctober 2021 , we entered into the Royalty Monetization Agreement with Sagard. Under the terms of the Royalty Monetization Agreement, we received$250.0 million , upon closing inDecember 2021 , in exchange for royalties payable to us under the GSK collaboration on annual global net sales of JEMPERLI below$1.0 billion , as well as certain milestone payments, starting inOctober 2021 . The aggregate JEMPERLI royalties and certain future milestones to be received by Sagard under the Royalty Monetization Agreement are capped at certain fixed multiples of the upfront payment based on time. Milestones achieved throughDecember 31, 2021 under the GSK Agreement are as follows: Anti-PD-1 Anti-TIM-3 Anti-LAG-3 (JEMPERLI/Dostarlimab) (GSK4069889A/Cobolimab) (GSK40974386) Milestone Event Amount Quarter Recognized Amount Quarter Recognized Amount Quarter
Recognized
Initiated in vivo toxicology studies using good laboratory practices (GLPs)$1.0M Q2'15$1.0M Q4'15$1.0M Q3'16 IND clearance from the FDA$4.0M Q1'16$4.0M Q2'16$4.0M Q2'17 Phase 2 clinical trial initiation$3.0M Q2'17$3.0M Q4'17$3.0M
Q4'19
Phase 3 clinical trial initiation - first indication$5.0M Q3'18 - - - - Phase 3 clinical trial initiation - second indication$5.0M Q2'19 - - - - Filing of the first BLA(1) - first indication$10.0M Q1'20 - - - - Filing of the first MAA(2) - first indication$5.0M Q1'20 - - - - Filing of the first BLA - second indication$10.0M Q1'21 - - - - First BLA approval - first indication$20.0M Q2'21 - - - - First MAA approval - first indication$10.0M Q2'21 - - - - First BLA approval - second indication$20.0M Q3'21 - - - -
(1) Biologics License Application ("BLA")
(2) Marketing Authorization Application ("MAA")
Milestones achieved during the discovery period were recognized as revenue pro-rata throughDecember 31, 2016 . Milestones achieved during fiscal 2017 were recognized as revenue in the period earned, while milestones afterDecember 31, 2017 were recognized upon determination that a significant reversal of revenue would not be probable. Cash is generally received within 30 days of milestone achievement.
Antibody Generation Agreement with Bristol-Myers Squibb
InDecember 2011 , we entered into a license and collaboration agreement (the "BMS Agreement") with Celgene, now a part of Bristol-Myers Squibb (Celgene and Bristol-Myers Squibb are hereinafter referred to, collectively, as "BMS"), to develop therapeutic antibodies against multiple targets. We granted BMS the option to obtain worldwide commercial rights to antibodies generated against each of the targets under the agreement, which option was triggered on a target-by-target basis by our delivery of antibodies meeting certain pre-specified parameters pertaining to each target under the agreement. The BMS Agreement provided for an upfront payment of$6.0 million from BMS, which we received in 2011, and recognized through 2014, milestone payments of up to$53.0 million per target, low single-digit royalties on net sales of antibodies against each target, and reimbursement of specified research and development costs. From inception of the agreement throughDecember 31, 2021 , we have recognized$10.0 million in total revenue from BMS. 66 --------------------------------------------------------------------------------
Anti-PD-1
(CC-90006)
Milestone Event Amount Quarter Recognized
Completion of first in vivo toxicology studies using GLPs $0.5M Q2'16
Phase 1 clinical trial initiation $1.0M Q4'16
Milestones were recognized as revenue in the period earned. There was no revenue
recognized under this agreement during the years ended
Research and Development Expense
Research and development expenses consist of costs associated with our research
and development activities, including drug discovery efforts, preclinical and
clinical development of our programs, and manufacturing. Our research and
development expenses include:
•External research and development expenses incurred under arrangements with
third parties, such as contract research organizations ("CROs"), consultants,
members of our scientific and therapeutic advisory boards, and contract
manufacturing organizations ("CMOs");
•Employee-related expenses, including salaries, benefits, travel, and stock-based compensation;
•Facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies; and
•License and sub-license fees.
