ARIDIS PHARMACEUTICALS, INC. MANAGEMENT's DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
Annual Report. This discussion and analysis and other parts of this Annual
Report contain forward-looking statements based upon current beliefs, plans and
expectations that involve risks, uncertainties and assumptions, such as
statements regarding our plans, objectives, expectations, intentions and
projections. Our actual results and the timing of selected events could differ
materially from those anticipated in these forward-looking statements as a
result of several factors, including those set forth under "Risk Factors" and
elsewhere in this Annual Report. You should carefully read the "Risk Factors"
section of this Annual Report to gain an understanding of the important factors
that could cause actual results to differ materially from our forward-looking
statements. Please also see the section entitled "Cautionary Note Concerning
Forward-Looking Statements." All amounts in this report are in
Overview
We are a late-stage biopharmaceutical company focused on the discovery and development of novel anti-infectives. A significant focus of ours is on targeted immunotherapy using fully human monoclonal antibodies, or mAbs, to treat life-threatening infections. mAbs represent an innovative treatment approach that harnesses the human immune system to fight infections and are designed to overcome the deficiencies associated with current therapies, such as rise in drug resistance, short duration of response, limited tolerability, negative impact on the human microbiome, and lack of differentiation among the treatment alternatives. The majority of our product candidates are derived by employing our differentiated antibody discovery platforms. Our proprietary product pipeline comprises fully human mAbs targeting specific pathogens associated with life-threatening bacterial infections, primarily nosocomial pneumonia, and viral infections such as COVID-19.
Our ?PEX™ production platform technology enables the screening of a large number of antibody-producing B-cells from patients and generation of high mAb-producing mammalian production cell line at a speed not previously attainable. As a result, we can significantly reduce time for antibody discovery and manufacturing compared to conventional approaches. This technology is being applied to the development of COVID-19 mAbs.
In 2021, we announced the development of highly neutralizing monoclonal antibody
cocktails AR-712 and AR-701, discovered from convalescent COVID-19 patients,
that successfully eliminated all detectable SARS-CoV-2 virus in infected animals
at substantially lower doses than parenterally administered (injected) COVID-19
mAbs. The mAb cocktails broadly bind and neutralize SAR-COV-2 virus and the
mutant 'E484K' variant that is associated with the
Our lead product candidate, AR-301 has exhibited promising preclinical data and
clinical data from a Phase 1/2a clinical study in patients. AR-301 targets the
alpha toxin produced by gram-positive bacteria Staphylococcus aureus, or S.
aureus, a common pathogen associated with HAP and VAP. In contrast to other
programs targeting S. aureus toxins, we are developing AR-301 as a treatment of
pneumonia, rather than prevention of S. aureus colonized patients from
progression to pneumonia. In
To complement and diversify our portfolio of targeted mAbs, we are developing a
broad spectrum small molecule non-antibiotic anti-infective agent gallium
citrate (AR-501). AR-501 is being developed in collaboration with the
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infections associated with cystic fibrosis. In
In
To date, we have devoted substantially all of our resources to research and
development efforts relating to our therapeutic candidates, including conducting
clinical trials and developing manufacturing capabilities, in-licensing related
intellectual property, protecting our intellectual property and providing
general and administrative support for these operations. We have generated
revenue from our payments under our collaboration strategic research and
development contracts and federal awards and grants, as well as awards and
grants from not-for-profit entities and fee for service to third-party entities.
Since our inception, we have funded our operations primarily through these
sources and the issuance of common stock, convertible preferred stock, and debt
securities. Current clinical development activities are focused on AR-301, AR712
and AR-501. Our expenses and resulting cash burn during the years ended
Financial Overview
We have incurred losses since our inception. Our net losses were approximately
We have not yet achieved commercialization of our products and have a cumulative net loss from our operations. We will continue to incur net losses for the foreseeable future. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through the sale of equity and/or debt securities. Historically, our principal sources of cash have included proceeds from grant funding, fees for services performed, issuances of debt and the sale of our preferred stock. Our principal uses of cash have included cash used in operations. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development including our clinical trials and general working capital requirements.
We anticipate that our expenses will increase substantially if and as we:
? continue enrollment in our ongoing clinical trials;
? initiate new clinical trials;
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? seek to identify, assess, acquire and develop other products, therapeutic
candidates and technologies;
? seek regulatory and marketing approvals in multiple jurisdictions for our
therapeutic candidates that successfully complete clinical studies;
? establish collaborations with third parties for the development and
commercialization of our products and therapeutic candidates;
? make milestone or other payments under our agreements, pursuant to which we
have licensed or acquired rights to intellectual property and technology;
? seek to maintain, protect, and expand our intellectual property portfolio;
? seek to attract and retain skilled personnel;
? incur the administrative costs associated with being a public company and
related costs of compliance;
? create additional infrastructure to support our operations as a commercial
stage public company and our planned future commercialization efforts;
? experience any delays or encounter issues with any of the above; and
? experience protracted COVID-19 related delays.
