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OFFON

C4 THERAPEUTICS, INC.

(CCCC)
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C4 THERAPEUTICS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/10/2021 | 04:30pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our interim condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our audited consolidated financial statements and notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in our Annual Report on Form 10-K for the year ended
December 31, 2020 filed with the SEC on March 11, 2021. As discussed in the
section titled "Special Note Regarding Forward-Looking Statements," the
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause or contribute to these differences include, but are not limited to,
those identified below and those discussed in the section titled "Risk Factors"
in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual
Report on Form 10-K for the year ended December 31, 2020.

Business overview


We are a clinical-stage biopharmaceutical company focused on harnessing the
body's natural regulation of protein levels to develop novel therapeutic
candidates to target and destroy disease-causing proteins for the treatment of
cancer and other diseases. We leverage our proprietary technology platform,
TORPEDO (Target ORiented ProtEin Degrader Optimizer), to synthesize a new class
of small molecule medicines that are designed to destroy disease-causing
proteins selectively and efficiently, including targets previously considered to
be undruggable. We are using our TORPEDO platform to build a robust pipeline of
oral protein degradation drug candidates, with our lead product candidates
focused on oncology indications.

Our most advanced product candidate, CFT7455, is an orally bioavailable degrader
of a protein target called IKZF1/3, for multiple myeloma, or MM, and non-Hodgkin
lymphomas, or NHLs, including peripheral T-cell lymphoma, or PTCL, and mantle
cell lymphoma, or MCL. We initiated a first-in-human Phase 1/2 clinical trial
for this product candidate in June of 2021 and a number of sites are presently
open and enrolling patients. In August 2021, the FDA granted orphan drug
designation to CFT7455 for the treatment of multiple myeloma.

We are also developing CFT8634, an orally bioavailable degrader of a protein
target called BRD9, for synovial sarcoma and SMARCB1-deleted solid tumors and we
expect to submit an investigational new drug, or IND, application for this
product candidate to the FDA by year-end 2021 and begin a first-in-human Phase
1/2 clinical trial for this product candidate in 2022.

Additionally, we are developing CFT8919, an orally bioavailable, allosteric,
mutant-selective degrader of epidermal growth factor receptor, or EGFR, L858R in
non-small cell lung cancer, or NSCLC, and we expect to submit an IND for this
product candidate to the FDA in mid-2022 and begin a first-in-human Phase 1/2
clinical trial by year-end 2022.

In addition to our lead product candidates, we are developing CFT1946, an orally
bioavailable degrader specifically targeting V600X mutant BRAF to treat
melanoma, NSCLC, colorectal cancer and other solid malignancies that harbor this
mutation. We expect to submit an IND for this product candidate to the FDA in
2022 and begin a first-in-human Phase 1/2 clinical trial by year-end 2022.

We are also developing degraders of a protein target called RET to treat lung
cancer, sporadic medullary thyroid cancers and other solid malignancies that
harbor oncogenic RET lesions.

Beyond these initial product candidates, we are further diversifying our
pipeline by developing new degraders against targets where we believe
degradation offers potential advantages over existing therapeutic modalities. We
have engineered degraders that have successfully achieved blood-brain barrier
penetration in preclinical studies, which is a key step in developing medicines
with the potential to treat brain metastases in oncology, as well as therapeutic
areas such as neurodegenerative diseases. We also believe there are many other
therapeutic areas and indications where leveraging our TORPEDO platform to
develop novel degraders may be advantageous.

Financial operations overview

Revenues


To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from the sale of products for the foreseeable future.
Our revenues to date have been generated through research collaboration and
license agreements. We recognize revenue over our expected performance period
under each agreement. We expect that our revenue for the next several years will
be derived primarily from our current collaboration agreements and any
additional collaborations that we may enter into in the future. To date, we have
not received any royalties under any of our existing collaboration agreements.

