APPLIED THERAPEUTICS, INC. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report. In addition, this discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under "Special Note Regarding Forward-Looking Statements" and under "Item 1A. Risk Factors" in this report, and in other reports we file with theSEC , that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company developing a pipeline of novel
product candidates against validated molecular targets in indications of high
unmet medical need. We focus on molecules and pathways whose role in the disease
process is well known based on prior research, but have previously failed to
yield successful products due to poor efficacy and tolerability. Our unique
approach to drug development leverages recent technological advances to design
improved drugs, employs early use of biomarkers to confirm biological activity
and focuses on abbreviated regulatory pathways. Our first molecular target is
aldose reductase, or AR, an enzyme that converts glucose to sorbitol under
oxidative stress conditions, and is implicated in multiple diseases. Prior
attempts to inhibit this enzyme were hindered by nonselective, nonspecific
inhibition, which resulted in limited efficacy and significant off-target safety
effects. The detrimental consequences of AR activation have been well
established by decades of prior research. Our AR program currently includes
three small molecules, which are all potent and selective inhibitors of AR, but
are engineered to have unique tissue permeability profiles to target different
disease states, including diabetic complications, heart disease and rare
metabolic diseases. The result of this unique multifaceted approach to drug
development is a portfolio of highly specific and selective product candidates
that we believe are significantly de-risked and can move quickly through the
development process.
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AT-007 is a novel central nervous system, or CNS, penetrant ARI that we are developing for the treatment of rare metabolic diseases, including Galactosemia and Sorbitol Dehydrogenase (SORD) Deficiency. Galactosemia is a devastating rare pediatric metabolic disease that affects how the body processes a simple sugar called galactose, and for which there is no known cure or approved treatment available. TheU.S. Food and Drug Administration , or FDA, has granted both orphan drug designation and rare pediatric disease designation to AT-007 for the treatment of Galactosemia and inJune 2021 , the FDA granted Fast Track Designation to AT-007 for the treatment of Galactosemia. We have completed an adult study in healthy volunteers and Galactosemia patients, demonstrating that AT-007 is safe and well tolerated, and significantly reduces plasma galactitol levels vs. placebo. Galactitol is a toxic metabolite of galactose, which is formed in Galactosemia patients by aberrant activity of aldose reductase when galactose is present at high levels. A pediatric study is underway in children with Galactosemia, assessing the impact of AT-007 vs. placebo on safety, biomarker reduction of galactitol, and long-term functional outcomes. OnApril 13, 2021 , we presented data featuring a cross-sectional analysis of nineteen pediatric patients with Classic Galactosemia, providing meaningful insight on the progressive worsening of the central nervous system phenotype with age. OnOctober 18, 2021 , we reported biomarker data from the pediatric ACTION-Galactosemia Kids study. The results demonstrate a substantial reduction in plasma galactitol of approximately 40%, which was statistically significant (p<0.001) vs. placebo. We previously reported a baseline analysis of the 47 children enrolled in the study which demonstrated a clear correlation between baseline galactitol levels and baseline clinical functional outcomes. The long-term functional outcomes portion of the pediatric study is ongoing, and the outcomes are assessed every 6 months by a fire-walled data monitoring committee (DMC). When the study reaches statistical significance in the active treated arm vs. the placebo arm, the DMC will alert the Company and the trial will be unblinded. Statistical modelling suggests that this should occur at approximately the 18-month outcome assessment, based on currently available predictive information. InApril 2022 , the Company met with the FDA to discuss the design of the ongoing pediatric study prior to the first 6-month outcomes assessment by the DMC. The FDA confirmed that the pediatric study as it is currently designed would support an NDA submission if statistical significance is reached, and there is alignment between the FDA and the Company on the potential path forward to approval. The 12-month clinical outcomes were assessed by the fire-walled DMC, and as expected the data did not yet reach statistical significance, but demonstrated a trend in clinical outcomes favoring AT-007 vs. placebo. A safety analysis showed that AT-007 continued to be safe and well tolerated. The Company is exploring a potential submission for conditional approval based on existing data with theEuropean Medicines Agency (EMA). AT-007 is also being studied in a rare disease caused by deficiency in the enzyme Sorbitol Dehydrogenase. Aldose Reductase is the first enzyme in the polyol