CANDEL THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Form 10-Q. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled "Risk factors" in this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described below. Overview We are a late clinical stage biopharmaceutical company focused on helping patients fight cancer with oncolytic viral immunotherapies. Our engineered viruses are designed to induce immunogenic death through direct viral-mediated cytotoxicity in cancer cells, thus releasing tumor neo-antigens and creating a pro-inflammatory microenvironment at the site of injection. Our approach combines an in-depth knowledge of viral immunotherapy with extensive clinical experience across a wide range of indications. Based on the broad range of data that we have generated from our preclinical models and clinical trials using our approach, we have observed what we believe to be systemic immune response against locally injected tumors and their distant metastases. We have established two oncolytic viral immunotherapy platforms based on novel, genetically modified adenovirus and herpes simplex virus (HSV) constructs. In our clinical results to date from CAN-2409, our lead adenovirus product candidate, and CAN-3110, our lead product candidate from our HSV platform, we have observed that these candidates may have the potential to address significant unmet patient need and improve clinical outcomes in novel indications across broader patient populations. In non-small cell lung cancer (NSCLC), we have previously observed monotherapy activity of CAN-2409 in a Phase 1 biomarker focused window of opportunity trial. In 2020, we initiated a Phase 2 clinical trial evaluating CAN-2409 plus valacyclovir in combination with PD-(L)1 checkpoint inhibitors for patients with inadequate response to PD-(L)1 checkpoint inhibitors. This open label trial is targeting enrollment of approximately 96 patients with stage III/IV NSCLC in three separate cohorts. The cohorts are defined based on response to checkpoint inhibitors at the time of enrollment. Patients will continue treatment with their initial checkpoint inhibitor and CAN-2409 will be added to their regimen. The primary efficacy endpoint for this trial is response rate measured by response evaluation criteria in solid tumors (RECIST). At theAmerican Society for Clinical Oncology (ASCO) inJune 2022 , the Company reported initial data, as ofApril 20, 2022 , from 35 enrolled patients, of which 20 were evaluable for efficacy. A summary of the data is as follows
•
Disease control rate of 87.5% achieved in patients
•
Evidence of tumor regression in both injected and uninjected lesions.
•
Partial response in 3 (15%) patients.
•
CAN-2409 was well tolerated with no treatment-related grade 4 adverse events reported and grade 3 adverse events in three patients.
We anticipate presenting updated clinical data from this trial in the fourth quarter of 2022.
We are also evaluating CAN-2409 in newly diagnosed high-grade glioma. The FDA has granted CAN-2409 fast track designation for use in this setting in combination with standard of care surgery and chemoradiation. We intend to initiate a potentially registrational Phase 3 trial in this indication in the third quarter of 2022. The randomized placebo-controlled trial will compare CAN-2409 paired with prodrug (valacyclovir), surgery and radiotherapy, and temozolomide for patients with methylated MGMT promoters for whom temozolomide is indicated, to a control arm where CAN-2409 will be replaced by a placebo in the treatment regimen. This trial will be randomized at a ratio of 1 to 1 in the active versus control arms and will assess efficacy based on overall survival. It is intended to enroll approximately 600 patients. Interim data from a fully accrued Phase 1b trial of CAN-2409 in combination with nivolumab, valacyclovir and standard of care treatment in patients with newly diagnosed high-grade glioma are anticipated in the fourth quarter of 2022. Nivolumab previously failed to meet the primary endpoint of improved median overall survival in a separate 369 patient Phase 3 glioblastoma trial suggesting the challenge of eliciting an immune effect in brain cancer with systemically administered checkpoint inhibitors. Our most advanced product candidate, CAN-2409, is an off-the-shelf adenovirus product candidate combined with the prodrug valacyclovir that has generated promising clinical activity across a range of solid tumor indications, including our lead indication of prostate cancer. We are currently conducting, as part of our most advanced CAN-2409 program, a Phase 3 clinical trial inthe United States under a Special Protocol Assessment, or SPA, with theU.S. Food and Drug Administration (FDA) for CAN-2409 in patients with newly diagnosed localized prostate cancerwho have an intermediate- or high-risk for progression. We completed enrollment for this trial inSeptember 2021 and we expect a final data readout at the end of 2024. 20 -------------------------------------------------------------------------------- In addition, we are advancing development of our HSV platform product candidates for solid tumor indications. Our lead HSV product candidate, CAN-3110, is currently in an ongoing investigator-initiated Phase 1 clinical trial in our initial target indication of recurrent high-grade glioma. Initial clinical data from this trial was presented in an oral presentation at ASCO inJune 2021 , and we reported additional biomarker data inNovember 2021 . We anticipate clinical data from additional patients in the fourth quarter of 2022. We are also designing other novel oncolytic viral immunotherapy candidates using our enLIGHTEN platform that is based on HSV. Our oncolytic viral immunotherapy approach utilizes intratumoral administration of genetically engineered viruses to selectively induce tumor cell death and elicit an innate and adaptive anti-tumor immune response. Local delivery enables us to achieve these effects while aiming to minimize systemic toxicity. The immune cells induced by these viral immunotherapies are believed to target patients' specific tumor antigens, potentially improving responses in immunologically "hot" tumors while at the same time infiltrating the tumor microenvironment, transforming non-inflamed "cold" tumors with limited immune response into "hot" tumors. In our data from our clinical studies in patients with cancer, we have observed increases in the expression of immune checkpoints PD-1, PD-L1 and CTLA-4 following treatment with CAN-2409 supporting the evaluation of combinations with immune checkpoint inhibitors (ICI) such as anti-PD-(L)1 that, typically, are only efficacious in patients with immunologically "hot" tumors. While our product candidates are administered directly into the tumor, we have observed systemic immune response in our preclinical studies and clinical trials that may indicate the potential of CAN-2409 and CAN-3110 to induce systemic immune response against distal, uninjected tumors, also known as an "abscopal" effect. We believe oncolytic viral immunotherapy is among the most promising cancer treatment modalities today. Treatment with oncolytic viral immunotherapy has already been clinically validated through talimogene laherparepvec (IMLYGIC, Amgen), the first FDA-approved intratumoral oncolytic virus. Our goal is to further improve patient outcomes from oncolytic viral immunotherapies by selecting the optimal vector, specific transgenes and clinical indications for each tumor type while optimizing product candidate attributes, such as high-titer formulation, intratumoral administration, and storage conditions that could potentially lower logistical barriers for patients and clinicians.