Roche Collaboration and License Agreement


In March 2016, we entered into a license agreement, or the Original Roche
Agreement, with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or Roche,
whereby Roche provided us with a non-refundable upfront payment of
$15.0 million, which was creditable against our target initiation fees of either
$1.0 million or $4.0 million, depending on the compound selected. Pursuant to
the terms of the Original Roche Agreement, we collaborated on research
activities to develop novel treatments in the field of targeted protein
degradation using our degrader technology. We initially developed therapeutics
that utilize degrader technology for up to ten

                                       18



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target proteins. On a target-by-target basis, after successful completion of a
defined preclinical development phase, Roche had an exclusive option to pursue a
license from us for further clinical development and commercialization.

On December 22, 2018, we amended and restated the Original Roche Agreement, or
the Roche Agreement. Under the Roche Agreement, we have a more active role in
the manufacturing and commercialization of products related to the targets
included in the collaboration, whereby if we elect to opt into certain
co-development rights, we will receive an increased royalty rate on future
product sales from commercializing products directed to the target. If we opt
into certain co-detailing rights, we are entitled to reimbursement of certain
commercialization costs. The target structure was revised to six potential
targets, three of which had been nominated as of the execution of the Roche
Agreement and represent continuations of the initial preclinical research and
development efforts begun under the Original Roche Agreement, and three
additional targets that were not nominated as of the date of execution of the
Roche Agreement. At the time of entry into the Roche Agreement, Roche maintained
its option rights to license and commercialize products related to these six
targets. Subsequently, with the November 2020 amendment to the Roche Agreement,
the number of targets on which the parties would continue to collaborate was
reduced to five and, following the entry into a Mutual Target Termination
Agreement in November 2021, that number was further reduced to four. Roche
maintains its option rights to license and commercialize products directed to
those four targets.

Under the Roche Agreement, we received additional upfront consideration of
$40.0 million from Roche. Roche will make annual research plan payments of
$1.0 million for each active research plan. Finally, adjustments were made to
the option exercise fees, whereby targets that have progressed through standard
good laboratory practice, or GLP, toxicology studies at the time of exercise now
have option exercise fees of $7.0 million to $12.0 million and those progressed
through Phase 1 trials have option exercise fees of $20.0 million.

For certain targets, Roche is required to pay us fees of $2.0 million and
$3.0 million upon the identification of a lead series and the commencement of
GLP toxicology studies, respectively. For each target option exercised by Roche,
we are eligible to receive up to $275 million in research, development and
commercial milestone payments per target. Roche is also required to pay us up to
$150 million per target in one-time sales-based payments if the target achieves
certain levels of net sales. Roche is also required to pay us royalties, at
percentages from the mid-single digits to the low double-digits, on a licensed
product-by licensed product basis, on worldwide net product sales.

In November 2020, we signed a further amendment to the Roche Agreement that
provides a mechanism through which we and Roche can mutually agree to terminate
the Roche Agreement on a target-by-target basis by the entry into a mutual
target termination agreement. Upon a termination of this nature, the Roche
Agreement, as amended, provides that all rights in know-how and intellectual
property in support of products that use inhibition as their mode of action,
referred to as the Roche Field, will revert to Roche and all rights in respect
of know-how and intellectual property in support of products that use
degradation as their mode of action, referred to as the C4T Field, will revert
to us. Further, this amendment states that, following the entry into a mutual
target termination agreement, Roche will have rights in and responsibility for
any know-how and intellectual property generated as a result of the
collaboration that fits within the Roche Field and we will have rights in and
responsibility for any know-how and intellectual property generated as a result
of the collaboration that fits within the C4T Field. In support of this
allocation of rights, under the amendment, Roche provided us, and we provided
Roche, with a perpetual, irrevocable, fully paid up, exclusive (even as to party
granting the license), sublicensable (including in multiple tiers) license to
the patents that are allocated to a party under the mutual target termination
agreement and a perpetual, irrevocable fully paid up, non-exclusive,
sublicensable (including in multiple tiers) license to the know-how that is
allocable to a party under the mutual termination agreement. Finally, through
the entry into this amendment, we and Roche mutually agreed to terminate the
Roche Agreement as to the target EGFR.

