APREA THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial information and notes thereto included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, including forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report, on our Quarterly Report for the period endedJune 30, 2022 and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , our actual results could 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 biopharmaceutical company focused on developing novel synthetic lethality-based cancer therapeutics that target DNA damage response (DDR) pathways. Our approach is built upon a platform of integrated discovery technologies to enrich our pipeline with novel targets in synthetic lethality and cancer treatment. Together with our expertise in small molecule drug discovery, we are applying the capabilities of our discovery platform to the development of new precision oncology therapies and the identification of patient populations most likely to benefit. Prior to the acquisition of Atrin, we were engaged in the clinical development of cancer therapeutics that reactivate the mutant p53 tumor suppressor protein. InDecember 2020 , we announced that our pivotal Phase 3 myelodysplastic syndromes trial failed to meet its predefined primary endpoint of complete remission (CR) rate. Given these results, FDA feedback and the costs of continuing the APR-246 development program, we shifted the primary focus of our activities to the assets acquired in theMay 16, 2022 acquisition ofAtrin Pharmaceuticals Inc. , or Atrin, a privately held company focused on developing next-generation cancer therapeutics that regulate the DDR, including the ATRN-119 and ATRN-W1051 programs. Following the acquisition of Atrin, the Company's primary focus is the discovery and development of proprietary molecules targeting DDR pathways in oncology through synthetic lethality. This focus leverages Atrin's development of a proprietary discovery platform to interrogate DDR pathways that may enable identification of both potential novel DDR targets for future development and potential biomarkers for enhanced sensitivity and patient selection in clinical trials. The acquisition of Atrin was the result of thorough evaluation of strategic options, which commenced in the fourth quarter of 2021. We believe the acquisition represents a potential opportunity to create long-term value for our stockholders.
DDR Overview
Cells are continuously exposed to endogenous and exogenous stress that can lead
to DNA damage. To counter this lethal threat, cells have mechanisms to detect
DNA damage, activate the appropriate repair pathway or, if irreparable, induce
cell cycle arrest or apoptosis. These DDR processes are vital for cell survival.
Cancer cells rely on various alternative pathways to repair and resist DNA
damage and replication stress. Many of these DDR-related genes are mutated
across cancers, as loss of the DDR pathway allows cancer cells to rapidly evolve
and grow out of control. Notably, functional loss of these pathways also creates
a vulnerability in these cancers because mutation or loss of some DDR genes
increases reliance on other DDR genes to support continued cancer cell growth.
When mutation or loss of two DDR genes leads to cell death, the interplay
between these genes is synthetic lethality. Importantly, selective targeting of
specific members of the DDR pathway represents an attractive potential
therapeutic approach for the treatment of cancer. Furthermore, because genes
that are mutated in cancers continue to function normally in healthy tissues,
this treatment approach can potentially reduce drug-induced toxicity while
maintaining anti-cancer activity.
Leveraging synthetic lethality in therapeutic targeting of DDR represents an
emerging strategy to treat a broad spectrum of cancers that currently lack
effective treatments. Our team was the first to identify ATR as a drug target
that synergistically kills cancer cells based on one of their most fundamental
characteristics, oncogene expression. Aprea's development pipeline is based on
our discovery platforms and a rationally designed series of novel molecules. We
have
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developed highly selective small molecule regulators of DDR proteins that play fundamental roles in these response pathways.
Platform of Integrated Discovery Technologies
Our drug discovery and development processes integrate three unique platforms: Repli-Biom, ATRIZE™ and SCET™. These integrated technologies provide us with the opportunity to enrich our pipeline with novel targets in synthetic lethality and cancer treatment. In addition, by utilizing our integrated technologies we have identified cancer-associated gene alterations that can lead to increased sensitivity to Aprea's DDR inhibitors and may provide future opportunities for improved efficacy and tolerability in cancer treatment.
Repli-Biom
Repli-Biom identifies proteins that cancer cells use to resist the effects of drug treatment. This integrated proteomic, genomic and machine learning approach identifies response factors that both participate in the molecular response to drug treatment and are highly mutated in cancers. Absence of these resistance factors predict sensitivity to drug treatment, thus potentially promoting durable drug responses. In addition, this approach is being used to identify novel combination therapy approaches and new drug targets to advance Aprea's drug development programs.
ATRIZE
ATRIZE is an innovative, high-throughput system to detect disruption of DNA synthesis and DDR activation, and thus is ideal for screening DDR inhibitors. ATRIZE may significantly reduce the time required to discover active drug candidates and optimize their design for precision cancer therapy.
