DECIPHERA PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-K (Form 10-K) for the year endedDecember 31, 2021 on file with theSEC . Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business, 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 Form 10-Q, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company focused on discovering, developing, and commercializing important new medicines to improve the lives of people with cancer. Leveraging our proprietary switch-control kinase inhibitor platform and deep expertise in kinase biology, we design kinase inhibitors to target the switch pocket region of the kinase with the goal of developing potentially transformative medicines. Through our patient-inspired approach, we seek to develop a broad portfolio of innovative medicines to improve treatment outcomes. QINLOCK, our switch-control kinase inhibitor, was engineered using our proprietary drug discovery platform and developed for the treatment of fourth-line GIST. QINLOCK is approved inAustralia ,Canada ,China , the EU,Hong Kong ,Switzerland ,Taiwan , theU.S. , and theU.K. for the treatment of fourth-line advanced GIST. We wholly own QINLOCK and all of our drug candidates with the exception of a development and commercialization out-license agreement for QINLOCK inGreater China . In addition to QINLOCK, we have identified and advanced multiple drug candidates from our platform into clinical studies, including vimseltinib and DCC-3116.
Recent Developments
QINLOCK
QINLOCK, an orally administered kinase switch control inhibitor of the KIT and PDGFRA kinases, is approved in nine territories for the treatment of fourth-line advanced GIST. We launched QINLOCK inGermany inJanuary 2022 and received approval by theFrench National Authority for Health (HAS) for a post-approval paid access program inFrance , which we launched inApril 2022 . In addition, in our effort to continue to pursue market access for QINLOCK in the EU and theU.K. on a country-by-country basis, we submitted forNational Health Services (NHS ) reimbursement to theNational Institute for Health and Care Excellence (NICE) in the second quarter of 2022 and submitted for Agenzia Italiana DelFarmaco (AIFA) reimbursement inItaly and initiated the market access process inSpain with theSpanish Agency of Medicines and Medical Devices (AEMPS) in the third quarter of 2022. Vimseltinib
Vimseltinib is an investigational, orally administered, potent, and highly-selective switch-control kinase inhibitor of the colony stimulating factor 1 receptor (CSF1R).
We are currently studying vimseltinib in a pivotal Phase 3 study in patients with TGCT (MOTION study). The MOTION study is a two-part, randomized, double-blind, placebo-controlled study to assess the efficacy and safety of vimseltinib in patients with TGCT who are not amenable to surgery.
We are also conducting an international, multicenter, ongoing open-label Phase 1/2 study designed to evaluate the safety, efficacy, pharmacokinetics (PK), and pharmacodynamics (PD) of vimseltinib in patients with solid tumors and TGCT. InSeptember 2022 , we announced updated data from the Phase 1 dose escalation and Phase 2 expansion portions of the study in patients with TGCT in a poster presentation at theEuropean Society For Medical Oncology (ESMO) Congress 2022. In the Phase 2 expansion portion of the study, Cohort A includes TGCT patients with no prior anti-CSF1/CSF1R (previous therapy with imatinib or nilotinib is eligible) and Cohort B includes patients with prior anti-CSF1/CSF1R (previous therapy with imatinib or nilotinib is not eligible). As of theMay 6, 2022 cutoff date, the objective response rate (ORR) was 69% in Phase 1 across all dose cohorts, 53% in Phase 2 Cohort A, and 46% in Phase 2 Cohort B. In addition, the ORR at week 25 in Phase 2 Cohort A was 38%. The median duration of treatment for patients in (i) Phase 1 across all dose cohorts was 17.5 months with 53% of patients remaining on treatment as of the data cutoff date, (ii) Phase 2 Cohort A was 9.8 months with 61% of patients remaining on treatment as of the cutoff date, and (iii) Phase 2 Cohort B was 5.9 months with 67% of patients remaining on treatment as of the cutoff date. In both Phase 1 and Phase 2, treatment with vimseltinib was generally well tolerated in patients with TGCT in Phase 1 across all cohorts and in Phase 2 at the recommended dose of 30 mg twice weekly. Most non-laboratory treatment-emergent 22
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adverse events (TEAEs) were Grade 2 or lower and the only Grade 3/4 TEAE observed in >5% of patients was elevated creatine phosphokinase.
DCC-3116
DCC-3116 is a potential first-in-class investigational, orally administered, potent, and highly selective switch-control inhibitor of the ULK kinase.
