CODIAK BIOSCIENCES The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q for the quarter endedJune 30, 2022 (the "Quarterly Report"), and our consolidated financial statements and related notes and other financial information in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as statements regarding our plans, objectives, expectations, intentions, and projections, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the ''Risk Factors'' section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on pioneering the development of exosome-based therapeutics, a new class of medicines with the potential to transform the treatment of a wide spectrum of diseases with high unmet medical need. Exosomes have evolved as intercellular transfer mechanisms for complex, biologically active macromolecules and have emerged in recent years as a compelling potential drug delivery vehicle. By leveraging our deep understanding of exosome biology, we have developed our engineering and manufacturing platform, or engEx Platform, to expand upon the innate properties of exosomes to design, engineer and manufacture novel exosome therapeutics. We have utilized our engEx Platform to generate a deep pipeline of engineered exosomes, or engEx exosomes, aimed at treating a broad range of diseases, including oncology, and infectious disease and rare disease. InSeptember 2020 , we initiated clinical trials of our lead engEx product candidates, exoSTING and exoIL-12, which are being developed to address oncology indications. InJune 2022 , we initiated a Phase 1 clinical trial of exoASO-STAT6. This is our first systemically delivered exosome therapeutic candidate. To our knowledge, exoSTING, exoIL-12 and exoASO-STAT6 are the first engineered exosomes to enter clinical development. InDecember 2020 andFebruary 2021 , we reported positive results from Part A of our Phase 1 clinical trial of exoIL-12 in healthy human volunteers. In this randomized, placebo controlled, double-blind study, exoIL-12 demonstrated a favorable safety and tolerability profile, with no local or systemic treatment-related adverse events and no detectable systemic exposure of IL-12. Results also confirmed retention of active IL-12 at the injection site and prolonged pharmacodynamic effects. These results in healthy volunteers, which are consistent with our preclinical observations, provide validation of our engEx Platform and one of the founding principles of Codiak-that engineered exosomes can offer the opportunity to tailor therapeutic payloads to provide an active biological response while at the same time limiting unwanted side effects. InNovember 2021 , we reported initial data from the first three dose escalating cohorts (0.3 mcg, 1.0 mcg, and 3.0 mcg) enrolled in the Phase 1/2 study of exoSTING. Trial participants (n=11) were administered exoSTING intratumorally and all subjects had received at least two prior therapies prior to study entry, with most (73%) having progressed on checkpoint inhibitors. Plasma pharmacokinetic ("PK"), measurements of subjects that received exoSTING showed no systemic exposure to the agonist. Further, analyses of available plasma biomarkers indicated a lack of systemic inflammatory cytokines detectable in blood after exoSTING administration. exoSTING appeared to be generally well-tolerated. Blood biomarker assessments conducted post-dosing showed evidence of dose-dependent activation of theSTING pathway and Type I INF induction along with CXCL10, indicating activation of the innate immune response. Paired tumor biopsies available from two subjects showed evidence of an adaptive immune response and CD8 effector T cell infiltration into the tumor, as well as an increase in PD-L1 expression. Finally, in subjects evaluable for early signs of antitumor activity (n=8), tumor shrinkage was observed in injected as well as distal, non-injected tumors, in a subset of subjects. InJune 2022 , we reported initial data from cohorts 4 (6 mcg) and 5 (12 mcg) for trial participants enrolled in the Phase 1 study of exoSTING and exoIL-12. In the CTCL portion of the study, two patients with early stage CTCL whose disease progressed on prior therapy have been treated as of theJune 10, 2022 , data cut-off. Each patient has received more than 20 injections of exoIL-12 (6.0 µg) across multiple lesions. Duration of treatment has been greater than six months, and no treatment-related adverse events Grade 3 or higher or SAEs were observed, and no dose modifications were required. exoIL-12 demonstrated improvement in overall tumor burden, as measured by mSWAT, and lesion severity, as measured by CAILS, in both patients treated. PK measurements of both healthy volunteers and patients that received exoIL-12 showed no systemic exposure with levels of IL-12 below the limit of quantification. In contrast, previous rIL-12 clinical studies showed dose-dependent systemic exposure with dosages of 5 and 12 mcg resulting in Cmax plasma levels of approximately 15 to 45 pg/ml within six to 12 hours after dosing. 25
-------------------------------------------------------------------------------- Data as ofJune 10, 2022 have been reported from all five escalation dose cohorts (0.3 mcg, 1.0 mcg, 3.0 mcg, 6.0 mcg and 12.0 mcg) enrolled in the Phase 1/2 study. Dosing is still underway in the 12.0 mcg cohort and all patients continue to be followed. Trial participants (n=23) were administered exoSTING intratumorally, and nearly all had received at least two prior therapies prior to study entry with most (65%) having progressed on checkpoint inhibitors. PK measurements of patients that received exoSTING showed no systemic exposure to the agonist. Further, analyses of available plasma biomarkers indicated a lack of systemic inflammatory cytokines detectable in blood after exoSTING administration. Blood biomarker assessments conducted post dosing demonstrated dose-dependent activation of theSTING pathway at doses 100-fold lower in comparison to other freeSTING agonists. Paired tumor biopsies available from Cohorts 1-4 show evidence of an adaptive immune response, including consistent increases in CD-8 effector T-cells and PD-L1 in the tumor micro-environment. Signs of antitumor activity were observed with tumor shrinkage in injected as well as distal, non-injected tumors. Furthermore, we have multiple preclinical and discovery programs of our engEx exosomes that we are or have previously been advancing either independently or through our strategic collaborations withJazz Pharmaceuticals Ireland Limited ("Jazz"), andLonza Rockland, Inc. ("Lonza"). We were incorporated and commenced operations in 2015. Since inception, we have devoted substantially all of our resources to developing our engEx Platform, our engEx product candidates and engEx exosomes, clinical and preclinical candidates; building our intellectual property portfolio, process development and manufacturing function; business planning; and raising capital and providing general and administrative support for these operations. To date, we have financed our operations primarily with proceeds from sales of our common stock and redeemable convertible preferred stock, our term loan facility with Hercules Capital, Inc. ("Hercules"), and our collaborations with Jazz and Sarepta. As ofJune 30, 2022 , we had raised an aggregate of$168.2 million through the issuance of our redeemable convertible preferred stock, net of issuance costs,$24.6 million from our term loan facility with Hercules, net of issuance costs, and received$66.0 million in payments from our collaboration with Jazz and our prior collaboration with Sarepta. OnOctober 16, 2020 , we completed our initial public offering ("IPO"), pursuant to which we issued and sold 5,500,000 shares of our common stock at a public offering price of$15.00 per share, resulting in net proceeds of$74.4 million , after deducting underwriting discounts and commissions and other offering expenses. OnFebruary 17, 2021 , we completed a follow-on public offering, pursuant to which we issued and sold 3,162,500 shares of our common stock (inclusive of the exercise of the underwriter's option to purchase 412,500 additional shares of common stock) at a public offering price of$21.00 per share, resulting in aggregate net proceeds of$61.7 million , after deducting underwriting discounts and commissions and other offering expenses. During the six-month period endedJune 30, 2022 , we raised$0.6 million , utilizing an "at-the-market" offering facility, pursuant to which we sold 110,037 shares of our common stock. OnNovember 1, 2021 , we and Lonza entered into an Asset Purchase Agreement (the "APA"), pursuant to which Lonza acquired our exosome manufacturing facility and related assets, and subleased the premises, located at4 Hartwell Place ,Lexington, Massachusetts . OnNovember 15, 2021 , we and Lonza closed the transactions contemplated by the APA (the "Lonza Closing"). In connection with the Lonza Closing, and as consideration for the APA, we and Lonza entered into a Manufacturing Services Agreement (the "MSA"). Pursuant to the MSA, Lonza will become the exclusive manufacturing partner for future clinical and commercial manufacturing of our exosome products pipeline, subject to limited exceptions. As consideration for the transactions contemplated by the APA and the associated ancillary agreements, we are entitled to approximately$65.0 million worth of exosome manufacturing services for our clinical programs during the next four years. Commencing in 2026, we shall purchase from Lonza a contractually agreed minimum amount of exosome manufacturing services per year for ten years, or if earlier, until the fifth (5th) anniversary of the first commercial sale of a Codiak exosome product, subject to limited exceptions. Also in connection with the Lonza Closing, we and Lonza entered into a Licensing and Collaboration Agreement (the "License"). Pursuant to the License, we granted Lonza a worldwide, exclusive and sub-licensable license to our high throughput exosome manufacturing intellectual property in the contract development and manufacturing field, and a worldwide, non-exclusive and sub-licensable license to such intellectual property for non-therapeutical uses outside the contract development and manufacturing field. Pursuant to the License, we are eligible to receive from Lonza a double-digit percentage of future sublicensing revenues. We shall retain our pipeline of therapeutic candidates and core exosome engineering, drug-loading expertise and related intellectual property. The companies will collaborate to establish a joint Center of Excellence for further development of exosome manufacturing technology, with a shared oversight committee.The Center of Excellence will leverage the strengths of both companies to pursue developments in exosome production, purification and analytics. 26
-------------------------------------------------------------------------------- We have not generated any revenue from product sales and do not expect to do so for several years, and may never do so. We advanced our first two engEx product candidates, exoSTING and exoIL-12, into clinical trials inSeptember 2020 , and inJune 2022 , we initiated a Phase 1 clinical trial of exoASO-STAT6. All of our other engEx exosomes are still in preclinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our engEx product candidates. Since our inception, we have incurred significant losses, including net losses of$37.2 million and$91.7 million for the years endedDecember 31, 2021 and 2020, respectively. During the six months endedJune 30, 2022 , we incurred a net loss of$14.8 million . As ofJune 30, 2022 , we had an accumulated deficit of$340.1 million . We expect to incur substantial additional losses in the future as we expand our research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
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initiate and conduct clinical trials for exoSTING, exoIL-12, exoASO-STAT6 and any other engEx product candidates we identify and choose to develop;
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continue our current research programs and preclinical development of our potential engEx product candidates;
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seek to identify additional research programs and additional engEx product candidates;
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further develop and expand the capabilities of our engEx Platform;
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secure supply chain capacity sufficient to support our planned preclinical studies and early-stage clinical trials;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, scientific, manufacturing, and general and administrative personnel;
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acquire or in-license other biologically active molecules, potential engEx product candidates or technologies;
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seek regulatory approvals for any engEx product candidates that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any engEx products for which we may obtain regulatory approval;
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add operational, financial and management information systems and personnel, including personnel to support our product development and any future commercialization efforts, as well as to support our continued operations as a public company; and
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take temporary precautionary measures to minimize the risk of COVID-19 to our employees, contractors and those who may participate in our studies.
We do not anticipate generating revenue from product sales for the foreseeable
future, if ever, unless and until we successfully complete clinical development
and obtain marketing approvals for our engEx product candidates. In addition, if
we obtain marketing approval for any of our engEx product candidates, we expect
to incur significant commercialization expenses related to product
manufacturing, marketing, sales and distribution.
As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Until such time as we can
generate significant revenue from product sales, if ever, we expect to finance
our operations through the sale of equity, debt financings or other capital
sources, including collaborations with other companies or other strategic
transactions. We may be unable to raise additional funds or enter into such
other agreements or arrangements when needed on favorable terms, or at all. If
we fail to raise capital or enter into such agreements as, and when, needed, we
may have to significantly delay, scale back or discontinue the development and
commercialization of one or more of our engEx product candidates or delay our
pursuit of potential in-licenses or acquisitions.
Further, business interruptions resulting from the COVID-19 pandemic or similar
public health crises could cause a significant disruption in the development of
our engEx product candidates and our business operations. Securing the necessary
approvals for new drugs requires the expenditure of substantial time and
resources and any delay or failure to obtain such approvals could materially
adversely affect our development efforts. Because of the numerous risks and
uncertainties associated with product development, we are unable to predict the
timing or amount of increased expenses or when or if we will be able to achieve
or maintain profitability. Even if we are able to generate product sales, we may
not become profitable. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our
operations at planned levels and be forced to reduce or terminate our
operations.
