DENALI THERAPEUTICS INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled "Risk Factors" included in this Quarterly Report on Form 10-Q.
Forward-looking statements include, but are not limited to, statements about:
•the progress, success, cost and timing of our development activities,
preclinical studies and clinical trials, and in particular the development of
our blood-brain barrier ("BBB") platform technology, programs and biomarkers,
including the initiation and completion of studies or trials and related
preparatory work, enrollment in such trials, the timing of when data from
clinical trials will become available, the advancement of new molecule entities
into clinical development and related timing, and the filing of investigational
new drug applications or clinical trial applications;
•the impact of preclinical findings on our ability to achieve exposures of our
product candidates that allow us to explore a robust pharmacodynamic range of
these candidates in humans;
•the expected potential benefits and potential revenue resulting from strategic
collaborations with third parties and our ability to attract collaborators with
development, regulatory and commercialization expertise;
•the timing or likelihood of regulatory filings and approvals;
•our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;
•the extent to which any dosing limitations that we have been subject to, and/or may be subject to in the future, may affect the success of our product candidates;
•the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
•the terms and conditions of licenses granted to us and our ability to license and/or acquire additional intellectual property relating to our product candidates and BBB platform technology;
•our ability to obtain funding for our operations, including funding necessary to develop and commercialize our current and potential future product candidates;
•our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;
•future agreements with third parties in connection with the commercialization of our product candidates;
•the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;
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•the rate and degree of market acceptance of our product candidates;
•existing regulations and regulatory developments in
•potential claims relating to our intellectual property and third-party intellectual property;
•our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
•our plans and ability to develop our own manufacturing facilities;
•the pricing and reimbursement of our product candidates, if approved and commercialized;
•the success of competing products or platform technologies that are or may become available;
•our ability to attract and retain key managerial, scientific and medical personnel;
•the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•our ability to enhance operational, financial and information management systems;
•the impact of adverse economic conditions such as instability in the financial services sector, rising interest rates, rising inflation and increased labor market competition;
•the impact of the COVID-19 pandemic, increased geopolitical uncertainty and related global economic disruptions and social conditions on our business; and
•our financial performance.
These forward-looking statements are subject to a number of risks,
uncertainties, and assumptions, including those described in "Risk Factors". In
some cases, you can identify these statements by terms such as "anticipate,"
"believe," "could," "estimate," "expects," "intend," "may," "plan," "potential,"
"predict," "project," "should," "will," "would" or the negative of those terms,
and similar expressions that convey uncertainty of future events or outcomes.
These forward-looking statements reflect our beliefs and views with respect to
future events and are based on estimates and assumptions as of the date of this
Quarterly Report on Form 10-Q and are subject to risks and uncertainties. We
discuss many of these risks in greater detail in the section entitled "Risk
Factors" included in Part II, Item 1A and elsewhere in this report. Moreover, we
operate in a very competitive and rapidly changing environment. New risks emerge
from time to time. It is not possible to predict all risks, nor can we assess
the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements we may make. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We qualify all of the forward-looking statements in this Quarterly
Report on Form 10-Q by these cautionary statements. Except as required by law,
we assume no obligation to update these forward-looking statements publicly, or
to update the reasons actual results could differ materially from those
anticipated in any forward-looking statements, whether as a result of new
information, future events or otherwise.
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Overview
Our goal is to discover, develop and deliver therapeutics to defeat degeneration.
Our discovery and development strategy is guided by three overarching principles that we believe will significantly increase the probability of success and accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:
•Degenogene Pathways - each of our programs addresses a molecular target or biological pathway that is genetically validated to cause or increase the risk for neurodegenerative diseases.
•BBB Platform Technology - we engineer our product candidates to cross the BBB and act directly in the brain by following a rigorous approach in designing small molecules and by using our proprietary TV platform technology to effectively deliver large therapeutic molecules, such as enzymes, proteins, antibodies, and oligonucleotides, across the BBB after intravenous administration.
•Biomarker-Driven Development - we discover, develop and use biomarkers to inform dose selection, assess clinical activity, and to identify patients most likely to respond to our therapies.
