The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company dedicated to advancing targeted protein degradation science to develop a new generation of small-molecule medicines to transform how disease is treated. We leverage our proprietary technology platform, TORPEDO (Target ORiented ProtEin Degrader Optimizer), to efficiently design and optimize small-molecule medicines that harness the body's natural protein recycling system to rapidly degrade disease-causing protein, offering the potential to overcome drug resistance, drug undruggable targets and improve patient outcomes. We are using our TORPEDO platform to advance multiple targeted oncology programs to the clinic while expanding the platform to deliver the next wave of medicines for difficult-to-treat diseases. Our most advanced product candidate, CFT7455, is an orally bioavailable MonoDAC degrader of protein targets called IKZF1 and IKZF3, currently in clinical development 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 inJune 2021 and a number of sites are presently open and enrolling patients. We are also developing CFT8634, an orally bioavailable BiDAC degrader of a protein target called BRD9, for synovial sarcoma and SMARCB1-deleted solid tumors. InDecember 2021 , the FDA cleared the IND application for CFT8634, and we expect to dose the first patient in a first-in-human Phase 1/2 clinical trial of this product candidate in the first half of 2022. Further, we are developing CFT1946, an orally bioavailable BiDAC degrader specifically targeting V600X mutant BRAF to treat melanoma, non-small cell lung cancer, or NSCLC, colorectal cancer and other solid malignancies that harbor this mutation. We expect to submit an IND for this product candidate and begin a first-in human Phase 1/2 clinical trial in BRAF V600X driven cancers including melanoma, NSCLC and colorectal cancer in the second half of 2022. InNovember 2021 , we regained rights to our BRAF program from Roche after our companies mutually agreed to terminate our agreement solely with respect to the BRAF target, enabling us to move this program forward independently. Additionally, we are developing CFT8919, an orally bioavailable, allosteric, mutant-selective BiDAC degrader of epidermal growth factor receptor, or EGFR, with an L858R mutation in NSCLC. We expect to complete IND-enabling activities for this product candidate by the end of 2022. Beyond these initial product candidates, we are further diversifying our pipeline by developing new degraders against both clinically-validated and currently undruggable targets. 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 in therapeutic areas such 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. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Since inception, we have incurred significant operating losses. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses were$83.9 million ,$66.3 million , and$34.1 million for the years endedDecember 31, 2021 , 2020, and 2019 respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$267.7 million . Our total operating expenses were$127.9 million ,$93.6 million ,$56.8 million and for the years endedDecember 31, 2021 , 2020, and 2019 respectively. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially if and as we:
• initiate, conduct, and successfully complete first-in-human and later-stage
clinical trials of our product candidates and as we expand the scope of our
proprietary research and development portfolios;
• leverage our TORPEDO platform to discover and then advance additional
product candidates into preclinical and clinical development; • expand the capabilities of our TORPEDO platform; 84
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• seek marketing approvals for any product candidates that successfully
complete clinical trials;
• 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; • expand, maintain and protect our intellectual property portfolio;
• hire additional personnel, including in areas such as clinical development,
regulatory, quality, scientific, and general and administrative positions;
and
• add operational, financial and management information systems and personnel,
including personnel to support our ongoing research and development and
potential future commercialization efforts.
As a result of these anticipated expenditures, we will need substantial additional funding to support our operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt offerings, reimbursements and potential milestones earned under our existing collaboration agreements and potential license and development agreements with third parties, including but not limited to our existing collaboration partners. Adequate funding may not be available to us on acceptable terms, or at all. Our net losses and cash flows may fluctuate significantly from period to period depending on, among other things, variations in the level of our expenses and the execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under these types of arrangements. Financial Operations Overview Revenues As previously discussed, 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 the 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
InMarch 2016 , we entered into a license agreement, or the Original Roche Agreement, withF. Hoffmann-La Roche Ltd andHoffmann-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 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. OnDecember 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. InNovember 2020 , we signed a further amendment to the Roche Agreement that created 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 85 -------------------------------------------------------------------------------- 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 Target Termination Agreement. Through the entry into this amendment, we and Roche mutually agreed to terminate the Roche Agreement as to the target EGFR and, inNovember 2021 , we entered into a Mutual Target Termination Agreement with Roche through which we agreed to terminate the Roche Agreement as to the target BRAF. Following this mutual target termination decision, the number of targets on which the parties shall continue to collaborate has been reduced to four, with Roche maintaining its option rights to license and commercialize products directed to those four targets. As a result, 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 is in the process of assigning the relevant patents in the C4T Field to us. 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.
