BENITEC BIOPHARMA INC. You should read the following discussion and analysis of financial condition and operating results together with our consolidated financial statements and the related notes and other financial information included elsewhere in this document. Overview We endeavor to become the leader in discovery, development, and commercialization of therapeutic agents capable of addressing significant unmet medical need via the application of the silence and replace approach to the treatment of genetic disorders.Benitec Biopharma Inc. ("Benitec" or the "Company" or in the third person, "we" or "our") is a development-stage biotechnology company focused on the advancement of novel genetic medicines with headquarters inHayward, California . The proprietary platform, called DNA-directed RNA interference, or ddRNAi, combines RNA interference, or RNAi, with gene therapy to create medicines that facilitate sustained silencing of disease-causing genes following a single administration. The Company is developing ddRNAi-based therapeutics for chronic and life-threatening clinical indications including Oculopharyngeal Muscular Dystrophy (OPMD), and Chronic Hepatitis B. BB-301 is the most advanced ddRNAi-based genetic medicine currently under development by Benitec. BB-301 is an AAV-based gene therapy designed to both silence the expression of mutated, disease-causing genes (to slow, or halt, the underlying mechanism of disease progression) and simultaneously replace the mutant genes with normal, "wild type" genes (to drive restoration of function in diseased cells). This fundamental therapeutic approach to disease management is called "silence and replace" and this biological mechanism offers the potential to restore the underlying physiology of the treated tissues and, in the process, improve treatment outcomes for patients suffering from the chronic and, potentially, fatal effects of Oculopharyngeal Muscular Dystrophy (OPMD). BB-301 has been granted Orphan Drug Designation inthe United States and theEuropean Union . Through the combination of the targeted gene silencing effects of RNAi and the durable transgene expression achievable via the use of modified viral vectors, the silence and replace approach has the potential to produce long-term silencing of disease-causing genes along with simultaneous replacement of wild type gene function following a single administration of the proprietary genetic medicine. We believe this novel attribute of the investigational agents under development by Benitec may facilitate the achievement of robust clinical activity while greatly reducing the dosing frequencies traditionally expected for medicines employed for the management of chronic diseases. Additionally, the achievement of long-term gene silencing and gene replacement may significantly reduce the risk of patient non-compliance during the course of medical management of potentially fatal clinical disorders. Re-domiciliation OnApril 15, 2020 , (the "Implementation Date"), the re-domiciliation ofBenitec Biopharma Limited (the "Re-domiciliation"), a public company incorporated under the laws of theState of Western Australia , or BBL, was completed in accordance with the Scheme Implementation Agreement, as amended and restated as ofJanuary 30, 2020 , between BBL and us. As a result of the Re-domiciliation, the jurisdiction of incorporation was changed fromAustralia toDelaware , and BBL became our wholly owned subsidiary. The Re-domiciliation was effected pursuant to a statutory scheme of arrangement under Australian law, or the Scheme, whereby on the Implementation Date, all of the issued and outstanding ordinary shares of BBL were exchanged for newly issued shares of our common stock, on the basis of one share of our common stock, par value$0.0001 per share, for every 300 ordinary shares of BBL issued and outstanding. Holders of BBL's American Depository Shares, or ADSs (each of which represented 200 ordinary shares), received two shares of our common stock for every three ADSs held. 23
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Table of Contents COVID-19 COVID-19 has been declared a pandemic by theWorld Health Organization and has spread to nearly every country, includingAustralia andthe United States . The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and its variants, and the actions to contain the coronavirus or treat its impact, including the effectiveness and adoption of vaccines for the virus, among others. Certain of our research and development efforts are conducted globally, including the ongoing development of our silence and replace therapeutic for the treatment of Oculopharyngeal Muscular Dystrophy (OPMD), and will be dependent upon our ability to initiate preclinical and