pathway, converting glucose to sorbitol. AR is then followed by Sorbitol Dehydrogenase, which converts sorbitol to fructose. Patients with SORD deficiency accumulate very high levels of sorbitol in their cells and tissues as a result of the enzyme deficiency, which results in tissue toxicities such as peripheral neuropathy and motor neuron disease. Recent research in drosophila and cell models of SORD deficiency demonstrated that treatment with an ARI that blocks sorbitol production may provide benefit in this disease. Preclinical studies on AT-007 have demonstrated significant reduction in sorbitol levels in fibroblasts from SORD deficient patients. Treatment with AT-007 in the drosophila model of SORD prevented the disease phenotype and protected from neuronal degeneration. OnOctober 25, 2021 , we reported data from a pilot open-label study in 8 SORD Deficiency patients. AT-007 reduced blood sorbitol levels by approximately 66% from baseline through 30 days of treatment. AT-007 was safe and well tolerated in all treated patients. InDecember 2021 , we initiated a Phase 2/3 registrational study in patients with SORD Deficiency, which is ongoing at multiple clinical sites in the US andEurope . We are in the process of discussing regulatory requirements for approval in SORD deficiency and plan to advance AT-007 towards registration for this indication. We also plan to initiate a clinical development program on AT-007 in another pediatric rare disease, called PMM2-CDG. PMM2-CDG is a glycosylation disorder caused by deficiencies in the enzyme phosphomannomutase 2, which leads to CNS symptoms similar to galactosemia, including low IQ, tremor, and speech and motor problems. Aldose Reductase is over-activated in this disease as a compensatory consequence of PMM2 deficiency, and a CNS penetrant ARI may be a compelling clinical option. Initial data in fibroblast cell lines derived from PMM2-CDG patients demonstrates that AT-007 treatment increases phosphomannomutase 2 activity. A young child with PMM2-CDG is being treated in a single-patient investigator initiated trial with AT-007 at theUniversity of North Carolina School of Medicine . Data has been presented at medical conferences in 2022 supporting a favorable treatment effect of AT-007 30
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on biomarkers and organ function in this patient. The FDA has granted pediatric rare disease designation and orphan designation for AT-007 in PMM2-CDG.
AT-001 is a novel ARI with broad systemic exposure and peripheral nerve permeability that we are developing for the treatment of diabetic cardiomyopathy, or DbCM, a fatal fibrosis of the heart, for which no treatments are available. We completed a Phase 1/2 clinical trial evaluating AT-001 in approximately 120 patients with type 2 diabetes, in which no drug-related adverse effects or tolerability issues were observed. InSeptember 2019 , we announced the initiation of a Phase 3 registrational trial of AT-001 in DbCM. The study, called ARISE-HF, is designed to evaluate AT-001's ability to improve or prevent the decline of functional capacity in patients with DbCM at high risk of progression to overt heart failure. Although we did experience enrollment delays in 2020 associated with the Covid-19 pandemic, modifications were made to the trial to include additional sites and geographies to address Covid-19-related issues. The trial is now fully enrolled with 675 patients. AT-003 is a novel ARI designed to cross through the back of the eye when dosed orally, and has demonstrated strong retinal penetrance, for the treatment of diabetic retinopathy, or DR. DR is an ophthalmic disease that occurs in diabetic patients and for which treatments are currently limited to high-cost biologics requiring intravitreal administration. DR has been linked to AR activity, including elevations in sorbitol and subsequent changes in retinal blood vessels, which distorts vision and leads to permanent blindness. AT-104 is a preclinical dual selective PI3K inhibitor. Due to recent regulatory changes impacting development of the PI3K inhibitor class of compounds, the company has discontinued its early stage preclinical PI3K program and further development of AT-104. The compound and all rights associated with the technology were returned toColumbia University . As we advance our product candidates forward in additional indications, such as SORD deficiency, PMM2-CDG and retinopathy, we anticipate potential moderate growth in our clinical development and operations teams to support the additional clinical trials, as well as addition of a medical affairs team to support the late stage indications and preparations for commercialization. Since inception in 2016, our operations have focused on developing our product candidates, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials. We do not have any product candidates approved for sale and have not generated any revenue. We have incurred significant operating losses since inception in 2016. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was$68.1 million for the nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$334.4 million . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. As ofSeptember 30, 2022 , we had cash and cash equivalents and short-term investments of$47.4 million .