DCC-3116 is being studied in a Phase 1 study designed to evaluate the safety, tolerability, clinical activity, PK, and PD of DCC-3116 as a single agent and in combination with trametinib, aU.S. Food and Drug Administration (FDA) approved MEK inhibitor, in patients with advanced or metastatic tumors with a RAS or RAF mutation. We presented initial Phase 1 single agent dose escalation data on DCC-3116 inSeptember 2022 in an oral presentation as a Proffered Paper at theESMO Congress 2022. As of theJune 9, 2022 cutoff date, 18 patients with locally advanced or metastatic cancer with a RAF or RAS mutation were enrolled across four dose cohorts treated with DCC-3116 twice daily (BID): 50 mg BID (n=3); 100 mg BID (n=4); 200 mg BID (n=7); and 300 mg BID (n=4). The median number of prior anti-cancer regimens was three (range 1-10). The most common cancer types were colorectal (56%) and pancreatic (28%) and patients had KRAS (83%) and BRAF (17%) mutations. DCC-3116 exposure appeared to increase dose-proportionally across the four dose levels tested from 50 mg BID to 300 mg BID; at all doses levels, the area under the curve (AUC) of DCC-3116 was at or above the AUC of the lowest tested dose that was active in preclinical studies. DCC-3116 demonstrated target inhibition with significant decreases in phosphorylation of ATG14, a direct ULK1/2 substrate, in peripheral blood mononuclear cells. At all dose levels, reductions in phosphorylated ATG14 were observed that were associated with anti-tumor activity in preclinical studies combining DCC-3116 and a MEK inhibitor as measured by reductions in phosphorylated ATG13 in tumors. Treatment with DCC-3116 was well tolerated and most TEAEs were Grade 1/2 except for two related asymptomatic and reversible Grade 3 alanine transaminase increases that led to dose interruption and reduction. The most common (?15%) TEAEs regardless of relatedness reported (all grades) were: fatigue (39%), dehydration (22%), alanine transaminase increases (17%), anemia (17%), aspartate transaminase increases (17%), decreased appetite (17%), hyponatremia (17%), nausea (17%), and vomiting (17%). In the fourth quarter of 2022, we completed enrollment of the monotherapy dose escalation portion of the Phase 1 study of DCC-3116. Single-agent DCC-3116 did not reach a maximum tolerated dose, and we selected 50 mg BID as the starting dose of DCC-3116 for the combination dose escalation portion of the study. We also opened enrollment for our three combination dose escalation cohorts: (i) in combination with trametinib, an FDA-approved MEK inhibitor, in patients with advanced or metastatic solid tumors with RAS, NF1, or RAF mutations, (ii) in combination with binimetinib, an FDA-approved MEK inhibitor, in patients with advanced or metastatic solid tumors with RAS, NF1, or RAF mutations, and (iii) in combination with sotorasib, an FDA-approved KRASG12C inhibitor, in patients with advanced or metastatic solid tumors with KRASG12C mutations. In addition, in the fourth quarter of 2022, we treated the first patient in the combination dose escalation portion of the study.
DCC-3084
We are also making a focused investment in our next generation of research programs, which are designed to provide first-in-class or best-in-class treatments using our proprietary switch-control inhibitor platform. InNovember 2022 , we announced the nomination of DCC-3084 for our pan-RAF development candidate. DCC-3084 is a selective inhibitor of BRAF/CRAF kinases that inhibits Class I, II, and III BRAF mutants, BRAF fusions, and NRAS mutant cell lines.
Coronavirus (COVID-19)
We continue to closely monitor the impact of the COVID-19 pandemic on our
business operations in an effort to mitigate interruption to our clinical
programs, research efforts, commercialization of QINLOCK, and other business
activities and to ensure the safety and well-being of our employees, as well as
the physicians and patients participating in our clinical trials. In addition,
we actively monitor risks associated with potential interruptions to our
clinical studies due to the impact of COVID-19 and are in frequent communication
with clinical study sites and contract research organizations (CROs). While all
of our studies remain open for enrollment, we have experienced some delays or
disruptions in enrollment and enrollment may in the future be temporarily paused
for new patients at some sites. We will continue to assess the duration, scope,
and severity of the COVID-19 pandemic as it evolves and monitor local COVID-19
trends and government guidance for each of our site and office locations.
However, in light of the changing circumstances surrounding the ongoing COVID-19
pandemic, the operating environment remains fluid and uncertain, and the full
significance of the impact of COVID-19 on our business and the duration for
which it
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may have an impact cannot be determined at this time. For further information
regarding the impact of the COVID-19 pandemic on us, see "Part II. Item 1A -
Risk Factors" included in this Quarterly Report on Form 10-Q.
