CIDARA THERAPEUTICS, INC. You should read the following discussion and analysis together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report, and our Annual Report on Form 10-K, or our Annual Report, for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission , or theSEC , onFebruary 25, 2021 . Forward-Looking Statements The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, clinical and nonclinical data, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management and the impact of the COVID-19 pandemic on the foregoing. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report and in our other filings with theSEC . The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. Overview We are a biotechnology company focused on the discovery, development and commercialization of long-acting therapeutics designed to transform the standard of care for patients facing serious diseases. Our lead product candidate is rezafungin acetate, an intravenous formulation of a novel echinocandin. Rezafungin is being developed as a once-weekly, high-exposure therapy for the first-line treatment and prevention of serious, invasive fungal infections. In addition, we are using our Cloudbreak® platform to develop a potential new class of DFCs for the prevention and treatment of serious diseases. Our initial development programs are targeting influenza and other viral infections, including RSV, HIV and the SARS-CoV-2 strains causing COVID-19. In addition, we have expanded the Cloudbreak platform to discover and develop DFCs to treat cancer. COVID-19 Update The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. We continue to monitor the potential impact of the COVID-19 global pandemic, and particularly the Delta variant, on our business and maintain our previously implemented measures designed to protect the health and safety of our workforce, including a work-from-home policy in line with state and local requirements for employees who can perform their jobs offsite. We are continuing our essential research and laboratory activities at our facilities and are taking precautionary measures to protect our employees working in our facilities in such capacities, including establishing a written worksite-specific COVID-19 prevention plan and implementing a vaccine mandate. We are reliant on our information technology systems, infrastructure and data to conduct our business. Adopting a work-from-home policy during this pandemic has increased the complexity of our computer systems, making them inherently more vulnerable to service interruption or destruction, malicious intrusion and random attack. While we have not experienced significant disruptions to our manufacturing supply chain or distribution to date, we are unable to fully assess the potential impact that an extended duration of this pandemic may have on our manufacturing or distribution processes in the future. As we continue to actively advance our rezafungin Phase 3 clinical development program, we remain in close contact with our principal investigators and clinical sites and continue to monitor the impact of COVID-19 on our trials, expected timelines and costs on an ongoing basis. While the ReSPECT Phase 3 clinical trial for prophylaxis remains open for enrollment, we continue to monitor the near- and long-term impact of COVID-19 on the ability of our clinical investigators to recruit patients at each of our global clinical trial sites. In addition, many clinical trial operational activities typically 24
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require travel, such as site activation, monitoring, investigators' meetings and quality audits. These activities are still impacted by travel restrictions. The COVID-19 pandemic continues to affect areas in which we operate, and we believe the outbreak continues to have a negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. Given these uncertainties, we remain unable to reasonably estimate the related impact to our business, operating results and financial condition, if any. We will continue to evaluate the impact of the COVID-19 pandemic on our business. Rezafungin Rezafungin is a novel molecule in the echinocandin class of antifungals. We are developing rezafungin for the first-line treatment and prevention of serious, invasive fungal infections which are associated with high mortality rates. Phase 3 clinical trials Our Phase 3 clinical development plans for rezafungin are as follows: •Phase 3 ReSTORE Treatment Trial: A single, global, randomized, double-blind, controlled Phase 3 pivotal clinical trial in patients with candidemia and/or invasive candidiasis. The ReSTORE clinical trial protocol is modeled after our Phase 2 STRIVE clinical trial. Rezafungin, dosed at 400 mg for the first week followed by 200 mg once weekly for up to four weeks in total, is being compared to caspofungin, dosed daily, with an optional step down to oral fluconazole, in a 1:1 randomization regime. The primary efficacy outcome for theU.S. Food and Drug Administration , or FDA, is all-cause mortality at day 30, and the primary efficacy outcome for theEuropean Medical Agency , or EMA, is global response (clinical, radiological, and mycological response) at day 14. Enrollment in the ReSTORE clinical trial was completed inAugust 2021 and included 184 evaluable patients diagnosed with candidemia and/or invasive candidiasis. We expect to announce top-line data from the ReSTORE trial by the end of 2021 and anticipate filing a New Drug Application, or NDA, for rezafungin inthe United States and similar regulatory filings outsidethe United States in the