Collaborations
We are a party to a number of license and collaboration agreements under which we license patents, patent applications and other intellectual property to and from third parties.Periphagen . OnDecember 9, 2019 , we entered into a series of agreements, including an exclusive license agreement, a novation agreement, an equipment purchase agreement and an intellectual property assignment agreement, collectively the Periphagen Agreements, withPeriphagen , whereby we acquired certain assets and licensed certain rights (including specified patent rights and know-how, or the Licensed IP Rights) ofPeriphagen , primarily consisting of exclusive rights to their technology platform and a portfolio of pre-clinical, development stage virus vectors, as well as certain physical property and equipment. The primary classes of assets are HSV-derived assets expressing neurotrophin-3 (or NT-3 Assets) and other HSV-derived assets (Gene Transfer Neuro-Assets). Under the license agreement,Periphagen granted us a worldwide exclusive license with the right to grant sublicenses through multiple tiers under the Licensed IP Rights to conduct research and to develop, make, have made, use, have used, offer for sale, have sold, export and import products incorporating the Licensed IP Rights in all fields of use except the treatment, diagnosis, and prevention of nononcologic skin diseases and conditions (including use as an aesthetic). MGB. OnJanuary 20, 2018 , we entered into an exclusive option agreement, or the Option Agreement, with MGB. Pursuant to the Option Agreement, we obtained the exclusive right from MGB to negotiate an exclusive worldwide, royalty-bearing license to develop and commercialize products covered by certain MGB patents, including those patents covering CAN-3110, in the field of gene therapy and oncolytic vector therapy for the treatment or prevention of cancerous tumors in humans or animals, as such field is further detailed in the Option Agreement, or the Licensed Field. In consideration for MGB's granting of the exclusive option, we paid MGB a non-refundable fee of$40,000 . Under the Option Agreement, we were required to use reasonable efforts to enter into a clinical trial agreement with MGB. We entered into such clinical trial agreement with MGB, or the MGB Clinical Trial Agreement, onJune 19, 2018 . Under the MGB Clinical Trial Agreement, we have committed to remitting up to$750,000 for the performance of a specified Phase 1 clinical trial by MGB pursuant to a protocol summary contained in the Option Agreement. OnSeptember 15, 2020 , we exercised our option and entered into an exclusive patent license agreement with MGB, or the MGB License Agreement. Under the MGB License Agreement, MGB granted to us (a) an exclusive, royalty-bearing license under certain of MGB's patents to make, have made, use, have used, sell and have sold certain products covered by such licensed patents, or the Licensed Products and otherwise practice processes covered by such licensed patents, or Licensed Processes; and (b) a non-exclusive, royalty-bearing license under certain other of MGB's patents to make, have made, use, have used, sell and have sold Licensed Products, but not to sell or have sold Licensed Processes. The foregoing rights are sublicensable, subject to sublicensing terms set forth in the MGB License Agreement. In connection with executing the MGB License Agreement, we paid a license issue fee of$100,000 . We also agreed to reimburse MGB for all reasonable fees and expenses MGB had incurred and will incur for the preparation, filing, prosecution and maintenance of the licensed patent rights. 21 -------------------------------------------------------------------------------- Ventagen. OnMarch 1, 2014 , we entered into an exclusive license agreement, or the Ventagen Agreement, withVentagen, LLC , or Ventagen. The Ventagen Agreement provides Ventagen an exclusive license, with rights to grant sublicenses (subject to certain terms and conditions) under any worldwide patent rights and know-how owned or controlled by us during the term of the Ventagen Agreement which cover applicable technology utilizing the delivery method of the herpes derived TK protein to tumors or other tissues via a viral vector (as further specified therein), to research, use, have used, import, have imported, export, have exported, offer for sale, have sold, sell, distribute and market certain products for the prevention or treatment of cancer in humans and any use in animals, or the Licensed Products, for commercial sale and distribution withinMexico ,Belize ,Guatemala ,Honduras ,El Salvador ,Costa Rica ,Nicaragua ,Panama ,Colombia andBolivia . Impact of COVID-19 Pandemic InMarch 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus, or COVID-19, a global pandemic, or the COVID-19 pandemic, which continues to spread throughoutthe United States and worldwide. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is highly uncertain and will depend on future developments that cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and actions taken by government authorities and businesses to contain or prevent the further spread of COVID-19. For instance, a recurrence or continuation of COVID-19 cases, including new variants, could cause a more widespread or severe impact on commercial activity depending on where infection rates are highest. If we or any of the third parties with whom we engage were to experience any additional shutdowns or other prolonged business disruptions as a result of the ongoing COVID-19 pandemic, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, results of operations and financial condition. We have been carefully monitoring the ongoing COVID-19 pandemic and its impact on our business and have taken important steps to help ensure the safety of our employees and their families and to reduce the spread of COVID-19. We have established a flexible work policy for all employees under which we encourage all of our employees to work from the office or home as they feel appropriate. Those employees performing or supporting business-critical operations, such as certain members of our laboratory and facilities staff are working on site on a daily basis. For those employees,who come to work at our facility, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained efficient communication with our partners and clinical sites during the COVID-19 pandemic. We have taken these precautionary steps while maintaining business continuity so that we can continue to make progress on our programs. While we have experienced delays in enrollment and site closures at certain of our third-party clinical trial sites, these delays have not had a material impact on our development timelines for our product candidates. We will continue to monitor developments as we address the disruptions and uncertainties relating to the COVID-19 pandemic. See the "Risk Factors" section for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from sales of products in the foreseeable future. We are recognizing as research and development service revenue$1.0 million that we received in 2014 and 2015 from Ventagen for an exclusive license to develop products for commercial sale and development within certain countries. The$1.0 million is being recognized as revenue over the period during which we provide services under the license agreement.