Components of Our Results of Operations
Revenues
QINLOCK is approved inAustralia ,Canada ,China , the EU,Hong Kong ,Switzerland ,Taiwan , theU.S. and theU.K. for the treatment of fourth-line GIST. We may generate revenue in the future from a combination of product sales or payments from collaboration, distribution, or any potential additional license agreements that we may enter into with third parties. We expect that our revenue in the foreseeable future will be derived primarily from sales of QINLOCK and, payments owed to us under the license (the Zai License Agreement) and supply (the Zai Supply Agreement) agreements we entered into with Zai inJune 2019 andFebruary 2020 , respectively, including royalty revenues under the Zai License Agreement following the approvals of QINLOCK in the PRC andHong Kong inMarch 2021 . We cannot provide assurance as to what extent we will generate revenue from the commercialization of QINLOCK or if, when, or to what extent we will generate revenue from the commercialization and sale of our drug candidates for which we may receive marketing approval, if any. Additionally, we cannot provide assurance as to the extent of future royalty payments, the timing of future milestone payments, or that we will achieve and receive any future milestone payments at all. We may never succeed in obtaining regulatory approval for any of our drug candidates other than QINLOCK.
Product Revenues, Net
During the three and nine months endedSeptember 30, 2022 and 2021, our only source of product revenues was from the sales of QINLOCK. Product revenues are recorded net of estimates of variable consideration. Please read Note 2, Revenues, to the consolidated financial statements included in this Form 10-Q for further details of the reserves recorded for variable consideration.
Collaboration Revenues
For the three and nine months ended
Zai License Agreement
Pursuant to the terms of the Zai License Agreement, we received an upfront cash payment of$20.0 million and three development milestone payments totaling$12.0 million and will be eligible to receive up to$173.0 million in potential development and commercial milestone payments, consisting of up to$38.0 million of development milestones and up to$135.0 million of commercial milestones. In addition, during the term of the Zai License Agreement, Zai will be obligated to pay us tiered percentage royalties ranging from low to high teens on annual net sales of the Licensed Products in the Territory, subject to adjustments in specified circumstances. Additionally, certain costs we incur associated with the Zai License Agreement are reimbursed by Zai. During the second quarter of 2021, following the approvals of QINLOCK in the PRC andHong Kong inMarch 2021 , we began recognizing royalty revenues under the Zai License Agreement. Zai Supply Agreement Pursuant to the terms of the Zai Supply Agreement, costs incurred by us for external manufacturing services associated with the production of QINLOCK for use in the Territory for clinical trials and commercial inventory are reimbursed by Zai. During the second quarter of 2021, following the approvals of QINLOCK in the PRC andHong Kong inMarch 2021 , we began recognizing revenues associated with sales of commercial inventory of QINLOCK under the Zai Supply Agreement.
Cost of Sales
Our cost of sales includes external costs of producing and distributing
inventories that are related to product revenue during the respective period of
the associated sales. In addition, shipping and handling costs for product
shipments are recorded in cost of sales as incurred. Further, cost of sales
includes the external costs of producing and distributing commercial inventories
sold under the Zai Supply Agreement. Cost of sales also includes charges related
to inventory written down as a result of excess, obsolescence, unmarketability,
or other reasons.
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Cost of sales for newly launched products will not include the full cost of manufacturing until the initial pre-launch inventory is depleted, and additional inventory is manufactured and sold. The gross margin on sales of QINLOCK for the three and nine months endedSeptember 30, 2022 and 2021 was enhanced by sales of the initial pre-launch inventory, and therefore, use of active pharmaceutical ingredients and components that were previously expensed as research and development expenses prior to the launch of QINLOCK, referred to as zero cost inventories. However, we do not expect that the cost of sales as a percentage of net sales of QINLOCK will increase significantly after we have sold all zero cost inventories and commenced the sales of inventories which will reflect the full cost of manufacturing. We will begin selling inventory with the full cost of manufacturing in the fourth quarter of 2022.
Operating Expenses
The successful development and commercialization of our drug and drug candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:
•continuing to establish sales, marketing, and distribution capabilities to support the commercialization of QINLOCK or our drug candidates, if and when approved, whether alone or in collaboration with others such as Zai, our licensee for QINLOCK inGreater China ;
•successful completion of preclinical studies and clinical trials;
•receipt and related terms of marketing approvals from applicable regulatory authorities;
•acceptance of QINLOCK or our drug candidates, if and when approved, by patients, the medical community, and third-party payors;
•developing and implementing marketing and reimbursement strategies;
•raising additional funds necessary to fund ongoing operations and capital expenditure requirements, including to complete clinical development of and commercialize any current or future drug candidates for which we receive approval;
•making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our drug and drug candidates;
•maintaining a continued acceptable safety profile of our products following approval;
•obtaining and maintaining patent, trade secret, and other intellectual property protection, and regulatory exclusivity for our drug and drug candidates;
•protecting and enforcing our rights in our intellectual property portfolio;
•effectively competing with other therapies; and
•attracting additional licensees and/or collaborators or distributors with development, regulatory, and commercialization expertise.
