CHINOOK THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and related notes included in Part I, Item 1 of this report
and with our audited consolidated financial statements and related notes thereto
for the year ended
Forward-Looking Statements
This discussion and other parts of this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as "believe," "will," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "could," "potentially" or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, strategies, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A - "Risk Factors" and elsewhere in this report. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering,
developing and commercializing precision medicines for kidney diseases. Our
pipeline is focused on rare, severe chronic kidney diseases with well-defined
clinical pathways. Our lead clinical program is atrasentan, an endothelin A
receptor antagonist that we in-licensed from AbbVie in late 2019. In
Our approach to precision medicines leverages recent advances in identifying targeted kidney therapies linked to mechanistic biomarkers by the application of systems biology approaches in nephrology. The application of systems biology to nephrology has advanced over the past decade through the study of multiple patient groups across a wide variety of kidney diseases and their associated multilevel data sets, including genome, transcriptome, proteome, metabolome, pathology and prospective long-term clinical characteristics and outcomes. A key objective of these investigations is to define kidney diseases in molecular terms to drive the development of targeted treatments. We believe we are well-positioned to exploit the insights provided into the key molecular drivers and classifiers of kidney diseases by the application of these systems biology tools to nephrology. Our strategy is to use these mechanistic insights to select compelling drug targets and deliver novel and differentiated product candidates for rare and severe kidney diseases with high unmet medical need.
Atrasentan
Our lead product candidate is atrasentan, a potent and selective endothelin A
receptor antagonist that we are developing for the treatment of proteinuric
glomerular diseases. In
IgAN, the leading cause of primary glomerulonephritis, is a serious progressive autoimmune disease of the kidney with no approved therapies. Up to 45 percent of IgAN patients progress to end-stage kidney disease, or ESKD. Although IgAN is an orphan
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disease, we estimate that it affects approximately 140,000 - 150,000 people in
Activation of the endothelin A receptor, or ETA receptor, has been implicated as
a key driver of proteinuria, renal cell injury, including podocyte dysfunction
and mesangial cell activation, along with promoting kidney inflammation and
fibrosis, all resulting in the progression of IgAN. Atrasentan, by blocking ETA,
has the potential to provide benefit in multiple chronic kidney diseases by
reducing proteinuria and having direct anti-inflammatory and anti-fibrotic
effects to preserve kidney function. We in-licensed atrasentan in
Based on the encouraging data from SONAR and strong mechanistic rationale, in
BION-1301
We are also developing BION-1301, an investigational humanized IgG4 monoclonal antibody that blocks APRIL binding to both the B-cell maturation antigen, or BCMA, and transmembrane activator and CAML interactor, or TACI, receptors, as a novel disease-modifying therapy for IgAN. APRIL is a soluble factor that binds to BCMA and TACI receptors thereby inducing signaling and is believed to be implicated in IgAN and other indications.
A phase 1b clinical trial of BION-1301 is currently ongoing. Parts 1 and 2 of this trial evaluating the safety and tolerability of BION-1301 in healthy volunteers have been completed. In healthy volunteers, BION-1301 was well-tolerated, demonstrated dose-dependent increases in target engagement as measured by free APRIL levels, dose-dependently and durably reduced IgA, IgM and IgG levels (to a lesser extent) and had a half-life of approximately 33 days, suggesting the potential for an extended dosing interval. Recently analyzed data in healthy volunteers from this trial were presented at WCN'21. In this trial, BION-1301 produced dose-dependent reductions in serum Gd-IgA1 levels that were greater in magnitude than previously reported for total IgA concentrations.
In addition, we have completed a phase 1 intravenous, or IV, to subcutaneous, or SC, bioavailability study in healthy volunteers. Results from the bioavailability study were presented at WCN'21. In this study, BION-1301 was well-tolerated when administered by both IV and SC routes in healthy volunteers, the pharmacokinetic profile of BION-1301 was consistent with previous clinical studies, the absorption rate of BION-1301 was typical of a monoclonal antibody and the magnitude of pharmacodynamic responses were largely retained with SC dosing compared to IV dosing.
We are currently enrolling patients with IgAN in Part 3 of this trial, and we
presented a subset of interim data from this trial at the 58th ERA-EDTA
conference in
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BION-1301 demonstrated a clinically meaningful mean reduction in 24-hour proteinuria (UPCR) in the first several patients enrolled in the study, providing initial proof-of-concept for BION-1301 in IgAN.