SCET
SCET is a medicinal chemistry cyclization approach to generate highly potent and selective enzyme inhibitors. The SCET approach enables the design and synthesis of novel conformationally-constrained drug candidates with potentially higher affinity and specificity for the target enzyme. By utilizing this approach, we believe that we have developed highly potent and specific anticancer drug candidates with decreased off-target activities.
DDR Product Candidates
ATRN-119
Ataxia Telangiectasia and Rad3-related (ATR) and Checkpoint Kinase 1 (CHK1) are critical DNA damage response kinases that prevent the collapse of replication forks into DNA double strand breaks (DSBs). ATR is one of several key regulators of the response to defective DNA replication and DNA damage, which occurs more commonly in cancer cells than in normal cells. In response to these cancer-associated genomic insults, ATR is activated to inhibit progression to cellular division and prevent the assembly of the SLX1-SLX4, MUS81-EME1 and XPF-ERCC1 (SMX) endonuclease (DNA cutting) complex. When ATR is inhibited, the SMX complex is inappropriately activated, promoting the cutting of replication forks into DSBs. In association with ATR's fundamental roles in these replication responses, cells with increased oncogenic stress, p53 mutations and deficiencies in DDR pathways are predicted to have increased sensitivity to ATR inhibition. Accordingly, ATR inhibition is also predicted to sensitize cells to DNA-damaging chemotherapy, radiotherapy and PARP inhibitor treatments, making ATR inhibitors particularly attractive for the development of novel combination therapies.
We have developed an orally bioavailable, highly potent and selective macrocyclic small molecule inhibitor of ATR (ATRN-119) that has the potential to have less toxicity to normal tissues while continuing to capitalize on cancer
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vulnerabilities due to oncogenic stress and DDR pathway defects. We are
conducting a Phase 1 clinical trial to evaluate ATRN-119 monotherapy in cancer
patients with defined genetic mutations. This trial was activated and opened for
enrollment in the third quarter of 2022 and we expect to open 1-2 additional
sites in the fourth quarter of 2022.
ATRN-119 and related second-generation candidates were discovered by Atrin. We
believe the selectivity and toxicology profiles of ATRN-119 may be
differentiated from other ATR inhibitors currently being developed by other
companies and we are planning to study ATRN-119 as both a monotherapy and in
combination with standard of care in Phase 1/2 clinical trials in solid tumor
malignancies. We currently retain worldwide development and commercialization
rights to all of our ATR inhibitor product candidates.
ATRN-W1051
WEE1 kinase is a key regulator of multiple phases of the cell cycle, most prominently in progression from G1 to S phase and from S/G2 to M phase through inhibitory phosphorylation of CDK2 and CDK1, respectively. Thus, when WEE1 is inhibited, both G1-S and G2-M checkpoints are abrogated, leading to premature S-phase and M-phase entry. Notably, the replication stress caused by cyclin E1 overexpression is transformed into toxic levels of DSBs and cancer cell death when WEE1 is inhibited. These findings suggest cyclin E overexpression as a cancer-associated vulnerability that may be capitalized on by WEE1 inhibitors. We have discovered and initiated development of an orally bioavailable, highly potent and selective small molecule WEE1 inhibitor, ATRN-W1051, that is distinct from other WEE1 inhibitors based on its potentially superior pharmacokinetic properties and selectivity regarding common off-targets (PLK1/2/3). ATRN-W1051 is currently in preclinical development, and we anticipate commencing IND-enabling studies in the fourth quarter of 2022.
ATRN-W1051 was discovered by Atrin. We believe the selectivity profile of ATRN-W1051 may be differentiated from other WEE1 inhibitors currently being developed by other companies and we are planning to study ATRN-W1051 as both a monotherapy and in combination with standard of care for the treatment of multiple cancers. We currently retain worldwide development and commercialization rights to ATRN-W1051.
p53 Reactivator Programs
Eprenetapopt
APR-246, or eprenetapopt, is a small molecule p53 reactivator that has been tested in clinical trials for solid tumors and for hematologic malignancies, including myelodysplastic syndromes, or MDS, and acute myeloid leukemia, or AML. Eprenetapopt has received Orphan Drug and Fast Track designations from the FDA for MDS, Fast Track designation from the FDA for AML, and Orphan Drug designation from theEuropean Commission for MDS and AML , and we believe eprenetapopt will be a first-in-class therapy if approved by applicable regulators. While we currently have no ongoing clinical trials of eprenetapopt, we have received clearance from FDA to proceed under our existing INDs with new Phase 1 dose-optimization clinical trials in relapsed/refractory MDS/AML and Richter's transformed NHL, including initial testing of a new oral formulation of eprenetapopt.