A change in the outcome of any of these variables with respect to the commercialization of QINLOCK or the development of our drug or any of our drug candidates would significantly change the costs and timing associated with the commercialization of QINLOCK or development of our drug or that drug candidate. We may never succeed in obtaining regulatory approval for any of our drug candidates other than QINLOCK.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our drug and drug candidates, which include:
•employee-related expenses, including salaries, related benefits, travel, and stock-based compensation expense for employees engaged in research and development functions;
•expenses incurred in connection with the preclinical and clinical development of our drug candidates, including under agreements with CROs;
•the cost of consultants and contract manufacturing organizations (CMOs) that
manufacture drug products for use in our preclinical studies and clinical trials
as well as all expenses associated with the pre-launch manufacturing of
commercial inventory of QINLOCK prior to FDA approval; and
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•facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, supplies, and technology-related costs.
We expense research and development costs to operations as incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses within our consolidated balance sheets. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to consultants, central laboratories, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our proprietary switch-control kinase inhibitor platform technology, or facility expenses, including depreciation or other indirect costs, to specific drug or drug candidate development programs because these costs are deployed across multiple drug or drug candidate development programs and, as such, are not separately classified. Research and development activities are central to our business model. Drugs and drug 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 research and development expenses associated with vimseltinib and DCC-3116 will increase in 2022 as our drug and drug candidate development programs progress. However, we expect research and development expenses will decrease overall as compared to 2021 due to the cost reduction measures included in the corporate restructuring implemented in the fourth quarter of 2021. We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of our drug and any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, legal, finance, commercial, human resources, and administrative functions. Selling, general, and administrative expenses also include direct and allocated facility- and technology-related costs as well as professional fees for legal, patent, consulting, accounting, and audit services. We anticipate that our selling, general, and administrative expenses will decrease overall due to the cost reduction measures included in the corporate restructuring implemented in the fourth quarter of 2021, despite increased selling, general, and administrative expenses to be incurred related to the launch of QINLOCK inGermany andFrance in 2022. We also anticipate that we will continue to incur accounting, audit, legal, regulatory, compliance, and investor and public relations expenses associated with the business and continued operations as a public company.
Other Income (Expense)
Interest and Other Income, net
Interest income consists of interest earned on our cash, cash equivalents, and marketable securities balances. Other income, net, consists of insignificant amounts of miscellaneous income and expenses unrelated to our core operations, including the impacts of foreign currency exchange differences.
Income Taxes
Consistent with our income tax disclosures described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Components of Our Results of Operations" in our Form 10-K for the year endedDecember 31, 2021 on file with theSEC , as ofSeptember 30, 2022 , we have not recorded anyU.S. federal or state income tax benefits for either the net losses we have incurred or our earned research and orphan drug credits, due to the uncertainty of realizing a benefit from those items in the future.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in theU.S. (GAAP). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures in the 26
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consolidated financial statements. We believe that our critical accounting policies that involve the most judgment and complexity are those relating to:
•product revenue reserves;
•accrued research and development expenses; and
•stock-based compensation.
Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments, and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. For a description of our critical accounting policies, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Form 10-K for the year endedDecember 31, 2021 on file with theSEC . There have been no significant changes to our critical accounting policies sinceDecember 31, 2021 . Results of Operations
Comparison of the Three and Nine Months Ended
The following table summarizes our results of operations for the three and nine
months ended
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
Revenues:
Product revenues, net $ 32,318 $ 21,682 $ 92,624 $ 63,692
Collaboration revenues 3,656 1,538 5,067 8,257
Total revenues 35,974 23,220 97,691 71,949
Cost and operating expenses:
Cost of sales 3,344 917 5,525 2,414
Research and development 47,485 66,444 139,755 182,109
Selling, general, and administrative 30,026 35,527 87,972 99,102
Total cost and operating expenses 80,855 102,888 233,252 283,625
Loss from operations (44,881) (79,668) (135,561) (211,676)
Other income (expense):
Interest and other income, net 1,838 (170) 2,565 107
Total other income (expense), net 1,838 (170) 2,565 107
Net loss $ (43,043) $ (79,838) $ (132,996) $ (211,569)
Revenues
Product Revenues, Net
During the three and nine months ended September 30, 2022 and 2021, our only
source of product revenues was from the sales of QINLOCK. During the three and
nine months ended September 30, 2022 and 2021, net product revenues by geography
consisted of the following:
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
U.S. $ 24,478 $ 19,975 $ 71,621 $ 59,994
Rest of world 7,840 1,707 21,003 3,698
Total product revenues, net $ 32,318 $ 21,682 $ 92,624 $ 63,692
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For the three and nine months ended
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, rest of world net product revenues increased$6.1 million and$17.3 million , respectively, primarily due to increased sales volume inGermany , which launched inJanuary 2022 , andFrance , which launched a post-approval paid access program inApril 2022 , as we continued our commercialization efforts.