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received.
We are conducting research and development activities primarily on inflammation programs. We have a research and development team that conducts antibody discovery, characterization, translational studies, IND-enabling preclinical studies, and clinical development. We conduct some of our early research and preclinical activities internally and plan to rely on third parties, such as CROs and CMOs, for the execution of certain of our research and development activities, such as in vivo toxicology and pharmacology studies, drug product manufacturing, and clinical trials. We have completed Phase 1 and Phase 2 clinical trials and have ongoing Phase 2 and 3 clinical trials for imsidolimab, completed a Phase 1 clinical trial and have an ongoing Phase 2 clinical trial in rosnilimab, and an ongoing Phase 1 trial in ANB032. We expect our research and development expenses to be higher for the foreseeable future as we continue to advance our product candidates into larger clinical trials.
General and Administrative Expense
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for our executive, finance, legal, business development, human resource, and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses, and professional fees for auditing, tax, and legal services.
Non-cash Interest Expense for the Sale of Future Royalties
Non-cash interest expense for the sale of future royalties consists of interest related to the liability for the sale of future royalties, as well as the amortization of debt issuance costs. We impute interest on the unamortized portion of the liability for the sale of future royalties using the effective interest method and record interest expense based on timing of the payments over the term of the Royalty Monetization Agreement. Our estimate of the interest rate under the arrangement is based on forecasted royalty and milestone payments expected to be made to Sagard over the life of the agreement.
Interest Income
Interest income consists primarily of interest earned on our short-term and long-term investments and is recognized when earned.
Net Operating Loss and Research and Development Tax Credit Carryforwards
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Since inception, we have accumulated net operating losses ("NOLs") in all years
except December 31, 2015 and 2014, in which we generated taxable income as a
result of our collaboration agreement with GSK as well as expenses incurred by
our Australian subsidiary which are not deductible for U.S. income tax purposes.
While we utilized NOLs in 2015 and 2014, we have since incurred losses and
therefore continue to have a valuation allowance against our net deferred tax
assets due to the uncertainty of the realization of such assets.
At December 31, 2021 , we had federal and state NOL carryforwards of $293.4
million and $65.6 million , respectively. The federal and state NOLs generated
prior to 2018 will both begin to expire in 2028, unless previously utilized. The
federal NOL includes $233.4 million of net operating losses generated in 2018
and after. Federal net operating losses generated in 2018 and after carryover
indefinitely and may generally be used to offset up to 80% of future taxable
income. At December 31, 2021 , we had federal and California research tax credit
carryforwards of approximately $3.2 million and $10.6 million , respectively. The
federal research tax credit carryforwards will begin to expire in 2041 and the
California research tax credits carryforward indefinitely. We also have foreign
tax losses of $3.3 million , which will carry forward indefinitely, subject to a
continuity of ownership test.
The NOL carryforward and the research tax credit carryforwards may be subject to
an annual limitation under Section 382 and 383 of the Internal Revenue Code of
1986, as amended, or the Code, and similar state provisions if we experience one
or more ownership changes which would limit the amount of NOL and tax credit
carryforwards that can be utilized to offset future taxable income and tax,
respectively. In general, an ownership change, as defined by Section 382 and 383
of the Code, results from transactions increasing ownership of certain
stockholders or public groups in the stock of the corporation by more than 50
percentage points over a three-year period. In September 2015 , we completed a
Section 382 and 383 of the Code ownership change analysis through December 31,
2014 and determined that there was an ownership change in 2007 that may limit
the utilization of approximately $5.3 million and $5.4 million in Federal and
state NOLs, respectively, and $0.2 million in both Federal and state research
tax credits. We extended the analysis period of the study through September 30,
2021 , noting ownership changes on January 31, 2017 and March 8, 2021 , which
limits the annual utilization of the Company's NOLs and causes the expiration of
approximately $15.0 million of federal research credits as they will not be
utilized within the carryover period due to the Section 382 limitation. Our use
of federal and state NOLs and research credits could be limited further by the
provisions of Section 382 of the U.S. Internal Revenue Code of 1986, as amended,
depending upon the timing and amount of additional equity securities that we
have issued or will issue. State NOL carryforwards may be similarly limited.