As a result of the November 2020 amendment related to EGFR and the November 2021
Mutual Target Termination Agreement as to BRAF, Roche is now free to pursue the
targets EGFR and BRAF in the Roche Field and we are free to pursue the targets
EGFR and BRAF in the C4T Field. All rights in and responsibility for know-how
and intellectual property related to EGFR and BRAF in the Roche Field reverted
to the Roche parties and all rights in and responsibility for know-how and
intellectual property related to EGFR and BRAF in the C4T Field reverted to us,
with Roche assigning the relevant patents in the C4T Field to us.

Biogen Collaboration Research and License Agreement


On December 28, 2018, we entered into a collaborative research and license
agreement, or the Biogen Agreement, with Biogen MA, Inc., or Biogen, whereby we
agreed to collaborate on research and development efforts for up to five targets
to discover and develop potential new treatments for neurological conditions,
such as Alzheimer's disease and Parkinson's disease. The Biogen Agreement also
has an option for Biogen to nominate additional targets and extend the Biogen
Agreement. In February 2020, we entered into an amendment to the Biogen
Agreement that provided further clarity around Biogen's ownership of target
binding moieties, which are portions of molecules, and any related intellectual
property that are directed at or bind to collaboration targets. This amendment
further provides that Biogen licenses to us rights to use these Biogen target
binding moieties and any related intellectual property as needed in order to
conduct the research and development activities contemplated under the Biogen
Agreement.

We granted Biogen a non-exclusive research license under our intellectual
property to perform research activities, select and optimize degraders and
develop products including the degraders, as well as a commercial license to
manufacture and commercialize the products related to the targets once the
initial research and development work is complete. The research under the Biogen
Agreement

                                       19


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will take place over a 54-month research term, ending in June 2023, with Biogen
having an option to extend the Biogen Agreement for up to four additional years.
If Biogen elects to extend the term of the Biogen Agreement, Biogen would be
required to make an additional payment of $62.5 million and would be entitled to
nominate up to five additional targets.

The Biogen Agreement provides for three initial targets, with Biogen having the
right to initiate up to an additional two targets and to control all
post-discovery activities. Biogen paid us a nonrefundable upfront payment of
$45.0 million for access to our technology and research services through the
discovery research phase. The nonrefundable upfront cash payment of
$45.0 million is not creditable against any of the target development milestone
fees.

Following the achievement of development candidate criteria, prior to any
IND-enabling study, for any target, Biogen will bear all costs and expenses of
and will have sole discretion and decision-making authority with respect to the
performance of further activities with respect to any degrader under development
under the Biogen Agreement and all products that incorporate that degrader.
Biogen is also required to pay us up to $35.0 million per target in development
milestones and $26.0 million per target in one-time sales-based payments for the
first product to achieve certain levels of net sales. In addition, Biogen is
required to pay us royalties on a licensed product-by-licensed product basis, on
worldwide net product sales, at percentages in the mid-single digits. All
milestone and sales-based payments are made after we have met the defined
criteria in the joint research plan for that target, at which time Biogen will
have control of the products related to the targets for commercialization; the
receipt of these payments is contingent on the further development of products
directed to the targets to commercialization by Biogen, without any additional
research and development efforts from us.

Biogen also has the option to fund additional discovery activities, whereby we
will perform discovery-type research at Biogen's election to develop other
potential targets that may be used as replacement targets for the initially
nominated targets or two additional targets under the Biogen Agreement. Revenues
earned under this option, if initiated, will be recognized as services are
performed and are not included in the transaction price at the outset of the
arrangement. These research activities will be reimbursed on a full-time
equivalent, or FTE, basis at specified market rates. These additional discovery
activities can be purchased up to a maximum amount by Biogen on an à la carte
basis at an amount consistent with standalone selling price. If Biogen were to
exercise these options, we would recognize revenue as those options are
exercised.