OnDecember 28, 2018 , we entered into a collaborative research and license agreement, or the Biogen Agreement, withBiogen 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. InFebruary 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 will take place over a 54-month research term, ending inJune 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 86
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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 had the option to fund additional discovery activities, referred to as sandbox activities, whereby we performed 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. Sandbox activities fully concluded onAugust 31, 2021 . Revenues earned under this option, were recognized as services were performed and were not included in the transaction price at the outset of the arrangement. These research activities were reimbursed on a full-time equivalent, or FTE, basis at specified market rates. These additional discovery activities were purchased up to a maximum amount by Biogen on an à la carte basis at an amount consistent with standalone selling price. If Biogen exercised these options, we recognized revenue as those options were exercised.
Calico License Agreement
InMarch 2017 , we entered into Collaboration and License Agreement, or the Calico Agreement, withCalico 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 inMarch 2022 . InAugust 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 inMarch 2023 , such period referred to as the research term. InSeptember 2021 , Calico elected to exercise the option for a one-year extension of the research term for this specified program. 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 applicable 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 throughDecember 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.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:
• 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;
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• 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 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 continue to 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 continue to increase in the future to support increased research and development activities. These increases will likely include increased costs related to the hiring of additional personnel; fees to outside consultants, lawyers and accountants; director and officer insurance costs, among other expenses. and investor and public relations costs. Other (Expense) Income
Other (expense) income, net primarily consists of the following:
• interest expense and amortization of our long-term debt, and change in the
fair value of warrant liability, which are 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.
Results of Operations
Comparison of years ended
Revenue
Revenue from our collaboration and license agreements consisted of the following (in thousands): Years Ended December 31, 2021 2020 2019 Revenue from collaboration agreements: Roche Agreement$ 19,379 $ 9,051 $ 6,409 Biogen Agreement 15,720 9,913 2,432 Calico Agreement 10,686 14,231 12,540
Total revenue from collaboration agreements
The
• a
primarily as a result of the termination of the Roche Agreement as to the BRAF target; 88
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• a
to additional work on the nominated targets and, as a result, additional
revenue recognized from the$6.0 million of milestones earned during the year; and These were offset by a$3.5 million decrease in revenue recognized under the Calico Agreement, primarily driven by a decrease in FTE reimbursements and the impact of the one-year extension of the term of the Calico Agreement's with respect to one of the research programs in that collaboration.
The
• a
to additional work on three targets;
• a
additional revenue recognized from the
2020, additional work on the initial three targets nominated, and an increase in sandbox related revenue of$2.3 million ; and
• a
primarily related to additional FTE reimbursement received in 2020 resulting
from additional work on Calico targets.
Research and Development Expenses
The following table summarizes our research and development expenses (in thousands):
Years Ended December 31, 2021 2020 2019 Research and development expenses: Preclinical and development expenses$ 46,012 $ 42,025 $ 22,202 Personnel expenses 29,142 20,135 14,085 Facilities and supplies 8,805 9,496 8,933 Professional fees 5,625 4,816 1,573 Clinical expenses 2,661 - - Intellectual property 2,108 1,599 798 Other expenses 312 369 468
Total research and development expenses
The
• a
driven by an increase of$2.9 million of IND-enabling study costs and an increase in preclinical development costs of our various programs;
• a
benefit costs, including a
expense driven primarily by the increase in the fair value of our stock, and
due to the buildout of our clinical development team; and
• a
Phase 1/2 clinical trial of CFT7455 in
The
• a
programs, and$9.1 million of costs related to the IND submission for CFT7455;
• a
benefit costs, including a
expense, primarily due to the buildout of our clinical development team; and
• a
consulting costs for our development activities.