Limitations on our ability to use NOL carryforwards and research and development
tax credits to offset future taxable income could require us to pay U.S. federal
income tax earlier than would be required if such limitations were not in
effect. Similar rules and limitations may apply for state income tax purposes.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. 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. While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates.
Revenue Recognition
Revenue is recognized in accordance with revenue recognition accounting
guidance, which utilizes five basic steps to determine whether revenue can be
recognized and to what extent: (i) identify the contract with a customer;
(ii) identify the performance obligation; (iii) determine the transaction price;
(iv) allocate the transaction price; and (v) determine the recognition period.
Performance Obligations. We evaluate deliverables on a contract-by-contract
basis to determine whether each deliverable represents a good or service that is
distinct or has the same pattern of transfer as other deliverables. A
deliverable is considered distinct if the customer can benefit from the good or
service independently of other goods/services either in the contract or that can
be obtained elsewhere, without regard to contract exclusivity, and the entity's
promise to transfer the good or service to the customer is separately
identifiable from other promises in the contact. If the deliverable is not
considered distinct, we combine such deliverables and account for them as a
single performance obligation. We allocate the consideration to each deliverable
at the inception of the arrangement based on the transaction price.
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--------------------------------------------------------------------------------Our performance obligations may include the following:
•License Arrangements. The performance obligations under our collaboration and license agreements generally include exclusive or nonexclusive licenses to one or more products generated using our technologies. Licenses for multiple antibodies within a single contract are generally combined as they have substantially the same pattern of transfer to the customer. Historically, our licenses have held no value to the customer, as the antibodies were in the discovery phase and required our expertise for further development. Accordingly, licenses are not considered distinct. •Research and Development Services. The performance obligations under our collaboration and license agreements generally include research and development services we perform on behalf of or with our collaborators. As discussed within license arrangements above, our licenses have historically held no value without the research and development services we provide. As we generally only provide research and development services for internally generated antibodies that require a license to be utilized by a third party, our research and development services are not considered distinct. •Steering Committee Meetings. The performance obligations under our collaboration and license agreements may also include our participation in a steering committee, which allows us to direct the progression of our discovery programs. As these steering committees would not occur or benefit the customer without the use of our licenses, these are not considered distinct.
We recognize consideration allocated to a performance obligation as the performance obligation is satisfied, and the determination as to whether consideration is recognized over time or at a point in time is made upon contract inception. For our collaboration agreements, this is generally over the period in which research and development services have been performed.
Transaction Price. Our collaboration and license agreements generally include both fixed and variable consideration. Fixed payments, such as those for upfront fees are included in the transaction price at contract value, while variable consideration such as reimbursement for research and development services, milestone and royalty payments are estimated and then evaluated for constraints upon inception of the contract and evaluated on a quarterly basis thereafter. Research and development services are updated for actual invoices. Given the nature of our agreements, milestones are estimated using the most likely amount and are evaluated on a quarterly basis. Upon commercialization, royalty payments are recognized in the period incurred.
