CULLINAN THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited consolidated financial
statements and the related notes appearing elsewhere in this Quarterly Report on
Form 10-Q and our audited financial statements included in our Annual Report on
Form 10-K for the year ended
Overview
We are a biopharmaceutical company focused on modality-agnostic targeted oncology. Our strategy is to source innovation through both internal discovery efforts, external collaborations and in-licensing, focusing on advanced-stage assets with novel technology platforms and differentiated mechanisms. Before we advance a product candidate into clinical development, we evaluate its potential for anti-tumor activity as a single agent as well as its ability to generate an immune response or to inhibit oncogenic processes. Using this strategy, we have efficiently developed or in-licensed a portfolio of therapeutic candidates.
Zipalertinib (CLN-081/TAS6417), which we are co-developing with
The
Our most advanced product candidates include CLN-049, a bispecific T cell engager targeting FLT3 and CD3, and CLN-619, a monoclonal antibody that restores the MICA/MICB pathway to promote tumor cell lysis from both cytotoxic innate and adaptive immune cells. We initiated enrollment in clinical trials in the fourth quarter of 2021 for CLN-049 for patients with relapsed or refractory acute myeloid leukemia or myelodysplastic syndrome and for CLN-619 for patients with advanced solid tumors. We plan to report initial clinical data in mid-2023 for CLN-049 and CLN-619.
In addition to the above product candidates, our portfolio includes several preclinical oncology programs. The most advanced of these programs include CLN-617, a fusion protein combining two potent antitumor cytokines, interleukin-2 and interleukin-12, with tumor retention domains for the treatment of solid tumors, and CLN-978, an internally-developed half-life extended T-cell engaging bispecific therapeutic designed to simultaneously engage CD19 and CD3. We expect to submit investigational new drug applications ("INDs") for both of these programs to the FDA in the first half of 2023.
We hold worldwide development and commercialization rights to each of our product candidates, and we hold intellectual property rights and exclusive options for worldwide intellectual property for our earlier-stage programs.
Since our inception in 2016, we have focused all of our efforts and financial resources on raising capital, organizing and staffing our company, identifying, acquiring or in-licensing and developing product and technology rights, establishing and protecting our intellectual property portfolio and developing and advancing our programs. To support these activities, we (i) identify and secure new programs, (ii) set up new subsidiaries to further advance individual programs, (iii) recruit key management team members, (iv) raise and allocate capital across the portfolio and (v) provide certain shared services, including research and development operations, administrative services, and business development, to our subsidiaries. We do not have any products approved for sale and have not generated any revenue from product sales.
We have funded our operations primarily through the sale of equity securities
and from licensing or selling the rights to our product candidates. As of
15
--------------------------------------------------------------------------------
As of
We are subject to risks and uncertainties common to early-stage companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the ability to obtain additional capital to fund operations. Our therapeutic programs will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require additional capital, adequate personnel and extensive compliance-reporting capabilities. There can be no assurance that our research and development will be successfully completed, that adequate protection for our intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.
Impact of COVID-19 Pandemic
The duration and scope of the COVID-19 pandemic continues to be uncertain. Infection rates remain high in many parts of the world, and the virulence and spread of different strains of the virus have caused many local jurisdictions to continue or re-implement quarantines and restrictions on travel and mass gatherings. The extent and duration of the impact of COVID-19 on our operations and financial performance is currently unknown and will depend on future developments that are uncertain and unpredictable.
We implemented remote working and other protective measures, but thus far, have not experienced a significant disruption or delay in our operations as it relates to the clinical development or drug production of our product candidates. However, COVID-19 has at times impacted the pace of our enrollment in our clinical trials and the conduct of our preclinical studies. In the future, COVID-19-related restrictions may adversely impact our operations. Such events may result in a period of business, supply and drug product manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.
To date, COVID-19 has not had a financial impact on us. The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the ultimate economic impact brought by, and the duration of, the COVID-19 pandemic remain difficult to assess or predict, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others, the pandemic has resulted in significant disruptions in the general commercial activity and the global economy and caused financial market volatility and uncertainty in significant and unforeseen ways. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business.