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As of June 30, 2022 , we had cash and cash equivalents of $41.8 million . We
expect that our existing cash and cash equivalents as of June 30, 2022 will not
enable us to fund our current operating plan and capital expenditure
requirements for 12 months following the date of this filing. We have based this
estimate on assumptions that may prove to be wrong, and we could use our capital
resources sooner than we currently expect. These factors raise substantial doubt
about our ability to continue as a going concern. See ''Liquidity and capital
resources'' for further information.
Financial operations overview
Revenue
We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future engEx product candidates are successful and result in marketing approval or additional collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from current or additional collaboration or license agreements. InJanuary 2019 , we entered into a Collaboration and License Agreement with Jazz, pursuant to which we granted Jazz an exclusive, worldwide, royalty-bearing license to use our engEx Platform for the purposes of developing, manufacturing and commercializing exosome therapeutic candidates directed at up to five targets. InApril 2021 , we and Jazz mutually agreed to discontinue our work on STAT3, one of five oncogene targets subject to the Collaboration and License Agreement. OnJune 30, 2021 , Jazz formally nominated the fifth collaboration target. InJanuary 2022 , we and Jazz mutually agreed to discontinue work on the NRAS program. As a result of this discontinuation, Jazz may nominate a replacement target, subject to nomination requirements as outlined in the collaboration agreement. InJuly 2022 , we and Jazz mutually agreed to discontinue work on an undisclosed third target. We recognized the remaining deferred revenue allocated to the undisclosed third target as the preclinical activities that informed this decision were completed prior to the end of both the three and six months endedJune 30, 2022 . InJune 2020 , we entered into a Research License and Option Agreement with Sarepta, pursuant to which we received funding to conduct collaborative research, and provided Sarepta with options to obtain exclusive licenses for exosome therapeutic candidates directed at up to five targets. Sarepta notified us that it was terminating early the two-year Research License and Option Agreement, effective as ofDecember 3, 2021 . In the future, we expect substantially all of our revenue to be generated from our collaboration with Jazz and any other collaboration and license agreements we may enter into going forward. During the three and six months endedJune 30, 2022 , we recognized$13.3 million and$26.0 million of revenue under our Collaboration and License Agreement with Jazz, respectively. We recognized a reduction to revenue of$0.2 million related to the Sarepta Research Agreement during the three and six months endedJune 30, 2022 . No additional revenue will be recognized related to theSarepta Research Agreement, as it was terminated effectiveDecember 3, 2021 . During the three and six months endedJune 30, 2021 , we recognized$1.4 and$3.0 million of revenue under the Sarepta Research Agreement, respectively. During the three and six months endedJune 30, 2021 , we recognized a reduction to revenue of$0.5 million and revenue of$11.1 million under our Collaboration and License Agreement with Jazz, respectively. As ofJune 30, 2022 andDecember 31, 2021 , we had$17.6 million and$43.6 million , respectively, of deferred revenue with respect to our Collaboration and License Agreement with Jazz.
Operating expenses
Research and development expense
The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for the following:
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conduct of the clinical development of exoSTING in a Phase 1/2 clinical trial;
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conduct of the clinical development of exoIL-12 in a Phase 1 clinical trial;
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conduct of the clinical development of exoASO-STAT6 in a Phase 1 clinical trial;
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costs to develop our engEx Platform;
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discovery efforts leading to the selection and advancement of engEx product candidates for clinical development;
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preclinical development costs for our programs; and
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costs to develop our manufacturing technology and infrastructure.
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--------------------------------------------------------------------------------The costs above comprise the following categories:
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personnel-related expenses, including salaries, benefits and stock-based compensation expense;
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expenses incurred under agreements with third parties, such as contract research organizations ("CROs"), that conduct our preclinical studies;
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licensing costs;
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costs of acquiring, developing and manufacturing materials for preclinical studies, including both internal manufacturing and third-party contract manufacturing organizations ("CMOs");
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costs of outside consultants and advisors, including their fees, stock-based compensation and related travel expenses;
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expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and
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facilities, depreciation, amortization and other direct and allocated expenses incurred as a result of research and development activities.
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Our primary focus of research and development since inception has been the
development of our engEx Platform and our pipeline of engEx product candidates,
including our initial product candidates, exoSTING, exoIL-12, exoASO-STAT6 and
discovery programs. Our research and development costs consist of personnel
costs, external costs, such as fees paid to CMOs, CROs, and consultants in
connection with our clinical and preclinical studies and experiments, and other
internal costs, including rent, depreciation, and other miscellaneous costs. We
do not allocate employee-related costs and other internal costs to specific
research and development programs because these costs are used across all
programs under development. We present external research and development costs
for any individual engEx product candidate when we obtain Investigational New
Drug ("IND") approval. As IND approval was received for exoSTING and exoIL-12 in
2020 and exoASO-STAT6 in 2021, we have presented our research and development
costs separately for these programs below.
The following table reflects our research and development expenses for each period presented (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2022 2021 2022 2021
Personnel-related (including
stock-based compensation) $ 5,173 $ 6,591 $ 11,258 $ 13,217
Other research and development expenses 2,871 3,208 5,781 6,486
engEx Platform 1,639 3,007 3,405 6,508
exoSTING 1,279 1,208 2,746 2,164
exoIL-12 682 604 1,985 1,379
exoASO-STAT6 1,154 801
1,870 2,214
Total research and development expenses
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 clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we conduct clinical trials for our lead engEx product candidates, exoSTING, exoIL-12 and exoASO-STAT6, continue to discover and develop additional engEx product candidates, continue to invest in manufacturing technologies, enhance our engEx Platform, expand into additional therapeutic areas and incur expenses associated with hiring additional personnel to support our research and development efforts. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our engEx product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our engEx product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
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our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our engEx product candidates;
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our successful enrollment in and completion of clinical trials, including our ability to generate positive data from any such clinical trials;
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the costs associated with the development of any additional development programs we identify in-house or acquire through collaborations;
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our ability to add and retain key research and development personnel;
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our ability to establish an appropriate safety profile with IND-enabling toxicology and other preclinical studies;
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our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression, as applicable, of our engEx product candidates;
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our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our engEx product candidates are approved;
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our ability to secure from Lonza, under our manufacturing arrangement with them, sufficient supply of our product candidates for clinical trials or commercial use, if approved;
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our ability to maintain our collaborative arrangement with Jazz and earn milestone payments thereunder;
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the terms and timing of any additional collaborations, license or other arrangements, including the terms and timing of any milestone payments thereunder;
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our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our engEx product candidates if and when approved;
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our receipt of marketing approvals from applicable regulatory authorities; and
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the continued acceptable safety profiles of any engEx product following approval.