Phase 1 Relapsed/Refractory MDS/AML Trial- In the first quarter of 2022, we
received clearance from the FDA to proceed under our existing IND of a clinical
? trial in relapsed/refractory (R/R) MDS/AML. The trial is designed to determine
the optimal pharmacologically active dose of eprenetapopt in combination with
azacitidine in relapsed/refractory (R/R) MDS/AML.
Phase 1 NHL Trial-In the first quarter of 2022 we received clearance from FDA
to proceed under our existing IND with a clinical trial in relapsed/refractory
(R/R) TP53 mutant Richter's transformed NHL. Richter's transformed NHL is a
? subset of CLL that is characterized by significantly more aggressive disease.
The trial is designed to seek to determine the optimal pharmacologically active
dose of eprenetapopt in combination with venetoclax and rituximab. The trial
includes administration of an oral formulation of eprenetapopt as part of a
monotherapy lead-in phase. Under the trial protocol,
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pharmacokinetic data following oral administration would be collected to assess
exposure relative to intravenous administration and to inform potential future
clinical opportunities of an oral dosage form of eprenetapopt.
Prior Developments in p53 Clinical Trials
On
clinical hold on the clinical trials of eprenetapopt in combination with
azacitidine in our Phase 3 frontline MDS clinical trial, our Phase 2 MDS/AML
Post-Transplant clinical trial and our Phase 1/2 AML clinical trial. The
concerns referred to the safety and efficacy data from the Phase 3 frontline
MDS clinical trial. In particular, the FDA requested more information related
to a potential risk-reward imbalance between the combination of eprenetapopt
and azacitidine versus azacitidine alone as it relates to increased serious
adverse events in the Phase 3 frontline clinical trial in MDS. At the time of
the clinical hold announcement the MDS, AML and post-transplant maintenance
trials had all completed enrollment. Patients
? treatment could continue to receive study treatment. In
discussed with FDA the data and analyses from the Phase 3 trial and reached
preliminary agreement on proposals for new clinical trials in myeloid
malignancies. In the first quarter of 2022, FDA informed us that it would
continue the partial clinical hold on these three clinical trials, allowing
patients currently on and benefiting from treatment to continue with treatment,
but prohibiting enrollment of new patients. As all trials had already achieved
full enrollment and primary endpoint readout, we had no plans to enroll new
patients into any of these trials. These trials have been concluded and there
are no patients receiving eprenetapopt in any of these trials. FDA has given us
clearance to proceed under our existing myeloid malignancy IND with a new
clinical trial in relapsed/refractory MDS and AML.
On
eprenetapopt in patients with non-Hodgkin lymphoma. The
to the safety and efficacy data from the Phase 3 frontline MDS clinical trial
in our myeloid malignancy program. In particular, the FDA requested more
information related to a potential risk-reward imbalance between the
combination of eprenetapopt and azacitidine versus azacitidine alone as it
relates to increased serious adverse events in the Phase 3 frontline clinical
? trial in MDS. At the time of the clinical hold announcement the NHL trial had
enrolled one patient. Patients
continue to receive study treatment and no additional patients could be
enrolled until the clinical hold was resolved. There are currently no patients
receiving eprenetapopt in this trial. In
requested data and analyses from the Phase 3 trial and proposed amendments for
clinical trials to proceed in our lymphoid malignancy program. FDA lifted the
clinical hold in
Next Generation Programs APR-548
APR-548 is a second generation p53 reactivator that is a unique analog of eprenetapopt. APR-548 exhibits high oral bioavailability in preclinical testing and is being developed in an oral dosage form.
Phase 1 MDS/AML Trial-We initiated a Phase 1 clinical trial testing APR-548 in
? relapsed/refractory MDS and AML. Enrollment in the first dosing cohort was
completed. There are currently no patients receiving APR-548 in this trial and
enrollment into the trial has been closed.