Calico Collaboration and License Agreement


In March 2017, we entered into Collaboration and License Agreement, or the
Calico Agreement, with Calico Life Sciences LLC, or Calico, whereby we agreed to
collaborate to develop and commercialize a set number of targets for small
molecule protein degraders for diseases of aging, including cancer, for a
five-year period ending in March 2022. In August 2021, we provided Calico with
an option to extend the research term with respect to a certain program for up
to a one year period ending in March 2023, or the research term. In September
2021, Calico elected to exercise the option.

We provided Calico with a non-exclusive research license under our intellectual
property to perform research activities and select and optimize degraders and
develop products including the degraders. We also granted Calico a commercial
license for any licensed products resulting from the development candidates
supplied by us. We are required to perform research and development activities
for the nominated targets over the research term, with the intent to provide a
development candidate for each target to Calico once the agreed-upon research is
complete.

Calico is obligated to reimburse our research and development activities for
each target at specified levels through the identification of a development
candidate, after which Calico shall assume full responsibility for candidate
development.

After the initiation of each target, the Calico Agreement does not contain any
options for Calico to license the individual targets; once we complete the
initial research and development activities required, Calico controls and
directs the targets with no additional work required to be performed by us.
There is no exercise price or incremental fee payable to us to progress the
research further, though Calico is required to pay an initiation fee with the
commencement of each research plan. Once Calico nominates a target and pays the
applicable target initiation fee, we will commence research and development
activities for that target. The Calico Agreement provides for up to five initial
targets. Research activities performed are reimbursed at specified levels for
the five-year term of the Calico Agreement, with the term for one research
program having been extended by an additional year.

Under this agreement, Calico paid us a nonrefundable upfront amount of
$5.0 million and certain annual payments of $5.0 million through December 31,
2020. Upon our completion of the required discovery research and development
services on any target, Calico is entitled to pursue development of that target
to commercialized product. For each target, we are eligible to receive potential
research, development and commercial milestone payments aggregating up to
$132.0 million. Calico is also required to pay one-time sales-based payments
aggregating up to $65.0 million for the first product to achieve certain levels
of net sales. In addition, Calico is required to pay us royalties, on a licensed
product-by-licensed product basis, on worldwide net product sales, at
percentages in the mid-single digits. All milestone and sales-based payments are
made after we have met the defined criteria in the joint research plan for that
target, at which time Calico will have control of the products related to
targets for commercialization; the receipt of these payments by us is contingent
on the further development of the targets to commercialized products by Calico,
without any additional research and development efforts required by us.

                                       20

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Research and development expense


Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts and the development of our
product candidates, and include:

• salaries, benefits and other related costs, including stock-based

compensation expense, for personnel engaged in research and development

functions;

• expenses incurred under agreements with third parties, including contract

research organizations and other third parties that conduct research,

preclinical, and clinical activities on our behalf as well as third parties

      that manufacture our product candidates for use in our preclinical and
      clinical trials;

• costs of outside consultants, including their fees, unit-based compensation

and related travel expenses;

• the costs of laboratory supplies and acquiring materials for preclinical

studies and clinical trials;

• facility-related expenses, which include direct depreciation costs of

equipment and allocated expenses for rent and maintenance of facilities and

      other operating costs; and


  • third-party licensing fees.


We expense research and development costs as incurred. Costs for external
development activities are recognized based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors.
Payments for these activities are based on the terms of the individual
agreements, which may differ from the pattern of costs incurred, and are
reflected in our condensed consolidated financial statements as prepaid or
accrued research and development expenses. Nonrefundable advance payments for
goods or services to be received in the future for use in research and
development activities are recorded as prepaid expenses and expensed as the
related goods are delivered or the services are performed.

We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities.

General and administrative expenses


General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance, legal, business development and administrative functions.
General and administrative expenses also include legal fees relating to
intellectual property and corporate matters; professional fees for accounting,
auditing, tax and consulting services; insurance costs; travel expenses; and
facility-related expenses, which include direct depreciation costs and allocated
expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the
future to support our growing operations, including additional personnel to
support our operations as a publicly traded company. We also expect to continue
to incur additional expenses associated with being a public company, including
higher costs of accounting, audit, legal, regulatory and tax-related services
associated with maintaining compliance with Nasdaq and SEC requirements,
director and officer insurance costs and investor and public relations costs.