clinical studies despite the ongoing COVID-19 pandemic. As we continue to actively advance our preclinical programs, including our ongoing Toxicology and Biodistribution study for BB-301, we are in close contact with our principal investigators and preclinical trial sites, which are primarily located inFrance , and are assessing the impact of COVID-19 on our studies and the expected development timelines and costs, on an ongoing basis. In light of developments relating to the COVID-19 global pandemic since the beginning of the outbreak, the focus of healthcare providers and hospitals on fighting the virus, and consistent with theFDA's industry guidance for conducting clinical trials, we have experienced delays to the original timeline regarding the initiation and anticipated completion of the ongoing BB-301 Clinical Trial Application (CTA)-enabling and Investigational New Drug Application (IND)-enabling development work. The initiation of the BB-301 Pilot Dosing Study in Beagle dogs, which represents a key component of the CTA-enabling and IND-enabling work, was delayed by several months, however, the study has been completed without incident. The acquisition of chemical reagents, biological reagents and laboratory supplies which are essential for the conduct of basic laboratory research, nonclinical studies and GMP manufacturing of BB-301, has also become challenging due to the disruption of global supply chains inherent to the production of these materials. We will continue to evaluate the impact of the COVID-19 pandemic on our business and expect to reevaluate the timing of our anticipated preclinical and clinical milestones as we learn more and the impact of COVID-19 on our industry becomes clearer. We have also implemented a rotation system whereby staff work from home and attend the laboratory on designated days which may result in a reduction of laboratory work and a halt of non-essential business travel. As we transition our employees back to our premises, there is a risk that COVID-19 infections occur at our offices or laboratory facilities and significantly affect our operations. Additionally, if any of our critical vendors are impacted, our business could be affected if we become unable to timely procure essential equipment, supplies or services in adequate quantities and at acceptable prices. 24
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Table of Contents
Nonclinical Programs
Our Pipeline
The following table sets forth our current product candidates and their
development status:
Table 1. Pipeline: Oculopharyngeal Muscular Dystrophy and Chronic Hepatitis B
Virus Infection
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BB-301
BB-301
is under development for the treatment of Oculopharyngeal Muscular Dystrophy and
is currently undergoing evaluation in
CTA-enabling
and
IND-enabling
studies.
BB-301
is the lead pipeline program for Benitec, and the key attributes of
BB-301
are outlined in in Figure 3.
Figure 3. Overview of the
BB-301
Program
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Table of Contents BB-301 is a first-in-class genetic medicine employing the "silence and replace" approach for the treatment of OPMD. OPMD is an insidious, autosomal-dominant, late-onset, degenerative muscle disorder that typically presents in patients at 40-to-50 years of age. The disease is characterized by progressive swallowing difficulties (dysphagia) and eyelid drooping (ptosis). OPMD is caused by a specific mutation in the poly(A)-binding protein nuclear 1 gene (PABPN1). OPMD is a rare disease, however, patients have been diagnosed with OPMD in at least 33 countries. Patient populations suffering from OPMD are well-identified, and significant geographical clustering has been noted for patients with this disorder, which could simplify clinical development and global commercialization efforts. PABPN1 is a ubiquitous factor that promotes the interaction between the poly(A) polymerase and CPSF (cleavage and polyadenylation specificity factor) and, thus, controls the length of mRNA poly(A) tails, mRNA export from the nucleus, and alternative poly(A) site usage. The characteristic genetic mutation underlying OPMD results in trinucleotide repeat expansion(s) within exon 1 of PABPN1 and results in an expanded poly-alanine tract at the N-terminal end of PABPN1. The mutation generates a protein with an N-terminal expanded poly-alanine tract of up to 18 contiguous alanine residues, and the mutant protein is prone to the formation of aggregates called intranuclear inclusions (INIs). The INIs that sequester wildtype PABPN1 could also contribute to loss of the function phenotype associated with OPMD. Currently, no therapeutic agents are approved for the treatment of OPMD. Additionally, no