Corporate Background
Aprea Therapeutics AB , orAprea AB , was originally incorporated in 2002 and commenced principal operations in 2006. We incorporatedAprea Therapeutics, Inc. (the "Company") inMay 2019 . InSeptember 2019 we completed a corporate reorganization and, as a result, all of the issued and outstanding stock ofAprea AB was exchanged for common stock, preferred stock or options, as applicable, of the Company As a result of such transactions,Aprea AB became a wholly- 20 Table of Contents
owned subsidiary of the Company. On
We have devoted substantially all of our resources to developing our product candidates, including eprenetapopt, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily through private placements of preferred stock and the net proceeds received from the initial public offering (IPO) of our common stock. ThroughSeptember 30, 2022 , we had received net proceeds of approximately$226.2 million from our sales of preferred and common stock. OnMay 16, 2022 , we acquired Atrin in accordance with the terms of the Agreement and Plan of Merger dateMay 16, 2022 (the "Merger Agreement"), by and among Aprea,ATR Merger Sub I Inc. , aDelaware corporation and wholly owned subsidiary of Aprea ("First Merger Sub"),ATR Merger Sub II LLC , aDelaware limited liability company and wholly owned subsidiary of Aprea ("Second Merger Sub") and Atrin. Pursuant to the Merger Agreement, First Merger Sub merged with and into Atrin, pursuant to which Atrin was the surviving corporation and became a wholly owned subsidiary of Aprea (the "First Merger"). Immediately following the First Merger, Atrin merged with and into the second Merger Sub, pursuant to which Second Merger Sub was the surviving entity (the "Second Merger", together with the First Merger, the "Merger"). The Atrin acquisition was accounted for as an asset acquisition for accounting purposes (see Note 3 to the financial statements). Under the terms of the Merger agreement, at the closing of the Merger, Aprea issued to the securityholders of Atrin, 1,117,394 shares of the common stock of Aprea, par value$0.001 per share (the "Common Stock") and 2,949,630 shares of Series A Preferred Stock, each share of which is convertible into 10 shares of common Stock. In addition, we assumed outstanding Atrin stock options, which became options for 3,275,149 shares of our common stock. Pursuant to the Merger Agreement, Aprea held its annual stockholders' meeting (the "Stockholders' Meeting") onJuly 28, 2022 where the following matters were approved; (i) the conversion of the Series A Preferred Stock into shares of Common Stock in accordance with Nasdaq Listing Rule 5635(a) and (ii) the ratification of the appointment by the Aprea Board of Directors of additional members to the Board. ThroughSeptember 30, 2022 , a total of 2,821,033 shares of Series A Preferred Stock were converted into 28,210,330 shares of common stock. As ofSeptember 30, 2022 , a total of 128,597 shares of Series A Preferred Stock remained outstanding. Since our inception, we have incurred significant losses on an aggregate basis. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were$4.0 million and$110.2 million for the three and nine months endedSeptember 30, 2022 , respectively,$9.5 million and$29.4 million for the three and nine months endedSeptember 30, 2021 , respectively and$37.1 million ,$53.5 million and$28.1 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$291.4 million . These losses have resulted primarily from costs incurred in connection with research and development activities, patent investment, and general and administrative costs associated with our operations and the acquisition of in process research and development associated with the acquisition of Atrin. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.
We anticipate that our expenses will increase substantially if and as we:
? conduct our planned clinical trials and additional preclinical research;
? initiate and continue research and preclinical and clinical development of our
other product candidates;
? seek to identify and develop additional product candidates;
? seek marketing approvals for any of our product candidates that successfully
complete clinical trials, if any;
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? establish a sales, marketing, manufacturing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
? require the manufacture of larger quantities of our product candidates for
clinical development and potential commercialization;
? maintain, expand, protect and enforce our intellectual property portfolio;
? acquire or in-license other drugs and technologies;
? defend against any claims of infringement, misappropriation or other violation
of third-party intellectual property;
? hire and retain additional clinical, quality control and scientific personnel;
and
add operational, financial and management information systems and personnel, ? including personnel to support our drug development, any future
commercialization efforts and our operation as a public company.
Furthermore, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. We may be unable to raise additional funds or enter into other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As ofSeptember 30, 2022 , we had cash and cash equivalents of$33.1 million . We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the end of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "-Liquidity and Capital Resources."
The COVID-19 pandemic
The novel coronavirus outbreak (COVID-19) has been declared a "Public Health Emergency of International Concern" by theWorld Health Organization . COVID-19 has spread to the countries in which we, our suppliers, and our other business partners conduct business. Governments in affected regions have implemented, and may continue to implement or re-implement, safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings, and other measures they deem necessary. Like many other organizations and individuals, the Company and our employees are taking additional steps to avoid or reduce infection, including limiting travel and implementing remote work arrangements. We will continue to actively monitor the situation and may take further actions that could alter our business operations as may be required by national, state, or local authorities, or that we determine are in the best interests of our employees and stockholders. There are many uncertainties regarding the COVID-19 pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our clinical trials, employees, suppliers, vendors and business partners. While the pandemic did not materially affect our financial results and business operations for the 22
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three and nine months endedSeptember 30, 2022 , we are unable to predict the impact that COVID-19 will have on our financial position and operating results at this time due to numerous uncertainties such as the duration and spread of the outbreak. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations if necessary.
