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OFFON

FORMA THERAPEUTICS HOLDINGS, INC.

(FMTX)
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FORMA THERAPEUTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

05/14/2021 | 04:09pm EDT

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission, or the SEC, on March 30, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on 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 Quarterly Report on 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 clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapeutics to transform the lives of patients with rare hematologic diseases and cancers. Our drug discovery expertise has generated a pipeline of small molecule product candidates focused on indications with significant unmet patient need. Our pipeline consists of six product candidates, two of which we are actively developing ourselves, FT-4202 for the treatment of sickle cell disease, or SCD, and other hemoglobinopathies, and FT-7051 for the treatment of metastatic castration-resistant prostate cancer, or mCRPC. We are simultaneously pursuing partnerships for two product candidates, olutasidenib (formerly FT-2102), a selective inhibitor for cancers with isocitrate dehydrogenase 1 gene mutations, or IDH1m, and FT-8225, which is a liver-targeted fatty acid synthase, or FASN, inhibitor. Additionally, we have licensed exclusively two programs each to Boehringer Ingelheim International GmbH, or Boehringer Ingelheim, and Celgene Corporation, now Bristol-Myers Squibb Company, or Celgene, based on molecules that we discovered.

Our lead product candidate, FT-4202, is a novel, oral, once-daily, potentially disease-modifying therapy initially being studied for the treatment of SCD. We are evaluating FT-4202 in a multi-center, placebo-controlled Phase I trial in SCD patients ages 12 years and older. We completed the healthy volunteer portion of the trial in May 2019 and presented data at the 2019 American Society of Hematology meeting demonstrating the tolerability and proof of mechanism of FT-4202 in healthy volunteers. We reported data from a single dose cohort in seven SCD patients in June 2020, data from the first 300mg daily dose cohort of nine SCD patients in December 2020, and initial blinded results from the 600mg daily dose cohort in March 2021. Based on the results of the ongoing Phase I trial, we opened a global pivotal Phase II/III trial in SCD patients in late 2020 and began enrolling patients in the first quarter of 2021. We have received Fast Track, Rare Pediatric Disease and Orphan Drug designations from the U.S. Food and Drug Administration, or FDA, for FT-4202 in SCD patients. The European Medicines Agency has granted Orphan Drug designation to FT-4202 for the treatment of SCD.

Our product candidate, FT-7051, is a potent and selective inhibitor of CREB-binding protein/E1A binding protein p300, or CBP/p300, in clinical development for the treatment of mCRPC. Prostate cancer is reported as the second and third leading cause of cancer death for men in the U.S. and in Europe, respectively, and mCRPC is the most advanced form of the disease. The FDA cleared our investigational new drug application, or IND, for FT-7051 in April 2020, and we dosed the first patient in our Phase I trial in mCRPC patients in January 2021.

We are pursuing partnerships for our other compounds, olutasidenib, a selective inhibitor of mutant isocitrate dehydrogenase 1, or mIDH1, and FT-8225, an inhibitor of fatty acid synthase, or FASN, programs. We have successfully completed a registrational Phase II trial for relapsed / refractory acute myeloid leukemia, or R/R AML, that reported positive interim results in October 2020, and are preparing a new drug application, or NDA for submission to the FDA. We are also completing an exploratory Phase I clinical trial for glioma, from which we reported results at the American Society of Clinical Oncology (ASCO) meeting in 2020 demonstrating disease control in a significant proportion of patients.

Since our founding in 2007, we have devoted substantially all of our resources to the research and development of our drug discovery technology, developing our pipeline, building our intellectual property portfolio and raising capital. To date, we have financed our operations primarily with proceeds from our license and collaboration agreements, through the issuance and sale of our preferred shares and preferred stock to outside investors, and the completion of our initial public offering (IPO), and subsequent follow-on offering.