Other (expense) income, net

Other (expense) income, net primarily consists of the following:

• interest expense and amortization of our long-term debt, which is discussed

in greater detail in Note 9, Long-term debt and warrant - related party; and

• interest income earned on our cash, cash equivalents, and marketable

      securities and accretion of discount on marketable securities.


                                       21


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Results of operations

Comparison of the three and nine months ended September 30, 2021 and 2020

Revenue


Revenue from our collaboration and license agreements consisted of the following
for the three and nine months ended September 30, 2021 and 2020 (in thousands):

                                                  Three Months Ended September 30,             Nine Months Ended September 30,
                                                    2021                     2020                2021                  2020
Revenue from collaboration agreements:
Roche Agreement                               $          2,330         $          1,395     $         7,416       $         7,424
Biogen Agreement                                         4,827                    3,525               9,647                 6,827
Calico Agreement                                         1,343                    3,527               8,644                10,682

Total revenue from collaboration agreements $ 8,500 $

8,447 $ 25,707 $ 24,933

The $0.1 million increase in revenue in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is primarily driven by:

• a $1.3 million increase in revenue recognized under the Biogen Agreement,

resulting from increased effort made on the nominated targets and additional

revenue recognized from the Biogen milestone earned in Q2 2021; and

• a $1.0 million increase in revenue recognized under the Roche Agreement

resulting from increased effort made on the nominated targets.



This was offset by a $2.2 million decrease in revenue recognized under the
Calico Agreement, primarily driven by a decrease in FTE reimbursements and the
impact resulting from the extension of the Calico Agreement's term for one of
the research programs in that collaboration.

The $0.8 million increase in revenue in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily driven by:

• a $2.8 million increase in revenue recognized under the Biogen Agreement,

resulting from increased effort made on the nominated targets and additional

revenue recognized from the Biogen milestone earned in Q2 2021; and

• the $1.0 million milestone revenue recognized under the Calico Agreement.



These were offset by:

• a $3.1 million decrease in FTE reimbursements recognized under the Calico

Agreement and the impact resulting from the extension of the Calico

Agreement's term for one of the research programs in that collaboration.

Research and development expense

The following table summarizes our research and development expense for the three and nine months ended September 30, 2021 and 2020 (in thousands):


                                            Three Months Ended September 30,           Nine Months Ended September 30,
                                               2021                  2020                2021                  2020
Research and development expenses:
Preclinical and development expenses      $        12,653       $        14,454     $        33,025       $        32,225
Personnel expenses                                  7,107                 5,435              21,389                14,605
Facilities and supplies                             1,922                 2,654               6,459                 7,155
Professional fees                                   1,444                 1,129               3,945                 2,969
Clinical expenses                                     422                     -               1,606                     -
Intellectual property                                 708                   242               1,471                   886
Other expenses                                         46                    21                 219                   167

Total research and development expenses $ 24,302 $ 23,935 $ 68,114 $ 58,007

The $0.4 million increase in research and development expense in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is primarily driven by:

• a $1.7 million increase in personnel expenses, representing salary and

benefit costs, including a $1.8 million increase in stock-based compensation

expense driven primarily by the increase in the fair value of our stock, and

      due to the buildout of our clinical development team.


                                       22


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This was offset by:

• a $1.8 million decrease in preclinical and development costs in comparison

      to the three months ended September 30, 2020, when we were ramping up to
      support the IND filing of CFT7455.

The $10.1 million increase in research and development expense in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily driven by:

• a $6.8 million increase in personnel expenses, representing salary and

benefit costs, including a $4.6 million increase in stock-based compensation

expense driven primarily by the increase in the fair value of our stock, and

due to the buildout of our clinical development team

• a $1.5 million increase in professional fees and intellectual property

costs, which primarily consists of consulting and other third-party costs

for our research and development activities; and

• a $1.6 million increase in clinical costs resulting from the initiation of

phase 1/2 clinical trial of CFT7455 in June 2021.

