DICE THER
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed
consolidated financial statements and the related notes and other financial
information included elsewhere in this Quarterly Report on Form 10-Q and our
Annual Report on Form 10-K ("Annual Report") for the year ended December 31,
2021 .
As discussed in the section titled "Special Note Regarding Forward Looking
Statements," the following discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Our actual results and the
timing of selected events could differ materially from those discussed below.
Factors that could cause or contribute to such differences include, but are not
limited to, those identified below and those set forth in the section titled
"Risk Factors" under Part II, Item 1A below. Unless the context requires
otherwise, references in this Quarterly Report on Form 10-Q to the "Company,"
"DICE," "we," "us" and "our" refer to DICE Therapeutics, Inc. and its
wholly-owned subsidiaries.
Overview
We are a biopharmaceutical company leveraging our proprietary technology
platform to build a pipeline of novel oral therapeutic candidates to treat
chronic diseases in immunology and other therapeutic areas. We are initially
focused on developing oral therapeutics against well-validated targets in
immunology, with the goal of achieving comparable potency to their systemic
biologic counterparts, which have demonstrated the greatest therapeutic benefit
to date in these disease areas. Our platform, which we refer to as DELSCAPE, is
designed to discover selective oral small molecules with the potential to
modulate protein-protein interactions ("PPIs") as effectively as systemic
biologics. We believe there is a significant unmet medical need for convenient
oral therapies in chronic immunological diseases that offer the therapeutic
benefits of systemic biologics.
Our lead therapeutic candidate, DC-806, is an oral antagonist of the
pro-inflammatory signaling cytokine, interleukin-17 ("IL-17"), which is a
validated drug target implicated in a variety of immunology indications. There
are two approved antibody therapeutics, COSENTYX (secukinumab), marketed by
Novartis, and TALTZ (ixekizumab), marketed by Eli Lilly, but no oral therapies
targeting this pathway. COSENTYX and TALTZ both are approved for the treatment
of psoriasis, psoriatic arthritis, ankylosing spondylitis and nonradiographic
axial spondyloarthritis, and collectively generated approximately $6.9 billion
in worldwide sales in 2021. The Medicines and Healthcare Products Regulatory
Agency ("MHRA") in the United Kingdom ("UK") approved our Clinical Trial
Application ("CTA") for DC-806 in September 2021 and on October 11, 2022 , we
announced positive topline data from our Phase 1 clinical trial in healthy
volunteers and psoriasis patients. The Phase 1 trial was designed to generate
safety and pharmacokinetic data, as well as provide early clinical
proof-of-concept in psoriasis patients. The trial was conducted in three
overlapping cohorts: Phase 1a (single ascending dose) and Phase 1b (multiple
ascending dose) in healthy volunteers, and a proof-of-concept Phase 1c in
psoriasis patients. Clinical proof-of-concept in psoriasis patients was achieved
with a mean percentage reduction in PASI from baseline at 4 weeks of 43.7% in
the high dose group compared to 13.3% in the placebo group, with an exploratory
p-value of 0.0008. Additionally, DC-806 was well tolerated with a favorable
safety profile across all dose groups in healthy volunteers and psoriasis
patients, with a robust PK profile and clear pharmacodynamic effects on two
distinct biomarkers at both high and low doses of DC-806. Collectively these
data support further development of DC-806 as a potential best-in-class oral
agent for the treatment of psoriasis. We plan to advance DC-806 into a Phase 2b
clinical trial in the first half of 2023.
In the second half of 2021, we nominated a development candidate, DC-853, a
differentiated fast-follower molecule that in pre-clinical studies has been
shown to inhibit IL-17 AA and AF with a mechanism of action similar to that of
DC-806. We believe that advancing multiple platform-derived therapeutic
candidates unlocks the ability to develop compounds with differentiated
properties and has the potential to maximize the value of our IL-17 franchise.
Topline data from a Phase 1 clinical trial of DC-853 in healthy volunteers is
expected in the second half of 2023.
We also are developing oral therapeutic candidates targeting ?4ß7 integrin and
?Vß1/?Vß6 integrin for the treatment of inflammatory bowel disease ("IBD") and
idiopathic pulmonary fibrosis ("IPF"), respectively.
