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 three and six months endedJune 30, 2021 , or 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, 2020 . 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, neuro-oncology, neuromuscular disease and infectious disease and rare disease. InSeptember 2020 , we initiated clinical trials for our lead engEx product candidates, exoSTING and exoIL-12, which are being developed to address solid tumors. To our knowledge, exoSTING and exoIL-12 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 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. We also have multiple preclinical and discovery programs of our engEx exosomes that we are advancing either independently or through our strategic collaborations withJazz Pharmaceuticals Ireland Limited , or Jazz, and Sarepta Therapeutics, Inc., or Sarepta. 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; 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, and our term loan facility with Hercules Capital, Inc., or Hercules, and our collaborations with Jazz and Sarepta. As ofJune 30, 2021 , we 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 collaborations with Jazz and Sarepta. OnOctober 16, 2020 , we completed our initial public offering, or 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. 30 -------------------------------------------------------------------------------- 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 . 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$91.7 million and$78.0 million for the years endedDecember 31, 2020 and 2019, respectively. During the six months endedJune 30, 2021 , we incurred a net loss of$32.1 million . As ofJune 30, 2021 , we had an accumulated deficit of$320.2 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:
• initiate and conduct clinical trials for exoSTING, exoIL-12 and any other
engEx product candidates we identify and choose to develop;
• continue our current research programs and preclinical development of
exoASO-STAT6 and our potential engEx product candidates;
• seek to identify additional research programs and additional engEx
product candidates;
• further develop and expand the capabilities of our engEx Platform;
• establish, operate and maintain in-house manufacturing capabilities,
including of our own Phase 1/2 clinical manufacturing facility, and
secure supply chain capacity sufficient to support our planned
preclinical studies and early-stage clinical trials;
• maintain, expand and protect our intellectual property portfolio;
• hire additional clinical, scientific, manufacturing and general and
administrative personnel;
• acquire or in-license other biologically active molecules, potential
engEx product candidates or technologies;
• seek regulatory approvals for any engEx product candidates that
successfully complete clinical trials;
• establish a sales, marketing and distribution infrastructure tocommercialize any engEx products for which we may obtain regulatory
approval;
• add operational, financial and management information systems andpersonnel, 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
• 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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We expect that our existing cash and cash equivalents as of June 30, 2021 of
$113.7 million will enable us to fund our operating expenses and capital
expenditure requirements through at least the next 12 months. We have based this
estimate on assumptions that may prove to be wrong and we could exhaust our
capital resources sooner than we expect. Our future viability beyond the next 12
months is dependent on our ability to raise additional capital to fund our
operations during that time frame. 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.
In January 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. In April 2021 , we and Jazz mutually agreed to discontinue our work on
STAT3, one of five oncogene targets subject to the Collaboration and License
Agreement. On June 30, 2021 , Jazz formally nominated the fifth collaboration
target, ahead of the contractual deadline of July 2, 2021 . In June 2020 , we
entered into a Research License and Option Agreement with Sarepta, pursuant to
which we are receiving funding to conduct collaborative research and provide
Sarepta with options to obtain exclusive licenses for exosome therapeutic
candidates directed at up to five targets. For the foreseeable future, we expect
substantially all of our revenue to be generated from our collaborations with
Jazz and Sarepta and any other collaboration and license agreements we may enter
into in the future. During the three months ended June 30, 2021 , we recognized a
reduction to revenue of $0.5 million and net $11.1 million of revenue during the
six months ended June 30, 2021 related to our Collaboration and License
Agreement with Jazz. During the three and six months ended June 30, 2020 we
recognized $0.2 million and $0.3 million , respectively, of revenue under our
Collaboration and License Agreement with Jazz. As of June 30, 2021 and
December 31, 2020 , we had $43.9 million and $55.0 million , respectively, of
deferred revenue with respect to our Collaboration and License Agreement with
Jazz. During the three and six months ended June 30, 2021 , we recognized $1.4
million and $3.0 million of revenue related to the Sarepta Research Agreement.
