BIOATLA, INC. You should read the following discussion and analysis together with our consolidated financial statements and related notes included in "Item 8. Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. For a complete discussion of forward-looking statements, see the section above entitled "Forward Looking Statements." Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption "Item 1A. Risk Factors."
Overview
We are a clinical-stage biopharmaceutical company developing our novel class of highly specific and selective antibody-based therapeutics for the treatment of solid tumor cancer. Our CABs capitalize on our proprietary discoveries with respect to tumor biology, enabling us to target known and widely validated tumor antigens that have previously been difficult or impossible to target. Our novel CAB therapeutic candidates exploit characteristic pH differences between the tumor microenvironment and healthy tissue. Unlike healthy tissue, the tumor microenvironment is acidic, and we have designed our antibodies to selectively bind to their targets on tumor cells under acidic pH conditions but not on targets in normal tissues. Our approach is to identify the necessary targeting and potency required for cancer cell destruction, while aiming to eliminate or greatly reduce on-target, off-tumor toxicity-one of the fundamental challenges of existing cancer therapies.
We are a
In
In
We have incurred significant losses to date. 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
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current and future product candidates. Our net losses were
We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:
• advance the clinical development of BA3011;
• advance the clinical development of BA3021;
• expand our pipeline of bispecific and other CAB antibody-based product
candidates;
• continue to invest in our CAB technology platform;
• maintain, protect and expand our intellectual property portfolio,
including patents, trade secrets and know-how;
• seek marketing approvals for any product candidates that successfully
complete clinical trials;
• establish additional product collaborations and commercial manufacturing
relationships with third parties;
• build sales, marketing and distribution infrastructure and relationships
with third parties to commercialize product candidates for which we may
obtain marketing approval;
• continue to expand our operational, financial and management information
systems; and
• attract, hire and retain additional clinical, scientific, management,
administrative and commercial personnel.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other administrative and professional services expenses that we did not incur as a private company.
As a result, we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. 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 offerings, debt financings, collaborations and other similar arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.
Through the date of our initial public offering, or IPO, in
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issuance of convertible debt and
Impact of COVID-19 on our business
On
Financial operations overview
Revenue
To date, we have not generated any revenue from the sale of products and do not
expect to generate meaningful revenue in the near future. In
In
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development and commercialization of additional CAB product candidates. At the
time of execution of the BeiGene collaboration, we received a
During 2020, we recognized revenue only from our collaboration with BeiGene. During 2019, we recognized revenue from our collaboration with BeiGene and, to a much lesser degree, from our collaboration with Pfizer.
Operating expenses
Research and development
Research and development expenses consist primarily of costs incurred in the discovery and development of our product candidates.
• External expenses consist of:
• Fees paid to third parties such as contractors, clinical research
organizations (CROs) and consultants, including through our
relationship with BioDuro , and other costs related to preclinical and
clinical trials;
• Fees paid to third parties such as contract manufacturing
organizations (CMOs) and other vendors for manufacturing research and
clinical trial materials; and
• Expenses related to laboratory supplies and services.
• Unallocated expenses consist of:
• Personnel-related expenses, including salaries, benefits and
equity-based compensation expenses, for personnel in our research and
development functions; and
• Related equipment and facilities depreciation expenses.
We expense research and development costs in the periods in which they are incurred. 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 and service are performed.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities to advance our product candidates and our clinical programs and expand our product candidate pipeline. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. 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. Accordingly, to the extent that our product candidates continue to advance into clinical trials, including larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, the quality and consistency in their manufacture, investment in our clinical programs and competition with other products. As a result of these variables, we are unable to determine the duration and completion costs of our research and development projects and programs or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates.
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General and administrative
Our general and administrative expenses consist primarily of personnel-related
expenses for personnel in our executive, finance, corporate and other
administrative functions, intellectual property and patent costs, facilities and
other allocated expenses, other expenses for outside professional services,
including legal, human resources, audit and accounting services and insurance
costs. Personnel-related expenses consist of salaries, benefits and equity-based
compensation. We expect our general and administrative expenses to increase as a
result of operating as a public company, including additional costs (i) to
comply with the rules and regulations of the
Interest income
Interest income consists primarily of interest earned on our cash and cash equivalent balances. Our interest income has not been significant to date, but we expect interest income to increase as we invest the net proceeds from our initial public offering.