Basis of Presentation and Consolidation
Since our inception, we have created wholly-owned subsidiaries or made investments in certain controlled entities. Losses attributed to noncontrolling interests are reported separately in our consolidated statements of operations and comprehensive income (loss).
We have three partially-owned development subsidiaries ("Asset Subsidiaries"):
The following table reflects our fully-diluted ownership percentages in each of
our Asset Subsidiaries as of
Current Date Control Ownership as of
Consolidated Entities Relationship First Acquired September 30, 2022
Cullinan Pearl Corp. Divested November 2018 0 %
Cullinan Amber Corp. Partially-owned
Subsidiary December 2019 94 %
Cullinan Florentine Corp. Partially-owned
Subsidiary December 2019 96 %
Cullinan MICA Corp. Partially-owned
Subsidiary May 2020 54 %
16--------------------------------------------------------------------------------
Cullinan Pearl
We sold our equity interest in our partially-owned subsidiary, Cullinan Pearl,
to Taiho in
Cullinan Amber
Cullinan Amber, incorporated in
In
In
As of
Cullinan Florentine
Cullinan Florentine, incorporated in
In
In
As of
Cullinan MICA
Cullinan MICA, formerly known as
In
In
As of
Components of Our Results of Operations
Revenue
For the nine months ended
17
--------------------------------------------------------------------------------
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the research and development of our wholly-owned and jointly-developed product candidates and programs. We expense research and development costs and intangible assets acquired that have no alternative future use as incurred. These expenses include:
•
employee-related expenses, including salaries, related benefits and equity-based compensation expense, for employees engaged in research and development functions;
•
expenses incurred under agreements with organizations that support our drug discovery and development activities;
•
expenses incurred in connection with the preclinical and clinical development of our product candidates and programs, including under agreements with contract research organizations ("CROs");
•
costs related to contract manufacturing organizations, that are primarily engaged to provide drug substance, raw material and drug product for our clinical trials, research and development programs, as well as investigative sites and consultants that conduct our clinical trials, nonclinical studies and other scientific development services;
•
the costs of acquiring and manufacturing nonclinical and clinical trial materials, including manufacturing registration and validation batches;
•
costs related to compliance with quality and regulatory requirements;
•
payments made under third-party licensing agreements; and
•
direct and allocated costs related to facilities, information technology, personnel and other overhead.
Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods are delivered or consumed or the related services are performed, or when it is no longer expected that the goods will be delivered or the services rendered.
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 increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of any current or future product candidates.
Our clinical development costs may vary significantly based on factors such as:
•
per patient trial costs;
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
the countries in which the trials are conducted;
•
the length of time required to enroll eligible patients;
•
the number of patients that participate in the trials;
•
the number of doses that patients receive;
•
the drop-out or discontinuation rates of patients;
•
potential additional safety monitoring requested by regulatory agencies;
•
the duration of patient participation in the trials and follow-up periods;
•
the cost and timing of manufacturing our product candidates;
•
the phase of development of our product candidates;
•
the efficacy and safety profile of our product candidates; and
•
the number of product candidates we are developing.
The successful development and commercialization of product candidates is highly uncertain due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
•
the timing and progress of nonclinical and clinical development activities;
18
--------------------------------------------------------------------------------
•
the number and scope of nonclinical and clinical programs we decide to pursue;
•
raising necessary additional funds;
•
the progress of the development efforts of parties with whom we may enter into collaboration arrangements;
•
our ability to maintain our current development programs and to establish new ones;
•
our ability to establish new licensing or collaboration arrangements;
•
the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
•
the receipt and related terms of regulatory approvals from applicable regulatory authorities;
•
the availability of drug substance and drug product for use in the production of our product candidates;
•
establishing and maintaining agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
•
our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in the
•
our ability to protect our rights in our intellectual property portfolio;
•
the commercialization of our product candidates, if and when approved;
•
obtaining and maintaining third-party insurance coverage and adequate reimbursement;
•
the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
•
competition with other products; and
•
a continued acceptable safety profile of our therapies following approval.
A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates or programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel in executive management, finance, corporate and business development, and other 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; marketing expenses; and other operating costs.
We have incurred increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of our product candidates and programs and our continued research activities.