Components of our results of operations
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for any of our product candidates are successful and result in marketing approval or 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 that we may enter into with third parties. Operating expenses
Our expenses since inception have consisted solely of research and development costs and general and administrative costs.
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:
expenses incurred under agreements with third parties, including contract
research organizations, or CROs, that conduct research, preclinical activities ? and clinical trials on our behalf as well as contract manufacturing
organizations, or CMOs, that manufacture our product candidates for use in our
preclinical and clinical trials;
? salaries, benefits and other related costs, including stock-based compensation
expense, for personnel engaged in research and development functions;
? costs of outside consultants, including their fees, stock-based compensation
and related travel expenses;
? costs of laboratory supplies and acquiring, developing and manufacturing
preclinical study and clinical trial materials;
? expenses related to compliance with regulatory requirements; and
facility-related expenses, which include direct depreciation costs and ? allocated expenses for rent and maintenance of facilities and other operating
costs.
We expense research and development costs as incurred. We recognize costs for
certain development activities, such as clinical trials, based on an evaluation
of the progress to completion of specific tasks using data such as patient
enrollment, clinical site activations, or information provided to us by our
vendors and our clinical investigative sites. 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.
We typically use our employee and infrastructure resources across our
development programs. We track outsourced development costs and payments made to
our research partners by product candidate or development program, but we do not
allocate personnel costs or other internal costs to specific development
programs or product candidates.
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Research and development activities are central to our business model. Product candidates in later stages of clinical development 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. We expect that our research and development expenses will continue to increase for the foreseeable future as we initiate clinical trials for ATRN-119 and other product candidates and continue to discover and develop additional product candidates. We cannot determine with certainty the duration and costs of planned clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any our product candidates for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
the scope, rate of progress, expense and results of any future clinical trials ? of our product candidates and other research and development activities that we
may conduct;
? uncertainties in clinical trial design and patient enrollment rates;
? significant and changing government regulation and regulatory guidance;
? the timing and receipt of, and any limitations imposed by regulatory bodies on,
any marketing approvals; and
? the expense of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights.
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. For example, if theU.S. Food and Drug Administration , or FDA, or another regulatory authority in a foreign jurisdiction were to require us to conduct clinical trials beyond the scope we currently anticipate, or additional clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
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, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our general and administrative expenses will increase in the future as a result of the costs associated with the Merger as well as the expansion of operations subsequent to the Merger, as we increase our headcount to support personnel in research and development and to support our operations generally, and as we increase our research and development activities and activities related to the potential commercialization of our product candidates. We also expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements; director and officer insurance costs; and investor and public relations costs.
Acquired in-process research and development ("IPR&D") expense resulted from the
Atrin acquisition in May 2022 which was accounted for as an asset acquisition.
The acquisition cost allocated to acquire IPR&D with no alternative future use
was recorded as an expense at the acquisition date and no additional IPR&D
expense relating to the Atrin acquisition is expected to be reported in future
periods.
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Other income and expense
Interest income and expense
Interest income consists of income earned on our cash and cash equivalents. Interest expense consists of the interest component associated with our facility leases. Our interest income initially increased as our cash and cash equivalents were higher due to the cash proceeds received from our IPO. Such interest income is subsequently decreasing as (i) our cash balance decreases as we continue to fund operations and (ii) a change in interest rates.
Foreign currency gain
Our consolidated financial statements are presented inU.S. dollars, which is our reporting currency. The financial position and results of operations of our subsidiaryAprea AB is measured using the foreign subsidiary's local currency as the functional currency.Aprea AB cash accounts holdingU.S. dollars are remeasured based upon the exchange rate at the date of remeasurement with the resulting gain or loss included in the consolidated statement of operations and comprehensive loss. Expenses of such subsidiaries have been translated intoU.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the consolidated balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders' equity and as other comprehensive loss on the consolidated statement of operations and comprehensive loss. Income taxes
We have not recorded anyU.S. federal, state or foreign income tax expense or benefits for the net losses we have incurred in any year, due to our uncertainty of realizing a benefit from those items. We have provided a valuation allowance for the full amount of the net deferred tax assets as, based on all available evidence, it is considered more likely than not that all the recorded deferred tax assets will not be realized in a future period.
Critical accounting policies and use of estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . 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 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.