We expect to continue to incur significant expenses and losses for at least the next several years. Accordingly, we anticipate that we will need to raise additional capital in order to obtain regulatory approval for, and the commercialization of, our therapeutic candidates. Until such time that we can generate meaningful revenue from product sales, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could adversely affect our business, financial condition and results of operations.
SIBV License Agreement
In
SAMR License Agreement
In
Given the equity investment by SIBV was negotiated in conjunction with the option agreement, which resulted in the execution of the License Agreement, all arrangements were evaluated as a single agreement and amounts were allocated to the elements of the
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arrangement based on their fair value. We allocated the proceeds received from
the sale of the restricted common stock and upfront payment from the License
Agreement, net of issuance and contract costs, of approximately
we recorded approximately
? restricted common stock issued of
costs, to stockholders' equity within our consolidated balance sheet;
we recorded approximately
?
we capitalized approximately
? approximately
approximately
Agreement. CFF License Agreement
Under the Development Program Letter Agreement with CFF (the "CFF Agreement"),
entered into in
Kermode License Agreement
Under a product discovery agreement with
Gates Foundation License Agreement
On
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which we have
prepared in accordance with generally accepted accounting principles in
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. Such estimates include those related to the evaluation of our ability to continue as a going concern, our best estimate of standalone selling price of revenue deliverables, useful live of long lived assets, classification of deferred revenue, income taxes, assumptions used in the Black Scholes Merton ("BSM") model to calculate the fair value of stock based compensation, deferred tax asset valuation allowances, and preclinical study and clinical trial accruals. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
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We define our critical accounting policies as those accounting principles
generally accepted in
Revenue Recognition
We recognize revenue based on Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue at a point in time, or over time, as the entity satisfies performance obligations. We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
As part of the accounting for customer arrangements, we must use judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; and c) the standalone selling price for each performance obligation identified in the contract for the allocation of the transaction price in step (iv) above. We use judgment to determine whether milestones or other variable consideration should be included in the transaction price.
The transaction price is allocated to each performance obligation on a relative standalone selling price basis. In developing the standalone price for a performance obligation, we consider applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We recognize revenue as or when the performance obligations under the contract are satisfied. We receive payments from our customers based on payment schedules established in each contract. We record any amounts received prior to satisfying the revenue recognition criteria as deferred revenue on the consolidated balance sheet. Amounts recognized as revenue, but not yet received or invoiced are recorded within other receivables on the consolidated balance sheet. Amounts are recorded as other receivables on the consolidated balance sheet when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of a majority of the promised goods or services to the customer will be one year or less.
Research and Development Expenses
We recognize research and development expenses to operations as they are incurred. Our research and development expenses consist primarily of:
? salaries and related overhead expenses, which include stock-based compensation
and benefits for personnel in research and development functions;
fees paid to consultants and contract research organizations, or CROs,
including in connection with our preclinical studies and clinical trials and
? other related clinical trial fees, such as for investigator grants, patient
screening, laboratory work, clinical trial material management and statistical
compilation and analyses;
? costs related to acquiring and manufacturing clinical trial materials;
? costs related to compliance with regulatory requirements; and
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? payments related to licensed products and technologies.
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or when the services are performed.
We plan to increase our research and development expenses for the foreseeable future as we continue to develop our therapeutic programs, and subject to the availability of additional funding, further advance the development of our therapeutic candidates for additional indications and begin to conduct clinical trials.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our therapeutic candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our therapeutic candidates.
Stock-Based Compensation
We recognize compensation expense for all stock-based awards based on the grant-date estimated fair values, which we determine using the BSM option pricing model, on a straight-line basis over the requisite service period for the award. We account for forfeitures as they occur.
The BSM option pricing model incorporates various highly sensitive assumptions,
including the fair value of our common stock, expected volatility, expected term
and risk-free interest rates. The weighted average expected life of options was
calculated using the simplified method as prescribed by the
Income Taxes
We account for income taxes under the liability method. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. For the years
ended
We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by the relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. At each balance sheet date, unresolved uncertain tax positions must be reassessed, and we determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.
Going Concern
We assess and determine our ability to continue as a going concern under the provisions of ASC 205-40, Presentation of Financial Statements-Going Concern, which requires us to evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that our annual and interim consolidated financial statements are issued. Certain additional financial statement disclosures are required if such conditions or events are identified. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting.