surgical interventions capable of altering the long-term natural history of OPMD are available. BB-301 has received Orphan Drug Designation inthe United States and theEuropean Union which provides commercial exclusivity independent of intellectual property protection. While OPMD is a rare disorder, we believe the commercial opportunity for a safe and efficacious therapeutic agent in this clinical indication exceeds$1 billion over the course of the commercial life of the product. Benitec has previously outlined the core CTA-enabling and IND-enabling studies required by global regulatory agencies to support the initiation of BB-301 clinical trials in OPMD patients, and these studies include a BB-301 Pilot Dosing Study (the "Pilot Dosing Study") in large animals and a classical 12-week GLP Toxicology and Biodistribution Study. BB-301 is directly injected into the pharyngeal muscles known to underlie the morbidity and mortality characterizing the natural history of OPMD. The BB-301 Pilot Dosing Study is the first of two planned CTA-enabling and IND-enabling studies that were designed to be conducted in large animals. These studies continue to be carried out under the guidance of the scientific team at Benitec, with key elements of the study design and execution conducted in close collaboration with a team of leading experts in both medicine and surgery that have been deeply engaged in the treatment of OPMD patients for several decades. The BB-301 Pilot Dosing Study, along with the subsequent GLP Toxicology and Biodistribution Study, will be conducted in canine subjects and will support the validation and optimization of the newly designed method of BB-301 administration, confirm the efficiency of vector transduction and transgene expression in the key tissue compartments underlying the natural history of OPMD, confirm the optimal drug doses in advance of initiation of human clinical studies, and facilitate observation of key toxicological data-points. The BB-301 Pilot Dosing Study was designed as an 8-week study in Beagle dogs to confirm the transduction efficiency of BB-301 upon administration via direct intramuscular injection into specific anatomical regions of the pharynx through the use of an open surgical procedure. This new route of BB-301 administration was developed in collaboration with key surgical experts in the field of Otolaryngology, and this novel method of BB-301 dosing will significantly enhance the ability of a treating physician to accurately administer the AAV-based investigational agent to the muscles that underlie the characteristic deficits associated with the progression of OPMD. It is important to note that prior non-clinical studies of BB-301 have reproducibly validated the robust biological activity achieved following direct intramuscular injection. As an example, direct injection of BB-301 into the tibialis anterior muscles of A17 mice facilitated robust transduction of the targeted skeletal muscle cells and supported complete remission of the OPMD disease phenotype in this animal model. 26
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Table of Contents
Benitec conducted the
BB-301
Pilot Dosing Study in Beagle dog subjects to demonstrate that direct
intramuscular injection of
BB-301
via the use of a proprietary dosing device in an open surgical procedure could
safely achieve the following goals:
• Biologically significant and dose-dependent levels of
BB-301
tissue transduction (i.e., delivery of the multi-functional
BB-301
genetic construct into the target pharyngeal muscle cells);
• Broad-based and dose-dependent expression of the three distinct genes
comprising the
BB-301
gene construct within the pharyngeal muscle cells; and
• Durable and biologically significant levels of target gene knock-down
(i.e., inhibition of the expression of the gene of interest) within the
pharyngeal muscle cells.
The Pilot Dosing Study evaluated the safety and biological activity of two
concentrations of
BB-301
(1.0+E13 vg/mL and 3.0+E13 vg/mL) across three distinct doses (1.0+E13 vg/mL and
3.0+E13 vg/mL with a low injection volume, and 3.0+E13 vg/mL with a high
injection volume) following direct intramuscular injection into the
Hypopharyngeus (HP) muscles and the Thyropharyngeus (TP) muscles of Beagle dogs
via the use of a proprietary delivery device employed in an open surgical
procedure. The HP muscle in Beagle dogs corresponds to the Middle Pharyngeal
Constrictor muscle in human subjects, and the TP muscle in Beagle dogs
corresponds to the Inferior Pharyngeal Constrictor muscle in human subjects.
BB-301
was injected only on Day 1 of the Pilot Dosing Study, and the corresponding
canine pharyngeal muscles were harvested for analysis after 8 weeks of
observation post-dosing.