Operating expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our product development activities for our two primary drug candidates, CAN-2409 and CAN-3110. We expense research and development costs as incurred. These include the following: ?
employee-related costs, including salaries, benefits and stock-based compensation expense, for personnel engaged in research, development and clinical management functions;
?
expenses incurred under agreements with third party clinical sites for the treatment and follow-up for patients enrolled in our clinical trials;
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?
the cost of acquiring and manufacturing preclinical study materials, including manufacturing registration and validation batches;
?
payments made under third-party licensing agreements;
? costs incurred to develop the manufacturing process and capabilities for future clinical trials and commercialization. Our clinical trial material for use in our existing clinical trials was manufactured in prior years; ?
costs related to compliance with quality and regulatory requirements;
?
costs of outside consultants, primarily related to regulatory; and
? facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and insurance, and other operating costs if specifically identifiable to research and development activities. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we complete our clinical trials and commence additional clinical trials, continue to discover and develop additional product candidates and develop and scale our manufacturing capabilities including payments to contract manufacturing organizations (CMOs) for the commercial scale manufacturing or our product candidate CAN-2409. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to increased scale and duration of later stage clinical trials. We cannot determine with certainty the duration and costs of future clinical trials of CAN-2409 and CAN-3110 or any other product candidate we may develop or if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of, or obtain regulatory approval for, any of our current or future product candidates. The duration, costs, and timing of clinical trials and development of CAN-2409 and CAN-3110 and any other product candidate we may develop will depend on a variety of factors, including: ?
the scope, rate of progress, expense and results of clinical trials;
?
our successful enrollment in and completion of clinical trials, including our ability to generate positive data from any such trials;
?
our ability to add and retain key research and development personnel;
? the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability, and commercial viability; ?
significant and changing government regulation and regulatory guidance;
?
the timing and receipt of any marketing approvals;
? the progress of the development efforts of parties with whom we may enter into collaboration agreements, and the terms and timing of any additional collaboration agreements, license or other arrangement, including the timing of any payments thereunder; ? our ability to enter into agreements with CMOs for the commercial manufacture of our product candidate CAN-2409 and the clinical scale manufacture of our product candidate CAN-3110 as well as complete the development, construction and qualification of our clinical manufacturing facility inNeedham ; ?
costs related to manufacturing of our product candidates or to account for any future changes in our manufacturing plans;
?
our ability to successfully commercialize our product candidates, if and when approved;
?
raising additional funds necessary to complete clinical development of our product candidates;
?
our ability to obtain and maintain third-party insurance coverage and adequate reimbursement for our product candidates, if and when approved;
?
the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
?
effectively competing with other products if our product candidates are approved;
? the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our manufacturers, suppliers, or other vendors resulting from the ongoing COVID-19 pandemic or similar public health crisis; ?
our ability to maintain a continued acceptable safety profile for our therapies following approval;
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?
our ability to obtain and maintain patents, trade secret and other intellectual
property protection and regulatory exclusivity for our product candidates, both
in the United States and internationally; and
?
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
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, 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; director and officer insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities, and other operating costs that are not specifically attributable to research and development activities. We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued clinical development and manufacturing activities. We also expect to incur increased expenses associated with being a public company as a result of our initial public offering, or the IPO, including costs of accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing andSecurities and Exchange Commission , orSEC , requirements; director and officer insurance costs; and investor and public relations costs.
Grant income
Grant income consists of amounts received under a grant from the
Interest, dividend, and investment income (expense), net
Interest, dividend and investment income consists of amounts earned on investment of cash equivalents and short-term investments and is net of interest payments made on our debt.
