APREA THERAPEUTICS, INC. The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item I, "Business" and Item 8, 'Financial Statements and Supplementary Data." For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward looking statements, see "Special Note Regarding Forward-Looking Statements," and Part I, Item 1A, 'Risk Factors." Overview We are a clinical-stage biopharmaceutical company focused on developing and commercializing novel cancer therapeutics that reactivate mutant p53 tumor suppressor protein. p53 is the protein expressed from the TP53 gene, the most commonly mutated gene in cancer. We believe that mutant p53 is an attractive therapeutic target due to the high incidence of p53 mutations across a range of cancer types and its involvement in key cellular activities such as apoptosis. Cancer patients with mutant p53 face a significantly inferior prognosis even when treated with the current standard of care, and a large unmet need for these patients remains. Our lead product candidate, APR-246, is a small molecule p53 reactivator that is in late-stage clinical development for hematologic malignancies, including myelodysplastic syndromes, or MDS, and acute myeloid leukemia, or AML. APR-246 has received Orphan Drug, Fast Track and Breakthrough designations from the FDA for MDS, and Orphan Drug designation from theEuropean Commission for MDS , AML and ovarian cancer, and we believe APR-246 will be a first-in-class therapy if approved by applicable regulators. We have commenced a pivotal Phase 3 trial of APR-246 with azacitidine for frontline treatment of TP53 mutant MDS and expect initial data from this trial in the second half of 2020. Our pivotal Phase 3 trial is supported by data from two ongoing Phase 1b/2 investigator initiated trials, one in theU.S. and one inFrance , testing APR-246 with azacitidine as frontline treatment in TP53 mutant MDS and AML patients.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-owned subsidiary of the Company. We have devoted substantially all of our resources to developing our product candidates, including APR-246, 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 through private placements of preferred stock and the net proceeds received from the initial public offering (IPO) of our common stock. ThroughDecember 31, 2019 , we had received net proceeds of approximately$223.8 million from our sales of preferred and common stock. 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$28.1 million ,$15.5 million and$15.2 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. As ofDecember 31, 2019 , we had an accumulated deficit of$90.5 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. 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 current and future clinical trials and additional preclinical
research of APR-246;
· initiate and continue research and preclinical and clinical development of our
other product candidates;
· seek to identify and develop additional product candidates;
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· 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;
· 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.
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 ofDecember 31, 2019 , we had cash and cash equivalents of$130.1 million . We believe that our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into 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."
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 APR-246 or other product candidates that we may develop
in the future 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.
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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. 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 additional clinical trials of APR-246, pursue later stages of clinical development of APR-246, initiate clinical trials for product candidates other than APR-246 and continue to discover and develop additional product candidates. We cannot determine with certainty the duration and costs of the current or future 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 our ongoing clinical trials
of APR-246, as well as of any future clinical trials of APR-246 or other
product candidates and other research and development activities that we may
conduct;
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· uncertainties in clinical trial design and patient enrollment rates;
· significant and changing government regulation and regulatory guidance;
· the timing and receipt of 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 were to require us to conduct 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. We are currently conducting multiple clinical trials of APR-246: our Phase 3 trial inthe United States for the treatment of TP53 mutant MDS with azacitidine, our Phase 1b/2 trials inthe United States andFrance for the treatment of MDS and AML with azacitidine, and our Phase 2 trial of post-transplant maintenance therapy with azacitidine in MDS and AML. At this time, we cannot reasonably estimate the cost for initiating and completing other clinical trials of APR-246 and preclinical studies of APR-246, as it will be highly dependent on the clinical data from ongoing clinical trials as well as any target disease subpopulations chosen for further evaluation.
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 we increase our general and administrative personnel headcount to support personnel in research and development and to support our operations generally as we increase our research and development activities and activities related to the 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-related services associated with maintaining compliance with exchange listing andSEC requirements; director and officer insurance costs; and investor and public relations costs. Other income and expense Interest income and expense Interest income consists of income earned on our cash and cash equivalents. Interest expense consists of bank charges and fees incurred on our cash and cash equivalents. Our interest income will initially increase as our investment balances will be higher due to the cash proceeds received from our IPO. Such interest income will then decrease as our cash balance decreases as we continue to fund our operations. 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 subsidiariesAprea AB andAprea Personal AB are measured using the foreign subsidiaries' 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 117
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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
SinceAprea AB's inception in 2002, 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. AtDecember 31, 2019 , we had$89.9 million ,$7.4 million and$5.8 million of foreign, federal and state net operating loss carryforwards, respectively, that expire at various dates through 2037. Certain of these foreign, federal and state net operating loss carryforwards may be subject to Internal Revenue Code Section 382 or similar provisions, which impose limitations on their utilization amounts.
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 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.
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 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.
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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 multiple 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, net of estimated forfeitures, 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.