InFebruary 2021 , we issued and sold 3,000,000 shares of common stock at a public offering price of$23.00 per share, with an additional 450,000 shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares in the February Offering. We received aggregate net proceeds, net of underwriting discounts and commissions and offering costs of$74.4 million .
On
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offered at a price to the public of $1.00 per share and warrant, and the
Pre-Funded Warrants and accompanying Common Warrants were offered at a price to
the public of $0.9999 , resulting in aggregate net proceeds of approximately
$27.8 million , after deducting underwriting discounts and commissions and
offering expenses. The Pre-Funded Warrants and the Common Warrants are
immediately exercisable and will expire five years from the date of issuance.
Holders may not exercise any Pre-Funded Warrants or Common Warrants that would
cause the aggregate number of shares of common stock beneficially owned by the
holder to exceed 9.99% of the Company's outstanding common stock immediately
after exercise. Holders of the Pre-Funded Warrants and/or Common Warrants
(together with affiliates) who immediately prior to June 27, 2022 beneficially
owned more than 9.99% of the Company's outstanding common stock may not exercise
any portion of their Pre-Funded Warrants or Common Warrants if the holder
(together with affiliates) would beneficially own more than 19.99% of the
Company's outstanding common stock after exercise. The Pre-Funded Warrants and
Common Warrants are subject to adjustment in the event of certain stock
dividends and distributions, stock splits, stock combinations, reclassifications
or similar events affecting the common stock and also upon any distributions for
no consideration of assets to the Company's stockholders. In the event of
certain corporate transactions, the holders of the Pre-Funded Warrants and/or
Common Warrants will be entitled to receive, upon exercise, the kind and amount
of securities, cash or other property that the holders would have received had
they exercised the Pre-Funded Warrants and/or Common Warrants immediately prior
to such transaction. The Pre-Funded Warrants and Common Warrants do not entitle
the holders thereof to any voting rights or any of the other rights or
privileges to which the Company's stockholders are entitled. The Company intends
to use the net proceeds from the June Offering for general corporate purposes,
which may include research and development costs, including the conduct of
clinical trials and process development and manufacturing of the Company's
product candidates, expansion of the Company's research and development
capabilities, working capital and capital expenditures.
Components of Our Results of Operations
Revenue
Since inception, we have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
employee-related expenses, including salaries, related benefits and stock-based
? compensation expense for employees engaged in research and development
functions;
? fees paid to consultants for services directly related to our product
development and regulatory efforts;
expenses incurred under agreements with contract research organizations, or
? CROs, as well as contract manufacturing organizations, or CMOs, and consultants
that conduct and provide supplies for our preclinical studies and clinical
trials;
? costs associated with preclinical activities and development activities;
? costs associated with our technology and our intellectual property portfolio;
and
? costs related to compliance with regulatory requirements.
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We expense research and development costs as incurred. Costs for external
development activities are recognized based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors.
Payments for these activities are based on the terms of the individual
agreements, which may differ from the pattern of costs incurred, and are
reflected in our financial statements as prepaid or accrued research and
development expenses.
Research and development costs also include costs incurred in connection with
certain licensing arrangements. Before a compound receives regulatory approval,
we record upfront and milestone payments made by us to third parties under
licensing arrangements as expense. Upfront payments are recorded when incurred,
and milestone payments are recorded when the specific milestone has been
achieved. Once a compound receives regulatory approval, we will record any
milestone payments in Identifiable intangible assets, commence amortization and,
unless the asset is determined to have an indefinite life, we amortize the
payments on a straight-line basis over the remaining agreement term or the
expected product life cycle, whichever is shorter.
Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase for the
foreseeable future as we continue clinical development for our product
candidates and continue to discover and develop additional product candidates.
If any of our product candidates enter into later stages of clinical
development, they will generally have higher development costs than those in
earlier stages of clinical development, primarily due to the increased size and
duration of later-stage clinical trials. Historically, we have incurred research
and development expenses that primarily relate to the development of AT-007,
AT-001 and our ARI program. As we advance our product candidates, we expect to
allocate our direct external research and development costs across each of the
indications or product candidates.
The following table summarizes our research and development expenses for the
three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021 Product pipeline research and development expenses AT-001
$ 5,058 $ 4,925 $ 16,926 $ 17,614 AT-007 5,326 10,547 18,383 22,985 Personnel-related expenses 1,416 1,368 4,931 3,730 Stock-based compensation 1,178 642 2,822 1,974 Other expenses 138 115 480 543 Total research and development expenses$ 13,116 $
17,597
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, and commercial functions. General and administrative expenses also include professional fees for legal, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include allocated expenses for rent and maintenance of facilities and other operating costs.
Commercial expenses consist of payroll expense for commercial personnel, as well
as marketing, market research, market access, and other focused investments to
support launch of drug candidates and generate evidence of commercial potential
and value proposition. Commercial expenses are included in general and
administrative expenses.
We expect that our general and administrative expenses will increase in the
future as we increase our general and administrative headcount to support our
continued research and development and potential commercialization of our
product candidates. We also expect to incur increased expenses associated with
being a public company, including costs of accounting, audit, legal, regulatory
and tax compliance services; director and officer insurance costs; and investor
and public relations costs.
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Other Income (Expense), Net
Other income (expense), net consists of interest income (expense), net, and other income (expense), net. Interest income (expense), net consists primarily of our interest income on our cash and cash equivalents and marketable securities. Other income (expense), net consists primarily of realized gains and losses on sales of marketable securities.
Results of Operations
Three Months Ended
The following table summarizes our results of operations for the three months
ended
(Unaudited)
Three Months Ended
September 30,
(in thousands) 2022 2021
Operating expenses:
Research and development $ 13,116 $ 17,597
General and administrative 6,240 10,833
Total operating expenses 19,356 28,430
Loss from operations (19,356) (28,430)
Other income (expense), net:
Interest income (expense), net 227 76
Change in fair value of warrant liabilities 36 -
Other income (expense) (8) (64)
Other income (expense), net 255 12
Net loss $ (19,101) $ (28,418) Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended
September 30,
(in thousands) 2022 2021 Increase/(Decrease)
Clinical and pre-clinical $ 10,035 $ 11,778 $ (1,743)Drug manufacturing and formulation 236 3,172
(2,936)
Personnel expenses 1,416 1,368 48
Stock-based compensation 1,178 642 536
Regulatory and other 251 637 (386)
Total research and development expenses
(4,481)
Research and development expenses for the three months ended September 30, 2022
were $13.1 million , compared to $17.6 million for the three months ended
September 30, 2021 . For the three months ended September 30, 2022 , the decrease
of $4.5 million was primarily related to:
a decrease in clinical and pre-clinical expense of
? to reduced clinical trial spend on the AT-007 ACTION-Galactosemia Kids
pediatric registrational study and AT-007 ACTION-Galactosemia long-term
extension adult study;
a decrease in drug manufacturing and formulation costs of
? primarily related to the completion and release of AT-007 drug product batches
and purchase of raw materials in the three months ended
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? an increase in personnel expenses of
in support of our clinical program pipeline;
an increase in stock-based compensation of
? and restricted stock grants and due to the incremental stock-based compensation
expense recognized as a result of the Options Repricing; and
? a decrease in regulatory and other expenses of
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended
September 30,