Research and Development Expenses
As part of the process of preparing our financial statements, we are required to
estimate research and development costs incurred during the period, which
impacts the amount of accrued expenses and prepaid balances related to such
costs as of each balance sheet date. This process involves reviewing open
contracts and purchase orders, communicating with our personnel and service
providers to identify services that have been performed on our behalf and
estimating the level of service performed and the associated cost incurred for
the service when we have not yet been invoiced or otherwise notified of the
actual cost. The majority of our service providers invoice us monthly in arrears
for services performed or when contractual milestones are met. We make estimates
of our accrued expenses as of each balance sheet date based on facts and
circumstances known to us at that time. We periodically confirm the accuracy of
our estimates with the service providers and make adjustments if necessary. The
significant estimates in our accrued research and development expenses include
the costs incurred for services performed by our vendors in connection with
research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors that conduct research and development on our behalf. The
financial terms of these agreements are subject to negotiation, vary from
contract to contract and may result in uneven payment flows. There may be
instances in which payments made to our vendors will exceed the level of
services provided and result in a prepayment of the research and development
expense. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each
period. If the actual timing of the performance of services or the level of
effort varies from our estimate, we adjust the accrual or prepaid accordingly.
Advance payments for goods and services that will be used in future research and
development activities are expensed when the activity has been performed or when
the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts
actually incurred, if our estimates of the status and timing of services
performed differ from the actual status and timing of services performed, it
could result in us reporting amounts that are too high or too low in any
particular period. To date, there have been no material differences between our
estimates of such expenses and the amounts actually incurred.
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--------------------------------------------------------------------------------Sale of Future Royalties
We treated the sale of future revenue from the Royalty Monetization Agreement with Sagard as debt, which will be amortized under the effective interest rate method over the estimated life of the related expected royalty stream. We recorded the upfront proceeds, net of transaction costs, as a liability related to the sale of future revenue. The liability and the related interest expense are based on our current estimates of future royalties and certain milestones expected to be paid over the life of the agreement. We will periodically assess the expected royalty and milestone payments and to the extent our future estimates or timing of such payments are materially different than our previous estimates, we will prospectively recognize related interest expense. Royalty revenue will be recognized as earned on net sales of JEMPERLI, and we will record the royalty payments to Sagard as a reduction of the liability when paid. As such payments are made to Sagard, the balance of the liability will be effectively repaid over the life of the Royalty Monetization Agreement. For further discussion of the sale of future revenue, refer to Note 5 - Sale of Future Royalties in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Consolidated Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Consolidated Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. Results of Operations Collaboration Revenue Collaboration revenue was$63.2 million compared to$75.0 million for the years endedDecember 31, 2021 and 2020, respectively. A comparison of collaboration revenue is as follows: Year Ended December 31, Increase/(Decrease) (in thousands) 2021 2020 GSK Milestones$ 60,000 $ 15,000$ 45,000 GSK Royalty Revenue 3,175 - 3,175 GSK Amendment No. 3 Payment $ - $ 60,000$ (60,000) Total collaboration revenue$ 63,175 $ 75,000$ (11,825)
Collaboration revenue during the year ended
We expect that any collaboration revenue we generate will continue to fluctuate from period to period as a result of the timing and amount of milestones from our existing collaborations.
Research and Development Expenses
Research and development expenses were$98.5 million during the year endedDecember 31, 2021 compared to$80.0 million during the year endedDecember 31, 2020 , for an increase of approximately$18.5 million . The increase is primarily attributable to a$10.7 million increase in clinical expenses, a$5.2 million increase in salaries and related expenses, including stock compensation expense, a$3.1 million increase in other research and development expenses, offset by a$0.5 million decrease in outside services for preclinical and manufacturing expenses. We do not track fully burdened research and development costs separately for each of our product candidates. We review our research and development expenses by focusing on external development and internal development costs. External development expenses consist of costs associated with our external preclinical and clinical trials, including pharmaceutical development and manufacturing. Included in preclinical and other unallocated costs are external corporate overhead costs that are not specific to any one program. Internal costs consist of salaries and wages, share-based compensation and benefits, which are not tracked by product candidate as several of our departments support multiple product candidate research and development programs. The following table summarizes the external costs attributable to each program and internal costs: 70 --------------------------------------------------------------------------------
Year Ended
December 31, Increase/(Decrease)
(in thousands) 2021 2020
External Costs
Imsidolimab $ 50,095 $ 25,577 $ 24,518
Rosnilimab 7,830 4,563 3,267
ANB032 6,628 9,447 (2,819)
Etokimab (1,681) 14,483 (16,164)
Preclinical and other unallocated costs 12,695 8,143 4,552
Total External Costs $ 75,567 $ 62,213 $ 13,354
Internal Costs 22,929 17,812 5,117
Total Costs $ 98,496 $ 80,025 $ 18,471
General and Administrative Expenses
General and administrative expenses were$21.5 million during the year endedDecember 31, 2021 compared to$18.9 million during the year endedDecember 31, 2020 , for an increase of approximately$2.6 million . The increase is primarily due to a$2.8 million increase in personnel costs, including stock compensation expense, a$0.6 million increase in insurance expense, and a$0.2 million increase in other general and administrative expense, offset by a$1.0 million decrease in legal expense. We expect that our general and administrative expenses will increase for the foreseeable future as we incur additional costs associated with being a publicly traded company, including legal, auditing and filing fees, additional insurance premiums, investor relations expenses and general compliance and consulting expenses. We also expect our intellectual property related legal expenses, including those related to preparing, filing, prosecuting and maintaining patent applications, to increase as our intellectual property portfolio expands.