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General and Administrative Expenses
The following table summarizes our general and administrative expenses (in thousands):
Years Ended December 31, 2021 2020 2019 General and administrative expenses: Personnel expenses$ 23,013 $ 7,929 $ 5,587 Professional fees 8,781 6,174 2,036 Other expenses 1,460 1,101 1,151
Total general and administrative expenses
The
• a
benefit costs, including a
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
endedMarch 31, 2020 resulting from the departure of our former Chief Executive Officer; and
• a
insurance costs, consultant fees, and legal and audit fees, resulting from our transition to a public company.
The
• a
benefit costs, including a
expenses, resulting from additional G&A personnel hired during the year; and
• a
million increase in consultant fees, and higher legal and audit and
insurance expenses, resulting from our transition to a public company.
Other (Expenses) Income
The following table summarizes our other (expense) income (in thousands):
Years Ended December 31, 2021 2020 2019 Other (expense) income, net Interest expense and amortization of long-term debt-related party$ (2,145 ) $ (1,229 ) $ - Interest and other income, net 387 393
2,157
Change in fair value of warrant liability-related party - (5,676 ) - Total other (expense) income, net$ (1,758 ) $ (6,512 )
The$4.8 million change in other (expenses) income for the years endingDecember 31, 2021 as compared to the year endingDecember 31, 2020 was driven by the$5.7 million charge we incurred during the year-endedDecember 31, 2020 due to the increase in fair value of warrant liability associated with our long-term debt. This was partially offset by an increase of$0.9 million change resulting from interest expense and amortization of the discount related to our long-term debt, which was outstanding for the full year endedDecember 31, 2021 . The$8.7 million increase in interest and other income (expenses) for the year endingDecember 31, 2020 as compared to the year endingDecember 31, 2019 was primarily due to:
• a
associated with our long-term debt, which, prior to our IPO, was revalued at
each reporting period;
• a
the discount related to our long-term debt; and
• a
interest rates earned on our investments.
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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 continue 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 ofDecember 31, 2021 , we had cash, cash equivalents and marketable securities of approximately$451.5 million . InJune 2020 andJuly 2020 , we closed the sale of shares of our Series B preferred stock, or the 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, inJune 2020 , we secured a$20.0 million credit arrangement withPerceptive 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 had the option to draw down another$7.5 million . Our ability to draw down on this second tranche expired onJune 30, 2021 . InOctober 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 . InJune 2021 , we completed a follow-on public offering, at which time we sold 4,887,500 shares of our common stock, which number includes 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 . InNovember 2021 , we filed an automatically effective registration statement on Form S-3, or the Registration Statement, with theSEC which registers the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into an equity distribution agreement withCowen and Company, LLC , as sales agent, to provide for the issuance and sale by us of up to$200.0 million of common stock from time to time in "at-the-market" offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the ATM Program. As ofDecember 31, 2021 , no such sales have been made under the ATM Program.
Cash Flows
The following table summarizes our sources and uses of cash for the period presented (in thousands): Years Ended December 31, 2021 2020 2019 Net change in cash, cash equivalents and restricted cash: Net cash (used in) provided by operating activities$ (86,965 ) $ (67,249 ) $ 55,614 Net cash used in investing activities (189,336 ) (190,505 ) (1,620 ) Net cash provided by financing activities 171,400 348,932
244
Net change in cash, cash equivalents and restricted cash$ (104,901 ) $ 91,178 $ 54,238 Operating Activities
Net cash used in operating activities for the year ended
• our net loss of
• a
under our collaboration agreements; • a$6.1 million change in prepaid expenses and other current assets; • a$1.2 million change in accounts receivable; and • a$1.2 million change in accounts payable. 91
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These amounts were offset by:
• a
depreciation, accretion of discount on investments, and reduction in carrying amount of our right-of-use asset; and • a$4.4 million change in accrued expenses and other liabilities.