(in thousands) 2022 2021 Increase/(Decrease)
Legal and professional fees $ 1,341 $ 1,511 $ (170)
Commercial expenses 315 3,111 (2,796)
Personnel expenses 1,157 1,653 (496)
Stock-based compensation 1,678 2,003 (325)
Insurance expenses 810 1,152 (342)
Other expenses 939 1,403 (464)
Total general and administrative expenses
(4,593)
General and administrative expenses were $6.2 million for the three months ended
September 30, 2022 , compared to $10.8 million for the three months ended
September 30, 2021 . For the three months ended September 30, 2022 , the decrease
of $4.6 million was primarily related to:
? a decrease in legal and professional fees of
legal fees;
? a decrease in commercial expenses of
spend for commercial operations;
? a decrease in personnel expenses of
headcount;
? a decrease in stock-based compensation of
being forfeited during the current period as well as decrease in headcount;
? a decrease in insurance expenses of
costs; and
? a decrease in other expenses of
other office expenses. Interest Income, Net Interest income was$0.2 million for the three months endedSeptember 30, 2022 , as compared to$0.1 million for the three months endedSeptember 30, 2021 . Interest income is derived from our marketable securities and increased due to higher interest rates in the current period.
Change in Fair Value of Warrant Liabilities
The change in the fair value of our warrant liabilities for the three months endedSeptember 30, 2022 resulted in a$36,000 gain recognized in the period primarily due to changes in our common share price. There were no warrant liabilities for the three months endedSeptember 30, 2021 . 35 Table of Contents Other Income (Expense) Other expense was$8,000 for the three months endedSeptember 30, 2022 , compared to$0.1 million for the three months endedSeptember 30, 2021 . Other expense was primarily related to the realized loss of$8,000 related to the sale and or maturities of marketable securities during the three months endedSeptember 30, 2022 , compared to a realized loss of$0.1 million on the sale and or maturities of marketable securities during the three months endedSeptember 30, 2021 .
Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
(in thousands) 2022 2021
Operating expenses:
Research and development $ 43,542 $ 46,846
General and administrative 20,436 31,658
Total operating expenses 63,978 78,504
Loss from operations (63,978) (78,504)
Other income (expense), net:
Interest income (expense), net 414 321
Change in fair value of warrant liabilities (4,321) -
Other income (expense) (194) (242)
Other income (expense), net (4,101) 79
Net loss $ (68,079) $ (78,425) Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended
Nine Months Ended
September 30,
(in thousands) 2022 2021 Increase/(Decrease)
Clinical and pre-clinical $ 33,965 $ 28,404 $ 5,561Drug manufacturing and formulation 603 11,308
(10,705)
Personnel expenses 4,931 3,730 1,201
Stock-based compensation 2,822 1,974 848
Regulatory and other 1,221 1,430 (209)Total research and development expenses$ 43,542 $ 46,846 $ (3,304) Research and development expenses for the nine months endedSeptember 30, 2022 were$43.5 million , compared to$46.8 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the decrease of$3.3 million was primarily related to:
a decrease in drug manufacturing and formulation costs of
? primarily related to the completion and release of AT-001 and AT-007 drug
product batches in the nine months ended
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? a decrease in regulatory and other expenses of
an increase in clinical and pre-clinical expense of
related to the progression of the SORD Phase 2/3 registrational study,
? progression of the AT-007 ACTION-Galactosemia long-term extension adult study,
and progression of the AT-007 ACTION-Galactosemia Kids pediatric registrational
study;
? an increase in personnel expenses of
headcount in support of our clinical program pipeline; and
an increase in stock-based compensation of
? and restricted stock grants and due to the incremental stock-based compensation
expense recognized as of the Options Repricing.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
nine months ended
Nine Months Ended
September 30,
(in thousands) 2022 2021 Increase/(Decrease)
Legal and professional fees $ 4,319 $ 5,108 $ (789)
Commercial expenses 1,845 7,738 (5,893)
Personnel expenses 4,219 4,922 (703)
Stock-based compensation 4,342 6,354 (2,012)
Insurance expenses 2,881 3,246 (365)
Other expenses 2,830 4,290 (1,460)Total general and administrative expenses$ 20,436 $ 31,658 $ (11,222) General and administrative expenses were$20.4 million for the nine months endedSeptember 30, 2022 , compared to$31.7 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the decrease of$11.2 million was primarily related to:
? a decrease in legal and professional fees of
legal fees;
? a decrease in commercial expenses of