Change in fair value of warrant liability
In connection with theNovember 13, 2018 issuance of Series B preferred stock we issued warrants to the purchasers of the Series B preferred stock, to purchase up to 7,344,968 shares of our common stock with an exercise price of$6.81 per share. We also issued a warrant to theNC Incorporated Ohio Trust , an irrevocable trust funded by us, to purchase 162,740 shares of our common stock,$0.01 par value, at an exercise price of$1.46 per share, subject to adjustments as specified in the warrant agreement. Certain of those warrants are recorded as a liability on our balance sheet. The warrants recorded as a liability are remeasured to their fair value at each reporting date with changes in the fair value recognized as a component of other income (expense), net in the condensed consolidated statements of operations. We will continue to recognize changes in the fair value of the warrants until they are exercised, expire or qualify for equity classification. The fair value of the warrants is determined based on significant inputs not observable in the market. The fair value of the warrants uses various valuation methods, including theMonte Carlo method, the option-pricing method, probability-weighted expected return and the hybrid method, all of which incorporate assumptions and estimates, to value the common stock warrants. The hybrid method is often used when a company is expecting a liquidity event in the near future and is a combination of the option-pricing and probability-weighted expected return methods. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying shares of common stock, risk-free interest rate, expected dividend yield, and the remaining contractual term of the warrants. Therefore, the fair value may not be appropriately captured by simple models.
Income taxes
Since our inception, we have generated cumulative federal and state net operating loss and research and development credit carryforwards for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods. As ofDecember 31, 2021 , we had federal net operating loss carryforwards, or NOLs, of approximately$51.6 million and state NOLs of approximately$48.4 million which may be available to offset future taxable income. Our federal NOLs include$8.8 million available to reduce future taxable income through 2028 and approximately$42.8 million of NOLs that do not expire and are available to reduce future taxable income indefinitely. The state NOLs are available to offset future taxable income through 2032. As ofDecember 31, 2021 , we also had federal and state research and development tax credit carryforwards of$2.0 million and$1.1 million , respectively, which are available to offset federal and state tax liabilities through 2036 and 2028, respectively. 24 -------------------------------------------------------------------------------- Realization of future tax benefits is dependent on many factors, including our ability to generate taxable income within the NOL period. Our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and certain tax credits. Management has considered our history of cumulative net losses incurred since inception, as well as our lack of product revenue since inception, and has determined that it is more likely than not that we will not realize the benefits of its deferred tax assets. As a result, a full valuation allowance has been established atJune 30, 2022 andDecember 31, 2021 . NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as provided under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as well as under similar state provisions. These ownership changes may limit the amount of NOLs that can be utilized annually to offset future taxable income. In general, an ownership change, as defined under Section 382 of the Code, or Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. We have completed several financings and not yet determined if such a limitation would be placed against our NOL. We will make such a determination prior to the utilization of any NOL. Since our inception, we have generated cumulative federal and state net operating loss and research and development credit carryforwards for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods.
Results of Operations
Comparison of three and six months ended
The following table summarizes our results of operations for the three and six
months ended
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, INCREASE/ JUNE 30, INCREASE/
2022 2021 (DECREASE) 2022 2021 (DECREASE)
Research and development
service
revenue $ 31 $ 31 $ - $ 63 $ 63 $ -
Operating expenses:
Research and development 5,022 3,292 1,730 10,438 6,048 4,390
General and administrative 3,762 2,040 1,722 7,364 3,972 3,392
Total operating expenses 8,784 5,332 3,452 17,802 10,020 7,782
Loss from operations (8,753 ) (5,301 ) (3,452 ) (17,739 ) (9,957 ) (7,782 )
Grant income - 605 (605 ) - 796 (796 )
Interest, dividend and
investment income,
net (365 ) (15 ) (350 ) (540 ) (28 ) (512 )
Change in fair value of
warrant liability 4,969 (12,369 ) 17,338 13,256 (12,369 ) 25,625
Net loss $ (4,149 ) $ (17,080 ) $ 12,931 $ (5,023 ) $ (21,558 ) $ 16,535
Revenue
We had research and development service revenue of $31,000 for each of the three
months ended June 30, 2022 and 2021. This represents the recognition as research
and development service revenue of a portion of the $1.0 million that we
received in 2014 and 2015 from Ventagen, a related party, which is being
recognized over the period during which we provide the services.
25
--------------------------------------------------------------------------------Research and development expenses
The following table summarizes our research and development expenses for the
three months ended
THREE MONTHS ENDED
JUNE 30, INCREASE
2022 2021 (DECREASE)
Employee-related $ 2,828 $ 2,165 $ 663
Clinical development 1,540 914 626
Depreciation of fixed assets 187 - 187
Pre-clinical research 176 8 168
Recruiting 117 77 40
Occupancy 110 128 (18 )
Other 64 - 64
$ 5,022 $ 3,292 $ 1,730
Research and development expenses for the three months ended June 30, 2022 were
$5.0 million , compared with $3.3 million for the three months ended June 30,
2021 and consisted primarily of $2.8 million and $2.2 million , respectively, of
employee-related costs, including $57,000 and $400,000 , respectively, of
non-cash stock compensation expense, $1,540,000 and $914,000 , respectively, of
clinical development costs related to our clinical trial sites and the cost of
treating and following up on patients in our clinical trials, regulatory and
manufacturing expenses, $187,000 and $0 , respectively, of depreciation, $176,000
and $8,000 , respectively, of preclinical research costs associated with our
development programs, $117,000 and $77,000 , respectively, of recruiting
expenses, and $110,000 and $128,000 , respectively, of occupancy costs. The
increase of $1.7 million was primarily related to $663,000 increase in
employee-related costs due to an increase in research and development headcount,
$626,000 increase in clinical development costs which was primarily driven by
increased manufacturing and regulatory costs, $187,000 increase in depreciation
primarily related to depreciation of lab equipment and leasehold improvements,
and $168,000 increase in preclinical research.