Gain on Sale of Cullinan Pearl
Gain on sale of Cullinan Pearl represents the excess of the consideration received over the carrying value of the non-financial assets sold. Refer to Note 3 of our notes to the consolidated financial statements for additional details relating to the transaction.
Other Income
Other income consists primarily of interest income earned on our cash, cash equivalents, short-term investments and long-term investments.
Income Taxes
Income taxes consist primarily of federal and state income taxes.
19
--------------------------------------------------------------------------------
Results of Operations
Comparison of the Three and Nine Months Ended
The following table presents our results of operations:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021
License revenue $ - $ - $ - $ 18,943
Operating expenses:
Research and development 19,680 12,680 70,627 36,873
General and administrative 10,086 5,695 28,902 15,677
Total operating expenses 29,766 18,375 99,529 52,550
Gain on sale of Cullinan Pearl - - 276,785 -
Income (loss) from operations (29,766 ) (18,375 ) 177,256 (33,607 )
Other income (expense):
Interest income 2,353 118 3,247 340
Other income (expense), net - (2 ) (241 ) (12 )
Net income (loss) before income taxes (27,413 ) (18,259 ) 180,262 (33,279 ) Income tax expense (benefit)
(2,523 ) - 43,979 -
Net income (loss) (24,890 ) (18,259 ) 136,283 (33,279 )
Net income (loss) attributable to
noncontrolling interest (86 ) (909 ) (1,713 ) (223 )
Net income (loss) attributable to common
stockholders of Cullinan $ (24,804 ) $ (17,350 ) $ 137,996 $ (33,056 )
License Revenue
In the nine months ended
Research and Development Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2022 2021 2022 2021
Cullinan MICA (CLN-619) $ 2,442 $ 2,586 $ 11,608 $ 6,056
Cullinan Amber (CLN-617) 5,050 568 9,569 1,315
Cullinan Florentine (CLN-049) 2,611 1,183 4,960 4,782
Total Asset Subsidiaries expenses 10,103 4,337 26,137 12,153
Zipalertinib (CLN-081/TAS6417) 1,308 3,898 14,291 13,043
Early-stage research 3,740 1,128 13,866 2,801
Other personnel and unallocated 3,421 865 8,185 2,592
Equity-based compensation 1,108 2,452 8,148 6,284
Total research and development expenses
We separately disclose additional details for expenses incurred in connection
with the research and development activities conducted for zipalertinib
(CLN-081/TAS6417) and for the product candidates and programs being developed by
our partially-owned subsidiaries Cullinan Amber, Cullinan Florentine, and
Cullinan MICA, as we believe they represent key portfolio value drivers. We
share with Taiho 50% of future development costs for zipalertinib
(CLN-081/TAS6417) along with 50% of any future potential pre-tax profits from
Research and development expenses were
The increase of
The remaining increase within research and development expenses was primarily
related to an increase in the discovery and development of early-stage product
candidates, inclusive of the collaboration agreement entered into with Icahn
Mount Sinai in
Research and development expenses were
20
--------------------------------------------------------------------------------
The increase of
The remaining increase within research and development expenses was primarily
related to an increase in CMC and preclinical costs for zipalertinib
(CLN-081/TAS6417), an increase in the discovery and development of early-stage
product candidates, inclusive of the collaboration agreement entered into with
Icahn Mount Sinai in
General and Administrative Expenses
General and administrative expenses were
General and administrative expenses were
Gain on Sale of Cullinan Pearl
The
Other Income
Other income was
Other income was
Income Tax Expense
The income tax benefit was
We did not record a provision for income taxes for the three or nine months
ended
Net Income (Loss) Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests was
Net loss attributable to noncontrolling interests was
Liquidity and Capital Resources
Overview
We have incurred significant operating losses, with the exception of the
one-time gain on the sale of our equity interest in Cullinan Pearl in the nine
months ended
21
--------------------------------------------------------------------------------
In
In
Cash Flows
Comparison of the Nine Months Ended
The following table summarizes our sources and uses of cash for each of the periods presented:
Nine Months Ended September 30,
(in thousands) 2022 2021
Net cash used in operating activities $ (101,681 ) $ (28,262 )
Net cash provided by (used in) investing activities 277,585 (317,913 )
Net cash provided by financing activities 6,979 266,082
Net increase (decrease) in cash and cash equivalents
Cash Flow from Operating Activities
For the nine months ended
For the nine months ended
Cash Flow from Investing Activities
For the nine months ended
For the nine months ended
Cash Flow from Financing Activities
For the nine months ended
For the nine months ended
Future Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, manufacturing and clinical trials of our product candidates. In addition, we have and will continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our expenses will also increase as we:
•
continue our research and development efforts and submit INDs for our product candidates and programs;
•
conduct preclinical studies and clinical trials for our current and future product candidates;
•
take temporary precautionary measures to help minimize the risk of COVID-19 to our employees;