middle of 2022. •Phase 3 ReSPECT Prophylaxis (Prevention) Trial: A single, global, randomized, double-blind, controlled Phase 3 pivotal clinical trial in patients undergoing allogeneic blood and marrow transplant to assess rezafungin in a 90-day prophylaxis regimen to prevent infections due to Candida, Aspergillus and Pneumocystis. Rezafungin, dosed at 400 mg for the first week followed by 200 mg once weekly doses out to 90 days, is being compared to a regimen containing two drugs (an azole and Bactrim) dosed once daily for 90 days. The primary efficacy outcome for the FDA and EMA is fungal-free survival at day 90. We expect this trial to enroll approximately 462 patients. While the ReSPECT trial has been impacted by the ongoing effects of the COVID-19 global pandemic, enrollment continues and we are progressing with regulatory and clinical activities so that we may continue activating additional trial sites. Mundipharma Collaboration Agreement OnSeptember 3, 2019 , we announced a strategic partnership withMundipharma to develop and commercialize rezafungin in an intravenous formulation for the treatment and prevention of invasive fungal infections. Under the terms of the Mundipharma Collaboration Agreement, we grantedMundipharma an exclusive, royalty-bearing license to develop, register and commercialize rezafungin outside theU.S. andJapan . The total potential transaction value is$568.0 million , including an equity investment, an up-front payment, global development funding, and certain development, regulatory, and commercial milestones. To date, we have received$9.0 million from the sale of our equity toMundipharma ,$30.0 million in up-front payments and$41.5 million in global development funding, which includes an$11.1 million milestone payment we received inJanuary 2021 . We expect to receive an additional$0.8 million in global development funding as we continue to conduct our rezafungin Phase 3 clinical development program. Cloudbreak platform We believe our Cloudbreak DFC platform has the potential to offer a fundamentally new approach to prevent and treat life-threatening serious diseases, by developing product candidates designed to provide potent disease targeting activity and immune system engagement in a single long-acting molecule. The Cloudbreak DFC platform recognizes that serious disease often results when a pathogen or cancer cell evades or overcomes the host immune system. Our Cloudbreak DFC candidates are designed to counter diseases in two ways: prevention of disease proliferation by direct targeting and by focusing the immune system on a pathogen or cancer cell. We believe this is a potentially transformative approach, 25
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distinct from current therapies, monoclonal antibodies and vaccines. In addition, DFCs are designed to have several advantages including: •multivalent binding which has the potential to increase potency; •ability to engage different targets on the same pathogen or, in the case of a cancerous cell, can serve as a "drug cocktail" in a single molecule, which may improve spectrum and decrease resistance; •potential to target multiple viral pathogens with a single DFC; and •potential for universal coverage against all viral variants and all people irrespective of immune status. In contrast to monoclonal antibodies, our DFCs are smaller and are designed to target multiple sites, and, unlike small molecules, we believe DFC optimization can be focused primarily on potency. Our lead Cloudbreak candidates are DFCs for the prevention and treatment of influenza, or influenza DFCs. InSeptember 2020 , we nominated CD388, our influenza DFC, as a development candidate. CD388 is similar to our previous development candidate, CD377, but provides the potential for longer-lasting protection from influenza. We expect to file investigational new drug application, or IND, for CD388 by the end of 2021 and expect to dose our first subject in a Phase 1 clinical trial in the first half of 2022. The Cloudbreak platform has also enabled us to expand the development of DFCs to target other life-threatening viruses, including RSV and HIV. In response to the global pandemic, we are also leveraging our Cloudbreak platform to identify new DFCs against Coronavirus, or CoV, including the strain causing COVID-19. In addition, we have expanded the Cloudbreak platform, in order to discover and develop highly potent DFCs that can target multiple pathways with a single DFC for oncologic diseases. Janssen Collaboration Agreement OnMarch 31, 2021 , we entered into the Janssen Collaboration Agreement with Janssen to develop and commercialize one or more DFCs (previously called Antiviral Drug Conjugates, or AVCs), based on our Cloudbreak platform for the prevention and treatment of influenza. The effectiveness of the Janssen Collaboration Agreement was subject to the expiration or earlier termination of all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act. OnMay 12, 2021 , the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the Janssen Collaboration Agreement expired and the Janssen Collaboration Agreement became effective. Accordingly, revenue began for the Janssen Collaboration Agreement during the three months endedJune 30, 2021 . Under the terms of the Janssen Collaboration Agreement, we will collaborate in the research, preclinical and early clinical development of CD388, or another mutually-agreed influenza DFC development candidate, under a mutually-agreed research plan with the objective of advancing development through Phase 1 clinical trials and the first Phase 2 clinical