A change in any of these variables with respect to the development of any of our engEx product candidates would significantly change the costs, timing and viability associated with the development of that engEx product candidate.
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--------------------------------------------------------------------------------General and administrative expense
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 patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. These costs relate to the operation of the business unrelated to the research and development function or any individual program. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our engEx product candidates, if approved. We also expect to continue to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance costs and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.
Interest income
Interest income consists of interest income earned from our cash, cash equivalents and investments.
Interest expense
Interest expense consists of interest expense incurred from our term loan facility with Hercules.
Other income
Other income primarily consists of the sublease income under the sublease
portion of our
Income taxes Since our inception in 2015, we have not recorded anyU.S. federal or state income tax benefits for the net losses we have incurred in each year or our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As ofDecember 31, 2021 , we had federal and state net operating loss carryforwards of$189.4 million and$188.7 million , respectively, which may be available to offset future taxable income. During the year endedDecember 31, 2021 , we generated a federal net operating loss of$152.9 million , which has an indefinite carryforward period. The remaining$36.4 million of federal net operating loss carryforwards and our state net operating loss carryforwards would begin to expire in 2035. As ofDecember 31, 2021 , we had federal and state research and development credit carryforwards of$10.5 million and$5.0 million , respectively, which may be available to offset future income tax liabilities and which would begin to expire in 2035 and 2031, respectively. During the three and six months endedJune 30, 2022 , we recorded no income tax benefits for the net operating losses incurred or research and development tax credits earned in each interim period due to our uncertainty of realizing a benefit from those items. 32 --------------------------------------------------------------------------------
Results of operations
The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2022 2021 2022 2021
Revenue:
Collaboration revenue $ 13,145 $ 890 $ 25,849 $ 14,081
Total revenue 13,145 890 25,849 14,081
Operating expenses:
Research and development 12,798 15,419 27,045 31,969
General and administrative 7,364 6,937 14,071 13,525
Total operating expenses 20,162 22,356 41,116 45,494
Loss from operations (7,017 ) (21,466 ) (15,267 ) (31,413 )
Other income (expense):
Other income (649 ) (704 ) (1,250 ) (1,401 )
Interest income 34 9 38 14
Interest expense 848 352 1,667 683
Realized gain 9 - 9 -Total other income (expense), net 242 (343 ) 464
(704 )
Net loss $ (6,775 ) $ (21,809 ) $ (14,803 ) $ (32,117 ) Comparison of the three months ended
Collaboration revenue
Collaboration revenue increased by$12.2 million from$0.9 million for the three months endedJune 30, 2021 to$13.1 million for the three months endedJune 30, 2022 . The increase for the three month period endedJune 30, 2022 was driven by$13.3 million recognized by the Company as a result of our agreement with Jazz to discontinue work on an undisclosed third target, one of the five oncogene targets subject to the Jazz Collaboration Agreement. We recognized$1.4 million of revenue under our Research License and Option Agreement with Sarepta during the three months endedJune 30, 2021 , which was offset by a reduction to revenue of$0.5 million due to an immaterial error correction associated with revenue recognized under the Jazz Collaboration Agreement. 33 --------------------------------------------------------------------------------
Research and development expense
The following table summarizes our research and development expenses for the three months endedJune 30, 2022 and 2021, along with the changes in those items (in thousands): THREE MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2022 2021 (DECREASE) (DECREASE) Personnel-related (including stock-based compensation)$ 5,173 $ 6,591 $ (1,418 ) (22 )%
Other research and development expenses 2,871 3,208
(337 ) (11 )% engEx Platform 1,639 3,007 (1,368 ) (45 )% exoSTING 1,279 1,208 71 6 % exoASO-STAT6 1,154 801 353 44 % exoIL-12 682 604 78 13 %
Total research and development expenses
(2,621 ) Research and development expenses decreased$2.6 million from$15.4 million for the three months endedJune 30, 2021 to$12.8 million for the three months endedJune 30, 2022 .
The decrease in research and development expenses was primarily due to a
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$1.4 million decrease in engEx Platform expenses driven mainly by decreases in lab expenses and a decrease in the number of contractors and consultants, which were both primarily related to the disposition of the CMF facility to Lonza; and
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$0.3 million decrease in depreciation expense in other research and development costs, which was primarily related to the disposition of the CMF facility to Lonza.
These decreases were slightly offset by a
General and administrative expense
The following table summarizes our general and administrative expenses for the three months endedJune 30, 2022 and 2021, along with the changes in those items (in thousands): THREE MONTHS ENDED ABSOLUTE JUNE 30, INCREASE PERCENTAGE INCREASE 2022 2021 (DECREASE) (DECREASE) Personnel-related (including stock-based compensation)$ 3,948 $ 3,970 $ (22 ) (1 )% Facility-related and other general and administrative 1,720 1,845 (125 ) (7 )% Professional fees 1,696 1,122 574 51 % Total general and administrative expenses$ 7,364 $ 6,937 $
427
General and administrative expenses increased$0.5 million from$6.9 million for the three months endedJune 30, 2021 to$7.4 million for the three months endedJune 30, 2022 .
The increase in general and administrative expenses was primarily due to professional services driven by legal fees for intellectual property rights.
Interest income
There was an immaterial change of less than$0.1 million in interest income between the three months endedJune 30, 2021 and the three months endedJune 30, 2022 . All of our investments matured prior to the three months endedJune 30, 2022 . As ofJune 30, 2022 , we did not hold any investments.