We expect to complete enrollment of Cohort 1 in the third quarter of 2021, and then transition to SC dosing for future cohorts of the study. Patients in Cohort 2 will receive a SC dose of 600 mg of BION-1301 every two weeks for up to 52 weeks. Recent amendments to the design of Part 3 also include the option for a third cohort of patients to receive a SC dose of BION-1301 at a dose and schedule that would be determined based on data generated from Cohort 2. Moving forward with Cohort 3 may help us better understand the SC dose-response relationship prior to the next phase of development.
We have taken a number of actions this year to improve enrollment dynamics in
this study, including streamlining the protocol, adding new experienced
nephrology investigative sites, and increasing physician and patient awareness
and enthusiasm about BION-1301. Going forward, we also expect to benefit from
improved COVID-19 environments in many geographies. We plan to present
additional and more mature data from this study at future nephrology
conferences, including ASN in
CHK-336
Our third clinical development candidate is CHK-336, a liver-targeted oral small molecule lactate dehydrogenase, or LDHA, inhibitor, which we are developing for the treatment of PH. Hyperoxalurias, including PH, are diseases caused by excess oxalate, a potentially toxic metabolite typically filtered by the kidneys and excreted as a waste product in urine. Symptoms of PH include recurrent kidney stones, which when left untreated, can result in kidney failure requiring dialysis or dual kidney/liver transplantation. In patients with hyperoxalurias, excess oxalate combines with calcium to form calcium oxalate crystals that deposit in the kidney, resulting in the formation of painful kidney stones and driving progressive kidney damage over time. PH1, PH2 and PH3 are a group of ultra-rare diseases caused by genetic mutations that result in excess oxalate, and in their most severe forms, can lead to end-stage kidney disease at a young age. We also believe CHK-336 may have potential in the treatment of patients with secondary hyperoxaluria and idiopathic stone formation.
Research and Discovery Programs
Beyond CHK-336, we have active research and discovery efforts focused on other rare, severe kidney diseases. Our overall precision medicine research approach focuses on developing product candidates targeting the most promising molecular pathways identified as key disease drivers in collaboration with key scientific advisors. Our scientific advisors provide valuable guidance on target selection, prioritization and validation strategies, as well as access to technology platforms that support target validation efforts through deep biological insights into human disease mechanisms and translational cellular and animal model systems.
In
Components of Operating Results
Collaboration and License Revenue
We have not generated any revenue from product sales. Prior to the completion of the Merger, Aduro generated revenue from collaboration and license agreements. These collaboration agreements may have included the transfer of intellectual property rights in the form of licenses, promises to provide research and development services and promises to participate on certain development committees with the collaboration party. The terms of such agreements included payment to Aduro of one or more of the following: nonrefundable upfront fees, payment for research and development services, development, regulatory and commercial milestone payments, and royalties on net sales of licensed products.
We have evaluated the remaining performance obligations under these pre-existing agreements and concluded that the only revenue we expect to recognize in the near term is under the agreement with Lilly related to research and development services expected to be performed by us in 2020 and 2021. Potential milestone payments related to development, regulatory or commercial milestone payments may be earned in the future, but all such payments are uncertain and beyond our or our collaborators' control and would be recorded as revenue upon receipt or over a period following receipt, such as under the CAPM model, if and when such payments are earned.
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We expect that any revenue we generate from the pre-existing collaboration agreements will be nominal, as such agreements relate to non-renal development programs, all of which are outside our ongoing focus in renal disease.
Research and Development Expenses
The largest component of our total operating expenses has historically been our investment in research and development activities, including the clinical development of our product candidates. Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates, as well as the development of product candidates pursuant to Aduro's pre-existing collaboration and license agreements. Research and development costs include employee-related costs; licensing costs; materials and supplies; contracted research and manufacturing; consulting arrangements; allocated costs, such as facility costs; and other expenses incurred to advance our research and development activities. We recognize all research and development costs as they are incurred. Clinical trial costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.
We expect our research and development expenses to increase in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The probability of success for our product candidates and technologies may be affected by a variety of factors including: the quality of our product candidates, early clinical data, investment in our clinical programs, competition, manufacturing capability and commercial viability. We may never succeed in obtaining regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates.
General and Administrative Expenses
General and administrative expenses include employee-related costs, expenses for outside professional services, and other allocated expenses. Employee-related costs consist of salaries, bonuses, severance and benefits. Consulting and outside services consist of legal, accounting and audit services, insurance expenses, investor relations activities, administrative services and other consulting fees. Allocated expenses consist of rent expense related to our offices and research and development facility.