trial. We will be responsible for performing all IND-enabling studies and clinical trials under the research plan. Both parties will be responsible for conducting certain specified chemistry, manufacturing and controls development activities under the research plan. Janssen will be solely responsible, and reimburse us for internal personnel and out-of-pocket costs incurred in performing the research plan activities in accordance with an agreed budget. After completion of the research plan and upon its election to proceed with development, Janssen will be solely responsible for late-stage development, manufacturing, registration and commercialization. Upon the effectiveness of the Janssen Collaboration Agreement, Janssen paid us an upfront payment of$27.0 million . As of the execution of the Janssen Collaboration Agreement, we are entitled to reimbursement by Janssen of up to$58.0 million in research and development costs incurred in conducting Research Plan activities. We will also be entitled to receive up to an additional$695.0 million in development, regulatory and commercial milestone payments, as well as royalties on tiers of annual net sales of Products developed under the collaboration at rates from the mid-single digits to the high-single digits. We also have the option to co-detail the first product under the collaboration to receive marketing approval in theU.S. To date, we have received$27.0 million in up-front payments and$3.1 million in research and development costs. Liquidity Overview Since our inception, we have devoted substantially all of our financial resources and efforts to research and development and have incurred significant operating losses. As ofSeptember 30, 2021 , we had an accumulated deficit of$360.4 million . We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. In connection with the preparation of our financial statements for the three and nine month period endedSeptember 30, 2021 , we performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for twelve months from the issuance of these financial statements. Our ability to execute our current business plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. Wemay 26
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not be able to raise additional funding on terms acceptable to us, or at all, and any failure to raise funds as and when needed will compromise our ability to execute on our business plan. FINANCIAL OPERATIONS OVERVIEW Revenues To date, we have generated all of our revenues from our strategic partnerships withMundipharma and Janssen. In the future, we may generate revenue from a combination of license fees and other upfront payments, other funded research and development agreements, milestone payments, product sales, government and other third-party funding and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of our achievement of nonclinical, clinical, regulatory and commercialization milestones, the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized. If we are unable to fund our development costs or we are unable to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected. Research and development expenses To date, our research and development expenses have related primarily to nonclinical development of our rezafungin acetate and our Cloudbreak platform, as well as clinical development of rezafungin acetate. Research and development expenses consist of wages, benefits and stock-based compensation for research and development employees, as well as the cost of scientific consultants, facilities and overhead expenses, laboratory supplies, manufacturing expenses and nonclinical and clinical trial costs. We accrue clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies or other activities within studies and other events. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the study or project and the invoices received from our external service providers. We adjust our accruals as actual costs become known. We have received potential research and development funding through a grant from CARB-X and a partnership grant from theNational Institute of Allergy and Infectious Diseases . We have evaluated the terms of the grants to assess our obligations and the classification of funding received. Amounts received for funded research and development are recognized in the statement of operations as a reduction to research and development expense over the grant period as the related costs are incurred to meet our obligations. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we continue to conduct nonclinical and clinical studies, expand our research and development pipeline and progress our product candidates through clinical trials. However, it is difficult to determine with certainty the duration, costs and timing to complete our current or future nonclinical programs and clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following: •the impact of the COVID-19 pandemic and other similar health crises; •per patient trial costs; •the number of patients that participate in the trials; •the number of sites included in the trials; •the countries in which the trials are conducted; •the length of time required to enroll eligible patients; •the number of doses that patients receive; •the drop-out or discontinuation rates of patients; •potential additional safety monitoring or other studies requested by regulatory authorities; •the duration of patient follow-up; 27
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•the phase of development of the product candidate; and
•the efficacy and safety profile of the product candidates.