During the three and six months ended June 30, 2020 there was no revenue
recognized under the Sarepta Research Agreement. As of June 30, 2021 and
December 31, 2020 , we had $7.0 million and $7.7 million of deferred revenue in
connection with the Research License and Option Agreement with Sarepta.
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:
• initiation and conduct of the clinical development of exoSTING in a Phase
1/2 clinical trial;
• initiation and conduct of the clinical development of exoIL-12 in a Phase
1 clinical trial;
• costs to develop our engEx Platform;
• discovery efforts leading to the selection and advancement of engEX
product candidates for clinical development;
• preclinical development costs for our programs; and
• costs to develop our manufacturing technology and infrastructure.
The costs above comprise the following categories:
• personnel-related expenses, including salaries, benefits and stock-based
compensation expense;
• expenses incurred under agreements with third parties, such as contract
research organizations, or CROs, that conduct our preclinical studies;
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• licensing costs;
• costs of acquiring, developing and manufacturing materials for
preclinical studies, including both internal manufacturing and
third-party contract manufacturing organizations, or CMOs;
• costs of outside consultants and advisors, including their fees,
stock-based compensation and related travel expenses;
• expenses incurred for the procurement of materials, laboratory supplies
and non-capital equipment used in the research and development process;
and
• facilities, depreciation, amortization and other direct and allocated
expenses incurred as a result of research and development activities.
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 and exoIL-12, 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 advance that product candidate into clinical trials. As exoSTING and exoIL-12 entered clinical trials inSeptember 2020 , we have presented our research and development costs for exoSTING and exoIL-12 below. The following table reflects our research and development expenses for each period presented: THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2021 2020 2021 2020 (In thousands) exoSTING$ 1,208 $ 334 $ 2,164 $ 2,690 exoIL-12 604 1,148 1,379 2,505 engEx Platform 3,798 2,300 8,709 8,615 Personnel-related (including stock-based compensation) 6,591 5,206 13,217 10,607 Other research and development expenses 3,218 2,634 6,500 5,596 Total research and development expenses$ 15,419 $ 11,622 $ 31,969 $ 30,013 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 and exoIL-12, continue to discover and develop additional engEx product candidates, continue to build manufacturing capabilities, 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:
• our ability to successfully develop, obtain regulatory approval for, and
then successfully commercialize, our engEx product candidates;
• our successful enrollment in and completion of clinical trials, including
our ability to generate positive data from any such clinical trials;
• the costs associated with the development of any additional development
programs we identify in-house or acquire through collaborations;
• 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;
• 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;
• our ability to establish and maintain agreements with third-partymanufacturers for clinical supply for our clinical trials and commercial
manufacturing, if our engEx product candidates are approved;
• our ability to maintain our collaborative arrangements with Jazz and Sarepta
and earn milestone payments thereunder;
• the terms and timing of any additional collaboration, license or other
arrangement, including the terms and timing of any milestone payments
thereunder;
• our ability to obtain and maintain patent, trade secret and otherintellectual property protection and regulatory exclusivity for our engEx
product candidates if and when approved;
• our receipt of marketing approvals from applicable regulatory authorities;
and
• 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.