Change in Fair Value of Contingent Consideration and Contingent Value Rights Liabilities
At the effective time of the Merger, we also entered into an agreement pursuant
to which Aduro's common stockholders of record as of the close of business on
Amortization of Intangible Assets
Amortization of intangible assets, excluding goodwill results from the amortization of finite-lived intangible assets acquired in the Merger. Amortization is over a period of 9 to 17 years, with an original weighted average period of 16.7 years.
Gain on Sale of Assets to
We entered into an agreement with
Change in Fair Value of Redeemable Convertible Preferred Stock Tranche Liability
As a private company, we issued Series A redeemable convertible preferred stock (Series A stock). The terms of the Series A stock agreement included provisions requiring the investors to purchase, and obligating the Company to deliver, additional shares of redeemable convertible preferred stock at a specified price in the future based on the achievement of certain development-based milestones.
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The Company estimated the fair value of the redeemable convertible preferred stock tranche liability related to each milestone utilizing the income approach using unobservable inputs including (a) future per share value of Series A stock upon achievement of the milestone, (b) estimated term until date of milestone achievement, and (c) probability of milestone achievement. The future per share value of Series A stock upon achievement of the milestone and the probability of milestone achievement for each tranche were calculated on a probability-weighted basis giving equal weighting to public offering and private exit scenarios. The future cash flows were discounted to their fair values as of the valuation date using one or more discount rates, depending on the number of probability-weighted scenarios employed.
Upon issuance, the fair value of the redeemable convertible preferred stock tranche liability was recorded as a reduction in the amounts paid by investors for the purchase of Series A stock.
Upon closing of the Merger, the outstanding redeemable convertible preferred stock tranche rights terminated pursuant to the terms of the merger agreement.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income and expense, foreign currency gains and losses, and various income or expense items of a non-recurring nature.
Income Tax Benefit
We are subject to income taxes in
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Results of Operations
Comparison of the Three Months Ended
Three Months Ended June 30,
2021 2020 Change
(In thousands)
Collaboration and license revenue $ 34 $ - $ 34
Operating expenses:
Research and development 22,787 3,870 18,917
General and administrative 7,768 3,879 3,889
Change in fair value of contingent
consideration
and contingent value rights liabilities 19,557 - 19,557
Amortization of intangible assets 422 - 422
Total operating expenses 50,534 7,749 42,785
Gain on sale of assets to equity method
investment 7,227 - 7,227
Loss from operations (43,273 ) (7,749 ) (35,524 )
Other expense, net (39 ) (4 ) (35 )
Change in fair value of redeemable
convertible preferred
stock tranche liability - 10 (10 )
Loss before income taxes (43,312 ) (7,743 ) (35,569 )
Income tax benefit 741 - 741
Net loss $ (42,571 ) $ (7,743 ) $ (34,828 ) Collaboration and License Revenue
Collaboration and license revenue was less than
Research and Development Expenses
The following table summarizes our research and development costs by program and
by category incurred during the three months ended
Three Months Ended June 30,
2021 2020 Change
(In thousands)
Product Candidates
Atrasentan $ 10,327 $ 1,436 $ 8,891
BION-1301 2,094 - 2,094
CHK-336 2,432 753 1,679
Other 3,221 194 3,027
Discovery research and other development costs 2,484 971 1,513
Subtotal 20,558 3,354 17,204
Stock-based compensation expense 1,732 143 1,589
Facility costs and depreciation 497 373 124
Total research and development $ 22,787 $ 3,870 $ 18,917
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The following table summarizes our research and development expenses incurred
during the three months ended
Three Months Ended June 30,
2021 2020 Change
(In thousands)
Contract research and manufacturing $ 11,248 $ 1,388 $ 9,860
Employee-related costs 5,728 1,576 4,152
Supplies used in research and development 726 243 483
Stock-based compensation expense 1,732 143 1,589
Facility costs and depreciation 497 373 124
Consulting and outside services 2,526 29 2,497
Other 330 118 212
Total research and development $ 22,787 $ 3,870 $ 18,917 Research and development expenses were
General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred
during the three months ended
Three Months Ended June 30,
2021 2020 Change
(In thousands)
Consulting and outside services
2,574 570 2,004
Stock-based compensation expense 1,863 156 1,707
Facility costs and depreciation 809 (102 ) 911
Other 438 64 374
Total general and administrative
General and administrative expenses were
Change in fair value of contingent consideration and contingent value rights liabilities
Change in fair value of contingent consideration expense increased by
Amortization of intangible assets
Amortization of intangible assets expense increased by
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Gain on sale of assets to equity method investment
Gain on sale of assets to equity method investment increased
