DAY ONE BIOPHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes, our interim condensed consolidated financial statements and
related notes, and other financial information appearing in our Annual Report on
Form 10-K for the year ended
Overview
We are a clinical-stage biopharmaceutical company dedicated to developing and
commercializing targeted therapies for patients of all ages with life
threatening diseases. Initially, we have focused our clinical development
efforts on pediatric patients living with cancer, a vulnerable population that
has been underserved in the recent revolution in targeted therapeutics and
immuno-oncology. Our lead product candidate, tovorafenib (DAY101), is an oral,
brain-penetrant, highly-selective type II pan-rapidly accelerated fibrosarcoma,
or pan-RAF, kinase inhibitor. Tovorafenib (DAY101) has been studied in over 325
patients and has been shown to be generally well-tolerated as a monotherapy.
Tovorafenib (DAY101) has demonstrated encouraging anti-tumor activity in
pediatric and adult populations with specific genetic alterations that result in
the over-activation of the RAS/mitogen-activated protein kinase, or MAPK,
pathway leading to uncontrolled cell growth. We have initiated and fully
enrolled a pivotal Phase 2 trial (FIREFLY-1) of tovorafenib (DAY101) for
pediatric patients with relapsed or progressive low-grade glioma, or pLGG, the
most common brain tumor diagnosed in children, for which there are no approved
therapies and no recognized standard of care for the majority of patients. The
first patient was dosed in FIREFLY-1 in
Initial data from the pivotal FIREFLY-1 trial in
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Our second product candidate, pimasertib, is an oral, highly-selective small
molecule inhibitor of mitogen-activated protein kinase kinases 1 and 2, or MEK,
a well-characterized key signaling node in the MAPK pathway. We initiated
FIRELIGHT-1, a Phase 1b/2 trial, in
The following table summarizes our product candidate pipeline.
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Since our inception in
To date, we have funded our operations through the sale of our redeemable convertible preferred shares, convertible notes and common stock in our initial public offering and subsequent public offering.
Cash and cash equivalents and short-term investments totaled
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significantly delay, reduce or discontinue the development and commercialization of our product candidates or scale back or terminate our pursuit of new in-licenses and acquisitions.
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. As we advance our product candidates through development, we will explore adding backup suppliers for the Active Pharmaceutical Ingredients, or API, drug product, packaging and formulation for each of our product candidates to protect against any potential supply disruptions.
COVID-19 pandemic
The degree to which the ongoing COVID-19 pandemic, including the emergence of
related variants, impacts our business operations, research and development
programs and financial condition will depend on future developments, including
the ultimate duration and/or severity of the outbreak, the impact of any
resurgences and new strains that emerge, actions by government authorities to
contain the spread of the virus, the timing, availability, and effectiveness of
any vaccines, when and to what extent normal economic and operating conditions
can resume and the continued impact of each of these items on the economies and
financial markets in
We conduct our clinical trials in
The full impact of the ongoing COVID-19 pandemic remains highly uncertain and subject to change. The safety, health and well-being of our employees remains a primary concern, and we instituted remote work arrangements for our office-based employees. There are many uncertainties around the COVID-19 pandemic and future developments, which are unpredictable, may result in a material, negative impact to our operations and financial condition.
Significant agreements
Takeda asset agreement
On
In consideration for the sale and assignment of assets and the grant of the
license under the Takeda Asset Agreement, DOT-1 made an upfront payment of
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DOT-1 in
Effective
Viracta license agreement
On
Under the Viracta License Agreement, we paid
License agreement with Merck KGaA, Darmstadt,
On
Effective
Components of results of operations
Operating expenses
Research and development expenses
Research and development expenses consist primarily of external and internal expenses incurred for our research activities, including our discovery and in-licensing undertakings, and the development of our lead product candidate, tovorafenib (DAY101) and our second product candidate, pimasertib.
External expenses include:
•
costs associated with acquiring technology and intellectual property licenses that have no alternative future uses;
•
costs incurred under agreements with third-party contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other third parties that conduct clinical trials on our behalf; and
•
other costs associated with our research and development programs, including laboratory materials and supplies.