BB-301
dosing was carried out by both a veterinary surgeon and a practicing
Otolaryngologist who has extensive experience with the provision of palliative
surgical care for OPMD patients.
Further data analyses are ongoing for the canine subjects treated in the
BB-301
Pilot Dosing Study, and the interim data-points highlighted here are derived
from completed analyses of pharyngeal muscle tissues isolated from 16 Beagle dog
subjects (of the
24-subject
study population). The
data-set
derived from the Pilot Dosing Study and the formal conclusions will be updated
as additional study subjects are analyzed.
The key preliminary results are summarized here:
Figure 4. Pharyngeal Muscle Tissue Transduction Levels for
BB-301
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Regarding Gene Expression Levels Observed for
BB-301
Within the Pharyngeal Muscle Tissues (Figure 5, Figure 6, Figure 7):
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Table of Contents
• BB-301
encodes two distinct siRNA species (i.e., siRNA13 and siRNA17) which are
each, independently, capable of inhibiting (i.e., "silencing") the
expression of the mutant form of the PABPN1 protein and the wildtype
(i.e., endogenous) form of the PABPN1 protein (importantly, the mutant
form of the PABPN1 protein underlies the development and progression of
OPMD).
• BB-301
also codes for a wildtype version of the PABPN1 protein whose
intracellular expression is unaffected by the inhibitory activities of
siRNA13 and siRNA17, and this codon optimized PABPN1 protein (i.e.,
coPABPN1) serves to replenish the endogenous form of the PABPN1 protein
and to replace the mutant form of PABPN1 that underlies the development
and progression of OPMD in diseased tissues.
• For comparative purposes, is should be noted that the average range of
expression for wild type PABPN1 within the pharyngeal muscle cells of
Beagle dogs is 4.5 copies per
cell-to-7.8
copies per cell.
Figure 5. siRNA13 Expression Levels for
BB-301
within Pharyngeal Muscle Tissues
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Figure 6. siRNA17 Expression Levels for
BB-301
within Pharyngeal Muscle Tissues
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Figure 7. coPABPN1 Expression Levels for
BB-301
within Pharyngeal Muscle Tissues
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Table of Contents
Regarding WildType PABPN1 Silencing (i.e. target "knock-down") Observed for
BB-301
Within the Pharyngeal Muscle Tissues (Figure 8):
• As noted above,
BB-301
encodes two distinct siRNA species (i.e. siRNA13 and siRNA17) which are
each, independently, capable of inhibiting (i.e., "silencing") the
expression of all forms of the PABPN1 protein (siRNA13 and siRNA17
silence the expression of both wildtype PABPN1 [wtPABPN1] and mutant
PABPN1).
• While the Beagle dog subjects treated in the current BB-301 Pilot Dosing
Study do not express mutant PABPN1, the level of BB-301-driven gene
silencing for the PABPN1 target can be indirectly assessed due to the
equivalent inhibitory effects of siRNA13 and siRNA17 on both wtPABPN1 and
mutant PABPN1.
• Thus, the wtPABPN1 silencing activity observed in the current
BB-301
Pilot Dosing Study serves as a surrogate for the activity that would be
anticipated in the presence of mutant PABPN1.
• BB-301
has been evaluated in prior
non-clinical
studies in animals that express mutant PABPN1 and, as a consequence,
manifest the key signs and symptoms of OPMD; in these animal models of
OPMD, the achievement of PABPN1 silencing levels of 31% inhibition or
higher led to complete resolution of OPMD disease symptoms and correction
of the histological hallmarks of OPMD.
Figure 8. PABPN1 Silencing (i.e. "target knock-down") within Pharyngeal Muscle
Tissues
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Table of Contents
Finally, it is critical to highlight the key methodological distinctions between
the current
BB-301
Pilot Dosing Study conducted by Benitec as compared to the prior
BB-301
Beagle dog dosing study carried out independently by the previous
BB-301
licensee. The
BB-301
dosing study conducted by the prior
BB-301
licensee employed
non-ideal
routes and methods of
BB-301
administration to the target pharyngeal muscle tissues and employed similarly
limited analytical methods at the completion of the dosing phase of the study.