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Additionally, in
Currently, all of our preclinical and clinical drug manufacturing, storage, distribution or quality testing is outsourced to third-party manufacturers. As our development programs progress and we build new process efficiencies, we expect to continually evaluate this strategy with the objective of satisfying demand for registration trials and, if approved, the manufacture, sale and distribution of commercial products. OnSeptember 17, 2021 , we closed our initial public offering ("IPO") in which we sold an aggregate of 13,800,000 shares of common stock at a price to the public of$17.00 per share, which included 1,800,000 shares issued upon the full exercise by the underwriters of their option to purchase additional shares of common stock. We received aggregate net proceeds from the IPO of approximately$214.7 million , after deducting underwriting discounts and offering costs. OnOctober 17, 2022 , we completed an underwritten public offering of 9,452,054 shares of our common stock, which includes the exercise in full by the underwriters of their option to purchase 1,232,876 shares of common stock, at an offering price of$36.50 per share. Proceeds from the underwritten public offering were approximately$323.6 million after deducting underwriting discounts and offering costs. Our revenue to date has been generated solely from research collaborations and activities. We have not had any products approved for sale and have not generated any revenue from product sales. Further, we do not expect to generate revenue from product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one of our therapeutic candidates. We have incurred net losses in each year since inception, except for the year endedDecember 31, 2016 , and expect to continue to incur net 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 therapeutic candidates. Our net losses were$60.7 million and$32.8 million for the nine months endedSeptember 30, 2022 and 2021, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$164.4 million . Our net losses may fluctuate significantly from period to period, depending on the timing and expenditures of our research and development activities. Collaboration Agreements Sanofi InDecember 2015 , we entered into a license and collaboration agreement with Sanofi, which was amended and restated inAugust 2017 (as amended, the "Sanofi Agreement"), under which we agreed to grant Sanofi an exclusive option to license to develop and commercialize (as applicable), certain compounds into products. InMarch 2022 , Sanofi notified us that it no longer intended to develop therapeutic candidates under the Sanofi Agreement and terminated the agreement, effectiveJuly 13, 2022 . As a result, we regained worldwide rights to the program inJuly 2022 . No further revenue will be recognized from this arrangement. Upon the signing of the Sanofi Agreement inDecember 2015 , Sanofi paid us an initial fee of$8.0 million for target exclusivity rights and an additional$1.0 million annual technology access and development fees. InDecember 2016 , Sanofi paid us an additional$9.0 million fee for the same services. In connection with the right to earn Sum of Evidence ("SOE") points under the Sanofi Agreement, we recognized$2.0 million in revenue in 2018, whenSOE points were earned. The contract asset is recorded as an unbilled receivable of$2.0 million as ofDecember 31, 2021 . InAugust 2022 , we reached a negotiated settlement of our receivable of$1.5 million . As ofSeptember 30, 2022 the receivable was no longer outstanding.
In
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Operating Expenses
Research and Development
Research and development expenses account for a significant portion of our operating expenses. A significant portion of our research and development costs have been external costs, which we track by stage of development, preclinical or clinical. However, we do not track our indirect costs on a program specific basis because these costs are deployed across multiple projects and, as such, are not separately classified. Once our IL-17 program completed IND-enabling studies and entered into Phase 1 clinical trials, we began to separately present the external costs associated with that program. We anticipate that our research and development expenses will increase substantially in absolute dollars in future periods as we continue to invest in research and development activities related to developing our therapeutic candidates, as our therapeutic candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any therapeutic candidates that successfully complete clinical trials, and as we incur expenses associated with hiring additional personnel to support our research and development efforts.
General and Administrative
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs. We also anticipate that we will incur increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services. As a result, we expect that our general and administrative expenses will increase substantially in absolute dollars in future periods.