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Determining the extent, if any, to which conditions or events raise substantial doubt about our ability to continue as a going concern, or the extent to which mitigating plans sufficiently alleviate any such substantial doubt, as well as whether or not liquidation is imminent, requires significant judgment by us. We have determined that there is substantial doubt about our ability to continue as a going concern for at least the one-year period following our consolidated financial statements issuance date, which have been prepared assuming that we will continue as a going concern. We have not made any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of us to continue as a going concern.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Year Ended
December 31,
2021 2020 Change
Revenue:
Grant revenue $ 1,535 $ 1,000 $ 535
Operating expenses:
Research and development 36,936 16,956 19,980
General and administrative 7,310 6,445 865
Total operating expenses 44,246 23,401 20,845
Loss from operations (42,711) (22,401) (20,310)
Other (expense) income:
Interest (expense) income, net (245) 77 (322)
Other income 74 - 74
Gain on extinguishment of Paycheck Protection Program loan 722 - 722
Change in fair value of note payable (33) - (33)
Share of loss from equity method investment - (9) 9
Net loss $ (42,193) $ (22,333) $ (19,860) Grant Revenue. Grant revenue increased by approximately
Research and Development Expenses. Research and development expenses increased
by approximately
? an increase of approximately
Medimmune;
? an increase of approximately
clinical trial oversight costs;
? an increase of approximately
license;
? an increase of approximately
? an increase of approximately
related costs;
General and Administrative Expenses. General and administrative expenses
increased by approximately
Interest Expense, Net. Interest expense, net for the year ended
Gain on extinguishment of Paycheck Protection Program loan. This relates to the
forgiveness of this loan during the year ended
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Change in fair value of note payable. This relates primarily to the change in
fair value of the note payable pursuant to the Note Purchase Agreement with
Share of Loss in
Other Income. Other income increased by approximately
Liquidity, Capital Resources and Going Concern
As of
In
In
In
As a result of the
On
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As a result of the
The Company entered into a Note Purchase Agreement with
The Company obtained financing for certain Director & Officer liability
insurance policy premiums from
We have had recurring losses from operations since inception and negative cash
flows from operating activities during the years ended
Cash Flows
Our net cash flow from operating, investing and financing activities for the periods below were as follows (in thousands):
December 31,
2021 2020
Net cash provided by (used in):
Operating activities $ (22,936) $ (20,476)
Investing activities (530) (367)
Financing activities 34,720 8,678
Net increase (decrease) in cash and cash equivalents
Cash Flows from Operating Activities.
Net cash used in operating activities was approximately
Net cash used in operating activities was approximately
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cash used in operating activities was partially offset by a decrease of
approximately
Cash Flows from Investing Activities.
Cash used in investing activities of approximately
Cash used in investing activities of approximately
Cash Flows from Financing Activities.
Net cash provided by financing activities of approximately
Net cash provided by financing activities of approximately
Future Funding Requirements
To date, we have generated revenue from grants and contract services performed and funding from the issuance of convertible preferred stock and common stock sales. We do not know when, or if, we will generate any revenue from our development stage therapeutic programs. We do not expect to generate any revenue from sales of our therapeutic candidates unless and until we obtain regulatory approval. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our therapeutic candidates. We expect to incur additional costs associated with operating as a public Company. In addition, subject to obtaining regulatory approval of any of our therapeutic candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need additional funding in connection with our continuing operations.
Our future funding requirements will depend on many factors, including:
? the progress, costs, results and timing of our clinical trials;
? FDA acceptance, if any, of our therapies for infectious diseases and for other
potential indications;
? the outcome, costs and timing of seeking and obtaining FDA and any other
regulatory approvals;
? the number and characteristics of product candidates that we pursue, including
our product candidates in preclinical development;
? the ability of our product candidates to progress through clinical development
successfully;
? our need to expand our research and development activities;
? the costs of acquiring, licensing or investing in businesses, products, product
candidates and technologies;
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our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we may be
? required to make, or that we may receive, in connection with the licensing,
filing, prosecution, defense and enforcement of any patents or other
intellectual property rights;
? the effect of the COVID-19 pandemic on our business and operations;
? our need and ability to hire additional management and scientific, medical and
administrative personnel;
? the effect of competing technological and market developments; and
? our need to implement additional internal systems and infrastructure, including
financial and reporting systems.
Until such time that we can generate meaningful revenue from the sales of approved therapies and products, if ever, we expect to finance our operating activities through public or private equity or debt financings, government or other third-party funding, and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include conversion discounts or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, or strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under the rules of the
JOBS Act Accounting Election
The JOBS Act permits an "emerging growth Company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to take advantage of this provision and, as a result, we will adopt the extended transition period available under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth Company or (ii) affirmatively and irrevocably opt out of the extended transition period provided under the JOBS Act.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements applicable to us is included in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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