Interest expense
Interest expense consists primarily of interest incurred on our outstanding
convertible debt, including coupon interest and the amortization of debt
discounts, including those related to beneficial conversion features and
embedded derivatives. We expect our interest expense to decline subsequent to
the settlement of our outstanding convertible debt in
Change in fair value of derivative liability
The convertible promissory notes we issued during 2019 and 2020 contained
redemption features which we determined were embedded derivatives to be
recognized as liabilities and measured at fair value. At the end of each
reporting period, changes in the estimated fair value during the period were
recorded as a change in the fair value of derivative liability. The embedded
derivative liability was recorded at fair value utilizing an income approach
that identified the cash flows using a "with-and-without" valuation methodology.
The inputs used to determine the estimated fair value of the derivative
instrument were based primarily on the probability of an underlying event
triggering the embedded derivative occurring and the timing of such event. We
will no longer record changes in the fair value of the derivative liability
subsequent to the settlement of the derivative liability in connection with the
conversion of our outstanding convertible debt in
Extinguishment of convertible debt
In
Other income (expense)
Other income (expense) primarily includes miscellaneous items of income and expense that were not significant for the periods presented.
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Results of operations
Comparison of the years ended
Years Ended December 31,
2020 2019 Change
(in thousands)
Collaboration revenue $ 429 $ 5,200 $ (4,771 )
Operating expenses:
Research and development 19,933 25,919 (5,986 )
General and administrative 10,595 7,549 3,046
Total operating expenses 30,528 33,468 (2,940 )
Loss from operations (30,099 ) (28,268 ) (1,831 )
Other income (expense):
Interest income 100 128 (28 )
Interest expense (1,389 ) (1,630 ) 241
Change in fair value of derivative
liability (1,581 ) (63 ) (1,518 )
Extinguishment of convertible debt (2,883 ) - (2,883 )
Other income (expense) (1 ) (22 ) 21
Total other income (expense) (5,754 ) (1,587 ) (4,167 )
Consolidated net loss and comprehensive
loss (35,853 ) (29,855 ) (5,998 )
Net loss attributable to noncontrolling
interests - 61 (61 )
Net loss attributable to BioAtla,
Inc./BioAtla LLC. $ (35,853 ) $ (29,794 ) $ (6,059 )
Collaboration revenue
Collaboration revenue of
Collaboration revenue of
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Research and development expense
The following table summarizes our research and development expenses allocated by CAB program for the periods indicated:
Years Ended December 31,
2020 2019 Change
(in thousands)
External expenses:
BA3011 (AXL-ADC) $ 7,845 $ 4,409 $ 3,436
BA3021 (ROR2-ADC) 3,190 6,451 (3,261 )
Other CAB Programs 3,718 10,643 (6,925 )
Total external expenses 14,753 21,503 (6,750 )
Personnel and related 5,120 5,265 (145 )
Equity-based compensation (2,252 ) (2,997 ) 745
Facilities and other 2,312 2,148 164
Total research and development expenses
Research and development expenses were
General and administrative expense
General and administrative expenses were
Interest income
Interest income was
Interest expense
Interest expense was
Change in fair value of derivative liability
Change in fair value of derivative liability was
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Extinguishment of convertible debt
Extinguishment of convertible debt was
Other income (expense)
We had minimal other expense with
Liquidity and capital resources
We have incurred aggregate net losses and negative cash flows from operations
since our inception and anticipate we will continue to incur net losses for the
foreseeable future. As of
Convertible and promissory notes
As of
On
The proceeds from the PPP Loan may only be used for payroll costs (including benefits), rent and utility obligations, and interest on certain of our other debt obligations.
All or a portion of the PPP Loan may be forgiven by the
Future funding requirements
Our primary uses of cash are to fund operating expenses, which consist primarily of research and development expenses related to our programs and related personnel costs. The timing and amount of future funding requirements depends on many factors, including the following:
• the initiation, scope, rate of progress, results and costs of our
preclinical studies, clinical trials and other related activities for our
product candidates;
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• the costs associated with manufacturing our product candidates and
establishing commercial supplies and sales, marketing and distribution
capabilities;
• the timing and costs of capital expenditures to support our research and
development efforts;
• the number and characteristics of other product candidates that we pursue;
• 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 in connection with the licensing, filing, defense
and enforcement of any patents or other intellectual property rights;
• the timing, receipt and amount of sales from our potential products;
• our need and ability to hire additional management, scientific and
medical personnel;
• the effect of competing products that may limit market penetration of our
product candidates;
• our need to implement additional internal systems and infrastructure,
including financial and reporting systems;
• the economic and other terms, timing and success of any collaboration,
licensing, or other arrangements into which we may enter in the future,
including the timing of receipt of any milestone or royalty payments
under these agreements;
• the compliance and administrative costs associated with being a public
company; and
• the extent to which we acquire or invest in businesses, products or
technologies, although we have no commitments or agreements relating to
any of these types of transactions.
Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations at least through the end of 2022. However, we have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
In addition, we will require additional funding in order to complete development of our product candidates and commercialize our products, if approved. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We cannot assure you that, in the event we require additional financing, such financing will be available at acceptable terms to us, if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on our ability to achieve our intended business objectives. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates. We may also have to forego future revenue streams of research programs at an earlier stage of development or on less favorable terms than we would otherwise choose, or have to grant licenses on terms that may not be favorable to us. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. For example, market volatility resulting from the COVID-19 pandemic could adversely impact our ability to access capital as and when needed. We may choose to raise additional capital through the issuance of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to our investors and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making
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capital expenditures, acquiring other businesses, products or technology, or declaring dividends. If we are unable to obtain additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delay, scale back or stop certain research and development programs.
Cash flows
The following summarizes our cash flows for the periods indicated:
Years Ended December 31,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ (36,334 ) $ (9,645 )
Investing activities (590 ) (1,509 )
Financing activities 271,825 3,995
Net increase (decrease) in cash and cash equivalents
Cash used in operating activities
Net cash used in operating activities for the year ended
Net cash used in operating activities for the year ended
Cash used in investing activities
Cash used in investing activities was
Cash provided by financing activities
Net cash provided by financing activities was
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proceeds from our issuance of Series D convertible preferred stock,
Net cash provided by financing activities was
Critical accounting policies and estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with
While our significant accounting policies are described in the Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Accrued expenses
As part of the process of preparing our consolidated financial statements, we accrue expenses as of each balance sheet date. This process involves reviewing open contracts 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 cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. The estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development 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 research and development expense. In accruing service fees, we estimate the time period over which services will be performed 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 prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
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Collaboration revenue
Effective
Revenue recognition under Topic 606
We recognize revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration we are entitled to receive in exchange for such product or service. In doing so, we follow a five-step approach: (i) identify the contract 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, and (v) recognize revenue when (or as) the customer obtains control of the product or service. We consider the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard.
A customer is a party that has entered into a contract with us, where the purpose of the contract is to obtain a product or a service that is an output of our ordinary activities in exchange for consideration. To be considered a contract, (i) the contract must be approved (in writing, orally, or in accordance with other customary business practices), (ii) each party's rights regarding the product or the service to be transferred can be identified, (iii) the payment terms for the product or the service to be transferred can be identified, (iv) the contract must have commercial substance (that is, the risk, timing or amount of future cash flows is expected to change as a result of the contract), and (v) it is probable that we will collect substantially all of the consideration to which we are entitled to receive in exchange for the transfer of the product or the service.
A performance obligation is defined as a promise to transfer a product or a service to a customer. We identify each promise to transfer a product or a service (or a bundle of products or services, or a series of products and services that are substantially the same and have the same pattern of transfer) that is distinct. A product or a service is distinct if both (i) the customer can benefit from the product or the service either on its own or together with other resources that are readily available to the customer and (ii) our promise to transfer the product or the service to the customer is separately identifiable from other promises in the contract. Each distinct promise to transfer a product or a service is a unit of accounting for revenue recognition. If a promise to transfer a product or a service is not separately identifiable from other promises in the contract, such promises should be combined into a single performance obligation.
The transaction price is the amount of consideration we are entitled to receive in exchange for the transfer of control of a product or a service to a customer. To determine the transaction price, we consider the existence of any significant financing component, the effects of any variable elements, noncash considerations and consideration payable to the customer. If a significant financing component exists, the transaction price is adjusted for the time value of money. If an element of variability exists, we must estimate the consideration it expects to receive and uses that amount as the basis for recognizing revenue as the product or the service is transferred to the customer. There are two methods for determining the amount of variable consideration: (i) the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts, and (ii) the mostly likely amount method, which identifies the single most likely amount in a range of possible consideration amounts.
If a contract has multiple performance obligations, we allocate the transaction price to each distinct performance obligation in an amount that reflects the consideration we are entitled to receive in exchange for satisfying each distinct performance obligation. For each distinct performance obligation, revenue is recognized when (or as) we transfer control of the product or the service applicable to such performance obligation.
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In those instances where we first receive consideration in advance of satisfying our performance obligation, we classify such consideration as deferred revenue until (or as) we satisfy such performance obligation. In those instances where we first satisfy our performance obligation prior to receipt of consideration, the consideration is recorded as accounts receivable.
We expense incremental costs of obtaining and fulfilling a contract as and when incurred if the expected amortization period of the asset that would be recognized is one year or less, or if the amount of the asset is immaterial. Otherwise, such costs are capitalized as contract assets if they are incremental to the contract and amortized to expense proportionate to revenue recognition of the underlying contract.