Our clinical-stage programs are:
•our ETV:IDS program, our lead brain-penetrant enzyme replacement therapy
("ERT"), enabled by our ETV, which is designed to restore iduronate 2-sulfatase
("IDS"), and reduce glycosaminoglycans ("GAGs"), both peripherally and in the
brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter
syndrome");
•our recombinant progranulin ("PGRN") biotherapeutic enabled by our protein
transport vehicle ("PTV:PGRN"), being developed in collaboration with Takeda, to
address certain types of FTD, especially FTD-GRN caused by PGRN deficiency;
•our novel, selective, high affinity triggering receptors expressed on myeloid
cells 2 ("TREM2") antibody, enabled by our ATV, being developed in collaboration
with Takeda for the potential treatment of Alzheimer's disease;
•our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, being developed in collaboration with Biogen, to address Parkinson's disease ("PD");
•our eukaryotic initiation factor 2 B ("eIF2B") activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and frontotemporal dementia ("FTD");
•our CNS-penetrant receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitor program, partnered with Sanofi, to address neurological diseases such as ALS, multiple sclerosis ("MS") and Alzheimer's disease; and
•a second non-CNS penetrant RIPK1 inhibitor, partnered with Sanofi, to address
peripheral inflammatory diseases such as cutaneous lupus erythematosus ("CLE")
and ulcerative colitis ("UC").
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The following table summarizes key information about our clinical stage
programs:
Program Product Candidate Clinical Study(ies) Indication Operational Control
ETV:IDS DNL310 Ph 1/2 Hunter syndrome (MPS II) Denali
Ph 2/3
PTV:PGRN TAK-594/DNL593 Ph 1/2 FTD-GRN Joint with Takeda
ATV:TREM2 TAK-920/DNL919 Ph 1 Alzheimer's disease Joint with Takeda
LRRK2 BIIB122/DNL151 Ph 2b Parkinson's disease Joint with Biogen
Ph 3
eIF2B DNL343 Ph 1b ALS Denali
Ph 2/3 (planned) ALS Joint with Healey Center
RIPK1 (CNS-penetrant) SAR443820 /DNL788 Ph 2 ALS Sanofi
Ph 2 MS Sanofi
RIPK1 (Peripheral) SAR443122 /DNL758 Ph 2 CLE Sanofi
Ph 2 UC Sanofi
Since we commenced operations, we have devoted substantially all of our resources to discovering, acquiring and developing product candidates, building our BBB platform technology and assembling our core capabilities in understanding key neurodegenerative disease pathways.
Key operational and financing milestones in 2023 to date include:
•InJanuary 2023 , our collaboration partner Sanofi commenced dosing in the Phase 2 study ofSAR443820 / DNL788 in patients with MS, triggering a$25.0 million milestone payment, which was received inJanuary 2023 ; •InFebruary 2023 , at the WORLDSymposiumTM, we reported additional interim data from the open-label, single-arm Phase 1/2 study of DNL310. Over 49 weeks of DNL310 treatment in the Phase 1/2 study, positive changes across measures of exploratory clinical outcomes including VABS-II (adaptive behavior) and BSID-III (cognitive capabilities) scores and global impression scales were observed. The data also suggested that DNL310 improved hearing, as assessed by auditory brainstem response testing. Additional biomarker data out to 49 weeks continued to demonstrate that DNL310 enabled rapid and sustained normalization of CSF heparan sulfate to normal healthy levels and improvement in lysosomal function biomarkers. Reduction in urine heparan sulfate and dermatan sulfate after switch from standard of care to DNL310 suggested additional sustained peripheral activity of DNL310. The DNL310 safety profile, with up to two years of treatment, remained consistent with standard of care; •InMarch 2023 , a contingent consideration payment of$30.0 million associated with our acquisition of F-star Gamma was triggered upon the achievement of a specified clinical milestone in the ETV:IDS program. This payment fully satisfies our clinical contingent consideration obligations under the Purchase Agreement;
•In
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•InApril 2023 , we entered into a new operating lease inSalt Lake City for a 59,336 square foot laboratory, office and warehouse premises, after terminating our previous SLC lease inMarch 2023 , decreasing future lease payment by$6.1 million while increasing the lease term by approximately five and a half years. TheUtah site will expand our clinical manufacturing capabilities for biologic therapeutics (large molecules) as we plan to use the premises for the manufacture of materials for toxicology studies and drug substance for early human clinical studies with the goal of increasing flexibility and speed in advancing new investigational therapies into clinical trials; •InApril 2023 , our collaboration partner Biogen exercised its option to develop and commercialize our ATV program targeting Amyloid Beta, triggering an option exercise payment, which we expect to receive inMay 2023 ; and •InApril 2023 , we presented final data from the 28-day treatment period of the Phase 1b study of DNL343 in participants with ALS at the 75th Annual Meeting of theAmerican Academy of Neurology (AAN). The results continued to demonstrate that once-daily oral dosing with DNL343 for 28 days was generally well tolerated and demonstrated extensive CSF penetration. In addition, robust inhibition of biomarkers associated with the ISR pathway was observed in blood samples from study participants. The Phase 1b data continue to support plans to initiate dosing with DNL343 in the Phase 2/3 HEALEY Platform Trial in ALS. We do not have any products approved for sale and have not generated any product revenue since our inception. We have funded our operations primarily from the issuance and sale of convertible preferred stock, the sale of common stock in public offerings, and payments received from our collaboration agreements with Takeda, Sanofi and Biogen. We have incurred significant operating losses to date and expect to continue to incur operating losses for the foreseeable future. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were$109.8 million and$65.2 million for the three months endedMarch 31, 2023 and 2022, respectively. As ofMarch 31, 2023 , we had an accumulated deficit of$1.08 billion . We expect to continue to incur significant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials; broaden and improve our BBB platform technology; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel.
Components of Operating Results
Collaboration Revenue
To date, we have not generated any revenue from product sales and do not expect
to generate any revenue from product sales for the foreseeable future. All
revenue recognized to date has been collaboration and license revenue from our
collaboration agreements with Takeda, Sanofi and Biogen.
Future revenue may be recognized from the Takeda Collaboration Agreement, Sanofi
Collaboration Agreement, and Biogen Collaboration Agreement, and may be
generated from product sales or milestone payments, royalties and cost
reimbursement from other collaboration agreements, strategic alliances and
licensing arrangements. We expect that our revenue will fluctuate from
quarter-to-quarter and year-to-year as a result of the timing and amount of
license fees, option exercise fees, milestone payments, reimbursement of costs
incurred and other payments and product sales, to the extent any are
successfully commercialized. If we fail to complete the development of our
product candidates in a timely manner or obtain regulatory approval for them,
our ability to generate future revenue, and our results of operations and
financial position, would be materially adversely affected.
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Table of Contents Operating Expenses Research and Development Research and development activities account for a significant portion of our operating expenses. We record research and development expenses as incurred. Research and development expenses incurred by us for the discovery and development of our product candidates and BBB platform technology include:
•external research and development expenses, including:
-expenses incurred under arrangements with third parties, such as contract
research organizations ("CROs"), preclinical testing organizations, contract
development and manufacturing organizations ("CDMOs"), academic and non-profit
institutions and consultants;
-expenses to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use;
-fees related to our license and collaboration agreements;
•personnel related expenses, including salaries, benefits and stock-based compensation expense; and
•other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.
A portion of our research and development expenses are direct external expenses, which we track on a program-specific basis once a program has commenced late-stage IND-enabling studies.
Program expenses include expenses associated with our most advanced product candidates and the discovery and development of backup or next-generation molecules. We also track external expenses associated with our TV platform. These expenses include external expenses incurred by us relating to our Takeda Collaboration Agreement, Sanofi Collaboration Agreement and Biogen Collaboration Agreement. All external costs associated with earlier stage programs, or that benefit the entire portfolio, are tracked as a group. We also incur personnel and other operating expenses for our research and development programs which are presented in aggregate. These expenses primarily relate to salaries and benefits, stock-based compensation, facility expenses including rent and depreciation, and lab consumables. Where we share costs with our collaboration partners, such as in our Biogen Collaboration Agreement and Takeda Collaboration Agreement, research and development expenses may include cost sharing reimbursements from, or payments to, our collaboration partners. It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. This is made more challenging by events outside of our control, such as the COVID-19 pandemic and increased geopolitical uncertainty. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
•our ability to add and retain key research and development personnel;
•our ability to establish an appropriate safety profile with IND-enabling toxicology studies;
•our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
•our successful enrollment in and completion of clinical trials;
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•the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations;
•our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our molecules;
•our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
•the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
•our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;
•our receipt of marketing approvals from applicable regulatory authorities;
•our ability to commercialize products, if and when approved, whether alone or in collaboration with others; and
•the continued acceptable safety profiles of the product candidates following approval.