Collaboration Revenues
For the three months endedSeptember 30, 2022 compared to the same period in 2021, collaboration revenues increased$2.1 million , which was primarily due to an increase in revenues under the Zai Supply Agreement. For the nine months endedSeptember 30, 2022 compared to the same period in 2021, collaboration revenues decreased$3.2 million , which was primarily due to the recognition of a$5.0 million development milestone in the first quarter of 2021 associated with the approval of QINLOCK for the treatment of adult patients with advanced GIST who have received prior treatment with three or more kinase inhibitors, including imatinib, by the China NMPA inMarch 2021 . This decrease was partially offset by an increase in revenues under the Zai Supply Agreement.
Cost of Sales
During the three and nine months ended
Three Months Ended
2022 2021 2022 2021
Cost of product sales $ 672 $ 193 $ 2,013 $ 809
Cost of collaboration sales 2,672 724 3,512 1,605
Total cost of sales $ 3,344 $ 917 $ 5,525 $ 2,414
For the three and nine months ended September 30, 2022 compared to the same
periods in 2021, cost of sales increased $2.4 million and $3.1 million ,
respectively, primarily due to costs associated with the commercial inventory of
QINLOCK sold under the Zai Supply Agreement and increased product sales of
QINLOCK in Germany and France . During the three and nine months ended
September 30, 2022 , cost of sales also included a $0.3 million and $0.7 million ,
respectively, of charges for inventory written down as a result of excess,
obsolescence, unmarketability, or other reasons. During the nine months ended
September 30, 2021 , cost of sales also included a charge of less than
$0.1 million for inventory written down as a result of excess, obsolescence,
unmarketability, or other reasons. Cost of sales associated with product sales
of QINLOCK was primarily related to the sales of zero cost inventories, which
consisted of packaging, labeling, shipping, and distribution costs. As a result,
the full costs of manufacturing QINLOCK inventory are not included in cost of
sales during the three and nine months ended September 30, 2022 and 2021.
Prior to receiving FDA approval for QINLOCK in May 2020 , we manufactured
inventory to be sold and recorded approximately $6.0 million related to this
inventory build-up as research and development expense. We did not record any
such costs related to the build-up of this inventory as research and development
expense during the three and nine months ended September 30, 2022 and 2021.
Utilizing the actual direct costs to manufacture QINLOCK prior to receiving FDA
approval, had the previously expensed inventory been capitalized and recognized
when sold, the total cost of sales with these manufacturing costs included for
the three and nine months ended September 30, 2022 would have increased by
approximately $0.6 million and $1.9 million , respectively, and $0.3 million and
$1.4 million , respectively, in the prior year comparative periods.
We do not expect our cost of sales for QINLOCK to increase significantly as a
percentage of net sales in future periods as we continue to produce inventory
for future sales, which will reflect the full cost of manufacturing, and then
sell such inventory. We continued to sell the zero cost inventories of QINLOCK
in the U.S. through the third quarter of 2022, and we will begin selling
inventory with the full cost of manufacturing in the fourth quarter of 2022.
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Operating Expenses
[[Image Removed: dcph-20220930_g2.jpg]][[Image Removed: dcph-20220930_g3.jpg]]
Research and Development Expenses
QINLOCK
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, research and development expenses related to QINLOCK decreased primarily as a result of decreases in clinical trial expenses of$10.1 million and$20.6 million and decreases in manufacturing costs of$1.4 million and$6.6 million , respectively. Clinical trial expenses for QINLOCK decreased primarily as a result of decreased expenses associated with INTRIGUE, our Phase 3 study of QINLOCK for the treatment of second-line GIST, which we initiated inDecember 2018 and for which enrollment was completed inDecember 2020 and our Phase 1 trial of QINLOCK. Manufacturing costs decreased primarily due to timing of processing of inventory for clinical and commercial use.
Vimseltinib
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, expenses related to our vimseltinib program increased primarily as a result of increases in clinical trial expenses of$2.7 million and$5.3 million , 29
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respectively. Additionally, for the nine months endedSeptember 30, 2022 clinical trial expenses were offset by decreases in manufacturing costs of$0.7 million . Clinical trial expenses increased primarily due to increased activities associated with our Phase 3 study of vimseltinib in patients with TGCT, MOTION, which was initiated in the fourth quarter of 2021 and increased clinical pharmacology study activities, partially offset by a decrease in clinical trial expense associated with our Phase 1/2 study of vimseltinib to assess the safety, tolerability, pharmacokinetics, and pharmacodynamics in patients with TGCT. Manufacturing costs for the vimseltinib program decreased for the nine months endedSeptember 30, 2022 as a result of increased manufacturing in the prior year period to prepare for the initiation of the MOTION study.