spend relating to commercial operations;
? a decrease in stock-based compensation of
being forfeited during the current period;
? a decrease in personnel expenses of
headcount;
? a decrease in insurance expenses of
costs; and
? a decrease in other expenses of
other office expenses. Interest Income, Net Interest income was$0.4 million for the nine months endedSeptember 30, 2022 , as compared to$0.3 million for the nine months endedSeptember 30, 2021 . The increase of$0.1 million in interest income period over period is due to rising interest rates during 2022. Interest income is derived from our marketable securities and the increase of$0.1 million was due to higher interest rates when compared to the prior period. 37
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Change in Fair Value of Warrant Liabilities
The change in the fair value of our warrant liabilities for the nine months endedSeptember 30, 2022 resulted in a$4.3 million expense recognized in the period. There were no warrant liabilities for the nine months endedSeptember 30, 2021 . Other Income (Expense) Other expense was$0.2 million for the nine months endedSeptember 30, 2022 , compared to other expense of$0.2 for the nine months endedSeptember 30, 2021 . Other expense remained relatively consistent period over period, and primarily related to the realized loss of$0.2 million related to the sale and or maturities of marketable securities during 2022. During the nine months endedSeptember 30, 2021 , there was a net realized loss of$0.2 million related to the sale and or maturities of marketable securities.
Liquidity and Capital Resources
Since our inception throughSeptember 30, 2022 , we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations. The accompanying financial statements have been prepared assuming the continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and is dependent on debt and equity financing to fund its operations. While we believe that our cash and cash equivalents of$47.4 million atSeptember 30, 2022 will be sufficient to fund our operations throughJune 30, 2023 , given our planned expenditures for the next several years, we have concluded and our independent registered public accounting firm has agreed with our conclusion that there is still a substantial doubt regarding our ability to continue as a going concern.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Nine Months Ended
September 30,
(in thousands) 2022 2021
Net cash used in operating activities $ (62,200) $ (63,786)
Net cash provided by/(used in) investing activities 20,075
626
Net cash provided by financing activities 28,625
75,901
Net increase (decrease) in cash and cash equivalents
Operating Activities Net cash used in operating activities for the nine months endedSeptember 30, 2022 , was$62.2 million primarily due to our net losses of$68.1 million , a decrease in operating lease liability of$0.3 million , a decrease in accounts payable of$2.5 million , a decrease of$3.0 million in accrued expense, a$0.3 million decrease in prepaid expenses, and a decrease of$3.1 million in financed insurance premium. This is partially offset by increases of$7.2 million in non-cash stock-based compensation expense,$0.4 million in options issued in lieu of bonus,$2.8 million of amortization of insurance premium, a$4.3 million increase in change in fair value of warrant liabilities, and$0.3 million in amortization of operating lease right-of-use assets. Net cash used in operating activities for the nine months endedSeptember 30, 2021 , was$63.8 million primarily due to our net losses of$78.4 million , a decrease in operating lease liability of$0.3 million , a decrease in financed insurance premium of$4.4 million , and a decrease in prepaid expenses of$1.1 million . This is partially offset by increases of$8.5 million in accounts payable,$8.3 million in non-cash stock-based compensation expense,$3.2 million of amortization of insurance premium,$0.1 million in accrued expense and$0.3 million in amortization of operating lease right-of-use assets. 38 Table of Contents Investing Activities
Net cash provided by investing activities for the nine months ended
Net cash provided by investing activities for the nine months endedSeptember 30, 2021 was$0.6 million relating to our purchase of available-for-sale securities for$109.1 million , offset by the proceeds from the sale and maturities of available-for-sale securities of$5.5 million and$104.2 million , respectively. Financing Activities During the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$28.6 million , primarily from the proceeds from the issuance of shares and Pre-Funded Warrants of$27.8 million as part of the June Offering, proceeds from financed insurance premium of$3.1 million , offset by repayment of short-term borrowings of$2.3 million and exercise of stock options for common stock under the Equity Incentive Plan of$49,000 .