Research and development expenses by major program or category were as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Rezafungin $ 12,440 $ 9,011 $ 31,596 $ 27,864
Cloudbreak platform 3,296 2,922 8,283 5,923
Personnel costs 4,231 3,626 12,586 11,235
Other research and development expenses 538 699 1,609 1,866
Total research and development expenses
We typically deploy our employees, consultants and infrastructure resources across our programs. Thus, some of our research and development expenses are not attributable to an individual program but are included in other research and development expenses as shown above. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential. General and administrative expenses General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development, commercial planning, and support functions. Other general and administrative expenses include facility and overhead costs not otherwise included in research and development expenses, consultant expenses, travel expenses and professional fees for auditing, tax, legal, and other services. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with operating as a publicly traded company. These increases will likely include legal fees, accounting fees, directors' and officers' liability insurance premiums and costs associated with investor relations. Other expense, net Other expense consists primarily of interest income and expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents. Interest expense represents interest payable related to term loans and the amortization of debt issuance costs. Beneficial conversion feature InFebruary 2020 , we completed a rights offering, pursuant to which we sold 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock for gross proceeds of$30.0 million . Because the effective conversion price of the Series X Convertible Preferred Stock on the commitment date was below the fair value of the common stock at the date of issuance, a beneficial conversion feature with a calculated fair value of$2.8 million existed at the issuance date. As the Series X Convertible Preferred Stock was fully convertible at issuance, the full$2.8 million was recorded at issuance as a one-time deemed dividend onFebruary 12, 2020 . This one-time, non-cash deemed dividend impacted accumulated deficit and additional paid in capital atSeptember 30, 2020 and net loss attributable to common stockholders and net loss attributable to common stockholders per share for the nine months endedSeptember 30, 2020 . CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of our unaudited financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the revenues and expenses incurred during the reported periods. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management's Discussion and Analysis of Financial Condition and Results of Operations and under Note 2 to our financial statements contained in our Annual Report have the greatest potential impact on our financial statements, so we consider them to be our critical accounting 28
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policies and estimates. There were no material changes to our critical accounting policies and estimates during the three and nine months endedSeptember 30, 2021 . Cash, Cash Equivalents and Restricted Cash We consider all short-term investments purchased with a maturity of three months or less when acquired to be cash equivalents. Restricted cash represents cash that we are required to maintain on hand in order to maintain compliance with an operating covenant in the Third Amendment to our Loan Agreement withPacific Western Bank . See Note 4 to the financial statement for additional information. Accounts Receivable Accounts receivable are recorded at their net invoice value and are not interest bearing. We reserve specific receivables when collectability is no longer probable. These reserves are re-evaluated on a regular basis and are adjusted, as needed. Once a receivable is deemed to be uncollectible, such balance is recorded as an allowance for credit losses. No such allowance existed atSeptember 30, 2021 orDecember 31, 2020 . Property and Equipment We record property and equipment at cost, which consists of lab equipment, computer equipment and software, office equipment, furniture and fixtures and leasehold improvements. Property and equipment is depreciated using the straight-line method over the estimated useful lives (generally three to seven years). Leasehold improvements are amortized over the lesser of their useful life or the remaining lease term, including any renewal periods that are deemed to be reasonably assured. Repair and maintenance costs are expensed as incurred. Income Taxes We follow theFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC, 740, Income Taxes, or ASC 740, in reporting deferred income taxes. ASC 740 requires that we recognize deferred tax assets and liabilities for expected future income tax consequences of events that have been recognized in our consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in the years in which the temporary differences are expected to reverse. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We account for uncertain tax positions pursuant to ASC 740, which prescribes a recognition threshold and measurement process for financial statement recognition of uncertain tax positions taken or expected to be taken in a tax return. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. We recognize interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes. Revenue Recognition We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 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 Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfers to a customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In a contract with multiple performance obligations, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction 29