Rebastinib
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, expenses related to our rebastinib program decreased primarily as a result of the discontinuation of our rebastinib program in the fourth quarter of 2021 following the corporate restructuring implemented in the fourth quarter of 2021. DCC-3116 For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, expenses related to our DCC-3116 program increased primarily as a result of increases in manufacturing costs of$2.1 million and$5.4 million and increases in clinical trial expenses of$0.7 million and$2.2 million , respectively, associated with our Phase 1 study of DCC-3116, which we initiated inJune 2021 , partially offset by a decrease in preclinical expense of$0.2 million and$0.4 million , respectively, due to the program moving from the preclinical to clinical stage inJune 2021 .
Preclinical
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, the decrease in preclinical costs of$4.8 million and$3.6 million , respectively, was primarily due to a$4.0 million upfront payment to Sprint Bioscience (Sprint) pursuant to the Sprint Agreement, an agreement to exclusively in-license worldwide rights to a research-stage program targeting VPS34, a key kinase in the autophagy pathway for the potential treatment of cancer, during the third quarter of 2021.
Unallocated Expenses
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, the decreases in unallocated research and development expenses were primarily associated with decreased personnel-related costs of$3.6 million and$5.0 million , respectively, primarily due to the cost reduction measures included in the corporate restructuring implemented in the fourth quarter of 2021, partially offset by an increase in employee expenses related to our international employees, who were primarily hired in the second half of 2021. Additionally, for the nine months endedSeptember 30, 2022 , the decrease was also partially offset by an increase in stock-based compensation expense of$1.0 million , primarily due to stock-based compensation grants issued in the fourth quarter of 2021 in connection with our corporate restructuring. We expect research and development expenses associated with vimseltinib and DCC-3116 will increase in the fourth quarter of 2022 as we continue to invest in the development of these programs. However, we expect research and development expenses will decrease overall as compared to 2021 due to the cost reduction measures included in the corporate restructuring implemented in the fourth quarter of 2021.
Selling, General, and Administrative Expenses
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, the decrease in selling, general, and administrative expenses was primarily associated with a decreases in personnel-related costs of$2.5 million and$2.3 million , respectively, and professional and consultant fees of$2.3 million and$7.9 million , respectively. The decreases in personnel-related costs were primarily due to the cost reduction measures included in our corporate restructuring implemented in the fourth quarter of 2021, partially offset by an increase in employee expenses related to our international employees, who were primarily hired in the second half of 2021. Additionally, for the nine months endedSeptember 30, 2022 , the decrease in personnel-related costs was also partially offset by an increase in stock-based compensation expense of$3.3 million , primarily due to stock-based compensation grants issued in the fourth quarter of 2021 in connection with our corporate restructuring. The decreases in professional and consultant fees were primarily due to a decrease in various advisory fees related to establishing, in the prior year period, a targeted commercial infrastructure and commercialization preparedness in key European markets to support the launch of QINLOCK inGermany , which launched inJanuary 2022 , and a post-approval paid access program inFrance , which launched inApril 2022 .
We anticipate that our selling, general, and administrative expenses will decrease overall due to the cost reduction measures included in the corporate restructuring implemented in the fourth quarter of 2021, despite increased selling, general, and
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administrative expenses to be incurred related to the launch of QINLOCK in
Interest and Other Income, Net
For the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, the increases in interest and other income, net, was primarily due to increased interest income on our cash equivalents and marketable securities associated with an increase in our investment holdings and foreign currency exchange differences.
Restructuring
In
As a result of the restructuring, we recognized a one-time charge in the fourth quarter of 2021 of approximately$26.2 million . This charge includes approximately$9.8 million of employee-related termination costs and approximately$16.4 million of discontinuation costs such as contract termination fees and non-cancellable commitments related to the rebastinib and ripretinib programs.