While our significant accounting policies are described in more detail in the notes to our financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Accrued research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses at each balance sheet. This process involves reviewing open contract and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements
based
on facts and
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circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
? CROs in connection with performing research activities on our behalf and
conducting preclinical studies and clinical trials on our behalf;
? investigative sites or other service providers in connection with clinical
trials;
? vendors in connection with preclinical and clinical development activities; and
? vendors related to product manufacturing and development and distribution of
preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct and manage preclinical studies and clinical trials 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 expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated 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 amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-based compensation
We measure stock options and other stock-based awards granted to employees and
directors based on their fair value on the date of the grant and recognize
compensation expense of those awards, over the requisite service period, which
is generally the vesting period of the respective award. We apply the
straight-line method of expense recognition to all awards with only
service-based vesting conditions and apply the graded-vesting method to all
awards with performance-based vesting conditions or to awards with both
service-based and performance-based vesting conditions.
For stock-based awards granted to non-employees, compensation expense is
recognized over the period during which services are rendered by such
non-employees until completed in accordance with the FASB issued
ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting. The new standard largely aligns the
accounting for share-based payment awards issued to employees and nonemployees
by expanding the scope of ASC 718 to apply to nonemployee share-based
transactions, as long as the transaction is not effectively a form of financing.
We estimate the fair value of each stock option grant on the date of grant using
the Black-Scholes option-pricing model, which uses as inputs the fair value of
our common stock and assumptions we make for the volatility of our common stock,
the expected term of our stock options, the risk-free interest rate for a period
that approximates the expected term of our stock options and our expected
dividend yield.
We also award restricted stock units ("RSUs") to employees and directors. RSUs
are generally subject to forfeiture if employment terminates prior to completion
of the vesting restrictions. We expense the cost of the RSUs, which is
determined to be the fair market value of the shares of common stock underlying
the RSUs at the date of grant, ratably over the period during which the vesting
restrictions lapse.
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Emerging growth company and smaller reporting company status
We are an emerging growth company (EGC), as defined in the JOBS Act. Under this act, emerging growth companies are permitted to delay adopting new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We may remain classified as an EGC until the end of the fiscal year in which the fifth anniversary of our IPO occurs, although if the market value of our common stock that is held by non-affiliates exceeds$700 million as of the last trading day of the second quarter before that time or if we have annual gross revenues of$1.235 billion or more in any fiscal year, we would cease to be an EGC as ofDecember 31 of the applicable year. We also would cease to be an EGC if we issue more than$1 billion of non-convertible debt over a three-year period. We are also a "smaller reporting company," as such term is defined in Rule 12b-2 of the Exchange Act, meaning that the market value of our common stock held by non-affiliates is less than$700 million and our annual revenue is less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our common stock held by non-affiliates is less than$250 million or (ii) our annual revenue is less than$100 million during the most recently completed fiscal year and the market value of our common stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Results of operations
Comparison of the three months ended
Three Months Ended September 30,
2022 2021 Change
Operating expenses:
Research and development $ 1,117,576 $ 6,015,616 $ (4,898,040)
General and administrative 3,082,618 3,414,795 (332,177)
Total operating expenses 4,200,194 9,430,411 (5,230,217)
Other income (expense):
Interest expense 151,123 (33) 151,156
Foreign currency gain 24,353 (21,907) 46,260
Total other income (expense) 175,476
(21,940) 197,416
Net loss $ (4,024,718) $ (9,452,351) $ 5,427,633 Research and development expenses
Three Months Ended September 30,
2022 2021 Change
APR-246 $ 57,885 $ 3,378,188 $ (3,320,303)
ATRN-119 396,608 - 396,608Other early-stage development programs 137,662 1,067,960 (930,298) Unallocated research and development expenses 525,421 1,569,468 (1,044,047) Total research and development expenses$ 1,117,576 $
6,015,616$ (4,898,040) 27 Table of Contents
Research and development expenses for the three months endedSeptember 30, 2022 were$1.1 million , compared to$6.0 million for the three months endedSeptember 30, 2021 . The overall decrease of$4.9 million was primarily due to the overall activity in connection with the wrap up and close out of the clinical trials of eprenetapopt as follows:
a decrease of
? clinical trial of eprenetapopt with azacitidine for frontline treatment of TP53
mutant MDS;
? a decrease of
tumor trial;
a decrease of
decrease in non-cash stock-based compensation expense was related to the
? accelerated vesting of all outstanding and unvested stock options and RSUs in
connection with the Atrin acquisition which occurred in the second quarter of
2022.