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Internal expenses include:
•
employee-related costs, including salaries, benefits and share-based compensation expense, for our research and development personnel; and
•
facilities and other overhead expenses, including expenses for rent and facilities maintenance, and amortization.
We expense research and development expenses as incurred. We track external costs by program, which currently consist of expenses for our tovorafenib (DAY101) program and our pimasertib program. We do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified.
Research and development activities are central to our business model. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to implement our business strategy, advance tovorafenib (DAY101) and pimasertib through clinical trials and conduct larger clinical trials, expand our research and development efforts, and identify, acquire and develop additional product candidates, particularly as more of our product candidates move into clinical development and later stages of clinical development.
We cannot reasonably determine the duration and costs to complete future clinical trials of tovorafenib (DAY101), pimasertib or any other product candidate we may develop or acquire, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates. The successful development and commercialization of our product candidates, as well as our ability to obtain the necessary regulatory and marketing approvals are highly uncertain. This is due to numerous risks and uncertainties associated with developing new drugs, many of which are outside of our control, including:
•
the scope, rate of progress, expense and results of preclinical development activities, as well as of any future clinical trials of our product candidates, and other research and development activities we may conduct;
•
uncertainties in clinical trial design;
•
per patient trial costs;
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
the number of patients that participate in the trials;
•
the countries in which the trials are conducted;
•
the length of time required to enroll eligible patients;
•
the drop-out or discontinuation rates of patients, particularly in light of the COVID-19 pandemic environment;
•
the safety and efficacy profiles of our product candidates;
•
the timing, receipt and terms of any approvals from applicable regulatory
authorities, including the FDA,
•
obtaining and maintaining intellectual property protection and regulatory exclusivity for our product candidates;
•
establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
•
retention and expansion of a workforce of experienced scientists and others to continue research and development of our product candidates;
•
maintaining a continued acceptable safety profile of the products following any marketing approvals.
•
significant and changing government regulation and regulatory guidance;
•
the impact of any business interruptions to our operations or to those of the third parties with whom we work, particularly considering the COVID-19 pandemic environment; and
•
the extent to which we establish additional strategic collaborations or other arrangements.
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A change in estimates of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our ongoing and planned clinical trials due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and administrative expenses
General and administrative expenses consist primarily of personnel-related costs, legal and professional service costs, insurance costs, and facility-related costs. Personnel-related costs include salaries, bonuses, benefits, stock-based compensation, travel expenses, and other related costs, for personnel in our executive, finance, corporate, business development, and administrative functions. Legal and professional service expenses include legal fees related to intellectual property and corporate matters; professional fees for accounting, auditing, tax, human resources, business development, and other consulting services, stock-based compensation issued to certain nonemployee consultants, and travel expenses and facilities-related expenses.
We expect that our general and administrative expenses will increase
substantially for the foreseeable future as we anticipate an increase in our
personnel headcount to support expansion of research and development efforts for
our product candidates, as well as to support our operations generally. We also
expect an increase in expenses associated with being a public company, including
costs related to compliance with the requirements of the Nasdaq Global Select
Market, or Nasdaq, and the
Net loss attributable to redeemable convertible noncontrolling interest
Net loss attributable to redeemable convertible noncontrolling interest
represented a portion of the net loss that is not allocated to us in our
subsidiary, DOT-1. On
Exchange of redeemable noncontrolling interest shares - deemed dividend
For the nine months ended
Results of operations
Comparison of three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development
88.1 %
Total operating expenses 39,699 19,241 20,458 106.3 %
Loss from operations (39,699 ) (19,241 ) (20,458 ) 106.3 %
Interest income (expense), net 1,895 (6 ) 1,901 *
Other income, net 9 7 2 28.6 %
Net loss $ (37,795 ) $ (19,240 ) $ (18,555 ) 96.4 %
* Percentage not meaningful
Research and development expenses
Research and development expenses increased
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other product development expenses, and personnel related expenses increased by
The following table summarizes our external and internal research and
development expenses for the three months ended
Three Months Ended
September 30,
2022 2021
(in thousands)External costs: Third-party CRO, CMO and other third-party clinical trial costs (1)