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 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 of a portion of our35 CambridgePark Drive office and laboratory space that commenced inMay 2020 . Income taxes Since our inception in 2015, we have not recorded any US 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, 2020 , we had federal and state net operating loss carryforwards of$137.6 million and$138.1 million , respectively, which may be available to offset future taxable income. During the year endedDecember 31, 2020 , we generated a federal net operating loss of$101.2 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 as ofDecember 31, 2020 would begin to expire in 2035. As ofDecember 31, 2020 , we also had federal and state research and development tax credit carryforwards of$8.3 million and$3.9 million , respectively, which may be available to offset future income tax liabilities and which would begin to expire in 2035 and 2031, respectively 34 --------------------------------------------------------------------------------
During the three and six months ended
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was signed into law inMarch 2020 . The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017, or the TCJA. Corporate taxpayers may carryback NOLs originating during 2018 through 2020 for up to five years, which was not previously allowed under the TCJA. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the TCJA) for tax years beginningJanuary 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the TCJA. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any adjustments to our income tax provision for the three and six months endedJune 30, 2021 , or net deferred tax assets as ofJune 30, 2021 since we have not recorded any US federal or state income tax benefits for the net losses incurred in any period due to our uncertainty of realizing a benefit from those items. 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,
2021 2020 2021 2020
Revenue:
Collaboration revenue $ 890 $ 187 $ 14,081 $ 321
Total revenue 890 187 14,081 321
Operating expenses:
Research and development 15,419 11,622 31,969 30,013
General and administrative 6,937 4,358 13,525 8,591
Total operating expenses 22,356 15,980 45,494 38,604
Loss from operations (21,466 ) (15,793 ) (31,413 ) (38,283 )
Other income (expense):
Interest expense (704 ) (294 ) (1,401 ) (589 )
Interest income 9 19 14 242
Other income 352 155 683 215
Total other expense, net (343 ) (120 ) (704 ) (132 )
Net loss $ (21,809 ) $ (15,913 ) $ (32,117 ) $ (38,415 ) Comparison of the three months ended
Collaboration revenue
Collaboration revenue increased by$0.7 million from$0.2 million for the three months endedJune 30, 2020 to$0.9 million for the three months endedJune 30, 2021 . This increase is the result of$1.4 million of revenue under our Research License and Option Agreement with Sarepta during the three months endedJune 30, 2021 . The increase in revenue driven by Sarepta during the three months endedJune 30, 2021 , was partly offset by a$0.7 million decrease in revenue of recognized under the Jazz Collaboration Agreement during the three months endedJune 30, 2021 , when compared to the three months endedJune 30, 2020 . There was no Sarepta related revenue recognized during the three months endedJune 30, 2020 as the Research License and Option Agreement with Sarepta was signed duringJune 2020 . 35
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Research and development expense
The following table summarizes our research and development expenses for the three months endedJune 30, 2021 and 2020, along with the changes in those items (in thousands): THREE MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2021 2020 (DECREASE) (DECREASE) exoSTING$ 1,208 $ 334 $ 874 262 % exoIL-12 604 1,148 (544 ) -47 % engEx Platform 3,798 2,300 1,498 65 % Personnel-related (including stock-based compensation) 6,591 5,206 1,385 27 %
Other research and development expenses 3,218 2,634
584 22 %
Total research and development expenses
3,797 Research and development expenses increased$3.8 million from$11.6 million for the three months endedJune 30, 2020 to$15.4 million for the three months endedJune 30, 2021 .
The increase in research and development expenses was primarily attributable to the following:
•
laboratory expenses and contractor costs, partially offset by decreased
manufacturing expenses;
•
increase in headcount to support increased research and development
activities;
•
clinical, and pre-clinical trial costs as the program entered the clinical
stage in
•
rent, depreciation, and other miscellaneous costs, primarily due to
occupying our new facilities; and
•
decreased pre-clinical and manufacturing costs, offset by increased clinical
trial costs as the program entered the clinical stage in
General and administrative expense
The following table summarizes our general and administrative expenses for the three months endedJune 30, 2021 and 2020, along with the changes in those items (in thousands): THREE MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2021 2020 (DECREASE) (DECREASE) Professional fees$ 1,122 $ 1,514 $ (392 ) -26 % Personnel-related (including stock-based compensation) 3,970 2,211 1,759 80 % Facility-related and other general and administrative expenses 1,845 633 1,212 191 % Total general and administrative expenses$ 6,937 $ 4,358 $ 2,579 General and administrative expenses increased$2.6 million from$4.4 million for the three months endedJune 30, 2020 to$6.9 million for the three months endedJune 30, 2021 .