The Benitec team worked to optimize the route and method of administration of
BB-301
and to refine the core analytical methods employed following the completion of
dosing.
The newly developed proprietary methods of
BB-301
delivery, as well as the analytical methods developed to assay the key target
tissues of the Beagle dog subjects, led to the observation of broad-based
transduction of the pharyngeal muscle target tissues (
Figure 9
,
individual sections of the TP muscle following
BB-301
dosing
) and demonstrated a
228-fold
improvement (+22,647%) in
BB-301
transduction of the HP muscle and a
113-fold
improvement (+11,163%) in
BB-301
transduction of the TP muscle relative to the levels of
BB-301
transduction observed by the previous
BB-301
licensee (
Figure 10
).
Figure 9.
BB-301
Transduction Levels Achieved for Individual Sections of the TP Muscle Following
BB-301
dosing
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Table of Contents
Figure 10. Impact of Benitec-Initiated Methodological Improvements to the
BB-301
Large Animal Study Design on the Relative Pharyngeal Muscle Tissue Transduction
Levels Achieved
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Following the disclosure of the positive
BB-301
Pilot Dosing Study data, Benitec completed a Scientific Advice meeting with The
National Agency for the Safety of Medicines and Health Products in France
(L'Agence nationale de sécurité du médicament et des produits de santé or
"ANSM") in the first half of 2021.
The Scientific Advice meeting was conducted to review and confirm the adequacy
of:
• The
non-clinical
data derived from the evaluation of
BB-301
in both the murine
proof-of
concept studies and the Pilot Dosing study in Beagle dogs
• The experimental, analytical, and statistical methods comprising the
12-week
BB-301
GLP Toxicology and Biodistribution study in Beagle dogs
• The large-scale manufacturing plan for clinical grade
BB-301
drug product for use in the Phase 1b/2a clinical study in OPMD patients
• The design of the Phase 1b/2a clinical study slated for initiation in 2022
The
BB-301
Pilot Dosing Study was viewed as an appropriate dose range finding study. The preliminary data derived from the Pilot Dosing Study regarding BB-301 pharyngeal muscle tissue transduction, BB-301 transgene expression, and the resulting knock-down of wild type PABPN1 supported the adequacy of the data derived from this study to inform the choice of BB-301 doses for use in the GLP Toxicology and Biodistribution Study. The design of the GLP Toxicology and Biodistribution study was viewed as appropriate to support first-in-human testing of BB-301. Pending the final results of the ongoing GLP Toxicology and Biodistribution study, the BB-301 Pilot Dosing Study data and the murine proof-of-concept study data are sufficient to inform the choice of the BB-301 drug doses employed in the upcoming Phase 1b/2a study. As BB-301 drug product has been reproducibly manufactured at large-scale in the past, the manufacturing plan for clinical grade BB-301 drug product can be conducted under GMP conditions with a production process analogous to that that employed in prior large-scale production runs. Finally, the design of the Phase 1b/2a clinical trial can support the evaluation of BB-301 safety and clinical efficacy in key populations of OPMD patients. Regarding our regulatory interactions with the FDA, Benitec has been granted a Type C meeting in the fourth quarter of 2021. Regarding our regulatory interactions withHealth Canada , Benitec has been granted a pre-CTA meeting in the fourth quarter of 2021. Benitec continues to plan for the initiation of the First-in-Human clinical study of BB-301 in OPMD patients in 2022. 32
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Table of Contents BB-103 BB-103 has demonstrated robust nonclinical activity during the evaluation of this agent for the treatment of Chronic Hepatitis B Virus infection. Benitec is currently seeking strategic partners to advance BB-103 through IND-enabling studies. Royalties, milestone payments and other license fees We are required to pay royalties, milestone payments and other license fees in connection with our licensing of intellectual property from third parties, including as discussed below. We have collaborated withBiomics Biotechnologies Co., Ltd. , or Biomics, pursuant to several collaboration agreements in relation to single-stranded RNA and shRNA sequences for treatment of hepatitis B. InJuly 2015 , we entered into an earn-out agreement with Biomics which confirmed Benitec's ownership of certain patents resulting from the collaboration in exchange for an upfront payment and equity issuance to Biomics and a share of certain future licensing revenue received by Benitec. 33