Determination of fair value of common stock
As a privately held company (throughOctober 2, 2019 ), there had been no public market for our common stock, the estimated fair value of our common stock had been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using a hybrid method, which used market approaches to estimate our enterprise value. The hybrid method is a probability-weighed expected return method, or PWERM, where the equity value in one or more scenarios is calculated using an option-pricing method, or OPM. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preference at the time of the liquidity event, such as a strategic sale or a merger. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each 119 Table of Contents class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of$0.92 per share as ofMay 31, 2016 ,$1.01 per share as ofOctober 2, 2017 ,$3.18 per share as ofDecember 31, 2018 and$10.95 per share as ofJuly 15, 2019 .
In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:
· the prices at which we sold shares of preferred stock and the superior rights
and preferences of the preferred stock relative to our common stock at the time
of each grant;
· the progress of our research and development programs, including the status and
results of preclinical studies and clinical trials for our product candidates;
· our stage of development and commercialization and our business strategy;
· external market conditions affecting the biopharmaceutical industry and trends
within the biopharmaceutical industry;
· our financial position, including cash on hand, and our historical and
forecasted performance and operating results;
· the lack of an active public market for our common stock and our preferred
stock;
· the likelihood of achieving a liquidity event, such as an initial public
offering, or IPO, or sale of our company in light of prevailing market
conditions; and
· the analysis of IPOs and the market performance of similar companies in the
biopharmaceutical industry.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
Income taxes
We account for income taxes using the asset and liability method, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the consolidated
financial statements or in our tax returns. Under this method, deferred tax
assets and liabilities are determined based on differences between the financial
statement carrying amounts and the tax bases of the assets and liabilities using
the enacted tax rates in effect in the years in which the differences are
expected to reverse. A valuation allowance against deferred tax assets is
recorded if, based on the weight of the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Potential for recovery of deferred tax assets is evaluated by considering
several factors, including estimating the future taxable profits expected,
estimating future reversals of existing taxable temporary differences,
considering taxable profits in carryback periods, and considering prudent and
feasible tax planning strategies.
We account for uncertain tax positions using a more-likely-than-not threshold
for recognizing and resolving uncertain tax positions. The evaluation of
uncertain tax positions is based on factors including, but not limited to,
changes in the law, the measurement of tax positions taken or expected to be
taken in tax returns, the effective settlement of matters subject to audit, new
audit activity, and changes in facts or circumstances related to a tax position.
As of each balance sheet date, we did not have any uncertain tax positions.
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Emerging growth company and smaller reporting company status
We are an emerging growth company, 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 anyJune 30 before that time or if we have annual gross revenues of$1.07 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 years ended
Years ended December 31,
2019 2018 Change
Operating expenses:
Research and development $ 20,950,672 $ 14,194,732 $ 6,755,940
General and administrative 8,593,626 2,294,671 6,298,955
Total operating expenses 29,544,298 16,489,403 13,054,895
Other income (expense):
Interest income (expense) 156,351 (182) 156,533
Foreign currency gain 1,328,140 961,316 366,824
Total other income (expense) 1,484,491 961,134 523,357
Net loss $ (28,059,807) $ (15,528,269) $ (12,531,538) Research and development expenses
Years ended December 31,
2019 2018 Change
APR-246 $ 15,937,442 $ 10,957,970 $ 4,979,472
Other early-stage development programs 1,829,776 656,692 1,173,084
Unallocated research and development expenses 3,183,454 2,580,070 603,384
Total research and development expenses $ 20,950,672 $ 14,194,732 $ 6,755,940
Research and development expenses for the year ended December 31, 2019 were
$21.0 million , compared to $14.2 million for the year ended December 31, 2018 .
The increase of $6.8 million was primarily related to the advancement of our
clinical product candidate APR-246. In the first quarter of 2019 we commenced a
pivotal Phase 3 clinical trial of APR-246 with azacitidine for frontline
treatment of TP53 mutant MDS which is supported by two ongoing Phase 1b/2
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investigator initiated trials, one in the
General and administrative expenses
General and administrative expenses for the year endedDecember 31, 2019 were$8.6 million , compared to$2.3 million for the year endedDecember 31, 2018 . The increase of$6.3 million was primarily related to increases of$3.4 million in legal and accounting fees,$0.3 million in consulting fees and$1.9 million in personnel related costs including$1.0 million of non-cash stock-based compensation. The increase in legal, accounting and consulting fees was primarily related to costs associated with the corporate reorganization that was completed inSeptember 2019 as well as the preparation of our financial statements and overall readiness to become a public company. The increase in personnel costs was primarily related to increased non-cash stock-based compensation expense as a result of the addition of a member of senior management inAugust 2019 .
Other income and expense
Foreign currency gain for the year endedDecember 31, 2019 was$1.3 million compared to$0.9 million for the year endedDecember 31, 2018 . The increase of$0.4 million was primarily due to a strengthening of theU.S. dollar against the Swedish Krona during the year endedDecember 31, 2019 . Interest income (expense) for the year endedDecember 31, 2019 consisted primarily of interest expense associated with our facility leases and interest income on our cash and cash equivalents. Interest expense for the year endedDecember 31, 2018 consisted of an insignificant amount of banking charges or fees.