Net cash used in operating activities for the year ended
• our net loss of
• a
under our collaboration agreements; and • a$3.3 million change in prepaid expenses and other current assets.
These amounts were offset by:
• a
compensation expense, reduction in right-of-use asset, and change in fair
value of warrant liability; and • a$2.6 million change in accrued expenses and other liabilities.
Net cash provided by operating activities for the year ended
• an
of up-front payments from our collaboration partners;
• an
including increases in accounts payable and accrued expenses, stemming from
increased clinical and preclinical efforts to advance our product candidates; and
• a
expenses, depreciation expense, and reduction in right-of-use asset.
These amounts were offset by:
• our net loss of
• a
under our collaboration agreements in 2019.
Investing Activities
The
•$188.1 million for the purchases of marketable securities, net of maturities; and •$1.3 million for the purchases of property and equipment.
The
•$189.9 million for the purchases of marketable securities, net of maturities; and •$0.7 million for the purchases of property and equipment.
The
•
•
Financing Activities
The
•
costs paid; and •$2.3 million of proceeds from exercises of stock options.
The
•
offering costs paid in 2020;
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•
costs; and
•
of issuance costs. Funding Requirements Since our inception, we have incurred significant operating losses and 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 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; • advance additional product candidates into preclinical and clinical development; • continue to invest in our proprietary TORPEDO platform;
• advance, expand, maintain and protect our intellectual property portfolio;
• hire additional clinical, regulatory, quality 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;
• the number and development requirements of other product candidates that we
pursue;
• the progress and 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, that 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 93 -------------------------------------------------------------------------------- committed external source of funds as ofDecember 31, 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
The following is a summary of our significant contractual obligations as of
Less than 1 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Contractual obligations: Operating lease commitments (1)$ 104,788 $ 7,349 $ 17,399 $ 18,459 $ 61,581 Long-term debt 12,500 - 12,500 - -
Total contractual obligations
(1) Represents future minimum lease payments under our operating lease for our
space for which rent will commence in
to expire in
We enter into contracts in the normal course of business with third-party CROs for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material, and they are not included in the table above. We have not included milestone or royalty payments or other contractual payment obligations in the table above if the timing and amount of such obligations are unknown or uncertain.
Critical Accounting Estimates
This management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2, Summary of significant accounting policies, to our consolidated financial statements in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenues from Contracts
We account for our revenue in accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps at inception of the agreement or upon material modification of the agreement: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We consider the pattern of satisfaction of the performance obligations under step (v) above to be a critical accounting estimate. More specifically, the determination of the level of achievement of research and development service performance 94
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obligations, whose pattern of satisfaction is measured using costs incurred to date as compared to total costs incurred and expected to be incurred in the future is driven by a critical accounting estimate.
In estimating the costs expected to be incurred in the future, management uses its most recent budget and long-range plan, adjusted for any pertinent information. While this is our best estimate as of the reporting period, costs expected to be incurred in the future require management judgment as the scope and timing of research and development activities may change significantly over time. We may adjust the scope of our research and development activities based on several factors, such as additional work needed to support advancement of product candidate or change in the number of patients in trials. Further, research and development services may no longer be within the scope of a collaboration agreement, as has been the case with certain of our programs. The timing of when research and development costs are expected to be incurred may change as a result of external factors, such as delays caused by manufacturing or supply chain, or difficulty in enrolling patients; or internal factors, such as prioritization of programs. Our estimate of the scope and timing of research and development services performed relative to the actual scope and timing may have a significant impact on revenue recognition.
As part of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing quotations and contracts, identifying 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 the accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. In addition, there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense, in which case such amounts are reflected as prepaid expenses and other current assets. 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 the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could have a significant impact on reported amounts.
Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized in prepaid expenses and other current assets. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
Operating Leases (Incremental Borrowing Rate)
We account for leases in accordance with ASC Topic 842, Leases, or ASC 842. Under ASC 842, at inception or upon modification of a lease arrangement, we may be required to remeasure our lease liabilities and the corresponding right-of-use assets. The lease liability is measured by calculating the present value of lease payments under the lease arrangement using the incremental borrowing rate. Incremental borrowing rate is the rate of interest that we would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term equal to the lease term in a similar economic environment. Since the incremental borrowing rates implicit in our leases are not readily determinable, we use an estimated incremental borrowing rates based on the information available at commencement date in determining the discount rate used to calculate the present value of lease payments. As we have no recent external borrowings, the incremental borrowing rates are determined using information on indicative borrowing rates that would be available to us based on the value and borrowing term provided by financial institutions, adjusted for company and market specific factors. This determination requires management judgement, including when determining peer groups, our own risk profile, and when adjusting for company and market specific factors. Although we do not expect our estimates of the incremental borrowing rates to generate material differences within a reasonable range of sensitivities, judgement is involved in selecting an appropriate rate, and the rate selected for our leases will have an impact on the value of the lease liability and corresponding right-of-use asset in the consolidated balance sheets.
Stock Options
We account for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based payments include stock options, restricted stock units, and grants of common stock, including common stock subject to vesting. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation expense is classified in the consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the 95 -------------------------------------------------------------------------------- date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model includes various assumptions, including the expected term of the award, the expected volatility and the expected risk-free interest rate over the expected term of the award, expected dividend payments, and the fair value of the common stock underlying the stock-based award. We consider the expected volatility to be a critical accounting estimate. As we do not have sufficient trading history, we use the average historical volatiles of a representative group of publicly traded biopharmaceutical companies, including our own, to calculate the expected volatility for use in the Black-Scholes option pricing model. This assumption reflects our best estimate, but it involves inherent uncertainties based on market conditions generally outside our control. As a result, if a different volatility had been used, stock-based compensation cost could have been materially impacted.
Determination of the Fair Value of Our Common Stock Issued Prior to Our IPO
In the periods prior to our IPO, we also considered the determination of the fair value of our common stock to be a critical accounting estimate. As there had been no public market for our common stock prior to our IPO, the estimated fair value of our common stock was determined as of the date of each stock award by our board of directors with input from management, considering our most recently available third-party valuations of our common stock. Valuations were updated when facts and circumstances indicated that the most recent valuation was no longer valid, such as changes in the stage of our development efforts, various exit strategies and their timing, and other scientific developments that could be related to the valuation of our company or, at a minimum, annually. Third-party valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations prior to our IPO were prepared using a market approach, specifically the guideline public company method, which "back-solves" to a common stock price.
The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgement. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
New Accounting Pronouncements
We became a large accelerated filer onDecember 31, 2021 based on the market value of our common stock held by non-affiliates as of the last day of the second quarter in 2021. Prior to that, we were an emerging growth company, or EGC, as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. Being an EGC allowed us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We had elected to take advantage of certain exemptions from various reporting requirements and use this extended transition period under the JOBS Act until we are no longer an EGC. We lost the ability to delay adoption of new or revised accounting pronouncements when we became a large accelerated filed as ofDecember 31, 2021 . As a result, the financial statements included in this Form 10-K reflect the adoption of new accounting standards effective for calendar year end public companies. For information on new accounting standards, see Note 2, Summary of significant accounting policies, to our consolidated financial statements in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Internal Control over Financial Reporting
In the preparation of our consolidated financial statements to meet the requirements of our IPO, we determined that a material weakness in our internal control over financial reporting existed as ofDecember 31, 2019 . The material weakness identified in our internal control over financial reporting arose because we did not maintain effective segregation of duties in initiating and recording of journal entries. As ofDecember 31, 2020 , we remediated the material weakness by engaging system controls that prevent one person from initiating and approving the same journal entry. In addition, we implemented and performed additional reviews and other post-closing procedures. While we believe that this material weakness has now been remediated, we cannot assure you that these measures will be sufficient to prevent future material weaknesses or significant deficiencies in our internal control over financial reporting from occurring. See "Risk Factors-We will continue to incur additional costs as a result of operating as a public company and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices." 96
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