Interest expense
Interest expense decreased$0.1 million from$0.7 million for the three months endedJune 30, 2021 to$0.6 million for three months endedJune 30, 2022 . The decrease was driven by slightly lower interest rates in the Amended Term Loan Facility, which became effective inSeptember 2021 . 34 --------------------------------------------------------------------------------
Other income
Other income increased by$0.4 million from$0.4 million for the three months endedJune 30, 2021 to$0.8 million for the three months endedJune 30, 2022 . The increase in other income was driven by the annual increase in rental income received from our35 CambridgePark Drive sublease as well as the sublease at4 Hartwell Place , which commenced inNovember 2021 .
Comparison of the six months ended
Collaboration revenue
Collaboration revenue increased by$11.7 million from$14.1 million for the six months endedJune 30, 2021 to$25.8 million for the six months endedJune 30, 2022 . The increase for the six-month period endedJune 30, 2022 was driven by$26.0 million recognized by us as a result of our agreement with Jazz to discontinue work on NRAS and an undisclosed third target, two of the five oncogene targets subject to the Jazz Collaboration Agreement. In the six months endedJune 30, 2021 , we recognized$10.9 million of revenue under the Jazz Collaboration Agreement as a result of our agreement with Jazz to discontinue work on STAT3, one of the five oncogene targets subject to the Jazz Collaboration Agreement, and an additional$3.0 million of revenue was recognized related to our Sarepta Research License and Option Agreement, which was terminated, effectiveDecember 3, 2021 .
Research and development expense
The following table summarizes our research and development expenses for the six months endedJune 30, 2022 and 2021, along with the changes in those items (in thousands): SIX MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2022 2021 (DECREASE) (DECREASE) Personnel-related (including stock-based compensation)$ 11,258 $ 13,217 $ (1,959 ) (15 )% Other research and development expenses 5,781 6,486 (705 ) (11 )% engEx Platform 3,405 6,508 (3,103 ) (48 )% exoSTING 2,746 2,164 582 27 % exoIL-12 1,985 1,379 606 44 % exoASO-STAT6 1,870 2,214 (344 ) (16 )% Total research and development expenses$ 27,045 $ 31,968 $ (4,923 ) Research and development expenses decreased by$5.0 million from$32.0 million for six months endedJune 30, 2021 to$27.0 million for the six months endedJune 30, 2022 .
The decrease in research and development expenses was primarily due to
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•
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$0.7 million decrease in depreciation expense in other research and development costs, which was primarily related to the disposition of the CMF facility to Lonza; and
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$0.3 million decrease on exoASO-STAT6 expenses, which was primarily due to a lower amount of pre-clinical study expenses due to the current year initiation of a Phase 1 clinical trial.
These decreases were slightly offset by
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•
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--------------------------------------------------------------------------------General and administrative expense
The following table summarizes our general and administrative expenses for the six months endedJune 30, 2022 and 2021, along with the changes in those items (in thousands): SIX MONTHS ENDED ABSOLUTE JUNE 30, INCREASE PERCENTAGE INCREASE 2022 2021 (DECREASE) (DECREASE) Personnel-related (including stock-based compensation)$ 7,343 $ 7,236 $ 107 1 % Facility-related and other general and administrative 3,693 3,874 (181 ) (5 )% Professional fees 3,035 2,415 620 26 % Total general and administrative expenses$ 14,071 $ 13,525 $
546
General and administrative expenses increased by$0.6 million from$13.5 million for the six months endedJune 30, 2021 to$14.1 million for the six months endedJune 30, 2022 .
The increase in general and administrative expenses was primarily due to professional services, which were driven by legal fees for intellectual property rights.
Interest income
There was an immaterial change of less than
Interest expense
Interest expense decreased by$0.1 million from$1.4 million for the six months endedJune 30, 2021 to$1.3 million for six months endedJune 30, 2022 . The decrease was driven by slightly lower interest rates in the Amended Term Loan Facility, which became effective inSeptember 2021 .
Other income
Other income increased by
36
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Liquidity and capital resources
Sources of liquidity
Since our inception, we have incurred significant losses in each period and on
an aggregate basis. We have not yet commercialized any of our engEx product
candidates, which are in various phases of early-stage and clinical development,
and we do not expect to generate revenue from sales of any products for several
years, if at all. We have funded our operations through June 30, 2022 with
aggregate net proceeds of $168.2 million from sales of our redeemable
convertible preferred stock, $24.6 million from our term loan facility with
Hercules, net of issuance costs, and $66.0 million received from our
collaborations with Jazz and Sarepta. On October 16, 2020 , we completed our IPO
for net proceeds of $74.4 million , after deducting underwriting discounts and
commissions and other offering expenses. On February 17, 2021 , we completed a
follow-on public offering for net proceeds of $61.7 million , after deducting
underwriting discounts and commissions and other offering expenses. During the
six-month period ended June 30, 2022 , we raised $0.6 million , utilizing an
"at-the-market" offering facility, pursuant to which we sold 110,037 shares of
our common stock. As of June 30, 2022 , we had cash and cash equivalents of $41.8
million . This amount will not be sufficient to fund our operations at the levels
described in this Quarterly Report for the next 12 months. Maintaining our
ongoing operations is dependent on our ability to obtain additional financing,
as to which we can make no assurance.