The increase in general and administrative expenses was primarily attributable to the following:
•
increase in general and administrative headcount to support our overall
growth and our transition to becoming a public company;
•
expenses primarily driven by increased corporate insurance costs of being a
public company; and
•
property and business development.
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Interest income There was an immaterial change of less than$0.1 million in interest income between the three months endedJune 30, 2020 and the three months endedJune 30, 2021 . All of our investments were matured as ofApril 2020 . As ofJune 30, 2021 , we did not hold any investments.
Interest expense
Interest expense increased$0.4 million from$0.3 million for the three months endedJune 30, 2020 to$0.7 million for three months endedJune 30, 2021 . The increase was driven by an additional draw down of$15.0 million inJuly 2020 under our term loan facility with Hercules.
Other income
Other income increased by$0.2 million from$0.2 million for the three months endedJune 30, 2020 to$0.4 million for three months endedJune 30, 2021 . The increase in other income was driven by rental income received from our sublease beginning in the second quarter of 2020.
Comparison of the six months ended
Collaboration revenue
Collaboration revenue increased by$13.8 million from$0.3 million for the six months endedJune 30, 2020 to$14.1 million for the six months endedJune 30, 2021 . This increase was primarily due to an increase of$10.8 million of revenue recognized under the Jazz Collaboration Agreement when compared to the six months endedJune 30, 2020 . An additional$3.0 million of revenue was recognized during the six months endedJune 30, 2021 , related to ourSarepta Research License and Option Agreement that was signed duringJune 2020 . There was no revenue recognized under our Sarepta Research License and Option Agreement during the six months endedJune 2020 .
Research and development expense
The following table summarizes our research and development expenses for the six months endedJune 30, 2021 and 2020, along with the changes in those items (in thousands): SIX MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2021 2020 (DECREASE) (DECREASE) exoSTING$ 2,164 $ 2,690 $ (526 ) -20 % exoIL-12 1,379 2,505 (1,126 ) -45 % engEx Platform 8,709 8,615 94 1 % Personnel-related (including stock-based compensation) 13,217 10,607 2,610 25 %
Other research and development expenses 6,500 5,596
904 16 %
Total research and development expenses
1,956
Research and development expenses increased
The increase in research and development expenses was primarily attributable to the following:
•
increase in headcount to support increased research and development
activities;
•
rent, depreciation, and other miscellaneous costs, primarily due to
occupying our new facilities;
•
laboratory and contractor costs, partially offset by decreased manufacturing
costs;
• $0.5 million decrease in exoSTING related costs driven by decreasedmanufacturing and pre-clinical costs, offset by increased clinical trial
costs as the program entered the clinical stage in
•
pre-clinical costs, partially offset by increased clinical costs as the
program entered the clinical stage in September 2020 .
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General and administrative expense
The following table summarizes our general and administrative expenses for the six months endedJune 30, 2021 and 2020, along with the changes in those items (in thousands): SIX MONTHS ENDED ABSOLUTE PERCENTAGE JUNE 30, INCREASE INCREASE 2021 2020 (DECREASE) (DECREASE) Personnel-related (including stock-based compensation)$ 7,236 $ 4,878 $ 2,358 48 % Facility-related and other general and administrative expenses 3,874 1,401 2,473 177 % Professional fees 2,415 2,312 103 4 % Total general and administrative expenses$ 13,525 $ 8,591 $ 4,934 General and administrative expenses increased$4.9 million from$8.6 million for the six months endedJune 30, 2020 to$13.5 million for the six months endedJune 30, 2021 .
The increase in general and administrative expenses was primarily attributable to the following:
•
expenses primarily driven by increased corporate insurance costs of being a
public company;
•
increase in general and administrative headcount to support our overall
growth and our transition to becoming a public company; and
•
legal and accounting services incurred in connection with being a public
company.