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Table of Contents Foreign Currency Translation and Other Comprehensive Income (Loss)The Company's functional currency and reporting currency isthe United States dollar. BBL's functional currency is the Australian dollar (AUD). Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive loss." Gains and losses resulting from foreign currency translation are included in the consolidated statements of operations and comprehensive loss as other comprehensive income (loss). Other comprehensive income for all periods presented includes only foreign currency translation gains.October 2020 Capital Raise OnOctober 6, 2020 , the Company announced the closing of an underwritten public offering of common stock and common stock equivalents. The Company received gross proceeds of approximately$11.5 million and net proceeds of approximately$9.9 million from the offering.April 2021 Capital Raise OnApril 30, 2021 , the Company announced the closing of an underwritten public offering of common stock and common stock equivalents. The Company received gross proceeds of approximately$14.3 million and net proceeds of approximately$12.7 million from the offering. Results of Operations Revenues The Company has not generated any revenues from the sales of products. Revenues from licensing fees and interest income are included in the revenue from customers line item on our statements of operations and comprehensive loss. Our licensing fees have been generated through the licensing of our ddRNAi technology to biopharmaceutical companies. The following table sets forth a summary of our revenues for each of the periods set forth below: Three Months Ended September 30, 2021 2020 (US$'000) Revenues: Revenues from customers $ -$ 55 Total revenues $ -$ 55
Revenues from customers
During the three months ended
34
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Table of Contents Royalties and License Fees Royalties and license fees consist primarily of payments we are required to remit for royalties and other payments related to in-licensed intellectual property. Under our in-license agreements, we may pay up-front fees and milestone payments and be subject to future royalties. We cannot precisely predict the amount, if any, of royalties we will owe in the future, and if our calculations of royalty payments are incorrect, we may owe additional royalties, which could negatively affect our results of operations. As our product sales increase, we may, from time to time, disagree with our third-party collaborators as to the appropriate royalties owed, and the resolution of such disputes may be costly, may consume management's time, and may damage our relationship with our collaborators. Furthermore, we may enter into additional license agreements in the future, which may also include royalty, milestone and other payments. Research and Development Expenses Research and development expenses relate primarily to the cost of conducting clinical and pre-clinical trials. Pre-clinical and clinical development costs are a significant component of research and development expenses. The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in trade and other payables on the consolidated balance sheets and within research and development expenses on the consolidated statements of operations and comprehensive loss. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance at the end of each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. General and Administrative Expenses General and administrative expenses consist primarily of salaries, related benefits, travel, and equity-based compensation expense. General and administrative expenses also include facility expenses, professional fees for legal, consulting, accounting and audit services and other related costs. We anticipate that our general and administrative expenses may increase as the Company focuses on the continued development of the pre-clinical OPMD program. The Company also anticipates an increase in expenses relating to accounting, legal and regulatory-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums and other costs associated with being a domestic public company after the Re-domiciliation. Operating Expenses The following tables set forth a summary of our expenses for each of the periods set forth below: Three Months Ended September 30, 2021 2020 (US$'000) Operating Expenses: Royalties and license fees $ -$ 134 Research and development 2,780 774 General and administrative 2,042 1,837 Total operating expenses$ 4,822 $ 2,745 35