General and administrative expenses
The following table summarizes our general and administrative expenses for the
three months ended
THREE MONTHS ENDED
JUNE 30, INCREASE
2022 2021 (DECREASE)
Employee-related $ 1,647 $ 1,487 $ 160
Professional and consulting fees 771 364 407
Insurance 703 7 696
Recruiting 422 5 417
Other 219 177 42
$ 3,762 $ 2,040 $ 1,722
General and administrative expenses were $3.8 million for the three months ended
June 30, 2022 compared with $2.0 million for the three months ended June 30,
2021 and consisted primarily of $1.6 million and $1.5 million , respectively, of
employee-related costs, including $381,000 and $669,000 , respectively, of
non-cash stock compensation expense, $771,000 and $364,000 , respectively, of
professional and consulting fees, $703,000 and $7,000 , respectively, of
insurance costs, and $422,000 and $5,000 , respectively of recruiting costs. The
increase of $1.7 million was primarily due to an increase of $696,000 in
insurance expense, $417,000 in recruiting expenses, $407,000 in professional and
consulting fees, and $160,000 in employee related costs as we increased our
general and administrative headcount to manage growth and operate as a public
company. Insurance expense increased due to the cost of directors and officers
insurance upon completion of the IPO. The increase in recruiting fees was
primarily due to a search for three new members of our Board of Directors. The
increase in professional and consulting fees was primarily due to an increase in
fees paid to investor and public relations consultants and to legal and
accounting firms.
Grant income
Grant income was$0 and$605,000 for the three months endedJune 30, 2022 and 2021, respectively. Grant income for the three months endedJune 30, 2021 represents amounts received under a grant from theNational Institutes of Health for development of CAN-2409 for use as a therapy for pancreatic cancer. This grant was completed as ofDecember 31, 2021 . 26 --------------------------------------------------------------------------------
Interest, dividend and investment expense, net
Interest, dividend and investment expense was$365,000 for the three months endedJune 30, 2022 compared with an expense of$15,000 for the three months endedJune 30, 2021 and represents the interest expense on our debt obligations, which is net of earnings on our cash equivalents. The increase was primarily due to increased interest expense incurred as a result of increased borrowing in the first quarter of 2022.
Change in fair value of warrant liability
The change in fair value of our warrant liability was a decrease in value of$5.0 million for the three months endedJune 30, 2022 compared with an increase in value of$12.4 million for the three months endedJune 30, 2021 . The decrease in the warrant liability value for the three months endedJune 30, 2022 was primarily due to the decrease in our stock price fromMarch 31, 2022 toJune 30, 2022 . The increase in the warrant liability value for the three months endedJune 30, 2021 was primarily due to the increase in the valuation of our company fromMarch 31, 2021 toJune 30, 2021 .
Comparison of six months ended
The following table summarizes our results of operations for the six months
ended
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, INCREASE/ JUNE 30, INCREASE/
2022 2021 (DECREASE) 2022 2021 (DECREASE)
Research and development
service
revenue $ 31 $ 31 $ - $ 63 $ 63 $ -
Operating expenses:
Research and development 5,022 3,292 1,730 10,438 6,048 4,390
General and administrative 3,762 2,040 1,722 7,364 3,972 3,392
Total operating expenses 8,784 5,332 3,452 17,802 10,020 7,782
Loss from operations (8,753 ) (5,301 ) (3,452 ) (17,739 ) (9,957 ) (7,782 )
Grant income - 605 (605 ) - 796 (796 )
Interest, dividend and
investment income,
net (365 ) (15 ) (350 ) (540 ) (28 ) (512 )
Change in fair value of warrant
liability 4,969 (12,369 ) 17,338 13,256 (12,369 ) 25,625
Net loss $ (4,149 ) $ (17,080 ) $ 12,931 $ (5,023 ) $ (21,558 ) $ 16,535
Revenue
We had research and development service revenue of $63,000 for each of the six
months ended June 30, 2022 and 2021. This represents the recognition as research
and development service revenue of a portion of the $1.0 million that we
received in 2014 and 2015 from Ventagen, a related party, which is being
recognized over the period during which we provide the services.