Interest income
Interest income decreased $0.2 million from $0.2 million for the six months
ended June 30, 2020 to less than $0.1 million for the six months ended June 30,
2021 . The decrease in interest income was primarily driven by the maturity of
all our investments in April 2020 . As of June 30, 2021 , we did not hold any
investments.
Interest expense
Interest expense increased$0.8 million from$0.6 million for the six months endedJune 30, 2020 to$1.4 million for the six months endedJune 30, 2021 . The increase was driven by an additional draw down of$15.0 million inJuly 2020 under our term loan facility with Hercules.
Other income
Other income increased by$0.5 million from$0.2 million for the six months endedJune 30, 2020 to$0.7 million for the six months endedJune 30, 2021 . The increase in other income was driven by rental income received from our sublease beginning in the second quarter of 2020, partially offset by a reduction in the amortization of purchased premiums and discounts associated with our investments during the six months endedJune 30, 2021 , as a result of the maturity of all of our investments inApril 2020 . 38 --------------------------------------------------------------------------------
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, 2021 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. As of
June 30, 2021 , we had cash and cash equivalents of $113.7 million .
Hercules Loan Agreement
OnSeptember 30, 2019 , or the Closing Date, we entered into a Loan and Security Agreement, or the Loan Agreement, with Hercules pursuant to which a term loan in an aggregate principal amount of up to$75.0 million , or the Term Loan Facility, is available to us in four tranches, subject to certain terms and conditions. The first tranche of$10.0 million was advanced to us on the Closing Date and an additional$15.0 million under the first tranche was drawn down inJuly 2020 . Upon satisfaction of certain liquidity and clinical milestones, the second tranche was available under the Term Loan Facility, which allowed us to borrow an additional amount of up to$10.0 million throughMarch 31, 2021 . We did not elect to borrow against the second$10.0 million tranche. Upon satisfaction of certain additional clinical milestones, the third tranche was available under the Term Loan Facility, which allowed us to borrow an additional amount up to$10.0 million throughJune 30, 2021 . As ofJune 30, 2021 we did not elect to borrow against the third$10.0 million tranche. The fourth tranche, which allows us to borrow an additional amount up to$30.0 million , will be available upon Hercules' approval on or prior toDecember 15, 2021 . As ofJune 30, 2021 , there was$25.0 million drawn and outstanding under the Term Loan Facility. Advances under the Term Loan Facility bear interest at a rate equal to the greater of (i) 9.00% plus the prime rate less 5.25% and (ii) 9.00%. We will make interest only payments throughNovember 1, 2022 . Following the interest only period, we will repay the principal balance and interest of the advances in equal monthly installments throughOctober 1, 2024 . We may prepay advances under the Loan Agreement, in whole or in part, at any time subject to a prepayment charge equal to (i) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Closing Date; (ii) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Closing Date; and (iii) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Closing Date. Upon prepayment or repayment of all or any of the term loans under the Term Loan Facility, we will pay, in addition to any prepayment premium, an end of term charge of 5.5% of the aggregate funded amount under the Term Loan Facility. With respect to the total outstanding principal under the first tranche, an end of term charge of$1.4 million will be payable upon any prepayment or repayment. To the extent that we are provided additional advances under the Term Loan Facility, the 5.5% end of term charge will be applied to any such additional amounts. The Term Loan Facility is secured by a lien on substantially all of our assets, other than our intellectual property. We have agreed to not 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 and (ii) our then existing cash and cash equivalents; a 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 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 Loan Agreement, (ii) any breach or default in the performance of any covenant under the 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 Loan Agreement. 39
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Historical cash flows
The following table provides information regarding our cash flows for each
period presented:
SIX MONTHS ENDED
JUNE 30,
2021 2020
(In thousands)
Net cash provided by (used in):
Operating activities $ (37,320 ) $ (14,450 )
Investing activities (2,365 ) 54,977
Financing activities 64,451 104
Net increase in cash, cash equivalents and restricted cash