$ 13,740 $ 6,391 Other research and development costs, including laboratory materials and supplies 675 36 Internal costs: Employee related expenses 7,620 3,422 Total research and development expenses$ 22,035 $ 9,849
(1)
Third-party CRO, CMO and other clinical trial costs for the tovorafenib (DAY
101) program and the pimasertib program were
General and administrative expenses
General and administrative expenses increased
Comparison of nine months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 59,598 $ 32,395 $ 27,203 84.0 %
General and administrative 44,568 18,373 26,195 142.6 %
Total operating expenses 104,166 50,768 53,398 105.2 %
Loss from operations (104,166 ) (50,768 ) (53,398 ) 105.2 %
Interest income (expense), net 2,086 (19 ) 2,105 *
Other income (expense), net 8 (29 ) 37 -127.6 %
Net loss (102,072 ) (50,816 ) (51,256 ) 100.9 %
Net loss attributable to redeemable
convertible
noncontrolling interests - (2,109 ) 2,109 *
Exchange of redeemable noncontrolling
interest
shares - deemed dividend - (99,994 ) 99,994 *
Net Loss attributable to common
stockholders/members $ (102,072 ) $ (148,701 ) $ 46,629 -31.4 %
* Percentage not meaningful
Research and development expenses
Research and development expenses increased
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The following table summarizes our external and internal research and
development expenses for the nine months ended
Nine Months Ended
September 30,
2022 2021
(in thousands)External costs: Third-party CRO, CMO and other third-party clinical trial costs (1)
$ 33,909 $ 14,555 Milestone payment related to the MRKDG License Agreement 2,500 - Upfront payment related to the MRKDG License Agreement - 8,000 Milestone payment related to the Viracta License Agreement - 3,000 Other research and development costs, including laboratory materials and supplies 2,248 55 Internal costs: Employee related expenses 20,941 6,785 Total research and development expenses$ 59,598 $ 32,395
(1)
Third-party CRO, CMO and other clinical trial costs for the tovorafenib (DAY
101) program and the pimasertib program were
General and administrative expenses
General and administrative expenses increased
Liquidity and capital resources
In
In
In
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures including our license, clinical trial, and laboratory costs as well as to a lesser extent, general and administrative expenditures including our salary and consulting expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Our material cash requirements include the following contractual and other obligations.
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Leases
We have operating lease obligations for office spaces. As of
Contract Research Organizations and Contract Manufacturing Organizations
We enter into contracts in the normal course of business with CROs, CMOs, and
other third-party vendors for clinical trial, manufacturing, testing, and other
research and development activities. These contracts generally provide for
termination on notice, with the exception of one vendor with a potential
termination fee if a purchase order is cancelled within a specified time, and
another vendor where labor costs are non-cancellable after the approval of the
project plan. As of
License Agreements
We have entered into licensing agreements, which require us to pay milestones
contingent upon meeting of specific events. We made a milestone payment of
Cash flows
The following table summarizes our sources and uses of cash for the periods
presented:
Nine Months Ended
September 30,
2022 2021
Net cash used in operating activities $ (74,564 ) $ (35,370 )
Net cash used in investing activities (252,864 ) (8,000 )
Cash provided by financing activities 163,983 296,802
Net (decrease) increase in cash and cash equivalents
Operating activities
Net cash used in operating activities for the nine months ended
Net cash used in operating activities for the nine months ended
Investing activities
For the nine months ended
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Net cash used in investing activities for the nine months ended
Financing activities
Cash provided by financing activities for the nine months ended
Cash provided by financing activities for the nine months ended
Funding requirements
Since our inception, we have incurred significant operating losses. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities.
We believe our existing cash, cash equivalents, and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be imprecise, and we could use our available capital resources sooner than we currently expect.
As a result of anticipated expenditures, we will need to obtain substantial additional financing in connection with our continuing operations. Until such time, if ever, as we cannot generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Adequate additional funds may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we may be required to delay, limit, reduce or terminate our research, product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 additional debt, making acquisitions or capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution 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.
Our ability to raise additional funds may be adversely impacted by potential
worsening global economic conditions and disruptions to and volatility in the
credit and financial markets in
Off-balance sheet arrangements
We did not during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Critical accounting policies and use of estimates
Our critical accounting policies are disclosed in our audited consolidated
financial statements for the year ended
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New accounting pronouncements
Refer to Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.
Emerging Growth Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
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