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On June 23, 2020, we completed an IPO in which we issued and sold 15,964,704 shares of our common stock at a public offering price of $20.00 per share, including 2,082,352 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, for aggregate gross proceeds of $319.3 million. We raised approximately $293.3 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by us. Upon the closing of the IPO, all of the outstanding shares of redeemable convertible and convertible preferred stock automatically converted into 20,349,223 shares of common stock; all issued shares of enterprise junior stock automatically converted into 2,124,845 and 103,007 shares of common stock and restricted common stock, respectively; and warrants to purchase an aggregate of 299,999 shares of Series B-3 convertible preferred stock with an exercise price of $1.20 per share automatically converted into warrants to purchase an aggregate of 70,133 shares of common stock with an exercise price of $5.13 per share. Subsequent to the closing of the IPO, there were no shares of preferred stock or enterprise junior stock outstanding. In connection with the closing of the IPO, we filed a Second Amended Certificate of Incorporation to change the authorized capital stock to 160,000,000 shares, of which 147,494,175 are designated as voting common stock, 2,505,825 are designated as non-voting common stock and 10,000,000 are designated as undesignated preferred stock, all with a par value of $0.001 per share.

On December 15, 2020, we completed a follow-on public offering in which we issued and sold 6,095,000 shares of our common stock at a public offering price of $45.25 per share, including 795,000 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, for aggregate gross proceeds of $275.8 million. We raised approximately $258.6 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by the us.

To date, we have not had any products approved for sale and have not generated any revenue from product sales, and do not expect to do so for several years, if at all. All of our programs are still in preclinical or clinical development. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Since our inception, all of our revenue has been generated from our license and collaboration agreements with third parties. We have experienced periods of both income and loss and positive and negative cash flows from operations since inception. Our net (loss) income was ($36.0) million and $11.2 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, our accumulated deficit was $93.4 million and $57.4 million, respectively. We expect to incur significant expenses and operating losses for the foreseeable future. In addition, we anticipate incurring significant expenses, which may increase, in connection with our ongoing activities, as we:

     ?  complete preclinical studies, initiate and complete clinical trials for
        product candidates;


     ?  continue enrollment in and proceed with the expansion cohorts of our
        ongoing Phase I clinical trial for FT-4202 for the treatment of SCD;


     ?  continue our registration-enabling, global pivotal Phase II/III clinical
        trial of FT-4202 in SCD;


     ?  prepare for and initiate our planned clinical trial of FT-4202 in patients
        with thalassemia;


     ?  continue enrollment in our Phase I study for FT-7051 for the treatment of
        mCRPC;


  ? contract to manufacture our product candidates;


     ?  advance research and development related activities to expand our product
        pipeline;


     ?  seek regulatory approval for our product 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;


     ?  maintain, expand, enforce, defend and protect our intellectual property
        portfolio;


     ?  hire additional staff, including clinical, scientific and management
        personnel;


     ?  continue to take temporary precautionary measures to help minimize the
        risk of the coronavirus disease, or COVID-19, to our employees and
        patients who enroll in our studies;


     ?  secure facilities to support continued growth in our research, development
        and commercialization efforts; and


  ? incur costs associated with our continued operations as a public company.

We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain marketing approval for our drug candidates. Business interruptions resulting from the coronavirus outbreak or similar public health crises have and could continue to cause a disruption of the development of our product candidates and our business. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any delay or failure to obtain regulatory approvals would materially adversely affect our product candidate development efforts and our business overall. Given the inherent uncertainties of pharmaceutical product development, we cannot estimate with any degree of certainty the likelihood, timing or cost of obtaining regulatory approval and marketing our product candidates.


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As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other collaboration agreements or strategic transactions when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. 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 reduce or terminate our operations.