The following table summarizes the charges and spending related to the Company's
restructuring efforts during the nine months ended
Workforce Pipeline
(in thousands) Reduction Programs Total
Restructuring reserve as of
(374) 192 (182)
Payments (6,930) (13,600) (20,530)
Restructuring reserve as of
Liquidity and Capital Resources
Since our inception in 2003, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, business planning, raising capital, developing product and technology rights, conducting research and development activities for our drug candidates, building a commercial and marketing organization, and commercializing our first approved product, QINLOCK. Our only product approved for sale is QINLOCK and we have not generated sufficient revenues to result in a profit. As a result, we have incurred significant operating losses since our inception. We have generated limited revenue to date primarily from our product sales and under the Zai License Agreement and Zai Supply Agreement. QINLOCK is approved in nine territories for the treatment of fourth-line GIST. During the three and nine months endedSeptember 30, 2022 and 2021, our product revenues were primarily derived from sales of QINLOCK in theU.S. Additionally, we launched QINLOCK inGermany inJanuary 2022 and launched a post-approval paid access program inFrance inApril 2022 . We have also entered into exclusive distributor arrangements to facilitate product sales of QINLOCK in select geographies where we do not currently intend to distribute QINLOCK on our own. During the second quarter of 2021, following the approvals of QINLOCK in the PRC andHong Kong inMarch 2021 , we also began to recognize royalty revenues under the Zai License Agreement. However, we cannot provide assurance as to what extent we will generate revenue from the commercialization of QINLOCK by us or our partners. We do not expect to generate revenue from sales of any drug candidates in the near future, if at all, unless and until we obtain marketing approval for, and begin to sell, such drug candidates. We may never generate revenues that are significant enough to achieve profitability. OnOctober 2, 2017 , we completed our initial public offering (IPO) of our common stock. SinceOctober 2017 , we have primarily supported our operations by completing issuances of our common stock through our IPO, subsequent follow-on offerings, including our underwritten public offering announced inApril 2022 , and an Open Market Sale Agreement? (the Sales Agreement and as amended, the Amended Sales Agreement) withJefferies LLC (Jefferies). Through such issuances, we have issued and sold 37,170,625 shares of our common stock and pre-funded warrants to purchase 9,748,761 shares of our common stock resulting in net proceeds of$1.1 billion after deducting underwriting discounts and commissions and other offering expenses. 31
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InApril 2022 , we entered into an underwriting agreement withJ.P. Morgan Securities LLC and Jefferies, as representatives of the several underwriters named therein, relating to the issuance and sale of an aggregate of 7,501,239 shares of our common stock at a public offering price of$10.00 per share of common stock to certain investors. In addition, we offered pre-funded warrants to purchase 9,748,761 shares of our common stock at a purchase price of$9.99 per pre-funded warrant, which equals the public offering price per share of the common stock less the$0.01 exercise price per share of each pre-funded warrant. The offering closed onApril 29, 2022 , resulting in net proceeds of$163.4 million after deducting underwriting discounts and commissions and other offering expenses. During the three and nine months endedSeptember 30, 2022 , 575,482 and 892,798 shares of pre-funded warrants were exercised resulting in net proceeds of less than$0.1 million and$0.1 million , respectively. As ofSeptember 30, 2022 , there were 8,855,963 pre-funded warrants outstanding. OnAugust 4, 2022 , we entered into an amendment to our existing Sales Agreement with Jefferies, pursuant to which we may issue and sell shares of our common stock having aggregate offering proceeds of up to$200.0 million (the Shares) from time to time through Jefferies as our sales agent. Upon delivery of a placement notice and subject to the terms and conditions of the Amended Sales Agreement, Jefferies may sell the Shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. We may sell the Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the Sales Agreement, but we have no obligation to sell any Shares under the Amended Sales Agreement. We or Jefferies may suspend or terminate the offering of Shares upon notice to the other party and subject to other conditions. During the nine months endedSeptember 30, 2021 , we issued 172,094 shares under the Sales Agreement resulting in net proceeds of$8.5 million after deducting discounts and commissions and other offering expenses. During the nine months endedSeptember 30, 2022 , we did not issue any shares under the Sales Agreement of the Amended Sales Agreement.
Cash Flows
As of
The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented:
Nine Months Ended September 30,
(in thousands) 2022 2021
Net cash flows used in operating activities $ (117,704) $ (173,648)
Net cash flows (used in) provided by investing activities (50,613) 77,896
Net cash flows provided by financing activities 164,516 12,912
Net increase (decrease) in cash and cash equivalents $ (3,801) $ (82,840)
Operating Activities
During the nine months ended September 30, 2022 compared to the same period in
2021, net cash flows used in operating activities decreased $55.9 million ,
primarily resulting from a decrease in our net loss of $78.6 million , partially
offset by decreases in net non-cash charges of $0.8 million , including an
increase in share-based compensation of $4.3 million , and increases in net cash
flows related to changes in our operating assets and liabilities of $21.8
million . The increase in net cash flows related to changes in our operating
assets and liabilities were generally due to the timing of vendor invoicing and
payments.
Investing Activities
During the nine months ended September 30, 2022 compared to the same period in
2021, net cash flows used in investing activities increased $128.5 million ,
primarily resulting from a decrease in proceeds from maturities and sales of
marketable securities of $207.8 million , partially offset by a decrease in
purchases of marketable securities of $73.1 million , a decrease in purchases of
property and equipment of $2.2 million and a $4.0 million upfront payment to
Sprint pursuant to the Sprint Agreement during the third quarter of 2021.