In
OnJanuary 26, 2022 , the Company entered into the Cowen Equity Distribution Agreement to sell shares of the Company's common stock, from time to time, having an aggregate offering price of up to$100.0 million . Pursuant to the Cowen Equity Distribution Agreement shares of our common stock may be offered and sold through the sales agent in sales deemed "at-the-market" offerings under the Securities Act of 1933, as amended, or the Securities Act. Under the Cowen Equity Distribution Agreement, the sales agent will be entitled to compensation of up to 3% of the gross offering proceeds of all shares of our common stock sold through it pursuant to the Cowen Equity Distribution Agreement. In connection with the sale of shares of our common stock on our behalf, the sales agent may be deemed to be "underwriters" within the meaning of the Securities Act, and the compensation paid to the sales agent may be deemed to be underwriting commissions or discounts. As ofSeptember 30, 2022 , the Company has not sold any shares of common stock pursuant to the Cowen Equity Distribution Agreement. OnJune 27, 2022 , the Company completed the June Offering, an underwritten public offering of 20,000,000 shares of common stock, par value$0.0001 per share, 10,000,000 Pre-Funded Warrants, and accompanying Common Warrants to purchase up to 30,000,000 shares of common stock. The shares and accompanying Common Warrants were offered at a price to the public of$1.00 per share and warrant, and the Pre-Funded Warrants and accompanying Common Warrants were offered at a price to the public of$0.9999 , resulting in aggregate net proceeds of approximately$27.8 million , after deducting underwriting discounts and commissions and offering expenses. The Pre-Funded Warrants and the Common Warrants are immediately exercisable and will expire five years from the date of issuance. Holders may not exercise any Pre-Funded Warrants or Common Warrants that would cause the aggregate number of shares of common stock beneficially owned by the holder to exceed 9.99% of the Company's outstanding common stock immediately after exercise. Holders of the Pre-Funded Warrants and/or Common Warrants (together with affiliates) who immediately prior toJune 27, 2022 beneficially owned more than 9.99% of the Company's outstanding common stock may not exercise any portion of their Pre-Funded Warrants or Common Warrants if the holder (together with affiliates) would beneficially own more than 19.99% of the Company's outstanding common stock after exercise. The Pre-Funded Warrants and Common Warrants are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock and also upon any distributions for no consideration of assets to the Company's stockholders. In the event of certain corporate transactions, the holders of the Pre-Funded Warrants and/or Common Warrants will be entitled to receive, upon exercise, the kind and amount of securities, cash or other property that the holders would have received had they exercised the Pre-Funded Warrants and/or Common Warrants immediately prior to such transaction. The Pre-Funded Warrants and Common Warrants do not entitle the holders thereof to any voting rights or any of the other rights or privileges to which the Company's stockholders are entitled. The Company intends to use the net proceeds from the June Offering for general corporate purposes, which may include research and development costs, including the conduct of
clinical trials and process
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development and manufacturing of the Company's product candidates, expansion of
the Company's research and development capabilities, working capital and capital
expenditures.
During the nine months ended September 30, 2021 , net cash provided by financing
activities was $75.9 million , primarily from the cash proceeds from the February
Offering of $74.4 million , $0.5 million from the exercise of stock options for
common stock under the 2019 Plan, and $69,000 from the exercise of warrants for
common stock, and $4.4 million from the proceeds from financed insurance
premium. This was partially offset by the repayment of short-term borrowings of
$3.5 million .