Results of Operations
Comparison of the Three and Nine Months Ended
The following table summarizes our results of operations for the periods presented (in thousands, except percentages):
Three Months Ended Nine Months Ended September
September 30, $ % 30, $ %
2022 2021 Change Change 2022 2021 Change Change
Revenue:
Collaboration revenue $ - $ - $ - - $ - $ 1,125 $ (1,125 ) (100%)
Operating expenses:
Research and
development 14,730 11,689 3,041 26% 42,470 24,292 18,178 75%
General and
administrative 6,439 4,444 1,995 45% 19,301 8,226 11,075 135%
Total operating
expenses 21,169 16,133 5,036 61,771 32,518 29,253
Loss from operations (21,169 ) (16,133 ) (5,036 )
(61,771 ) (31,393 ) (30,378 )
Other income
(expense):
Interest and other
income, net 702 20 682 * 1,516 61 1,455 *
Interest expense (83 ) (60 ) (23 ) 38% (208 ) (114 ) (94 ) 82%
Loss on extinguishment
of debt - - - - (200 ) - (200 ) *
Change in fair value
of warrant liability - (1,162 ) 1,162 (100%) - (1,318 ) 1,318 (100%)
Net loss $ (20,550 ) $ (17,335 ) $ (3,215 ) $ (60,663 ) $ (32,764 ) $ (27,899 )
* Not meaningful
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Operating Expenses
Research and Development Expenses
Research and development expenses were$14.7 million and$42.5 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to$11.7 million and$24.3 million for the three and nine months endedSeptember 30, 2021 , respectively. The increase of$3.0 million for the three months endedSeptember 30, 2022 was primarily due to increases of$2.0 million related to personnel-related expenses resulting from an increase in headcount and stock-based compensation and$1.5 million related to our other research programs, partially offset by a decrease of$0.9 million related to our activities for our IL-17 franchise. The increase of$18.2 million for the nine months endedSeptember 30, 2022 was primarily due to increases of$7.3 million related to personnel-related expenses resulting from an increase in headcount and stock-based compensation,$6.6 million related to increased activities for our Phase 1 study as we advanced our IL-17 franchise, increases of$3.2 million related to our other research programs and increases of$1.1 million related to facilities. The following table summarizes our research and development expenses for the periods presented (in thousands): Three Months Ended Nine Months Ended September 30, $ September 30, $ 2022 2021 Change 2022 2021 Change Direct costs: IL-17$ 5,764 $ 6,639 $ (875 ) $ 19,457 $ 12,883 $ 6,574 Other programs 2,906 1,381 1,525 6,567 3,339 3,228 Indirect costs: Personnel-related expenses (including stock-based compensation) 5,160 3,180 1,980 13,898 6,623 7,275 Facilities and other expenses 900 489 411 2,548 1,447 1,101 Total research and development expenses$ 14,730 $ 11,689 $ 3,041 $ 42,470 $ 24,292 $ 18,178
General and Administrative Expenses
General and administrative expenses were$6.4 million and$19.3 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to$4.4 million and$8.2 million for the three and nine months endedSeptember 30, 2021 , respectively. The increase of$2.0 million and$11.1 million for the three and nine months endedSeptember 30, 2022 , respectively, was primarily due to increases in personnel-related expenses of$0.7 million and$5.2 million , respectively, resulting from an increase in headcount and stock-based compensation; increases in insurance, legal, accounting fees, and other professional service of$1.0 million and$4.2 million , respectively; and increases in facilities and other general expenses of$0.3 million and$1.7 million , respectively.
Liquidity and Capital Resources
Since our inception throughSeptember 30, 2022 , our operations have been financed primarily by sales of our convertible preferred stock and common stock, through our collaboration agreements, and issuance of debt. InSeptember 2021 , we completed our IPO for aggregate proceeds of approximately$214.7 million (inclusive of the full exercise of the underwriters' option to purchase additional shares), net of offering costs, underwriter discounts and commissions. As ofSeptember 30, 2022 , we had$266.6 million of cash, cash equivalents and marketable securities, and an accumulated deficit of$164.4 million . InOctober 2022 , we completed an underwritten public offering and raised an additional$323.6 million after deducting underwriting discounts and offering costs from the sale of 9,452,054 shares of common stock (inclusive of the full exercise of the underwriters' option to purchase additional shares). Based on our current business plans, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operations into 2026. Our cash, cash equivalents and marketable securities include money market funds, government agency securities, corporate debt and commercial paper. We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity. 18 -------------------------------------------------------------------------------- Our material cash requirements include our contractual obligations for our operating leases for our corporate headquarters. Our undiscounted future lease payments are$18.6 million , of which we are obligated to make lease payments of$2.6 million in the next twelve months. Under our credit facility withSilicon Valley Bank , we have an option to borrow up to$20.0 million in additional term loans throughFebruary 29, 2024 , with an additional$10.0 million that may be available subject to our achieving certain development milestones related to our IL-17 program. Amounts borrowed under the credit facility will have a maturity date ofMay 1, 2027 and will accrue interest at a rate equal to the greater of (i) 0.75% above the WSJ prime rate and (ii) 4.25%. Amounts borrowed under the credit facility will be interest only throughJune 1, 2024 , followed by 36 monthly payments of principal and interest. The credit facility calls for a final payment fee equal to 5.0% of the original principal amount borrowed, due upon the earlier of maturity, prepayment or acceleration of the principal due to an event of default. There is currently no outstanding balance on our credit facility withSilicon Valley Bank .