Profits interest liability
Before the Corporate Reorganization, we had a profits interest plan which we determined was a liability award plan in accordance with authoritative guidance. We measured the fair value of each award on the grant date and recognized such fair value over the requisite service period (usually the vesting period) on a straight-line basis, net of estimated forfeitures. The fair value of the award was remeasured at each reporting date until the award was settled, with a true-up of compensation cost for changes in fair value prorated for the portion of the requisite service period rendered. Once vested, any subsequent change in fair value was recognized immediately. The fair value of any awards that expired or were forfeited or cancelled for no value was adjusted to zero, such that any previously recorded compensation cost was fully reversed.
We were required to estimate the fair value of the Class B units issued in
connection with our profits interest plan. The fair value of our Class B units
was determined on each reporting date by our management, taking into account
input from independent third-party valuation analysis. In the absence of a
public trading market for our Class B units, on each reporting date we developed
an estimate of the fair value of our Class B units in order to calculate the
profit interest liability. Our determinations of the fair value of our Class B
units were made using methodologies, approaches and assumptions consistent with
the
We considered various objective and subjective factors to determine the fair value of our Class B units, including:
• contemporaneous valuations of our Class B units performed by independent
third-party valuation specialists;
• our stage of development and business strategy, including the status of
research and development efforts of our product candidates, and the
material risks related to our business and industry;
• our results of operations and financial position, including our levels of
available capital resources;
• the valuation of publicly traded companies in the life sciences and
biopharmaceutical sectors, as well as recently completed mergers and
acquisitions of peer companies;
• the lack of liquidity of our Class B units;
• the rights, preferences and privileges of our Class C Preferred units and
Class A units relative to those of our Class B units;
• the likelihood and timing of achieving a liquidity event for the holders
of our Class B units, given prevailing market conditions;
• trends and developments in our industry; and
• external market conditions affecting the life sciences and
biopharmaceutical industry sectors.
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In connection with the Corporate Reorganization,
Valuation methodologies and methods used to allocate our enterprise value to classes of securities
Our valuations were prepared in accordance with the guidelines in the Practice Aid, which prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our company's future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations. We utilized a market approach in 2018, 2019 and 2020. In 2020, in connection with our Corporate Reorganization and Series D preferred stock financing, our market approach included the back-solve method that assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor. In accordance with the Practice Aid, we considered the various methods for allocating the enterprise value across our classes and series of equity to determine the fair value of our equity instruments at each valuation date. We applied a hybrid method of the probability weighted expected return method, or PWERM, where the non-IPO scenario is modeled using an option pricing model to reflect the full distribution of possible non-IPO outcomes. Under the option pricing model, units are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of each class of units are inferred by analyzing these options. In the IPO scenario, we used the fully-diluted shares outstanding to allocate value to each class of units. The hybrid method is useful when certain discrete future outcomes can be predicted, but also accounts for uncertainty regarding the timing or likelihood of specific alternative exit events.
Stock-based compensation
In
Stock-based compensation expense represents the grant date fair value of equity
awards over the requisite service period of the awards (usually the vesting
period) on a straight-line basis. We estimate the fair value of stock option
grants using the Black-Scholes option pricing model and the fair value of RSUs
is the fair value of our common stock on the date of grant. See Note 6 to our
consolidated financial statements included elsewhere in this Annual Report for
information concerning certain of the specific assumptions we used in applying
the Black-Scholes option pricing model to determine the estimated fair value of
our stock option grants. Given the proximity of the 2020 awards to our initial
public offering, the fair value of our common stock for all 2020 stock-based
compensation awards was based on our initial public offering price of
Other company information
Emerging growth company status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the
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JOBS Act until such time as those standards apply to private companies. We have
elected not to "opt out" of such extended transition period, which means that
when a standard is issued or revised and it has different application dates for
public or private companies, we can adopt the new or revised standard at the
time private companies adopt the new or revised standard and may do so until
such time that we either (i) irrevocably elect to "opt out" of such extended
transition period or (ii) no longer qualify as an emerging growth company. We
also intend to rely on other exemptions provided by the JOBS Act, including
without limitation, providing an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act. We will remain an emerging growth company until the earlier
of (i) the last day of the fiscal year (a) following the fifth anniversary of
the completion of our initial public offering, (b) in which we have total annual
gross revenue of at least
Recent Accounting Pronouncements
See Note 1 to the audited financial statements included in Item 8 of this Annual Report on Form 10-K.
Off-balance sheet arrangements
We have not entered into any off-balance sheet arrangements, as defined in the
rules and regulations of the
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