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price is allocated among the performance obligations. The estimation of the stand-alone selling price(s) may include estimates regarding forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time. Any change made to estimated progress towards completion of a performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. If a license to our intellectual property is determined to be distinct from the other performance obligations identified in a contract, we recognize revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from the allocated transaction price. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue or expense recognition as a change in estimate. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being reached. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or a collaboration partner's control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or a collaboration partner's control, such as operational developmental milestones and any related constraint, and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which will affect collaboration revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and earnings in the period of adjustment. For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and a license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. To date, we have not recognized any royalty revenue from collaborative arrangements. InSeptember 2019 , the we entered into the Mundipharma Collaboration Agreement withMundipharma . We concluded that there were three significant performance obligations under the Mundipharma Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery inSeptember 2019 . InMarch 2021 , we entered into the Janssen Collaboration Agreement with Janssen. We concluded that there were three significant performance obligations under the Janssen Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery inMay 2021 . We concluded that progress towards completion of the research and development and clinical supply performance obligations related to theMundipharma Collaboration Agreement is best measured in an amount proportional to the collaboration expenses incurred and the total estimated collaboration expenses. We periodically review and update the estimated collaboration expenses, when appropriate, which may adjust revenue recognized for the period. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in the period could be materially impacted. Revenue for the Janssen Collaboration Agreement is recognized based on actual amounts billed as the underlying services are provided and billed at market rates. The transaction prices to be recognized as revenue under both the Mundipharma Collaboration Agreement and the Janssen Collaboration Agreement consist of upfront payments and estimated reimbursable research and development and clinical supply costs. Potential future payments for variable consideration, such as clinical, regulatory or commercial milestones, will be recognized when it is probable that, if recorded, a significant reversal will not take place. Potential future royalty payments will be recorded as revenue when the associated sales occur. See Note 7 to the financial statements for additional information. Research and Development Costs Research and development expenses consist of wages, benefits and stock-based compensation charges for research and development employees, scientific consultant fees, facilities and overhead expenses, laboratory supplies, manufacturing expenses, and nonclinical and clinical trial costs. We accrue nonclinical and clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies, and other events. 30
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Costs incurred in purchasing technology assets and intellectual property are charged to research and development expense if the technology has not been conclusively proven to be feasible and has no alternative future use. Preclinical and Clinical Trial Accruals We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by contract research organizations, or CROs, clinical trial investigational sites and other clinical trial-related activities. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing for these services, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activities or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals. Stock-Based Compensation We account for stock-based compensation expense related to stock options, RSUs, PRSUs, and ESPP rights by estimating the fair value on the date of grant using the Black-Scholes option pricing model. For awards subject to time-based vesting conditions, including those with a graded vesting schedule, stock-based compensation expense is recognized using the straight-line method. For performance-based awards to employees, (i) the fair value of the award is determined on the grant date, (ii) we assess the probability of the individual performance milestones under the award being achieved and (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes the performance criteria is probable of being met. We recognize forfeitures related to stock-based compensation as they occur and any compensation cost previously recognized for awards for which the requisite service has not been completed is reversed in the period that the award is forfeited. The highly subjective assumptions included in the Black-Scholes option pricing model includes (a) the risk-free interest rate, (b) the historical volatility of our stock, (c) the expected term of the award, and (d) the expected dividend yield. InJanuary 2021 , we began to compute the historical volatility data using the daily close prices for our common stock during the equivalent period of the calculated expected term of our stock-based awards. We estimated the expected life of employee stock options using the "simplified" method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the yields of zero-couponU.S. treasury securities. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future. Net Loss Per Share Basic and dilutive net loss per share is calculated by dividing the net loss allocable to common shares by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Dilutive common stock equivalents are comprised of warrants, Series X Convertible Preferred Stock, RSUs, PRSUs and options outstanding under our stock option plans. In loss periods, basic and diluted net loss per share are identical because the otherwise dilutive potential common shares become anti-dilutive and are therefore excluded. Fair Value of Financial Instruments We follow ASC 820-10 issued by the FASB with respect to fair value reporting for financial assets and liabilities. The guidance defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, lease liability, and a term loan. Fair value estimates of these instruments are made at each reporting period end based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities are generally considered 31
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to be representative of their respective fair values because of the short-term nature of those instruments. We believe that the fair value of our term loan approximates its carrying value. RESULTS OF OPERATIONS Comparison of the three months endedSeptember 30, 2021 and 2020 The following table summarizes our results of operations for the three months endedSeptember 30, 2021 and 2020 (in thousands): Three Months Ended September 30, 2021 2020 Change Collaboration revenue$ 7,076 $ 2,416 $ 4,660 Research and development expense 20,505 16,258 4,247 General and administrative expense 4,607 3,687 920 Other expense, net (47) (103) 56 Collaboration revenue Collaboration revenue was$7.1 million for the three months endedSeptember 30, 2021 and$2.4 million for the three months endedSeptember 30, 2020 . Revenue for the three months endedSeptember 30, 2021 relates to ongoing research and development and clinical supply services provided toMundipharma and Janssen of$3.3 million and$3.8 million , respectively. Revenue for the three months endedSeptember 30, 2020 relates to ongoing research and development and clinical supply services provided toMundipharma. Research and development expenses Research and development expenses were$20.5 million for the three months endedSeptember 30, 2021 and$16.3 million for the three months endedSeptember 30, 2020 . The increase in research and development expenses is primarily due to higher clinical expenses associated with the rezafungin clinical trials and drug manufacturing costs, increased expense associated with our Cloudbreak platform, and higher personnel costs. General and administrative expenses General and administrative expenses were$4.6 million for the three months endedSeptember 30, 2021 and$3.7 million for the three months endedSeptember 30, 2020 . The increase in general and administrative expenses is primarily due to higher consulting, legal, and personnel costs. Other expense, net Other expense, net during the three months endedSeptember 30, 2021 andSeptember 30, 2020 related primarily to interest expense in connection with our loan fromPacific Western Bank , offset by interest income generated from cash held in interest-bearing investments. Comparison of the nine months endedSeptember 30, 2021 and 2020 The following table summarizes our results of operations for the nine months endedSeptember 30, 2021 and 2020 (in thousands): Nine Months Ended September 30, 2021 2020 Change Collaboration revenue$ 42,347 $ 8,338 $ 34,009 Research and development expense 54,074 46,888 7,186
General and administrative expense 13,758 11,751 2,007 Other expense, net
(179) (176) (3)