A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We expect our research and development expenses to increase at least over the next several years as we continue to implement our business strategy, advance our current programs, expand our research and development efforts, seek regulatory approvals for any product candidates that successfully complete clinical trials, access and develop additional product candidates and incur expenses associated with hiring additional personnel to support our research and development efforts. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. General and Administrative General and administrative expenses include personnel related expenses, such as salaries, benefits, travel and stock-based compensation expense, expenses for outside professional services and allocated expenses. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated expenses consist of rent, depreciation and other expenses related to our office and research and development facility not otherwise included in research and development expenses. We expect to increase our administrative headcount as we advance our product candidates through clinical development, which will increase our general and administrative expenses.
Interest and Other Income, Net
Interest and other income, net, consists primarily of interest income and investment income earned on our cash, cash equivalents, and marketable securities, and sublease income.
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Results of Operations
Comparison of the three months ended
The following table sets forth the significant components of our results of operations (in thousands):
Three Months Ended March 31, Change
2023 2022 $ %
Collaboration revenue:
Collaboration revenue from customers $ 35,141 $ 42,141 $ (7,000) (17) %
Total collaboration revenue 35,141 42,141 (7,000) (17)
Operating expenses:
Research and development 128,816 86,098 42,718 50
General and administrative 27,140 22,541 4,599 20
Total operating expenses 155,956 108,639 47,317 44
Loss from operations (120,815) (66,498) (54,317) 82
Interest and other income, net 11,034 1,278 9,756 *
Net loss $ (109,781) $ (65,220) $ (44,561) 68 %
__________________________________________________
*Percentage is not meaningful.
Collaboration revenue. Collaboration revenue was$35.1 million and$42.1 million for the three months endedMarch 31, 2023 and 2022, respectively. The decrease in collaboration revenue of$7.0 million for the three months endedMarch 31, 2023 , compared to the comparative period in the prior year, was primarily due to a$29.9 million decrease in revenue from our collaboration with Takeda primarily due to completion of the preclinical research service performance obligations, and a decrease in revenue of$2.1 million under the Biogen Collaboration Agreement due to completion of the ATV:Abeta Option Research Services. These decreases are partially offset by a$25.0 million increase in revenue from our collaboration with Sanofi as a result of the milestone achieved inJanuary 2023 upon the commencement of dosing in a Phase 2 study ofSAR443820 /DNL788 in individuals with MS. Research and development expenses. Research and development expenses were$128.8 million and$86.1 million for the three months endedMarch 31, 2023 and 2022, respectively. The following table summarizes our research and development expenses by program and category (in thousands): Three Months Ended March 31, 2023 2022 ETV:IDS program external expenses $ 46,644 $ 17,890 PTV:PGRN program external expenses 2,846 4,143 ATV:TREM2 program external expenses 1,886 2,746 TV platform and other program external expenses 4,358 5,743 LRRK2 program external expenses 1,905 1,196 eIF2B program external expenses 4,648 3,935 Other external research and development expenses 7,715 7,506 Personnel related expenses(1) 41,061 36,064 Other unallocated research and development expenses 16,738 9,148 Net cost sharing payments (reimbursements)(2) 1,015 (2,273) Total research and development expenses $ 128,816 $ 86,098
__________________________________________________
(1)Personnel related expenses include stock-based compensation expense of$16.8 million and$15.6 million for the three months endedMarch 31, 2023 and 2022, respectively, reflecting an increase of$1.2 million . 28
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(2)There were$1.0 million in net cost sharing payments and$2.3 million in net cost sharing reimbursements during the three months endedMarch 31, 2023 and 2022, respectively. For the three months endedMarch 31, 2023 , net cost sharing payments includes cost sharing payments of$4.2 million owed to Biogen, partially offset by cost sharing reimbursements from Takeda for the PTV:PGRN program (included within PTV:PGRN program external program expenses and Personnel related expenses) of$1.5 million and the ATV:TREM2 program (included within ATV:TREM2 program external expenses and Personnel related expenses) of$1.7 million , respectively. For the three months endedMarch 31, 2022 , net cost sharing reimbursements includes$2.9 million of reimbursements from Takeda for the PTV:PGRN program (included within PTV:PGRN program external program expenses and Personnel related expenses) and$2.1 million of reimbursements from Takeda for the ATV:TREM2 program (included within ATV:TREM2 program external expenses and Personnel related