Financing Activities
During the nine months endedSeptember 30, 2022 compared to the same period in 2021, net cash flows provided by financing activities increased$151.6 million , primarily resulting from an increase in net proceeds from offerings of our common stock and pre-funded warrants of$154.8 million , partially offset by a decrease in proceeds from stock option exercises and 32
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employee stock purchase plan activity of$3.2 million . Net of underwriting discounts and commissions and other offering costs, the increase in proceeds from offerings was due to our issuance of our common stock and pre-funded warrants in a follow-on public offering inApril 2022 of$163.4 million as compared to our issuances of our common stock under the Sales Agreement during the nine months endedSeptember 30, 2021 of$8.5 million .
Funding Requirements
Our ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful commercialization of QINLOCK and eventual commercialization of one or more of our drug candidates. Our net loss was$133.0 million for the nine months endedSeptember 30, 2022 and$300.0 million for the year endedDecember 31, 2021 . As ofSeptember 30, 2022 , we had an accumulated deficit of$1.2 billion . We expect to continue to incur significant expenses and operating losses for the foreseeable future. We expect that our expenses and capital requirements will increase in connection with our ongoing activities, particularly as we:
•continue to commercialize QINLOCK in the
•continue with our ongoing and planned clinical programs for vimseltinib as a potential single agent therapy for the treatment of TGCT;
•develop DCC-3116, our ULK kinase inhibitor, for the potential treatment of mutant RAS or RAF cancers;
•continue research and development and drug discovery activities and initiate additional clinical trials;
•seek marketing approval for our drug or any of our drug candidates that successfully complete clinical development;
•develop and scale up our capabilities to support our ongoing preclinical activities and clinical trials for our drug candidates and commercialization of any of our drug candidates for which we obtain marketing approval;
•make payments, if any, pursuant to any license or collaboration agreement we may enter into, including those associated with the Sprint Agreement;
•maintain, expand, protect, and enforce our intellectual property portfolio; and
•maintain our operational, financial, and management systems and personnel,
including to support our clinical development and commercialization efforts and
our operations as a public company, including international operations in key
European markets and other potential geographies.
As we continue to seek regulatory approval for our drug candidates, we expect to
incur significant expenses related to our ongoing clinical development efforts
and activities related to maintaining and expanding our internal
commercialization capability to support product sales, marketing, and
distribution except to the extent we enter into a commercialization partnership
that covers such expenses. Further, we expect to continue to incur costs
associated with operating as a public company.
As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Even if we are able to
generate substantial product sales of QINLOCK, we may not become profitable.
Until we become profitable, if ever, we expect to finance our operations
primarily through a combination of equity, debt, or other financings,
collaborations, strategic alliances, and marketing, distribution, or additional
licensing arrangements. We may be unable to raise additional funds or enter into
such other agreements or arrangements when needed on favorable terms, or at all.
Market volatility resulting from global economic developments, political unrest,
high inflation, the COVID-19 pandemic or other factors could also adversely
impact our ability to access capital as and when needed. If we are unable to
raise additional funds through equity or debt financings or other arrangements
when needed, we may be required to delay, limit, reduce, or terminate our
research, product development, or commercialization efforts or grant rights to
develop and market drugs and drug 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, the ownership interest of existing equity holders
will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect the rights of common stockholders. 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 (such as the Zai License Agreement), we may have
to relinquish valuable rights to our technologies, future revenue streams,
research programs, drugs, or drug candidates, or grant licenses on terms that
may not be favorable to us.
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Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses and capital requirements or when or if we will be able to achieve or maintain profitability. 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 further reduce or terminate our operations. The timing and amount of our operating expenditures will depend largely on:
•the timing and progress of preclinical and clinical development activities;
•successful enrollment in and completion of clinical trials;
•the success of our commercialization efforts and market acceptance for QINLOCK or any of our future approved drugs;
•the timing and outcome of regulatory review of our drug and drug candidates;
•the cost to develop companion diagnostics as needed for each of our drug candidates;
•our ability to establish and manage agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing;
•addition and retention of key research and development and commercial, including sales and marketing, personnel;
•the costs and timing of commercialization activities, including product manufacturing, marketing, sales, and distribution, for QINLOCK, including our commercial launch of QINLOCK in key European markets, and any of our drug candidates for which we obtain marketing approval;
•the legal and patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims; and
•the terms and timing of any collaboration, license, distribution, or other arrangement, including the terms and timing of any upfront, milestone, and/or royalty payments thereunder. We believe that our cash, cash equivalents, and marketable securities as ofSeptember 30, 2022 of$371.6 million , together with anticipated product, royalty, and supply revenues, but excluding any potential future milestone payments under our collaboration or license agreements will enable us to fund our operating expenses and capital expenditure requirements into 2025. 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.
Contractual Obligations and Commitments
As ofSeptember 30, 2022 , there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those that were presented in our Form 10-K for the year endedDecember 31, 2021 .
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 .
Recently Issued Accounting Pronouncements
Based on our review of recently issued accounting pronouncements, we do not believe there are any such pronouncements that will have a material impact on our financial position or results of operations.
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