General and administrative expense

The following table summarizes our general and administrative expense for the three and nine months ended September 30, 2021 and 2020 (in thousands):


                                                Three Months Ended September 30,            Nine Months Ended September 30,
                                                  2021                     2020              2021                  2020
General and administrative expenses:
Personnel expenses                          $          6,244         $            912     $    16,827         $         4,012
Professional fees                                      1,827                    1,636           6,593                   3,609
Other expenses                                           381                      313           1,052                     851

Total general and administrative expenses $ 8,452 $

2,861 $ 24,472 $ 8,472

The $5.6 million increase in general and administrative expense in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is primarily driven by:

• a $5.3 million increase in personnel expenses resulting from a $3.9 million

increase in stock-based compensation expenses driven primarily by the

increase in the fair market value of our stock.

The $16.0 million increase in general and administrative expense in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 is primarily driven by:

• a $12.8 million increase in personnel expenses resulting from a $9.9 million

increase in stock-based compensation expenses driven primarily by the

increase in the fair market value of our stock, partially offset by lower

      severance expense in the current period compared to severance expense
      recognized in the three months ended March 31, 2020 resulting from the
      departure of our Former CEO; and

• a $3.0 million increase in professional fees, which is driven primarily by

increased insurance costs, consultant fees, and legal and audit fees,

resulting from our transition to a public company.

Other (expense) income, net

The following table summarizes our other (expense) income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


                                          Three Months Ended September 30,  

Nine Months Ended September 30,

                                              2021                 2020              2021                  2020
Other (expense) income, net:
Interest expense and amortization of
long-term debt - related party           $         (539 )       $      (562 )   $        (1,606 )     $          (689 )
Interest and other income, net                      110                  50                 251                   334
Change in fair value of warrant
liability                                             -              (3,141 )                 -                (3,141 )

Total other (expense) income, net $ (429 ) $ (3,653 ) $ (1,355 ) $ (3,496 )


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The $3.2 million change in other (expenses) income, net in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 is driven by:

• a $3.1 million charge recognized in September 2020 upon fair value

revaluation of the Perceptive warrant liability.



The $2.1 million change in other (expenses) income, net in the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020 is
driven by the following:

• a $3.1 million charge recognized in September 2020 upon fair value

revaluation of the Perceptive warrant liability.

This is offset by:

• a $0.9 million increase in interest expense and amortization of the discount

related to our long-term debt, the agreement for which we entered into in

June 2020.

Liquidity and capital resources

Sources of liquidity


Since inception, we have incurred significant operating losses. We expect to
incur significant expenses and operating losses for the foreseeable future as we
advance the preclinical and, if successful, the clinical development of our
programs. We do not currently have any approved products and have never
generated any revenue from product sales. To date, we have financed our
operations primarily through the sale of preferred stock, public offerings of
our common stock, and through payments from collaboration partners. As of
September 30, 2021, we had cash, cash equivalents and marketable securities of
approximately $480.3 million.

In June 2020 and July 2020, we closed our Series B Financing with both existing
and new investors. As part of the Series B Financing, we issued 142,857,142
shares of redeemable convertible Series B preferred stock at a purchase price of
$1.05 per share, for aggregate net proceeds of $145.5 million. Upon completion
of the IPO, all of our redeemable convertible preferred stock was automatically
converted into shares of our common stock at a rate of 8.4335 shares of
redeemable convertible preferred stock to one share of common stock.

In addition, in June 2020, we secured a $20.0 million credit arrangement with
Perceptive Credit Holdings III, LP, or Perceptive Credit, an affiliate of one of
the Series B Financing investors, whereby we borrowed $12.5 million at closing,
bearing a variable interest rate of 11.25%, and can draw down another
$7.5 million. Our ability to draw down on this second tranche expired on June
30, 2021.