? a decrease of
? a decrease of
post-transplant MDS/AML clinical trial;
? a decrease of
trial;
a decrease of
trial in relapsed/refractory TP53 mutant chronic lymphoid leukemia (CLL)
? assessing eprenetapopt with venetoclax and rituximab and eprenetapopt with
ibrutinib in order to further assess eprenetapopt in hematological
malignancies;
? a decrease of
dose-escalation clinical trial of APR-548, a next generation p53 reactivator;
General and administrative expenses
General and administrative expenses for the three months ended
a decrease of
decrease in non-cash stock-based compensation expense was related to the
? accelerated vesting of all outstanding and unvested stock options and RSUs in
connection with the Atrin acquisition which occurred in the second quarter of
2022.
The above decrease was offset, in part by the following:
? an increase in professional of
acquisition activities. Other income and expense Foreign currency gain for the three months endedSeptember 30, 2022 was$24,353 compared to a foreign currency loss of$21,907 for the three months endedSeptember 30, 2021 . The change in the foreign currency of$46,260 was primarily due to a strengthening of theU.S. dollar against the Swedish Krona during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Interest income, net for the three months endedSeptember 30, 2022 consisted of interest income on our cash and cash equivalents, offset in part, by interest expense associated with our facility leases. Interest expense, net for the three months endedSeptember 30, 2021 consisted of interest expense associated with our facility leases, offset in part, by interest income on our cash and cash equivalents. 28
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Comparison of the nine months ended
Nine months ended September 30,
2022 2021 Change
Operating expenses:
Research and development $ 15,870,867 $ 19,433,721 $ (3,562,854)
General and administrative 18,849,549 10,183,953 8,665,596
Acquired in-process research and development 76,020,184 - 76,020,184
Total operating expenses 110,740,600 29,617,674 81,122,926
Other income (expense):
Interest expense 205,585 (1,678) 207,263
Foreign currency gain 315,130 247,233 67,897Total other income (expense) 520,715
245,555 275,160 Net loss$ (110,219,885) $ (29,372,119) $ (80,847,766)
Research and development expenses
Nine months ended September 30,
2022 2021 Change
APR-246 $ 4,538,350 $ 10,843,510 $ (6,305,160)
ATRN-119 415,916 - 415,916Other early-stage development programs 1,171,987 3,493,027 (2,321,040) Unallocated research and development expenses 9,744,614 5,097,184 4,647,430 Total research and development expenses$ 15,870,867 $
19,433,721
Research and development expenses for the nine months endedSeptember 30, 2022 were$15.9 million , compared to$19.4 million for the nine months endedSeptember 30, 2021 . The overall decrease of$3.5 million was primarily due to the decreased activity in connection with the wrap up of the clinical trials of eprenetapopt as follows:
a decrease of
decrease in non-cash stock-based compensation expense was related to the
? accelerated vesting of all outstanding and unvested stock options and RSUs in
connection with the Atrin acquisition which occurred in the second quarter of
2022; and
? a decrease of
tumor trial;
General and administrative expenses
General and administrative expenses for the nine months ended
an increase of
increase in non-cash stock-based compensation expense was related to the
? accelerated vesting of all outstanding and unvested stock options and RSUs in
connection with the Atrin acquisition which occurred in the second quarter of
2022; and
? an increase in professional of
acquisition activities.
Acquired IPR&D expense was$76.0 million for the nine months endedSeptember 30, 2022 . Acquired IPR&D resulted from the Atrin Acquisition inMay 2022 which was accounted for as an asset acquisition. The acquisition cost allocated 29
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to acquired IPR&D with no alternative future use was recorded as an expense as
of the closing date of the Atrin Acquisition. No acquired IPR&D expense was
incurred in the nine months ended
Other income and expense
Foreign currency gain for the nine months endedSeptember 30, 2022 was$0.3 million compared to a foreign currency gain of$0.2 million the nine months endedSeptember 30, 2021 . Interest income, net for the nine months endedSeptember 30, 2022 consisted of interest income on our cash and cash equivalents, offset in part, by interest expense associated with our facility leases. Interest expense, net for the nine months endedSeptember 30, 2021 consisted of interest expense associated with our facility leases, offset in part, by interest earned on our cash and cash equivalents.
Liquidity and capital resources
Since our inception, we have incurred significant losses on an aggregate basis. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily through private placements of our preferred and common stock and the net proceeds received from the initial public offering (IPO) of our common stock. ThroughSeptember 30, 2022 , we had received net proceeds of$226.2 million from our sales of preferred and common stock. As ofSeptember 30, 2022 , we had cash and cash equivalents of$33.1 million .