Comparison of the years ended
Years ended December 31,
2018 2017 Change
Operating expenses:
Research and development $ 14,194,732 $ 13,392,631 $ 802,101
General and administrative 2,294,671 2,459,744 (165,073)
Total operating expenses 16,489,403 15,852,375 637,028
Other income (expense):
Interest expense (182) (15) (167)
Foreign currency gain 961,316 662,140 299,176
Total other income (expense) 961,134 662,125 299,009
Net loss $ (15,528,269) $ (15,190,250) $ (338,019) Research and development expenses
Years ended December 31,
2018 2017 Change
APR246 $ 10,957,970 $ 9,388,373 $ 1,569,597
Other earlystage development programs 656,692 1,243,991 (587,299)
Unallocated research and development expenses 2,580,070 2,760,267 (180,197)
Total research and development expenses $ 14,194,732 $ 13,392,631 $ 802,101
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Research and development expenses for the year ended December 31, 2018 were
$14.2 million , compared to $13.4 million for the year ended December 31, 2017 .
The increase of $0.8 million was primarily related to the advancement of our
clinical product candidate APR-246.
General and administrative expenses
General and administrative expenses for the year ended
Other income and expense
Other income and expense for the year endedDecember 31, 2018 consisted of an insignificant amount of banking fees on our cash balances and a foreign currency gain of$1.0 million . Other income and expense for the year endedDecember 31, 2017 consisted of an insignificant amount of banking charges or fees and a foreign currency gain of$0.7 million .
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 through private placements of our preferred and common stock and the net proceeds received from the initial public offering (IPO) of our common stock. ThroughDecember 31, 2019 , we had received net proceeds of$223.8 million from our sales of preferred and common stock. As ofDecember 31, 2019 , we had cash and cash equivalents of$130.1 million .
Cash flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Years ended December 31,
2019 2018 2017
Net cash provided by (used in):
Operating activities $ (26,708,707) $ (15,250,234) $ (14,002,118)
Investing activities (30,901) (3,702) -
Financing activities 92,575,538 56,366,742 23,343,863
Net increase in cash and cash equivalents $ 65,835,930 $ 41,112,806 $ 9,341,745
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 $26.7 million for the year ended December
31, 2019 compared to $15.3 million for the year ended December 31, 2018 . The
increase in cash used in operating activities of $11.5 million was primarily
attributable to an increase in our net loss of $12.5 million , resulting from
both increased research and development expenses and increased general and
administrative expenses discussed previously.
Net cash used in operating activities was
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Investing activities
Cash used in investing activities for the years ended
We expect that investing activities will increase over the next several years.
Financing activities
Net cash provided by financing activities was$92.6 million for the year endedDecember 31, 2019 compared to$56.4 million for the year endedDecember 31, 2018 . The increase in cash provided by financing activities of$36.2 million was primarily attributable to net proceeds of$86.9 million received from our IPO which was completed inOctober 2019 and net proceeds of$5.6 million from the issuance of Series C convertible preferred stock inFebruary 2019 . Net cash provided by financing activities was$56.4 million for the year endedDecember 31, 2018 compared to$23.3 million for the year endedDecember 31, 2017 . The increase in cash provided by financing activities of$33.1 million was attributable to the issuance of Series C convertible preferred stock inNovember 2018 for net proceeds of$56.4 million . InOctober 2017 , we issued Series B convertible preferred stock for net proceeds of$23.3 million .
Funding requirements
We expect our expenses to increase substantially in connection with our ongoing development activities related to APR-246 and other product candidates and programs which are still in the early stages of clinical development. 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:
· conduct our current and future clinical trials and additional preclinical
research of APR-246;
· 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;
· 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
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· continue to operate as a public company.
As ofDecember 31, 2019 , we had cash and cash equivalents of$130.1 million . We believe that our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into 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 APR-246 and other 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 current and future clinical
trials of APR-246 for our current targeted indications;
· the scope, progress, results and costs of drug discovery, preclinical research
and clinical trials for APR-246 and our other 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;
· the extent to which we acquire or invest in businesses, products and
technologies, including entering into or maintaining licensing or collaboration
arrangements for product candidates on favorable terms, although 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 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
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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
The following table summarizes our contractual obligations atDecember 31, 2019 : Payments due by period Less than More than Total 1 year 1 3 years 3 5 years 5 years Operating leases(1)$ 567,850 $ 251,008 $ 316,842 $ - $ - Total$ 567,850 $ 251,008 $ 316,842 $ - $ -
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(1) Represents minimum payments due for our lease of office space in
2021 and our lease of office and laboratory space in Solna,
operating lease agreement that expires in
We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice of 30 days and, as a result, are not included in the table of contractual obligations above. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.
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 .
Recent accounting pronouncements
See Note 2 to our consolidated financial statements that discusses new accounting pronouncements
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