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing
activities, particularly as we advance the preclinical activities and clinical
trials of our product candidates. We expect that our expenses will increase
significantly if and as we:
? continue the ongoing and planned development of our product candidates;? initiate, conduct and complete any ongoing, anticipated or future preclinical
studies and clinical trials for our current and future product candidates;
? seek marketing approvals for any product candidates that successfully complete
clinical trials;
establish a sales, marketing, manufacturing and distribution infrastructure to
? commercialize any current or future product candidate for which we may obtain
marketing approval;
? seek to discover and develop additional product candidates;
? continue to build a portfolio of product candidates through the acquisition or
in-license of drugs, product candidates or technologies;
? maintain, protect and expand our intellectual property portfolio;
? hire additional clinical, regulatory and scientific personnel; and
add operational, financial and management information systems and personnel,
? including personnel to support our product development and planned future
commercialization efforts.
Furthermore, we have and expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:
? the initiation, scope, progress, timing, costs and results of our ongoing and
planned clinical trials for our product candidates;
? the outcome, timing and cost of meeting regulatory requirements established by
the FDA and other comparable foreign regulatory authorities;
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? the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;
? the cost of defending potential intellectual property disputes, including
patent infringement actions;
the achievement of milestones or occurrence of other developments that trigger
? payments under the Columbia Agreements, the 2020 Miami License Agreement, the
2020 Miami Research Agreement, the 2020 Miami Option Agreement, or other
agreements we may enter into;
? the extent to which we are obligated to reimburse, or entitled to reimbursement
of, clinical trial costs under future collaboration agreements, if any;
? the effect of competing technological and market developments;
? the cost and timing of completion of clinical or commercial-scale manufacturing
activities;
? the costs of operating as a public company;
? the extent to which we in-license or acquire other products and technologies;
? our ability to establish and maintain collaborations on favorable terms, if at
all;
the cost of establishing sales, marketing and distribution capabilities for our
? product candidates in regions where we choose to commercialize our product
candidates, if approved; and
? the initiation, progress, timing and results of the commercialization our
product candidates, if approved, for commercial sale.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through offerings of securities, PIPE, debt financings, collaborations or other strategic transactions. The terms of financing may adversely affect the holdings or the rights of our stockholders. Funding may not be available to us on acceptable terms, or at all. If we are unable to obtain funding, we may be required to delay, limit, reduce or terminate some or all of our research and product development, product portfolio expansion or future commercialization efforts. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as ofSeptember 30, 2022 : Payments Due By Period Less Than More Than (in thousands) Total 1 Year 1 to 3 Years 4 to 5 Years 5 Years
Operating lease commitments(1)$ 1,069 $ 515 $ 554
$ - $ - Total$ 1,069 $ 515 $ 554 $ - $ -
(1) Represents future minimum lease payments under our operating leases for
office space.
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Except as disclosed in the table above, we have no long-term debt or capital
leases and no material non-cancelable purchase commitments with service
providers, as we have generally contracted on a cancelable, purchase-order
basis. We enter into contracts in the normal course of business with CROs, CMOs
and other third parties for clinical trials, preclinical research studies and
testing and manufacturing services. These contracts are cancelable by us upon
prior notice. Payments due upon cancellation consist only of payments for
services provided or expenses incurred, including noncancelable obligations of
our service providers, up to the date of cancellation. These payments are not
included in the preceding table as the amount and timing of such payments are
not known.
We may incur potential contingent payments upon our achievement of clinical,
regulatory, and commercial milestones, as applicable, or royalty payments that
we may be required to make under the 2016 and 2019 Columbia Agreements, the 2020
Miami License Agreement, the 2020 Miami Option Agreement, and the 2020 Miami
Research Agreement, pursuant to which we have in-licensed certain intellectual
property. Due to the uncertainty of the achievement and timing of the events
requiring payment under these agreements, the amounts to be paid by us are not
fixed or determinable at this time and are excluded from the table above.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs 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 we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the Annual Report.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Recently Issued Accounting Pronouncements
Refer to Note 1, in the accompanying notes to our condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
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