Non-cash Interest Expense for the Sale of Future Royalties
Interest expense was$1.5 million during the year endedDecember 31, 2021 compared to$0 during the year endedDecember 31, 2020 . The increase in interest expense during the periods is directly related to the non-cash interest expense on the liability related to the sale of future royalties.
Interest Income
Interest income was$0.4 million during the year endedDecember 31, 2021 compared to$4.0 million during the year endedDecember 31, 2020 . The decrease in interest income was primarily related to our short-term and long-term investments, the balance of which decreased during the periods as a result of funding our clinical trial programs. The decrease in interest income is also attributable to lower interest rates during the year endedDecember 31, 2021 .
Liquidity and Capital Resources
From our inception throughDecember 31, 2021 , we have received an aggregate of$1.1 billion to fund our operations, which included$622.8 million from the sale of equity securities,$250.0 million from the sale of future royalties,$226.9 million from our collaboration agreements and$19.1 million from venture debt. As ofDecember 31, 2021 , we had$615.2 million in cash, cash equivalents and investments. In addition to our existing cash, cash equivalents and investments, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain nonclinical, clinical, regulatory and sales-based events, and royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators' research and development activities. Our rights to payments under our collaboration agreements are our only committed external source of funds. Specific to our collaboration agreement with GSK, JEMPERLI is currently in clinical development for various solid tumor indications. Earlier in 2021, we received additional milestones from GSK, as outlined above, following acceptance and approval of BLA and EMA filings of JEMPERLI for the PdMMRT indication. Our amended GSK Agreement also includes a 1% royalty less third-party royalty deduction on GSK's global net sales of Zejula that began in 2021.
In
71
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commercial sales below $1.0 billion and certain future milestones starting in
October 2021 . We treated the sale of future revenue from the Royalty
Monetization Agreement with Sagard as debt, which will be amortized under the
effective interest rate method over the estimated life of the related expected
royalty stream. We recorded the upfront proceeds of $250.0 million , net of $0.4
million of transaction costs, as a liability related to the sale of future
revenue. The liability and the related interest expense are based on our current
estimates of future royalties and certain milestones expected to be paid over
the life of the agreement. We will periodically assess the expected royalty and
milestone payments and to the extent our future estimates or timing of such
payments are materially different than our previous estimates, we will
prospectively recognize related interest expense. Royalty revenue will be
recognized as earned on net sales of JEMPERLI, and we will record the royalty
payments to Sagard as a reduction of the liability when paid. As such payments
are made to Sagard, the balance of the liability will be effectively repaid over
the life of the Royalty Monetization Agreement. For further discussion of the
sale of future revenue, refer to Note 5 - Sale of Future Royalties in the
accompanying notes to the consolidated financial statements included in Part II,
Item 8, "Consolidated Financial Statements and Supplementary Data" of this
Annual Report on Form 10-K.