In October 2020, we completed our IPO in which we issued and sold 11,040,000
shares of common stock at a price to the public of $19.00 per share. The net
proceeds from our IPO, including the full exercise of the underwriter's
overallotment option, were approximately $191.2 million.

In June 2021, the Company completed a follow-on offering, at which time the
Company issued 4,887,500 shares of its common stock, including 637,500 shares of
common stock that were issued to the underwriters when they exercised in full
their overallotment option. Net proceeds from the follow-on offering, including
the exercise in full of the underwriters' option to purchase additional shares,
were $169.5 million, after deducting underwriting discounts and commissions, and
estimated expenses of $11.3 million.

Cash flows


The following table summarizes our sources and uses of cash for the periods
presented (in thousands):

                                                           Nine Months Ended September 30,
                                                             2021                   2020

Net change in cash, cash equivalents and restricted cash: Net cash used in operating activities

                  $        (61,294 )     $        (45,656 )
Net cash used in investing activities                          (129,923 )             (136,338 )
Net cash provided by financing activities                       170,934                154,879
Total net change in cash, cash equivalents and
restricted cash                                        $        (20,283 )     $        (27,115 )


Operating activities

Net cash used in operating activities for the nine months ended September 30, 2021 was driven primarily by the following uses of cash:

• our net loss of $68.2 million;

• a $10.0 million change in deferred revenue due to the recognition of revenue

      under our collaboration agreements;


  • a $1.9 million change in accounts payable and accrued expenses;


  • a $1.1 million change in prepaid expense and other assets.


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These were offset by non-cash expenses of $18.9 million, which primarily consisted of stock-based compensation expense of $15.2 million, and a $2.2 million change in accrued expense and other current liabilities.

Net cash used in operating activities for the nine months ended September 30, 2020 was driven primarily by the following uses of cash:

• our net loss of $44.5 million;

• a $8.4 million change in deferred revenue due to the recognition of revenue

      under our collaboration agreements; and


  • a $1.8 million change in prepaid expense and other assets.


These were offset by non-cash expenses of $6.3 million, which primarily
consisted of a $3.1 million charge recognized in September 2020 upon fair value
revaluation of the Perceptive warrant liability, and a $3.2 million change in
accrued expense and other current liabilities.

Investing activities


Net cash used in investing activities for the nine months ended September 30,
2021 was primarily attributable to $128.8 million of purchases of marketable
securities, net of maturities, in addition to purchases of property and
equipment of $1.2 million.

Net cash used in investing activities for the nine months ended September 30,
2020 was primarily attributable to $136.0 million of purchases of marketable
securities.

Financing activities

The $170.9 million of net cash provided by financing activities for the nine
months ended September 30, 2021 was primarily attributable to $169.5 million of
net proceeds received upon closing of our follow-on offering in June 2021, and
$1.6 million from exercises of stock options.

The $154.9 million of net cash provided by financing activities for the nine
months ended September 30, 2020 was attributable to $145.5 million of net
proceeds received from issuance of Series B Preferred Stock, and $12.0 million
from issuance of long-term debt to Perceptive, a related party. These were
offset by payment of initial public offering costs of $2.4 million.

Funding requirements


Since our inception, we have incurred significant operating losses. We expect to
continue to incur significant expenses and increasing operating losses for the
foreseeable future as we advance the preclinical and clinical development of our
product candidates. In addition, we expect to continue to incur additional costs
associated with operating as a public company.

Specifically, we anticipate that our expenses will increase substantially in the future, if and as we:

• continue our ongoing first-in-human Phase 1/2 trials of CFT7455 and initiate

      and conduct planned first-in-human Phase 1/2 trials for our other lead
      product candidates, including CFT8634 and CFT8919;


   •  advance additional product candidates into preclinical and clinical
      development;


  • continue to invest in our proprietary TORPEDO platform;


  • expand, maintain and protect our intellectual property portfolio;


  • hire additional clinical, regulatory and scientific personnel;

• add operational, financial and management information systems and personnel

to support our ongoing research, product development, potential future

      commercialization efforts, operations as a public company and general and
      administrative roles;

• seek marketing approvals for any product candidates that successfully

complete clinical trials; and

• ultimately establish a sales, marketing and distribution infrastructure and

scale up external manufacturing capabilities to commercialize any products

for which we may obtain marketing approval.



