DICE THER You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.
This discussion and analysis generally covers our financial condition and
results of operations for the year ended
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 I, Item 1A. Unless the context requires otherwise,
references in this Annual Report on Form 10-K to the "Company," "DICE," "we,"
"us" and "our" refer to
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 molecule, 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 non-radiographic
axial spondyloarthritis, and collectively generated approximately
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-17AA and IL-17AF in a manner similar to that of DC-806. The
MHRA in the
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to nominate an additional, structurally differentiated IL-17 inhibitor as a development candidate and progress it through IND-enabling studies.
We also are developing oral therapeutic candidates targeting ?4ß7 integrin for
the treatment of inflammatory bowel disease ("IBD") and evaluating oral
therapeutic candidates targeting ?Vß1/?Vß6 integrin for the treatment of
fibrosis. Additionally, in
Currently, all of our preclinical and clinical drug manufacturing, storage, distribution and 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.
On
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 ended
Collaboration Agreements
Sanofi
In
In connection with the right to earn Sum of Evidence ("SOE") points under the
Sanofi Agreement, we recognized
In
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Components of Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to do so
in the near future. Our revenue to date has been primarily related to fees
received by us under our research and development drug discovery collaboration
arrangements with Sanofi and
Research and Development
Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the discovery and development of our therapeutic candidates.
Our direct costs include:
•
expenses incurred under agreements with third-party contract organizations for preclinical studies, clinical trials and research and development activities conducted on our behalf;
•
costs related to production of clinical materials, including fees paid to contract manufacturers;
•
laboratory materials and supplies used to support our research activities; and
•
costs related to the preparation of regulatory submissions.
Our indirect costs include:
•
personnel-related expenses, including salaries, benefits, and stock-based compensation for personnel engaged in research and development functions; and
•
allocated facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation expense and other supplies.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators, and third-party service providers.
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 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
General and administrative expenses consist primarily of personnel-related costs, legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, consulting, tax and investor relations services, insurance costs, information technology costs, general corporate expenses, and facility costs not otherwise included in research and development expenses. Personnel-related costs include salaries, benefits, and stock-based compensation for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions.
We anticipate that our general and administrative expenses will increase substantially in future periods as we increase our headcount to support the growth of our business. We also anticipate that we will incur increased
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expenses as a result of operating as a public company, including expenses
related to compliance with the rules and regulations of the
Interest and Other Income, Net
Interest and other income, net consists of interest earned on our cash equivalents and marketable securities during the period.
Change in Fair Value of Warrant Liability
In connection with the issuance of our Series B Convertible Preferred Stock in
2018, we issued a warrant to purchase our Series B Convertible Preferred Stock.
In
Results of Operations
Comparison of the Years Ended
The following table summarizes our consolidated results of operations (in thousands, except percentages):
Year Ended December 31, $ %
2022 2021 Change Change
Revenue:
Collaboration revenue $ - $ 1,125 $ (1,125 ) -100%
Operating expenses:
Research and development 62,559 36,506 26,053 71%
General and administrative 25,662 12,222 13,440 110%
Total operating expenses 88,221 48,728 39,493
Loss from operations (88,221 ) (47,603 ) (40,618 )
Other income (expense):
Interest and other income, net 5,213 136 5,077 *
Interest and other expense (679 ) (174 ) (505 ) 290%
Loss on extinguishment of debt (200 ) - (200 ) *
Change in fair value of warrant liability - (1,318 ) 1,318 100%
Net loss $ (83,887 ) $ (48,959 ) $ (34,928 )
* Not meaningful
Revenue
Collaboration revenue was zero for the year ended
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Research and Development Expenses
The following table summarizes our research and development expenses (in
thousands):
Year Ended December 31, $
2022 2021 Change
Direct costs:
IL-17 $ 29,888 $ 19,595 $ 10,293
Other programs 9,498 5,109 4,389
Indirect costs:
Personnel-related expenses (including
stock-based compensation) 19,686 9,767 9,919
Facilities and other expenses 3,487 2,035 1,452
Total research and development expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Interest and other income, net
Interest and other income, net, was
Change in Fair Value of Warrant Liability
Change in fair value of warrant liability for the year ended
Liquidity and Capital Resources
Since our inception through
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 corporate securities and commercial paper, money market funds, government agency securities, and asset-backed securities. We maintain established guidelines relating to diversification and maturities of our investments to preserve principal and maintain liquidity.
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Our material cash requirements include our contractual obligations for our
operating leases for our corporate headquarters and non-cancelable purchase
commitments. Our undiscounted future lease payments are
Under our credit facility with
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;
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the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
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our ability to establish additional collaborations on favorable terms, if at all;
•
the expenses required to scale up our clinical, regulatory and manufacturing capabilities;
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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 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
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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):
Year Ended December 31,
2022 2021
Net cash provided by (used in):
Operating activities $ (64,322 ) $ (39,292 )
Investing activities 87,487 (204,624 )
Financing activities 322,252 300,254
Net increase in cash, cash equivalents, and
restricted cash $ 345,417 $ 56,338
For the year ended
For the year ended
Net Cash Provided by (Used in) Investing Activities
For the year ended
For the year ended
Net Cash Provided by Financing Activities
For the year ended
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For the year ended
Critical Accounting Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our 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, known trends and events and 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. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and
Research and development costs are expensed as incurred and consist primarily of new product development. Research and development costs include salaries and benefits, consultants' fees, process development costs, stock-based compensation, laboratory supplies, preparation of regulatory submission expenses, and allocated facilities related expenses as well as fees paid to third parties that conduct certain preclinical research and development activities on our behalf.
A substantial portion of our ongoing research and development activities are conducted by third-party service providers. We estimate these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and includes these costs in research and development expenses. These costs are accrued based on factors such as estimates of the work completed and in accordance with agreements established with our third-party service providers under the service agreements. We make significant judgments and estimates in determining the accrued liabilities balance in each reporting period and base our estimates on the best information available at the time. If we under-estimate or over-estimate the level of services performed or the costs of these services, our accrued liabilities could differ from our estimates. As actual costs become known, we adjust our accrued liabilities. We have not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expense in future periods.
Stock-Based Compensation
Stock-based compensation is measured based on the estimated grant date fair value of the award and is recognized as expense on a straight-line basis over the requisite service period (usually the vesting period). Forfeitures are accounted for in the period in which they occur.
We estimate the grant date fair value of profit interest units and stock options using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the use of several variables and assumptions that require judgment, including the fair value of the underlying common stock, the expected term of the option, the expected volatility of the price of our common stock, the risk-free interest rate, and the expected dividend yield of our common stock. These estimates involve inherent uncertainties and the application of management's judgment. When determining the grant-date fair value of stock-based awards, we further consider whether an adjustment is required to the observable market price or volatility of our common stock that is used in the valuation as a result of material non-public information, if that information is expected to result in a material increase in share price. If factors change and different assumptions are used, our stock-based compensation expense could be materially
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different in the future. For example, an increase in the underlying stock price results in an increase in the Black-Scholes option pricing. See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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
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.
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