expenses). These cost sharing reimbursements were partially offset by cost sharing payments of$2.7 million to Biogen for LRRK2 program external expenses and program internal expenses (included within Personnel related expenses). The increase in research and development expenses of approximately$42.7 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , was primarily attributable to the following: •An increase of$28.8 million in ETV:IDS program external expenses primarily due to the accrued contingent consideration payment of$30.0 million related to the acquisition of F-star Gamma, which was triggered inMarch 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program; •An increase of$7.6 million in other unallocated research and development expenses primarily due to increased facility costs as a result of accelerated depreciation on leasehold improvements associated with the termination of the SLC Lease; and •An increase of$5.0 million in personnel related expenses, consisting of$3.8 million in employee compensation and$1.2 million in stock-based compensation expense pertaining to additional salaries, related expenses, and equity award grants driven by an increase in our research and development headcount. These increases were partially offset by a decrease of$3.3 million in net cost sharing reimbursements due to the transition of LRRK2 clinical activities to Biogen, resulting in cost sharing reimbursements flipping to payments; and decreases of$1.4 million and$1.3 million in TV platform and other program external expenses and PTV:PGRN program external expenses, respectively, due to the timing of significant external research and manufacturing related activities year over year. General and administrative expenses. General and administrative expenses were$27.1 million for the three months endedMarch 31, 2023 compared to$22.5 million for the three months endedMarch 31, 2022 . The increase of$4.6 million was primarily attributable to the following:
•$2.7 million of increased facility costs, consulting, and legal professional service expenses; and
•$1.8 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount.
Liquidity and Capital Resources
Sources of Liquidity
We fund our operations primarily with the proceeds from the sale of common stock in public offerings and payments received from our collaboration agreements with Takeda, Sanofi, and Biogen. In ourJanuary 2020 follow-on offering, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of$23.00 per share for aggregate net proceeds of approximately$193.9 million . 29 -------------------------------------------------------------------------------- Table of Contents InFebruary 2022 , we established a registered "at-the-market" facility for the sale of up to$400.0 million of shares of common stock from time to time by entering into an equity distribution agreement withGoldman Sachs & Co. LLC ,SVB Securities LLC andCantor Fitzgerald & Co. as sales agents. We have not yet issued any shares under the facility. InOctober 2022 , we sold 11.9 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of$26.50 per share for aggregate net proceeds of approximately$296.2 million . Pursuant to our collaboration agreements with Takeda, Sanofi and Biogen, throughMarch 31, 2023 we have received upfront, option and milestone payments of$105.0 million ,$225.0 million , and$560.0 million , respectively, and have also received$31.9 million and$16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received$13.7 million of reimbursement from Sanofi for the Phase 1b trial for DNL747 for ALS and associated activities.
Further, under associated stock purchase agreements with Takeda and Biogen,
through
As of
Future Funding Requirements and Commitments
To date, we have not generated any product revenue. We do not expect to generate
any product revenue unless and until we obtain regulatory approval of and
commercialize any of our product candidates, and we do not know when, or if,
either will occur.
We expect to continue to incur significant losses for the foreseeable future,
and we expect the losses to increase as we expand our research and development
activities and continue the development of, and seek regulatory approvals for,
our product candidates, and begin to commercialize any approved products.
Further, we expect general and administrative expenses to increase as we
continue to incur additional costs associated with supporting our growing
operations. We are subject to all of the risks typically related to the
development of new product candidates, and we may encounter unforeseen expenses,
difficulties, complications, delays and other unknown factors that may adversely
affect our business. We anticipate that we will need substantial additional
funding in connection with our continuing operations.
Until we can generate a sufficient amount of revenue from the commercialization
of our product candidates or from our existing collaboration agreements, or
future agreements with other third parties, if ever, we expect to finance our
future cash needs through public or private equity or debt financings.
Additional capital may not be available on reasonable terms, if at all. If we
are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may have to significantly delay, scale back or discontinue
the development or commercialization of one or more of our product candidates.