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 endedJune 30, 2021 , operating activities used$37.3 million of cash, primarily due to a net loss of$32.1 million , partially offset by non-cash charges of$5.0 million for stock-based compensation,$2.8 million for depreciation and amortization, and$0.3 million for non-cash interest expense. Additionally, changes in our operating assets and liabilities primarily consisted of a$11.8 million decrease in deferred revenue, a$0.5 million net decrease in accounts payable and accrued expenses, a$0.4 million decrease in our operating lease right-of-use assets, a$0.9 million net increase in prepaid expenses and other current assets, and a$0.4 million decrease in our operating lease liabilities. The change in our deferred revenue was due to activity under our Collaboration and License Agreement with Jazz. During the six months endedJune 30, 2020 , operating activities used$14.5 million of cash, primarily due to a net loss of$38.4 million , partially offset by non-cash charges of$3.1 million for stock-based compensation,$2.0 million for depreciation,$0.7 million for amortization of our operating right-of-use asset and$0.1 million for non-cash interest. Additionally, changes in our operating assets and liabilities primarily consisted of a$10.1 million increase in our operating lease liabilities, a$9.7 million increase in deferred revenue and a$3.2 million decrease in prepaid expenses and other current assets, partially offset by a$5.0 million decrease in accounts payable and accrued expenses. The net change in our prepaid expenses, accounts payable and accrued expenses was due to the timing of payments. The change in our deferred revenue was due to proceeds from our license and option agreement with Sarepta.
Investing activities
During the six months endedJune 30, 2021 , net cash used in investing activities was$2.4 million for purchases of property and equipment. During the six months endedJune 30, 2020 , net cash provided by investing activities was$55.0 million , consisting of maturities of short-term investments of$73.1 million , partially offset by$18.1 million for purchases of property and equipment.
Financing activities
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 , resulting in aggregate net proceeds of$61.7 million , and$0.3 million resulting from the proceeds from the exercise of common stock options. During the six months endedJune 30, 2020 , net cash provided by financing activities was$0.1 million , consisting of proceeds from issuance of stock in connection with the exercise of stock options.
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 and exoIL-12 and our preclinical activities for our engEx
development programs. In addition, we expect to incur additional costs
associated with operating as a public company. As a result, we expect to incur
substantial operating losses and negative operating cash flows for the
foreseeable future.
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Based on our current operating plan, we expect our cash and cash equivalents as
of June 30, 2021 , will enable us to fund our operating expenses and capital
expenditure requirements through at least the next 12 months. We have based this
estimate on assumptions that may prove to be wrong and we could exhaust our
capital resources sooner than we expect. Our future viability beyond the next 12
months is dependent on our ability to raise additional capital to fund our
operations during that time frame.
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 patentapplications, 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;
• 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.
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-------------------------------------------------------------------------------- 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 is two years with one option to extend for one year at the sublessee's option at a rate equal to the greater of (i) an increase of 3% of the annual rent owed by the sublessee in year two and (ii) market rent for the subleased premises. Cash receipts under the sublease are expected to be approximately$1.3 million and$0.5 million for the years endedDecember 31, 2021 and 2022, 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. 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 our failure 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 first 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. 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 . 42
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Critical accounting policies and significant judgments and estimates
Our condensed consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States . 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 ended December 31, 2020 ,
filed with the SEC on March 17, 2021 , or the 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 Annual Report during the six months
ended June 30, 2021 .
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
In April 2012 , the Jumpstart Our Business Startups Act, or the JOBS Act, was
enacted. As an emerging growth company, or 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 the Public 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 the SEC 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 Annual Report and, similar to emerging
growth companies, smaller reporting companies have reduced disclosure
obligations regarding executive compensation.
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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