Cash flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine months ended September 30,
2022 2021
Net cash provided by (used in):
Operating activities $ (20,990,624) $ (27,507,392)
Investing activities - -
Financing activities 584,447 86,970
Net increase in cash and cash equivalents
Operating activities. Cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was$21.0 million for the nine months endedSeptember 30, 2022 compared to$27.5 million for the nine months endedSeptember 30, 2021 . The decrease in cash used in operating activities of$6.5 million was primarily attributable to an increase in our net loss of$80.8 million , which was largely due to acquired IPR&D associated with the Atrin acquisition of$76.0 million and a decrease in operating assets and liabilities of$3.7 million , partially offset by an increase in non-cash stock-based compensation of$11.2 million . Investing activities.
No cash was used in investing activities for the nine months ended
Financing activities. Net cash provided by financing activities was$0.6 million for the nine months endedSeptember 30, 2022 compared to$0.1 million for the nine months endedSeptember 30, 2021 . Cash provided by financing activities for the nine months endedSeptember 30, 2022 was attributable to the net proceeds received from sales of common stock under our ATM program. Cash provided by financing activities for the nine months endedSeptember 30, 2021 represented proceeds received from the exercise of stock options. 30 Table of Contents Funding requirements We expect our expenses to increase in connection with our ongoing and planned development activities. In addition, we have incurred and continue to incur additional costs associated with operating as a public company. We expect that our expenses will increase substantially if and as we:
? initiate and conduct clinical trials and additional preclinical research for
our product candidates;
? seek to identify and develop additional product candidates;
? seek marketing approvals for any of our product candidates that successfully
complete clinical trials, if any;
? establish a sales, marketing, manufacturing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
? require the manufacture of larger quantities of our product candidates for
clinical development and potentially commercialization;
? maintain, expand, protect and enforce our intellectual property portfolio;
? acquire or in-license other drugs and technologies;
? defend against any claims of infringement, misappropriation or other violation
of third-party intellectual property;
? hire and retain additional clinical, quality control and scientific personnel;
? build out new facilities or expand existing facilities to support our ongoing
development activity;
add operational, financial and management information systems and personnel, ? including personnel to support our drug development, any future
commercialization efforts and our transition to a public company; and
? continue to operate as a public company.
As ofSeptember 30, 2022 , we had cash and cash equivalents of$33.1 million . We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the end of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Because of 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 capital requirements will depend on many factors, including:
? the scope, progress, results and costs of our planned clinical trials, drug
discovery and preclinical research for our product candidates;
? the number of future product candidates that we pursue and their development
requirements;
? the costs, timing and outcome of regulatory review of our product candidates;
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the extent to which we acquire or invest in assets or businesses, products and
technologies, including entering into or maintaining licensing or collaboration ? arrangements for product candidates on favorable terms, and although we
recently completed the Merger and may continue to explore such opportunities
from time to time during the normal course of business, we currently have no
commitments or agreements to complete any such transactions];
the costs and timing of future commercialization activities, including drug
sales, marketing, manufacturing and distribution, for any of our product ? candidates for which we receive marketing approval, to the extent that such
sales, marketing, manufacturing and distribution are not the responsibility of
any collaborator that we may have at such time;
? the amount of revenue, if any, received from commercial sales of our product
candidates, should any of our product candidates receive marketing approval;
? the impact of COVID-19 on the financial markets in general and on our business
in particular;
the costs of preparing, filing and prosecuting patent applications, ? maintaining, protecting and enforcing our intellectual property rights and
defending intellectual property-related claims;
? our headcount growth and associated costs as we expand our business operations
and our research and development activities; and
? the costs of operating as a public company.
Developing drug products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests in our securities may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute existing ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations and commitments
For additional details regarding our contractual obligations, see Note 3 "Leases" to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
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Shelf Registration Statement
On November 12, 2020 , we filed a universal shelf registration statement with the
SEC for the issuance of common stock, preferred stock, warrants, rights and debt
securities and units up to an aggregate of $350.0 million . On November 30, 2020 ,
the Shelf Registration Statement was declared effective by the SEC . The
universal shelf registration statement includes an at-the-market offering
program and we filed a Prospectus Supplement dated September 2, 2022 for the
sale of up to $14,744,728 of shares of our common stock pursuant to our ATM
offering program. During the three and nine months ended September 30, 2022 , the
Company issued and sold 625,709 shares of common stock under the ATM offering
program resulting in net proceeds to the Company of approximately $0.6 million .
The Company did not sell any stock under the ATM offering program during the
three and nine months ended September 30, 2021 .
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by theFinancial Accounting Standards Board ("FASB") or other standard setting bodies that we adopt as of the specified effective date.
We do not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on our financial statements.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
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