Research and development expenses
The following table summarizes our research and development expenses for the six
months ended
SIX MONTHS ENDED
JUNE 30, INCREASE
2022 2021 (DECREASE)
Employee-related $ 6,578 $ 3,661 $ 2,917
Clinical development 2,579 1,770 809
Pre-clinical research 375 80 295
Depreciation of fixed assets 352 - 352
Occupancy 224 257 (33 )
Recruiting 196 280 (84 )
Other 134 - 134
$ 10,438 $ 6,048 $ 4,390
Research and development expenses for the six months ended June 30, 2022 were
$10.4 million , compared with $6.0 million for the six months ended June 30, 2021
and consisted primarily of $6.6 million and $3.7 million , respectively, of
employee-related costs, including $199,000 and $516,000 , respectively, of
non-cash stock compensation expense, $2.6 million and $1.8 million ,
respectively, of clinical development costs related to our clinical trial sites
and the cost of treating and following up on patients in
27
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our clinical trials, regulatory, and manufacturing expenses, $375,000 and
$80,000 , respectively, of preclinical research costs associated with our
development programs, $352,000 and $0 , respectively, of depreciation, $224,000
and $257,000 , respectively, of occupancy costs, and $196,000 and $280,000 ,
respectively, of recruiting expenses. The increase of $4.4 million was primarily
related to $2.9 million increase in employee-related costs due to an increase in
research and development headcount and $1.0 million in severance associated with
the termination of our former Chief Scientific Officer and Chief Medical Officer
in February 2022 , $809,000 increase in clinical development costs which was
primarily driven by increased manufacturing and regulatory costs, $352,000
increase to depreciation primarily related to depreciation of lab equipment and
leasehold improvements, and a $295,000 increase in preclinical research. These
increases were partially offset by a decrease of $84,000 in recruiting costs.
General and administrative expenses
The following table summarizes our general and administrative expenses for the
six months ended
SIX MONTHS ENDED
June 30, INCREASE
2022 2021 (DECREASE)
Employee-related $ 3,219 $ 2,517 $ 702
Professional and consulting fees 1,812 1,113 699
Insurance 1,402 14 1,388
Recruiting 496 5 491
Other 435 323 112
$ 7,364 $ 3,972 $ 3,392
General and administrative expenses were $7.4 million for the six months ended
June 30, 2022 compared with $4.0 million for the six months ended June 30, 2021
and consisted primarily of $3.2 million and $2.5 million , respectively, of
employee-related costs, including $730,000 and $984,000 , respectively, of
non-cash stock compensation expense, $1.8 million and $1.1 million ,
respectively, of professional and consulting fees, $1.4 million and $14,000 ,
respectively, of insurance costs, and $496,000 and $5,000 of recruiting fees.
The increase of $3.4 million was primarily due to increases of $1.4 million in
insurance expense, $702,000 in employee related costs as we increased our
general and administrative headcount to manage growth and operate as a public
company, $699,000 in professional and consulting fees, and $491,000 in
recruiting fees. Insurance expense increased due to the cost of directors and
officers insurance upon completion of the IPO. The increase in professional and
consulting fees is primarily due to an increase in fees paid to investor and
public relations consultants and legal and accounting firms. The increase in
recruiting costs is primarily due to a search for three new members of our Board
of Directors.
Grant income
Grant income was $0 and $796,000 for the six months ended June 30, 2022 and
2021, respectively. Grant income for the six months ended June 30, 2021
represents amounts received under a grant from the National Institutes of Health
for development of CAN-2409 for use as a therapy for pancreatic cancer. This
grant was completed as of December 31, 2021 .
Interest, dividend and investment expense, net
Interest, dividend and investment expense was$540,000 for the six months endedJune 30, 2022 compared with an expense of$28,000 for the six months endedJune 30, 2021 and represents the interest expense on our debt obligations, which is net of earnings on our cash equivalents. The increase is primarily due to increased interest expense incurred as a result of increased borrowing in the first quarter of 2022.
Change in fair value of warrant liability
The change in fair value of our warrant liability was a decrease in value of$13.3 million for the six months endedJune 30, 2022 compared to an increase in value of$12.4 million for the six months endedJune 30, 2021 . The decrease in the warrant liability value for the six months endedJune 30, 2022 is primarily due to the decrease in our stock price fromDecember 31, 2021 toJune 30, 2022 . The increase in the warrant liability value for the six months endedJune 30, 2021 is primarily due to the increase in the Company's valuation fromDecember 31, 2020 toJune 30, 2021 .
Liquidity and Capital Resources
Since our inception, we have not generated any revenue from product sales and
have incurred significant operating losses. We expect to continue to incur
significant expenses and operating losses for the foreseeable future as we
advance the clinical development of our product candidates. We expect that our
research and development and general and administrative costs will continue to
increase significantly, including in connection with conducting clinical trials
for our product candidates, developing
28
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our manufacturing capabilities which will include the cost of establishing a
relationship with contract manufacturers to support commercial launch of our
product candidate CAN-2409 and costs associated with equipping our laboratory
and clinical manufacturing facility to support clinical trials and
commercialization and providing general and administrative support for our
operations, including the cost associated with operating as a public company. As
a result, we will need additional capital to fund our operations, which we may
obtain from additional equity or debt financings, collaborations, licensing
arrangements or other sources.
We do not currently have any approved products and have never generated any
revenue from wproduct sales. We have financed our operations primarily through
government grants and proceeds from the sale of convertible notes, sales of
common stock and our convertible preferred stock, and proceeds from debt
financing with Silicon Valley Bank ("SVB"). As of June 30, 2022 , we have raised
approximately $160.6 million , including $15.4 million of government grants,
$66.1 million from the sale of convertible preferred stock, and $79.1 million
from the sale of our common stock in our IPO. In addition, in February 2022 , we
borrowed $20.0 million under the loan and security agreement, or the Loan
Agreement, with SVB. Our cash and cash equivalents totaled $86.8 million as of
June 30, 2022 . We had $20.6 million of long-term debt as of June 30, 2022 .