Change in fair value of redeemable convertible preferred stock tranche liability
Change in fair value of redeemable convertible preferred stock tranche liability
decreased by less than
Benefit for income taxes
We recorded a benefit for income taxes of
Comparison of the Six Months Ended
Six Months Ended June 30,
2021 2020 Change
(In thousands)
Collaboration and license revenue $ 385 $ - $ 385
Operating expenses:
Research and development 48,484 6,688 41,796
General and administrative 17,311 5,150 12,161
Change in fair value of contingent
consideration and
contingent value rights liabilities 21,396 - 21,396
Amortization of intangible assets 842 - 842
Total operating expenses 88,033 11,838 76,195
Gain on sale of assets to equity method
investment 7,227 - 7,227
Loss from operations (80,421 ) (11,838 ) (68,583 )
Other income (expense), net (106 ) 115 (221 )
Change in fair value of redeemable
convertible preferred
stock tranche liability - (1,169 ) 1,169
Loss before income taxes (80,527 ) (12,892 ) (67,635 )
Income tax benefit 741 - 741
Net loss $ (79,786 ) $ (12,892 ) $ (66,894 ) Collaboration and License Revenue
Collaboration and license revenue was
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Research and Development Expenses
The following table summarizes our research and development costs by program and
by category incurred during the six months ended
Six Months Ended June 30,
2021 2020 Change
(In thousands)
Product Candidates
Atrasentan $ 19,054 $ 2,271 $ 16,783
BION-1301 6,175 - 6,175
CHK-336 5,030 1,617 3,413
Other 6,716 1,045 5,671
Discovery research and other development costs 7,238 1,139 6,099
Subtotal 44,213 6,072 38,141
Stock-based compensation expense 2,760 183 2,577
Facility costs and depreciation 1,511 433 1,078
Total research and development $ 48,484 $ 6,688 $ 41,796 The following table summarizes our research and development expenses incurred
during the six months ended
Six Months Ended June 30,
2021 2020 Change
(In thousands)
Contract research and manufacturing
11,044 2,440 8,604
Supplies used in research and development 1,432 524 908
Stock-based compensation expense 2,760 183 2,577
Facility costs and depreciation 1,511 433 1,078
Consulting and outside services 4,021 328 3,693
Other 632 180 452
Total research and development $ 48,484 $ 6,688 $ 41,796 Research and development expenses were
General and Administrative Expenses
The following table summarizes our general and administrative expenses incurred
during the six months ended
Six Months Ended June 30,
2021 2020 Change
(In thousands)
Consulting and outside services
5,941 1,134 4,807
Stock-based compensation expense 3,313 216 3,097
Facility costs and depreciation 1,719 117 1,602
Other 1,087 152 935
Total general and administrative
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General and administrative expenses were
Change in fair value of contingent consideration and contingent value rights liabilities
Change in fair value of contingent consideration and contingent value rights
liabilities expense increased by
Amortization of intangible assets
Amortization of intangible assets expense increased by
Gain on sale of assets to equity method investment
Gain on sale of assets to equity method investment increased
Change in fair value of redeemable convertible preferred stock tranche liability
Change in fair value of redeemable convertible preferred stock tranche liability
decreased by
Benefit for income taxes
We recorded a benefit for income taxes of
Liquidity and Capital Resources
As of
We have not generated any revenue from product sales, and we do not know when,
or if, we will generate any revenue from product sales. We do not expect to
generate any revenue from product sales unless and until we obtain regulatory
approval of and commercialize any of our product candidates. At the same time,
we expect our expenses to increase in connection with our ongoing development
activities, particularly as we continue the research, development and clinical
trials of, and seek regulatory approval for, our product candidates. As of
Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through the issuance of additional equity, borrowings and strategic alliances with partner companies. To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise
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additional funds through marketing and distribution arrangements or other collaborations, strategic alliances 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. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ (55,513 ) $ (7,206 )
Investing activities (32,190 ) (400 )
Financing activities 35,659 14,449
Effect of exchange rate changes 84 (152 )
Net change in cash, cash equivalents, and restricted cash
Operating Activities
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
In
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in
There have been no material changes in our critical accounting policies during
the six months ended
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Policies and Estimates" in our Annual Report on Form 10-K for the year ended
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under
Recently Adopted Pronouncements
For information with respect to recently issued accounting standards and the impact of these standards on our consolidated financial statements, refer to Note 2 "Basis of Presentation and Consolidation, Use of Estimates and Recent Accounting Pronouncements" in our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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