Hercules Loan Agreement
OnSeptember 30, 2019 (the "Closing Date"), we entered into a Loan and Security Agreement (the "Loan Agreement") with Hercules pursuant to which a term loan in an aggregate principal amount of up to$75.0 million (the "Term Loan Facility") was made available to us in four tranches, subject to certain terms and conditions. On the Closing Date,$10.0 million of the first tranche was advanced to us and an additional$15.0 million under the first tranche was drawn down onJuly 24, 2020 . Under the Loan Agreement, there were three additional tranches available to us of$10.0 million ("tranche two"),$10.0 million ("tranche three"), and$30.0 million ("tranche four"). As ofJune 30, 2022 , tranches two, three and four had expired. Upon issuance, the initial advance under the first tranche was recorded as a liability with an initial carrying value of$9.5 million , net of debt issuance costs. TheJuly 24, 2020 , advance under the first tranche was recorded as a liability with an initial carrying value of$15.0 million . The initial carrying value of all outstanding advances is accreted to the repayment amount, which includes the outstanding principal plus the end of term charge, through interest expense using the effective interest rate method over the term of the loan. EffectiveSeptember 17, 2021 (the "Amended Closing Date"), we amended the Loan Agreement with Hercules (the "Amended Loan Agreement"), increasing the aggregate principal amount available under the Term Loan Facility to$85.0 million (the "Amended Term Loan Facility"). Under the Amended Term Loan Facility, a new tranche three of$10.0 million was established and was available throughDecember 15, 2021 . Tranche Four was amended such that$30.0 million is now available through the interest only period, subject to future lender investment committee approval. A fifth tranche ("Tranche Five") of up to$20.0 million was established under the Amended Loan Agreement and is available throughSeptember 30, 2023 , upon satisfaction of certain clinical milestones. Tranche Five is only available in minimum draws of$5.0 million . Advances under the Amended Term Loan Facility bear interest at a rate equal to the greater of (i) 8.25% plus the Prime Rate (as reported in The Wall Street Journal) less 3.25%, and (ii) 8.25%. The interest only period under the Term Loan Facility was extended fromNovember 1, 2022 toOctober 1, 2023 under the Amended Term Loan Facility and is further extendable toOctober 1, 2024 upon achievement of certain clinical milestones. Under the Amended Term Loan Facility, following the interest only period, we will repay the principal balance and interest on the advances in equal monthly installments throughOctober 1, 2025 , compared toOctober 1, 2024 under the Term Loan Facility. Prepayments on Amended Loan Agreement, in whole or in part, at any time are subject to a prepayment charge (Prepayment Premium) equal to: (i) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Amended Closing Date, (ii) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Amended Closing Date, or (iii) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Amended Closing Date. Additionally, upon prepayment or repayment of all or any of the term loans under the Amended Term Loan Facility, the Company will pay an end of term charge of 5.5% of the aggregate funded amount under the Term Loan Facility. The end of term charge of$1.4 million , or 5.5% of the$25.0 million of principal advanced under the Term Loan Facility, remains payable at the maturity date under the original term Loan Facility ofOctober 1, 2024 . The terms under the Amended Loan Agreement were not substantially different from those under the original Loan Agreement and the Amended Loan Agreement will be accounted for prospectively. 37 -------------------------------------------------------------------------------- The Amended Term Loan Facility remains secured by a lien on substantially all of our assets, other than our intellectual property. We have agreed not to pledge or grant a security interest on our intellectual property to any third party. The Term Loan Facility also contains customary covenants and representations, including a liquidity covenant, whereby we are obligated to maintain, in an account covered by Hercules' account control agreement, an amount equal to the lesser of: (i) 110% of the amount of our obligations under the Term Loan Facility or (ii) our then-existing cash and cash equivalents; financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. The events of default under the Amended Loan Agreement include, without limitation, and subject to customary grace periods, the following: (i) any failure by us to make any payments of principal or interest under the Amended Loan Agreement, (ii) any breach or default in the performance of any covenant under the Amended Loan Agreement, (iii) the occurrence of a material adverse effect, (iv) any making of false or misleading representations or warranties in any material respect, (v) our insolvency or bankruptcy, (vi) certain attachments or judgments on our assets, or (vii) the occurrence of any material default under certain of our agreements or obligations involving indebtedness. If an event of default occurs, Hercules is entitled to take enforcement action, including acceleration of amounts due under the Amended Loan Agreement.
Historical cash flows
The following table provides information regarding our cash flows for each period presented (in thousands):
SIX MONTHS ENDED
JUNE 30,
2022 2021
Net cash provided by (used in):
Operating activities $ (35,448 ) $ (37,320 )
Investing activities (353 ) (2,365 )
Financing activities 648 64,451
Net (decrease) increase in cash, cash equivalents and
restricted cash $ (35,153 ) $ 24,766
Operating activities
The cash used in operating activities resulted primarily from our net losses
adjusted for non-cash charges and changes in components of operating assets and
liabilities, which are generally attributable to timing of payments, and the
related effect on certain account balances, operational and strategic decisions
and contracts to which we may be a party.
During the six months ended June 30, 2022 , operating activities used $35.4
million of cash, primarily due to a net loss of $14.8 million , coupled with a
$26.0 million decrease in deferred revenue and a $2.6 million net decrease in
accounts payable and accrued expenses, which were partially offset by non-cash
charges of $5.0 million for stock-based compensation and $2.1 million for
depreciation and amortization. The change in our deferred revenue was due to
activity under our Collaboration and License Agreement with Jazz.
During the six months ended June 30, 2021 , operating activities used $37.3
million of cash, primarily due to a net loss of $32.1 million coupled with an
$11.8 million decrease in deferred revenue, which were partially offset by
non-cash charges of $5.0 million for stock-based compensation and $2.8 million
for depreciation and amortization. The change in our deferred revenue was due to
activity under our Collaboration and License Agreement with Jazz.