Because of the numerous risks and uncertainties associated with development and
commercialization of our product candidates, we are unable to estimate the
amounts of increased capital and operating costs associated with our current and
anticipated preclinical and clinical development. Our future capital
requirements will depend on many factors, including:

• the progress, costs and results of ongoing and planned first-in-human Phase

      1/2 trials for our lead product candidates and any future clinical
      development of those lead product candidates;


   •  the scope, progress, costs and results of preclinical and clinical

development for our other product candidates and development programs;


                                       25


--------------------------------------------------------------------------------

• the number and development requirements of other product candidates that we

pursue;

• the success of our collaborations with Roche, Biogen and Calico, including

whether or not we receive additional research support or milestone payments

from our collaboration partners upon the achievement of milestones;

• the costs, timing and outcome of regulatory review of our product candidates;

• the costs and timing of preparing, filing and prosecuting patent

applications, maintaining and enforcing our intellectual property rights and

      defending any intellectual property-related claims;


   •  our willingness and ability to establish additional collaboration
      arrangements with other biotechnology or pharmaceutical companies on
      favorable terms, if at all, for the development or commercialization of
      current or additional future product candidates;

• the costs and timing of future commercialization activities, including

      product manufacturing, marketing, sales and distribution, for any of our
      product candidates for which we receive marketing approval; and


   •  the revenue, if any, received from commercial sales of our product
      candidates for which we receive marketing approval.


As a result of the anticipated expenditures described above, we will need to
obtain substantial additional financing to support our continuing operations and
pursue our long-term business plan. Until such time, if ever, as we can generate
substantial revenue from product sales, we expect to finance our cash needs
through a combination of equity offerings, debt offerings, collaborations,
strategic alliances and marketing, distribution or licensing arrangements.
Although we may receive potential future milestone and royalty payments under
our collaborations with Roche, Biogen and Calico, we do not have any committed
external source of funds as of September 30, 2021. Adequate additional funds may
not be available to us on acceptable terms, or at all. If we are unable to raise
capital when needed or on attractive terms, we may be required to delay, limit,
reduce or terminate our research, product development or future
commercialization efforts or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.

If we raise additional capital through the sale of equity securities, each
investor's ownership interest will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect your rights
as a common stockholder. Preferred equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take
specific actions, such as making acquisitions or capital expenditures or
declaring dividends.

If we raise additional funds through collaborations, strategic alliances or
marketing, distribution 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 grant licenses on terms that may not
be favorable to us.

Contractual obligations

We enter into contracts in the normal course of business with contract
manufacturing organizations, contract research organizations and other vendors
to assist in the performance of our research and development activities and
other services and products for operating purposes. These contracts generally
provide for termination on notice, and therefore are cancelable contracts and
not included in the table of contractual obligations and commitments.

During the nine months ended September 30, 2021, except for the minimum rental
commitments disclosed in Note 6, Leases, and Note 9, Long-term debt and warrant
- related party, to the condensed consolidated financial statements in this
Quarterly Report on Form 10-Q, there were no significant changes to our
contractual obligations and commitments described under Management's Discussion
and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for the year ended December 31, 2019.

Critical accounting policies and use of estimates


Our critical accounting policies are those policies that require the most
significant judgments and estimates in the preparation of our condensed
consolidated financial statements. We have determined that our most critical
accounting policies are those relating to revenue recognition from
collaborations, research and development expense recognition, and stock-based
compensation. There have been no significant changes to our existing critical
accounting policies discussed in our Annual Report on Form 10-K for the year
ended December 31, 2020 filed with the SEC on March 11, 2021.

Off-balance sheet arrangements

We have not entered into any off-balance sheet arrangements, as defined under the applicable regulations of the SEC.

© Edgar Online, source Glimpses

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