Cash flows
The following table summarizes our sources and uses of cash for the six months
ended
SIX MONTHS ENDED
JUNE 30,
2022 2021
Net cash used in operating activities $ (15,150 ) $ (10,086 )
Net cash used in investing activities (806 ) (939 )
Net cash provided by financing activities 19,938 445
Net increase (decrease) in cash and cash equivalents
Cash flows for the six months ended
Operating activities
Net cash used in operating activities for the six months endedJune 30, 2022 was$15.2 million , primarily consisting of a net loss of$5.0 million as we incurred expenses associated with our clinical programs, increased headcount and incurred costs associated with operating as a public company. In addition, we had non-cash income of$13.3 million as a result of the change in the fair value of our warrant liability. Non-cash income was partially offset by$1.5 million in non-cash charges primarily related to depreciation and non-cash stock compensation expense. Net cash used in operating activities was also impacted by$1.6 million in changes in operating assets and liabilities, primarily driven by a decrease of$1.8 million in prepaids and other current assets. Net cash used in operating activities for the six months endedJune 30, 2021 was$10.1 million , primarily consisting of a net loss of$21.6 million and non-cash charges of$13.5 million primarily as a result of the$12.4 million expense as a result of the change in the fair value of our warrant liability and$1.4 million of non-cash stock compensation expense which was partially offset by$464,000 from the forgiveness of the Paycheck Protection loan. Net cash used in operating activities was also impacted by$2.0 million in changes in operating assets and liabilities, primarily driven by a decrease of$1.2 million in accrued expenses and an increase of$506,000 in other long term assets.
Investing activities
Net cash used in investing activities for the six months ended
Net cash used in investing activities for the six months ended
Financing activities
Net cash provided by financing activities for the six months endedJune 30, 2022 was$19.9 million and primarily consisted of$19.9 million of net proceeds from a term loan with a bank. Net cash provided by financing activities for the six months endedJune 30, 2021 was$445,000 and consisted of$410,000 of proceeds from exercise of warrants and$35,000 of proceeds from the exercise of stock options. 29 --------------------------------------------------------------------------------
Funding requirements
We expect our operating expenses to increase substantially in the future in connection with our ongoing activities, particularly as we advance CAN-2409 and CAN-3110 through research and development, clinical trials, develop our manufacturing capabilities with a CMO and build our laboratory and clinical manufacturing facility, as we research and develop additional product candidates including preclinical activities and as we prepare for marketing approval and commercialization. We also expect to incur additional costs associated with operating as a public company.
Specifically, our costs and expenses will increase as we:
?
advance the clinical development of CAN-2409 and CAN-3110;
?
pursue the preclinical and clinical development of other product candidates using our HSV platform;
?
develop our manufacturing capabilities, including establishing a relationship with a contract manufacturer for commercial manufacturing of our product candidate CAN-2409 and the construction of our laboratory and clinical manufacturing facility for our product candidate CAN-3110; and
?
expand our operational, financial, and management systems and increase personnel, including personnel to support our operations as a public company.
We believe that our existing cash and cash equivalents as ofJune 30, 2022 , will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. We have based this estimate on assumptions that may prove to be incorrect, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the research, development, and commercialization of therapeutics, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including: ?
the progress, costs, and results of our clinical development and clinical trials for CAN-2409 and CAN-3110;
?
the progress, costs, and results of our additional research and preclinical development programs;
?
the costs, timing and outcome of regulatory review of our product candidates;
?
our ability to establish and maintain collaborations on favorable terms, if at all;
? the outcome, timing and cost of meeting regulatory requirements established by the FDA and comparable foreign regulatory authorities, if applicable, for our product candidates; ?
the costs and timing of internal process development for our manufacturing capabilities;
?
the scope, progress, results, and costs of any product candidates that we may derive from our HSV platform or with collaborators;
? the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; hire additional personnel in research, manufacturing, and regulatory and clinical development, as well as management personnel; ?
the extent to which we in-license or acquire rights to other products, product candidates, or technologies;
?
additions or departures of key scientific or management personnel;
?
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution for any of our product candidates for which we obtain marketing approval;
?
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and
?
the costs of operating as a public company.
Until such time as we can generate significant revenue from product sales, if
ever, we expect to finance our cash needs through a combination of public or
private equity or debt financings and other sources, which may include
collaborations strategic alliances and licensing arrangements with third
parties. We do not have any committed external source of funds. To the extent
that we raise additional capital through the sale of equity or convertible debt
securities, your ownership interest may be diluted, and the terms of these
securities may include liquidation or other preferences that could adversely
affect your rights as a common stockholder. Debt financing and preferred equity
financing, if available, may involve agreements that include restrictive
covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends,
that could adversely impact our ability to conduct our business. If we raise
additional funds through other sources, such as collaboration agreements,
strategic alliances, licensing arrangements or marketing and distribution
arrangements, we may have to relinquish valuable rights to our technologies,
future revenue streams, product development, and
30
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research programs or product candidates, or grant licenses on terms that may not
be favorable to us. If we are unable to raise additional funds when needed, we
may be required to delay, limit, reduce, or terminate our product development or
future commercialization efforts or grant rights to develop and market products
or product candidates that we would otherwise prefer to develop and market
ourselves.