In December 2021 , we entered into an Open Market Sales Agreement with Jefferies
LLC , through which we may offer and sell shares of our common stock having an
aggregate offering of up to $150.0 million through Jefferies LLC , as our sales
agent. We will pay the sales agent a commission of up to 3% of the gross
proceeds of sales made through the at-the-market offering program. During the
year ended December 31, 2021 , we did not sell any shares under the at-the-market
offering program and all $150.0 million remains available for sale.
Funding Requirements
We may seek to obtain additional financing in the future through equity or debt financings or through collaborations or partnerships with other companies. If we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially adversely affected. Our primary uses of capital are, and we expect will continue to be, third-party clinical and preclinical research and development services, including manufacturing, laboratory and related supplies, compensation and related expenses, legal, patent and other regulatory expenses, and general overhead costs. We have entered into agreements with certain vendors for the provision of services, including services related to commercial manufacturing, that we are unable to terminate for convenience. Under such agreements, we are contractually obligated to make certain minimum payments to the vendors with the amounts to be based on the timing of the termination and the specific terms of the agreement. Cash, cash equivalents and investments totaled$615.2 million as ofDecember 31, 2021 , compared to$411.2 million as ofDecember 31, 2020 . We believe that our existing cash, cash equivalents and investments will fund our current operating plan for at least the next twelve months from the issuance of our consolidated financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials and seeking regulatory approval is costly, and the timing of progress and expenses in these trials is uncertain.
Cash Flows
The following table summarizes our cash flows for the years endedDecember 31, 2021 and 2020: Year Ended December 31, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities$ (45,920) $ (14,157) Investing activities 38,835 94,475 Financing activities 252,298 (879)
Net increase in cash, cash equivalents and restricted cash
$ 79,439 Operating Activities Net cash used in operating activities during the year endedDecember 31, 2021 of$45.9 million was primarily due to our net loss of$57.8 million , adjusted for addbacks for non-cash items of$19.3 million which includes stock-based compensation, amortization of operating right-of-use assets and liabilities, non-cash interest expense, and income from marketable securities and decreases in working capital of$7.4 million . 72 -------------------------------------------------------------------------------- Net cash used in operating activities during the year endedDecember 31, 2020 of$14.2 million was primarily due to our net loss of$19.9 million , adjusted for addbacks for non-cash items of$12.5 million which includes stock-based compensation, amortization of operating right-of-use assets and liabilities, and income from marketable securities and decreases in working capital of$6.8 million .
Investing Activities
Cash provided by investing activities during the year endedDecember 31, 2021 of$38.8 million was primarily due to the sale and maturities of investments of$158.8 million , offset by the acquisition of investments of$118.7 million and the purchases of property and equipment of approximately$1.3 million . Cash provided by investing activities during the year endedDecember 31, 2020 of$94.5 million was primarily due to the sale and maturities of investments of$290.0 million , offset by the acquisition of investments of$194.9 million and the purchases of property and equipment of$0.6 million .
Financing Activities
Cash provided by financing activities during the year endedDecember 31, 2021 of$252.3 million was primarily related to$250.0 million received for the sale of future royalties, and$2.6 million proceeds received from the issuance of common stock as a result of option exercises, offset by$0.3 million for payments of issuance costs related to the sale of future royalties. Cash used in financing activities during the year endedDecember 31, 2020 of$0.9 million was primarily related to$1.4 million in repayments on our outstanding Term Loan, offset by proceeds of$0.5 million from the issuance of common stock as a result of option exercises.
Contractual Obligations
We have entered into agreements with certain vendors for the provision of goods and services, which includes manufacturing services with contract manufacturing organizations and development services with contract research organizations. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement and therefore are cancellable contracts. For further information related to our operating lease and future minimum annual obligations for license payments under our collaboration in-license agreements, see Note 10 - Commitments and Contingencies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Consolidated Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
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