Investing activities
During the six months ended
Financing activities
During the six months endedJune 30, 2022 , net cash provided by financing activities was$0.6 million , driven by an "at-the-market" offering facility. During the six months endedJune 30, 2021 , net cash provided by financing activities was$64.5 million , driven by our follow-on public offering, completed onFebruary 17, 2021 and additional proceeds from the exercise of stock options. 38 --------------------------------------------------------------------------------
Plan of operation and future funding requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance our clinical trials of exoSTING, exoIL-12, exoASO-STAT6 and our preclinical activities for our engEx development programs. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future. Based on our current operating plan, we expect our cash and cash equivalents as ofJune 30, 2022 , will be insufficient to allow us to fund our operating expenses and capital expenditure requirements for 12 months following the date of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect. OnNovember 1, 2021 , we and Lonza entered into an Asset Purchase Agreement (the "APA") pursuant to which to Lonza acquired our exosome manufacturing facility and related assets, and subleased the premises, located at4 Hartwell Place ,Lexington, MA. As consideration for the asset purchase, we shall receive approximately$65.0 million worth of exosome manufacturing services for our clinical programs for four years. At the Closing certain specialized manufacturing and quality personnel of ours became employees of Lonza. In connection with, and as consideration for the APA, at the Closing, we and Lonza entered into a Manufacturing Services Agreement (the "MSA"). Pursuant to the MSA, Lonza became the exclusive manufacturing partner for future clinical and commercial manufacturing of our exosome products pipeline. In connection with, and at the Closing, we and Lonza entered into a Licensing and Collaboration Agreement (the "License"). Pursuant to the License, we granted Lonza a worldwide, exclusive and sub-licensable license to our high-throughput exosome manufacturing intellectual property in the contract development and manufacturing field. Pursuant to the License, we are eligible to receive from Lonza a double-digit percentage of future sublicensing revenues. We shall retain our pipeline of therapeutic candidates and core exosome engineering, drug-loading expertise and related intellectual property. The companies will collaborate to establish a joint Center of Excellence for further development of exosome manufacturing technology, with a shared oversight committee.The Center of Excellence will leverage the strengths of both companies to pursue developments in exosome production, purification and analytics. Because of the numerous risks and uncertainties associated with the development of our engEx Platform, exoSTING, exoIL-12, exoASO-STAT6 and other engEx development programs, and because the extent to which we may receive payments under our existing collaboration agreements or enter into collaborations with third parties for development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:
•
the rate of progress in the development of our engEx Platform, engEx product candidates and development programs;
•
the scope, progress, results and costs of preclinical studies and clinical trials for any engEx product candidates and development programs;
•
the number and characteristics of programs and technologies that we develop or may in-license;
•
the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
•
the costs necessary to obtain regulatory approvals, if any, for any approved products in the US and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where any such approval is obtained;
•
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•
the continuation of our existing strategic collaborations and licensing arrangements and entry into new collaborations and licensing arrangements;
•
the costs we incur in maintaining business operations;
•
the costs associated with being a public company;
•
the revenue, if any, received from commercial sales of our engEx product candidates for which we receive marketing approval;
39
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the effect of competing technological and market developments; and
•
the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our engEx product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock. If we raise additional funds through strategic collaborations 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 or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves. The following table summarizes our contractual obligations as ofJune 30, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in thousands): Payments due by period Less than 1 to 3 3 to 5 More than Total 1 year years years 5 years Operating lease commitments(1)(2)$ 51,814 $ 6,344 $ 13,252 $ 14,043 $ 18,175 Long-term debt obligations(3) 25,000 - 20,579 4,421 - Total$ 76,814 $ 6,344 $ 33,831 $ 18,464 $ 18,175 (1) OnMarch 5, 2019 , we entered into a non-cancelable property lease for 18,707 square feet of manufacturing space inLexington, Massachusetts . The lease term commenced inJuly 2019 and is expected to end inDecember 2029 . We have the option to extend the lease twice, each for a five-year period, at market-based rent. We fully occupied the space in late 2020. Included in the table above are the future lease payments, which exclude operating expenses and real estate taxes. Lease payments began inJanuary 2020 and are expected to be approximately$1.1 million in each of 2022, 2023, 2024, and 2025,$1.2 million in 2026, and$3.7 million thereafter. The landlord contributed a total of up to$1.3 million toward the cost of tenant improvements. We were required to provide a$0.4 million security deposit, which we provided in the form of a letter of credit in the favor of the landlord. These amounts are excluded from the table above. InNovember 2021 , we executed a Second Amendment to the lease (the "Master Lease Amendment"). The only substantive change made to the terms and conditions of the master lease as instituted by the Master Lease Amendment relates to the fact that base rent charges increased by$7 per square foot per year for the remainder of the lease term. (2) OnMarch 22, 2019 , we entered into a non-cancelable property lease for 68,258 square feet of office and laboratory space inCambridge, Massachusetts . The lease term commenced upon execution of the lease onMarch 26, 2019 and is expected to end inNovember 2029 . We have the option to extend the lease once for a ten-year period at market-based rent. We occupied the space inFebruary 2020 as our new corporate headquarters. Included in the table above are the future lease payments, which exclude operating expenses and real estate taxes. Lease payments began inNovember 2019 and are expected to be approximately$5.2 million in 2022,$5.3 million in 2023,$5.5 million in 2024,$5.7 million in 2025,$5.8 million in 2026, and$18.1 million thereafter. The landlord has contributed a total of$12.3 million toward the cost of tenant improvements. We were required to provide a$3.7 million security deposit, which we provided in the form of a letter of credit in the favor of the landlord. These amounts are excluded from the table above. (3) OnSeptember 30, 2019 and amended onSeptember 17, 2021 , we entered into the Hercules Loan Agreement pursuant to which we may receive advances in four separate tranches based on specified terms and provisions, of up to an aggregate principal amount of$85.0 million . As ofDecember 31, 2021 , we received advances at closing of$10.0 million and under the first tranche totaling$15.0 million , respectively, and paid issuance costs of$0.6 million . Advances under the Amended Term Loan Facility bear interest at a rate equal to the greater of (i) 8.25% plus the Prime Rate (as reported in The Wall Street Journal) less 3.25%, and (ii) 8.25%. The interest only period under the Term Loan Facility was extended fromNovember 1, 2022 toOctober 1, 2023 under the Amended Term Loan Facility. We will now make interest only payments throughOctober 1, 2023 , and is further extendable toOctober 1, 2024 upon achievement of certain clinical milestones. Under the Amended Term Loan Facility, following the interest only period, we will repay the principal balance and interest on the advances in equal monthly installments throughOctober 1, 2025 . 