22
--------------------------------------------------------------------------------
•
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues, or other regulatory challenges;
•
develop the necessary processes, controls, and manufacturing capabilities to obtain marketing approval for our product candidates and to support manufacturing on a commercial scale;
•
develop and implement plans to establish and operate in-house manufacturing operations and facilities, if deemed appropriate;
•
seek regulatory approvals for any product candidates that successfully complete clinical trials;
•
hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, medical affairs, finance, general and administrative, commercial, and scientific personnel; and
•
develop, maintain, expand, and protect our intellectual property portfolio.
As a publicly-traded company, we incur significant legal, accounting and other
expenses. We are an emerging growth company, as defined in the Jumpstart Our
Business Startups Act enacted in
To achieve compliance with Section 404 after we no longer qualify as an emerging growth company, we will be required to provide an attestation of our internal controls over financial reporting processes, which will require additional costs and personnel. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Based on our current operational plans and assumptions, we expect that our current cash, cash equivalents, and short-term and long-term investments will be sufficient to fund operations through at least twelve months from the date of issuance of our consolidated financial statements. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development programs and the regulatory review process, we expect to incur significant commercialization expenses related to product manufacturing, pre-commercial activities and commercialization. We may also require additional capital to pursue in-licenses or acquisitions of other programs to further expand our pipeline.
Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
•
the scope, progress, results, and costs of drug discovery, laboratory testing and preclinical and clinical development for our current and future product candidates;
•
timely completion of our preclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors;
•
the prevalence, duration and severity of potential side effects or other safety issues experienced by patients receiving our product candidates or future product candidates;
•
our ability to establish and maintain collaborations and license agreements on favorable terms, if at all, and the extent to which we acquire or in-license technologies or programs, if at all;
•
our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development programs;
•
timing delays with respect to preclinical and clinical development of our current and future product candidates, including as result of the COVID-19 pandemic;
23
--------------------------------------------------------------------------------
•
the costs of expanding our facilities to accommodate our expected growth in personnel;
•
our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate, and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices;
•
the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
•
the extent to which we acquire or in-license technologies or programs;
•
the sales price and availability of adequate third-party coverage and reimbursement for our product candidates, if and when approved; and
•
the ongoing costs of operating as a public company.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements, and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted. If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements, or marketing and distribution arrangements, 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. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce, or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Other Commitments
We have certain payment obligations under various license and collaboration
agreements. Under these agreements, we are required to make milestone payments
upon successful completion and achievement of certain intellectual property,
clinical, regulatory, and sales milestones. The payment obligations under the
license and collaboration agreements are contingent upon future events, such as
our achievement of specified development, clinical, regulatory, and commercial
milestones, and we will be required to make milestone and royalty payments in
connection with the sale of products developed under these agreements. As the
achievement and timing of these future milestone payments are not probable or
estimable, such amounts have not been included in our consolidated balance
sheets as of
Operating lease obligations as of
In addition, we enter into agreements in the normal course of business with CROs for clinical trials and with other vendors for preclinical studies, manufacturing services, and other services and products for operating purposes, which are generally cancelable upon written notice.
Critical Accounting Policies and Estimates
Our critical accounting policies have not materially changed from those described in the 2021 10-K.
Recently Issued and Adopted Accounting Pronouncements
A description of recently adopted accounting pronouncements that may materially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the beginning of this Quarterly Report on Form 10-Q.
© Edgar Online, source