Contractual obligations and commitments
The following is a summary of our contractual obligations and commitments as ofJune 30, 2022 : PAYMENTS DUE BY PERIOD (in thousands) LESS THAN 1 TO 3 3 TO 5 TOTAL 1 YEAR YEARS YEARS
Operating lease obligation (1)
724 Total$ 2,495 $ 575 $ 1,195 $ 724 (1)
Represents future minimum lease payments under our operating lease for office
and laboratory space at our
We also enter into contracts in the normal course of business with hospitals, clinics, universities, and other third parties for clinical trials and testing and with construction contractors and process developers for the construction of our manufacturing facility. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancelation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancelation. These payments are not included in the table above as the amount and timing of such payments are not known.
Critical accounting estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, orU.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying 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 materially differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our condensed consolidated financial statements included elsewhere in this Form 10-Q, we believe that the following accounting policies are those most significant to the judgments and estimates used in the preparation of our consolidated financial statements.
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. Most of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to the following: ?
clinical trial sites where patients are being treated with our product candidates; and
?
consultants providing services related to process development, regulatory and other services.
?
CMO's
Actual services performed may vary from our estimates, resulting in adjustments
to research and development costs or inventories in future periods. Changes in
these estimates that result in material changes to our accruals could materially
affect our results of operations.
31
--------------------------------------------------------------------------------Determination of fair value of warrants
In connection with the Series B convertible preferred stock issuance inNovember 2018 , the Company issued warrants to purchase shares of common stock of which certain warrants are shown as a liability on the balance sheet. The fair value of the warrants was determined based on significant inputs not observable in the market. The fair value of the warrants uses various valuation methods, including theMonte Carlo method, the option-pricing method, probability-weighted expected return and the hybrid method, all of which incorporate assumptions and estimates, to value the common stock warrants. The hybrid method is often used when a company is expecting a liquidity event in the near future and is a combination of the option-pricing and probability-weighted expected return methods. Estimates and assumptions impacting the fair value measurement include the fair value per share of the underlying shares of common stock prior to the IPO, risk-free interest rate, expected dividend yield, expected volatility of the price of the underlying preferred stock, and the remaining contractual term of the warrants. The most significant assumption in the model impacting the fair value of the common stock warrants is the fair value of the Company's common stock as of each remeasurement date. Prior to the IPO, the Company determined the fair value per share of the underlying common stock by taking into consideration the most recent sales of preferred stock, results obtained from third-party valuations and additional factors that were deemed relevant.
Stock-based compensation
We measure stock options and other stock-based awards granted to our employees, directors, consultants, advisors based on the fair value on the date of the grant, awards, net of actual forfeitures, over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards granted to non-employees, compensation expense is recognized over the vesting period which approximates the period over which services are rendered by such non-employees. We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the expected volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, and our expected dividend yield.
Determination of fair value of common stock
Prior to the IPO, there had been no public market for our common stock and as such, the estimated fair value of our common stock had been determined by our board of directors as of the date of each option grant, with input from management, taking into consideration our most recently available third-party valuations of common stock at the time of the grants, as well as our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. Third-party valuations, or valuation reports, 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. For theDecember 1, 2020 ,January 1, 2021 , andJune 15, 2021 third-party prepared valuation reports, a probability-weighted expected return method was used to determine the fair value of the common stock. The present value of the common stock under each of these three identified scenarios was weighted based on the probability of each scenario occurring to determine the value of the common stock. These third-party valuations resulted in a valuation of our common stock of$3.96 ,$4.97 and$6.64 per share as ofDecember 1, 2020 ,January 1, 2021 andJune 15, 2021 , respectively. In addition to considering the results of the valuation reports, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including: ?
the prices at which we sold shares of convertible preferred stock and the superior rights and preferences of the convertible preferred stock relative to our common stock at the time of each grant;
?
the progress of our research and development programs, including the status and results of preclinical studies and clinical trials for our product candidates;
?
our stage of development and commercialization and our business strategy;
?
external market conditions affecting the biotechnology industry and trends within that industry;
?
our financial position, including cash on hand, and our historical and forecasted performance and operating results;
?
the lack of an active public market for our common stock and our convertible preferred stock;
?
the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company considering prevailing market conditions; and
?
the analysis of initial public offerings and the market performance of similar companies in the biotechnology industry.
The assumptions underlying these valuations were highly complex and subjective
and represented management's best estimates, which involved inherent
uncertainties and the application of management's judgment. As a result, if we
had used
32
--------------------------------------------------------------------------------different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could be materially different.
Subsequent to the IPO, a public trading market for our common stock has been established and it is no longer necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock is determined based on the quoted market price of our common stock.
Recent accounting pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows is disclosed in Note 2 to our condensed consolidated financial statements included elsewhere in this Form 10-Q.
Emerging growth company status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than$1.07 billion in annual revenue; (2) the date we qualify as a "large accelerated filer," with at least$700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (4)December 31, 2026 . 33
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