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Collaboration revenue Collaboration revenue was$42.3 million for the nine months endedSeptember 30, 2021 and$8.3 million for the nine months endedSeptember 30, 2020 . Revenue for the nine months endedSeptember 30, 2021 included$27.0 million of revenue recognized upon transfer of an intellectual property license to Janssen inMay 2021 . The remaining revenue for the nine months endedSeptember 30, 2021 relates to ongoing research and development and clinical supply services provided toMundipharma and Janssen of$8.4 million and$6.9 million , respectively. Revenue for the nine months endedSeptember 30, 2020 relates to ongoing research and development and clinical supply services provided toMundipharma. Research and development expenses Research and development expenses were$54.1 million for the nine months endedSeptember 30, 2021 and$46.9 million for the nine months endedSeptember 30, 2020 . The increase in research and development expenses is primarily due to higher clinical expenses associated with the rezafungin clinical trials and drug manufacturing costs, increased expense associated with our Cloudbreak platform, and higher personnel costs. General and administrative expenses General and administrative expenses were$13.8 million for the nine months endedSeptember 30, 2021 and$11.8 million for the nine months endedSeptember 30, 2020 . The increase in general and administrative expenses is primarily due to higher consulting, legal, and personnel costs. Other expense, net Other expense, net during the nine months endedSeptember 30, 2021 andSeptember 30, 2020 related primarily to interest expense in connection with our loan fromPacific Western Bank , offset by interest income generated from cash held in interest-bearing investments. LIQUIDITY AND CAPITAL RESOURCES We have incurred significant losses and negative cash flows from operations since our inception. As ofSeptember 30, 2021 , we had an accumulated deficit of$360.4 million and we expect to continue to incur significant losses for the foreseeable future. We expect our research and development and general and administrative expenses to continue to be substantial for the foreseeable future and, as a result, we will need additional capital to fund our operations, which we may obtain through equity, debt or other financing structures, or through collaborations, strategic alliances or licensing arrangements with third parties, or through receiving government and/or charitable grants or contracts. As ofSeptember 30, 2021 , we had$40.3 million in cash, cash equivalents and restricted cash. The following table shows a summary of our cash flows for the nine months endedSeptember 30, 2021 and 2020 (in thousands): Nine Months EndedSeptember 30, 2021 2020
Net cash provided by (used in):
Operating activities$ (10,325) $ (43,283) Investing activities (41) (186) Financing activities 7,722 36,869
Net decrease in cash, cash equivalents, and restricted cash
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Operating activities Net cash used in operating activities was$10.3 million for the nine months endedSeptember 30, 2021 , compared to net cash used in operating activities of$43.3 million for the nine months endedSeptember 30, 2020 . Cash used in operating activities for the nine months endedSeptember 30, 2021 was primarily attributable to a net loss of$25.7 million and included$11.1 million for a milestone achieved inNovember 2020 under the Mundipharma Collaboration Agreement, which was received inJanuary 2021 . Cash used in operating activities for the nine months endedSeptember 30, 2020 was primarily attributable to a net loss of$50.5 million . For all periods presented, the primary use of cash was to fund research and development activities for our product candidates, which activities and uses of cash we expect to continue to increase for the foreseeable future. Investing activities Our investing activities during the nine months endedSeptember 30, 2021 and 2020 consisted of purchases of property and equipment. Financing activities Net cash provided by financing activities during the nine months endedSeptember 30, 2021 primarily consisted of net proceeds of$11.0 million from the sale of 4,577,115 shares of common stock under the Sales Agreement, after deducting placement agent fees, offset by principal payments of$3.3 million made in connection with our loan fromPacific Western Bank . Net cash provided by financing activities during the nine months endedSeptember 30, 2020 primarily consisted of (i) net proceeds of$29.2 million from the sale of 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock pursuant to the exercise of subscription rights issued in our rights offering and (ii) net proceeds of$9.5 million from the sale of 2,722,817 shares of common stock under the Sales Agreement, after deducting placement agent fees, offset by principal payments of$1.9 million made in connection with our loan fromPacific Western Bank . Operating Capital Requirements We performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for the next twelve months. Our ability to execute our operating plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. We plan to continue to fund our losses from operations through cash and cash equivalents on hand, as well as through future equity offerings, debt financings, other third party funding, and potential licensing or collaboration arrangements. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects. OFF-BALANCE SHEET ARRANGEMENTS As ofSeptember 30, 2021 , we did not have any off-balance sheet arrangements.
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