If we raise additional funds through the issuance of additional debt or equity
securities, it could result in dilution to our existing stockholders, increased
fixed payment obligations and the existence of securities with rights that may
be senior to those of our common stock. If we incur indebtedness, we could
become subject to covenants that would restrict our operations and potentially
impair our competitiveness, such as limitations on our ability to incur
additional debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. Additionally, any future
collaborations we enter into with third parties may provide capital in the near
term but limit our potential cash flow and revenue in the future. Any of the
foregoing could significantly harm our business, financial condition and
prospects.
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Since our inception, we have incurred significant losses and negative cash flows
from operations. We have an accumulated deficit of $1.08 billion through March
31, 2023 . We expect to incur substantial additional losses in the future as we
conduct and expand our research and development activities. We believe that our
existing cash, cash equivalents and marketable securities will be sufficient to
enable us to fund our projected operations through at least the twelve months
following the filing date of this Quarterly Report on Form 10-Q, including our
existing commitments as outlined below. We have based this estimate on
assumptions that may prove to be wrong, and we could utilize our available
capital resources sooner than we currently expect. In the longer term, we
anticipate that we will need substantial additional resources to fund our
operations and meet future commitments.
Our existing commitments primarily relate to our obligations under existing
lease agreements, and certain clinical and manufacturing agreements, including
the DMSA with Lonza Sales AG ("Lonza") for the development and manufacture of
biologic products. As of March 31, 2023 , operating lease liabilities were $57.1
million . Under the SLC lease which was executed in April 2023 , we have future
undiscounted lease payments totaling approximately $13.4 million . Under the DMSA
with Lonza, and certain other clinical and manufacturing agreements, we had
total non-refundable purchase commitments as of March 31, 2023 of $86.5 million ,
with certain amounts subject to cost sharing with Takeda. While the lease
obligations span multiple years, the majority of the purchase commitments with
Lonza and other clinical and manufacturing agreements are due within twelve
months, with some spanning several years. These commitments are more fully
described in Note 7 - Commitments and Contingencies of our unaudited condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q.
Our future funding requirements, including changes to and new commitments, will depend on many factors, including:
•the timing and progress of preclinical and clinical development activities;
•the number and scope of preclinical and clinical programs we decide to pursue;
•the progress of the development efforts of third parties with whom we have entered into license and collaboration agreements;
•our ability to maintain our current research and development programs and to establish new research and development, license or collaboration arrangements;
•our ability and success in securing manufacturing relationships with third parties or in establishing and operating a manufacturing facility;
•the costs involved in prosecuting, defending and enforcing patent claims and other intellectual property claims;
•the cost and timing of regulatory approvals;
•our efforts to enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates; and
•the costs and ongoing investments to in-license and/or acquire additional technologies.
A change in the outcome of any of these or other variables with respect to the
development of any of our product candidates could significantly change the
costs and timing associated with the development of that product candidate.
Furthermore, our operating plans may change in the future, and we may need
additional funds to meet operational needs and capital requirements associated
with such operating plans.
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Cash Flows
The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):
Three Months
Ended
2023 2022
Net cash used in operating activities $ (58,802)$ (72,109) Net cash used in investing activities (92,715) (117,878) Net cash provided by financing activities 1,604 1,463 Net decrease in cash, cash equivalents and restricted cash$ (149,913)
During the three months endedMarch 31, 2023 , net cash used in operating activities was$58.8 million , which consisted of a net loss of$109.8 million , adjusted by non-cash items primarily related to stock-based compensation and depreciation, net amortization of discounts on marketable securities and non-cash rent expenses. Cash used in operating activities was also driven by changes in our operating assets and liabilities.
During the three months ended
Net Cash Provided By Financing Activities
During the three months ended
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues recognized and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in detail in the notes to our consolidated financial statements included elsewhere in this report. In our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , as filed with theSEC onFebruary 27, 2023 , we described the accounting estimates that we believe involve a significant level of estimation uncertainty which could have a material impact on our financial condition or results of operations. There have been no material changes to these critical accounting estimates during the three months endedMarch 31, 2023 . 32
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Recent Accounting Pronouncements
There have been no new accounting pronouncements or changes to accounting pronouncements during the three months endedMarch 31, 2023 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , as filed with theSEC onFebruary 27, 2023 , that are of significance or potential significance to us. 33 --------------------------------------------------------------------------------
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