Funding Requirements
Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•
the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
•
the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
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the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
•
the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•
the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
•
our ability to establish additional collaborations on favorable terms, if at all;
•
the expenses required to scale up our clinical, regulatory and manufacturing capabilities;
•
the expenses of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
•
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
We will need additional funds to meet operational needs and capital requirements
for clinical trials, other research and development expenditures, and business
development activities. Because of the numerous risks and uncertainties
associated with the development and commercialization of our product candidates,
we are unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical studies.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, existing stockholders'
ownership interests will be diluted, and the terms of these
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securities may include liquidation or other preferences that adversely affect
existing stockholders' rights as 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, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or drug candidates, or grant licenses
on terms that may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings or other arrangements when needed, we
may be required to delay, limit, reduce or terminate our research, product
development or future commercialization efforts, or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Nine Months Ended September 30,
2022 2021
Net cash provided by (used in):
Operating activities $ (46,430 ) $ (24,880 )
Investing activities (18,491 ) (24,793 )
Financing activities (2,784 ) 301,795
Net increase (decrease) in cash, cash equivalents,
and restricted cash $ (67,705 ) $ 252,122 For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$46.4 million . The net cash outflow from operations primarily resulted from our net loss of$60.7 million , partially offset by non-cash charges of$12.7 million and changes in net operating assets and liabilities of$1.6 million . The non-cash charges consisted primarily of$9.5 million in stock-based compensation,$1.2 million of amortization of operating lease right-of-use assets,$0.6 million of net accretion and amortization of marketable securities,$0.6 million for depreciation,$0.5 million of other non-cash items, and$0.2 million for the loss on extinguishment of debt. The change in net operating assets and liabilities was primarily due to a$1.5 million decrease in accounts receivable, a$1.0 million decrease in prepaid expenses and other assets, partially offset by a$0.9 million decrease in operating lease liabilities. For the nine months endedSeptember 30, 2021 , net cash used in operating activities was$24.9 million . The net cash outflow from operations primarily resulted from our net loss of$32.8 million , partially offset by a change in net operating assets and liabilities of$1.9 million and non-cash charges of$6.0 million consisting primarily of$3.9 million in stock-based compensation,$1.3 million in the change in fair value of warrant liability, and$0.5 million for depreciation. The change in net operating assets and liabilities was primarily due to a$5.6 million increase in accounts payable and accrued liabilities, primarily due to timing of payments, partially offset by a$2.6 million increase in prepaid expenses and other current assets and a$1.1 million decrease in deferred revenue due to revenue recognition.
For the nine months ended
For the nine months ended
Net Cash Provided by (Used in) Financing Activities
For the nine months endedSeptember 30, 2022 , net cash used in financing activities was$2.8 million primarily due to principal payments on the term loan of$2.6 million and payment of issuance costs for Series C preferred units of$0.2 million , partially offset by cash proceeds from the exercise of stock options of$0.1 million . 20 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$301.8 million due to the net proceeds of$216.2 million from the issuance of our common stock in our IPO, net of issuance costs paid to date, net proceeds of$83.3 million from the issuance of our Series C and Series C-1 convertible preferred units and net proceeds of$2.4 million from debt financing. 21 --------------------------------------------------------------------------------
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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 financial statements, as well as the reported revenue generated 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 and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. During the nine months endedSeptember 30, 2022 , there were no material changes to our critical accounting estimates or in the methodology used for estimates from those described in "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, 2021 .
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company," as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We are also a ''smaller reporting company,'' meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company for so long as (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue is less than$100 million during our most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company ("EGC"), we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 22
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