40 -------------------------------------------------------------------------------- Commencing onMay 18, 2020 , we entered into a sublease for 23,280 square feet of our leased space inCambridge, Massachusetts . The term of the sublease was extended to three years following the sublessee's decision to exercise its option to extend the term for one additional year, effectiveJuly 1, 2021 . The Company increased the base rent during the option period to reflect a market-based fixed annual rate beginningJune 2022 . Cash receipts under the sublease are expected to be$1.9 million and$0.9 million for the years endedDecember 31, 2022 , and 2023, respectively, excluding reimbursement for a ratable portion of operating expenses. We remain jointly and severally liable under the terms of the head lease and therefore present the cash payments, inclusive of our obligation under the head lease for the subleased premises. As such, operating lease commitments do not include the expected cash receipts under the sublease. The lease term is now expected to end inMay 2023 . Subsequent toJune 30, 2022 , the sublessee defaulted on its lease payments. The Company is engaged in discussions with the sublessee concerning this matter. OnNovember 15, 2021 , the Company entered into a sublease agreement with Lonza for the entirety of the Company's leased space at4 Hartwell Place inLexington, Massachusetts . Under the terms of the Sublease Agreement, Lonza is obligated to pay the Company base rent of approximately$1.0 million per year, subject to a 2.8% annual increase, plus certain operating expenses and other costs. The initial lease term commenced onNovember 15, 2021 and continues throughNovember 30, 2024 . Lonza has the option to extend the sublease term for five 12-month periods on the same terms and conditions as the current sublease, subject to an increase of 2.8% in the annual fixed rent charges. Additionally, Lonza has the right to have the associated master lease assigned to it beginning onJanuary 1, 2026 , subject to the landlord's consent. As ofJune 30, 2022 , the Company has not been legally released from its primary obligations under the original lease. Therefore, the Company continues to account for the original lease as it did before commencement of the sublease, inclusive of the effects of the Master Lease Amendment. The Company determined that the sublease term is commensurate with the initial sublease term because it is not reasonably certain that any of the extension options will be exercised. We have a license agreement with MDACC under which, pursuant to exclusive license rights granted to us under certain patents owned or co-owned by MDACC, we are obligated to pay milestone payments upon the achievement of development and regulatory milestones and the execution of sublicenses for qualifying products covered by rights granted under the agreement. MDACC is eligible to receive, on a product-by-product basis, milestone payments upon the achievement of development and regulatory milestones totaling up to$2.4 million for diagnostic products and up to$9.5 million for therapeutic products. Under this agreement, we may also be obligated to pay royalty payments on commercial products, on a product-by-product basis. Due to the variable and contingent nature of these payments, they are excluded from our contractual obligations as they are not fixed and estimable. We may terminate the license for convenience upon 180 days prior written notice to MDACC. The license automatically terminates upon our bankruptcy, if we challenge the validity or enforceability of any of the licensed patent rights, or we fail to make a number of payments in a timely manner over a specified period of time. Additionally, MDACC may terminate the license for our breach subject to certain specified cure periods. We have a license agreement with Kayla Therapeutics, pursuant to which we obtained a co-exclusive worldwide, sublicensable license, under certain patent rights and to related know-how and methods to research, develop, manufacture and commercialize compounds and products covered by such patent rights in all diagnostic, prophylactic and therapeutic uses. Such license rights include certain exclusive rights to theSTING agonist compound in our exoSTING product candidate. Under the terms of the agreement, we are obligated to use commercially reasonable efforts to develop and commercialize products under the licensed patent rights, and are obligated to pay up to$100.0 million in cash payments and up to$13.0 million payable in shares of our common stock upon the achievement of specified clinical and regulatory milestones. The first milestone was achieved upon the dosing of exoSTING to the first subject in a Phase 1/2 clinical trial inSeptember 2020 . Upon the achievement of the milestone, the Company was obligated to make a nonrefundable payment of$15.0 million in cash and issue 177,318 shares of common stock to Kayla. The common stock was issued as of the date of dosing, and the cash payment of$15.0 million and was paid inOctober 2020 . In addition, we are required to pay Kayla a percentage of the payments that we receive from sublicensees of the rights licensed to us by Kayla, excluding any royalties. The royalty term is determined on a product-by-product and country-by-country basis and continues until the later of (i) the expiration of the last valid claim of the licensed patent rights that covers such product in such country, (ii) the loss or expiration of any period of marketing exclusivity for such product in such country, or (iii) ten years after the first commercial sale of such product in such country; provided that if the royalty is payable when no valid claim covers a given product in a given country, the royalty rate for sales of such product in such country is decreased. We do not include these variable and contingent payments in the consideration of our contractual obligations as they are not fixed and estimable. We may terminate the license agreement on a licensed compound-by-licensed compound basis and on a region-by region basis for any reason upon 30 days prior written notice to Kayla. We or Kayla may terminate the license agreement for the other's material breach that remains uncured for 60 days after receiving notice thereof. 41 -------------------------------------------------------------------------------- We have agreements with certain vendors for various services, including services related to preclinical operations and support, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and the exact terms of the relevant agreement and cannot be reasonably estimated. We do not include these payments in the consideration of our contractual obligations as they are not fixed and estimable.
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 in the rules and regulations of theSEC .
Critical accounting policies and significant judgments and estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the US. The preparation of these condensed consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the condensed consolidated financial statements and disclosures based on varying assumptions. The accounting policies discussed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onMarch 10, 2022 (the "2021 Annual Report"), are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. There have been no material changes to that information disclosed in our 2021 Annual Report during the six months endedJune 30, 2022 . The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from our estimates.
Emerging growth company and smaller reporting company status
InApril 2012 , the Jumpstart Our Business Startups Act (the "JOBS Act"), was enacted. As an emerging growth company ("EGC"), under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to avail ourselves of the exemption regarding the timing of the adoption of accounting standards and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs. We will remain classified as an EGC until the earlier of: (i) the last day of our first fiscal year in which we have total annual gross revenues of$1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have issued more than$1.0 billion of non-convertible debt instruments during the previous three fiscal years, or (iv) the date on which we are deemed a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding equity securities held by non-affiliates. We are also a "smaller reporting company" and may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our 2021 Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 42 --------------------------------------------------------------------------------
Recently issued accounting pronouncements
We have reviewed all recently issued standards and have determined that, other
than as disclosed in Note 2 to our condensed consolidated financial statements
appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will
not have a material impact on our financial statements or do not otherwise apply
to our operations.
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