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Table of Contents During the three months endedSeptember 30, 2021 and 2020, respectively, we incurred$0 and$0.1 million in royalties and license fees. During the three months endedSeptember 30, 2021 and 2020, respectively, we incurred$2.8 million and$0.8 million in research and development expenses. The increase in research and development expenses is primarily related to the commencement of the BB-301 Regulatory Toxicology Study in Beagles at Charles River Laboratories in Evreux,France . As planned, the Company began incurring more costs related to the execution of two large nonclinical studies in Beagles, along with the commercial-scale GMP-grade manufacturing of BB-301, all of which is required to facilitate the CTA filing and the IND filing for BB-301 in 2022. General and administrative expense was$2.0 million and$1.8 million for the three months endedSeptember 30, 2021 and 2020. The increase for the three month period was due to the small increases in insurance, consultants, legal and accounting fees. Other Income (Expense) The following tables set forth a summary of our other income (loss) for each of the periods set forth below: Three Months Ended September 30, 2021 2020 Other Income (Loss): (US$'000) Foreign currency transaction loss$ (240 ) $ (54 ) Interest expense, net (1 ) (1 ) Other income, net - 27 Unrealized gain on investment 18 - Total other loss, net$ (223 ) $ (28 ) The other loss, net during the three months endedSeptember 30, 2021 and 2020, respectively, totaled$0.2 million and$28 thousand , which consists of foreign currency transaction loss, interest expense, other income, and unrealized gain on investment. Foreign currency transaction gain has increased due to a change in foreign exchange rates. Other income, net decreased due to no longer receiving COVID-19 stimulus incentives from the Australian government in 2021. Unrealized gain on investment had a minor increase for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Liquidity and Capital Resources The Company has incurred cumulative losses and negative cash flows from operations since our predecessor's inception in 1995. The Company had accumulated losses of$135.2 million as ofSeptember 30, 2021 . We expect that our research and development expenses may increase due to the continued development of the OPMD program. It is also likely that there will be an increase in the general and administrative expenses due to the obligations of being a domestic public company inthe United States as a result of the Re-domiciliation. We had no borrowings as atSeptember 30, 2021 and do not currently have a credit facility. As ofSeptember 30, 2021 , we had cash and cash equivalents of approximately$15.7 million . Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash and cash equivalents are held in bank accounts. 36
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Table of Contents The following table sets forth a summary of the net cash flow activity for each of the periods set forth below:
Three Months Ended
September 30,
2021 2020
(US$'000)
Net cash provided by (used in):
Operating activities $ (4,278 ) $ (2,360 )
Investing activities - (173 )
Effects of exchange rate changes on cash and cash equivalents 236 182
Net decrease in cash $ (4,042 ) $ (2,351 )
Operating activities
Net cash used in operating activities for the three months ended September 30,
2021 and 2020 was $4.3 million and $2.4 million , respectively. Net cash used in
operating activities was primarily the result of our net loss and change in
working capital and a decrease in payables.
Investing activities
Net cash used in investing activities for the three months ended September 30,
2021 and 2020 was $0 and $0.2 million , respectively. The change was primarily
related to a decrease in purchases of equipment in 2021 as there were none
compared to purchases of $0.2 million in the same period of 2020.
The future of the Company as an operating business will depend on its ability to
manage operating costs and budgeted amounts and obtain adequate financing. While
we continue to progress discussions and advance opportunities to engage with
pharmaceutical companies and continue to seek licensing partners for ddRNAi in
disease areas that are not our focus, there can be no assurance as to whether we
will enter into such arrangements or what the terms of any such arrangement
could be.
While we have established some licensing arrangements, we do not have any
products approved for sale and have not generated any revenue from product
sales. We do not know when, or if, we will generate any revenue from product
sales. We do not expect to generate significant revenue from product sales
unless and until we obtain regulatory approval of and commercialize one of our
current or future product candidates.
Unless and until we establish significant revenues from licensing programs,
strategic alliances or collaboration arrangements with pharmaceutical companies,
or from product sales, we anticipate that we will continue to generate losses
for the foreseeable future, and we expect the losses to increase as we continue
the development of product candidates and begin to prepare to commercialize any
product that receives regulatory approval. We are subject to the risks inherent
in the development of new gene therapy products, and we may encounter unforeseen
expenses, difficulties, complications, delays and other unknown factors that may
adversely affect our business. We estimate that our cash and cash equivalents
will be sufficient to fund the Company's operations at least for the next twelve
months.
37
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Table of Contents We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
• the timing and costs of our planned clinical trials for our ddRNAi and
silence and replace product candidates;
• the timing and costs of our planned preclinical studies for our ddRNAi
and silence and replace product candidates;
• the number and characteristics of product candidates that we pursue;
• the outcome, timing and costs of seeking regulatory approvals;
• revenue received from commercial sales of any of our product candidates
that may receive regulatory approval;
• the terms and timing of any future collaborations, licensing, consulting
or other arrangements that we may establish;
• 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 costs of preparing, filing and prosecuting patent applications,
maintaining and protecting our intellectual property rights and defending
against intellectual property related claims; and
• the extent to which we need
to in-license or
acquire other products and technologies.
Contractual Obligations and Commercial Commitments
On October 1, 2016 , the Company entered into an operating lease for office space
in Hayward, California that originally expired in April 2018 . The Company has
entered into lease amendments that extend the lease commitment through June
2025 .
The Company enters into contracts in the normal course of business with
third-party contract research organizations, contract development and
manufacturing organizations and other service providers and vendors. These
contracts generally provide for termination on notice and, therefore, are
cancellable contracts and not considered contractual obligations and
commitments.
Off-Balance Sheet
Arrangements
The Company had no
material off-balance sheet
arrangements as of September 30, 2021 .
Critical Accounting Policies and Significant Accounting Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported. Note 2 of the Notes to Consolidated Financial
Statements included in this Quarterly Report on Form
10-Q
describes the significant accounting policies used in the preparation of the
consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies.
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Table of Contents A critical accounting policy is defined as one that is both material to the presentation of the Company's consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on the Company's financial condition or results of operations. Specifically, these policies have the following attributes: (1) the Company is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates the Company could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the Company's financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as the Company's operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties are discussed in the section above entitled "Risk Factors." Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the Company's consolidated financial statements are fairly stated in accordance with accounting principles generally accepted inthe United States of America and provide a meaningful presentation of the Company's financial condition and results of operations. Management believes that the following are critical accounting policies: Research and Development Expense Research and development expenses relate primarily to the cost of conducting clinical and pre-clinical trials. Pre-clinical and clinical development costs are a significant component of research and development expenses. The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in trade and other payables on the consolidated balance sheets and within research and development expenses on the consolidated statements of operations and comprehensive loss. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. The Company makes significant judgments and estimates in determining the accrued liabilities balance at the end of each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. Share-based Compensation Expense The Company records share-based compensation in accordance with ASC 718, Stock Compensation . ASC 718 requires the fair value of all share-based employee compensation awarded to employees and non-employees to be recorded as an expense over the shorter of the service period or the vesting period. The Company values employee and non-employee share-based compensation at fair value using the Black-Scholes Option Pricing Model. Recent Accounting Pronouncements Accounting Standards recently adopted None. New Accounting Standards and Interpretations not yet mandatory or early adopted ASU
2016-13
-InJune 2016 , the FASB issued ASU No. 2016-13: " Financial Instruments-Credit Losses (Topic 326)". This ASU represents a significant change in the accounting for credit losses model by requiring immediate recognition of management's estimates of current expected credit losses (CECL). Under the prior model, losses were recognized only as they were incurred. The Company has determined that it has met the criteria of a smaller reporting company ("SRC") as ofNovember 15, 2019 . As such, ASU 2019-10: " Financial Instruments-Credit Losses, Derivatives and Hedging, and Leases: Effective Dates"
amended the effective date for the Company to be for reporting periods
beginning after
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