We have determined that our cash, cash equivalents and marketable securities of $603.7 million as of March 31, 2021 will be sufficient to finance our operating expenses and capital expenditure requirements through the third quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect. To date, we have primarily financed our operations through proceeds from our license and collaboration agreements, the sale of preferred shares and preferred stock to outside investors and the completion of the IPO and follow on public offering. We have experienced significant negative cash flows from operations during the three months ended March 31, 2021. We do not expect to experience any significant positive cash flows from our existing license and collaboration agreements and do not expect to have any product revenue in the near term. We expect to incur substantial operating losses and negative cash flows from operations for the foreseeable future as we continue to invest significantly in research and development of our programs. Our belief with respect to our ability to fund operations is based on estimates that are subject to risks and uncertainties. If actual results are different from our estimates, we may need to seek additional funding sooner that would otherwise be expected. There can be no assurance that we will be able to obtain additional funding on acceptable terms, if at all.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, or the COVID-19 pandemic, which continues to spread throughout the U.S. and worldwide. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is highly uncertain and will depend on future developments that cannot be predicted, including new information that may emerge concerning the severity of the COVID-19 pandemic and actions taken by government authorities and businesses to contain or prevent the further spread of COVID-19. For instance, a recurrence of COVID-19 cases could cause a more widespread or severe impact on commercial activity depending on where infection rates are highest. If we or any of the third parties with whom we engage, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, results of operations and financial condition. To date, many clinical trials, including ours, have been impacted by the COVID-19 pandemic, with clinical trial sites implementing new policies in response to the COVID-19 pandemic, resulting in potential delays to enrollment of clinical trials or changes in the ability to access sites participating in clinical trials. The COVID-19 pandemic has impacted patients' visits to study sites for both our FT-4202 and olutasidenib programs. We continue to work closely with our CROs and the study sites to ensure patient safety and help facilitate study conduct. We will continue to monitor developments as we address the disruptions and uncertainties relating to the COVID-19 pandemic.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. Historically, our revenue has been primarily derived from collaboration agreements to discover, develop, and commercialize drug candidates. Our collaboration arrangements with Celgene were all terminated in December 2018, upon which we entered into a worldwide license agreement with Celgene for FT-1101 and USP30 which were delivered during the year ended December 31, 2019. We expect revenue for the next several years will be derived primarily from milestone payments under our existing license agreements with Celgene and Boehringer Ingelheim, if Celgene or Boehringer Ingelheim achieve certain specified research, development and regulatory milestones in their ongoing development of our licensed compounds and potential royalties upon future sales of these licensed compounds, as well as other collaboration and license agreements that we may enter in the future, if any. We have not recognized any revenue in the quarters ending March 31, 2021 and 2020.

Operating Expenses

Research and Development Expense

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates, including the conduct of preclinical and clinical studies and product development, which are expensed as they are incurred. These expenses consist primarily of:

     ?  compensation, benefits, including equity-based compensation, and other
        employee related expenses;


  ? research and development related facility and depreciation costs;


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  ? supplies to support our internal research and development efforts; and


     ?  third-party contract costs relating to research, process and formulation
        development, preclinical and clinical studies and regulatory operations;

We track direct research and development expenses, consisting principally of external costs, such as costs associated with CROs and manufacturing of preclinical and clinical drug product and other outsourced research and development expenses to specific product programs once a product candidate has been selected. We do not allocate internal research and development expenses consisting of employee and contractor-related costs, costs associated with our research and facility expenses, including depreciation or other indirect costs, to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development and, as such, are separately classified. The table below summarizes our research and development direct expenses for non-partnered product candidates and both external and internal costs for partnered programs and those costs that were unallocated to programs for the periods presented (in thousands):



                                                           Three Months Ended
                                                                March 31,
                                                            2021          2020
      FT-4202                                            $    9,794     $  3,709
      FT-7051                                                   969          570
      Olutasidenib                                            3,963        7,225
      FT-8225                                                    39        1,062
      External predevelopment and unallocated expenses        2,492        1,533
      Internal research and development expenses              9,086        9,111
                                                         $   26,343     $ 23,210



We invest carefully in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear, supportive data. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as the competitive landscape and ongoing assessments of such product candidate's commercial potential. We expect our research and development costs will be substantial for the foreseeable future. We expect costs associated with our FT-4202 and FT-7051 programs to increase as the programs progress through clinical development. We expect costs associated with olutasidenib to decrease over time, as the ongoing clinical trials for olutasidenib in AML and solid tumors progress towards completion. We do not anticipate significant future costs for FT-8225.

At this time, we cannot reasonably estimate or know the nature, timing and estimated 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 due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:

     ?  our ability to add and retain key research, pharmaceutical sciences and
        development personnel;


     ?  our ability to successfully develop, obtain regulatory approval for, and
        then successfully commercialize FT-4202 and FT-7051;


     ?  our successful enrollment in and completion of clinical trials, including
        our ability to generate positive data from any such clinical trials;


     ?  the costs associated with the development of any additional development
        programs we identify in-house or acquire through collaborations or other
        arrangements;


     ?  our ability to discover, develop and utilize biomarkers to demonstrate
        target engagement, pathway engagement and the impact on disease
        progression, as applicable, of our product candidates;


     ?  our ability to establish and maintain agreements with third-party
        manufacturers for clinical supply for our clinical trials and commercial
        manufacturing;


     ?  our ability to forecast and meet supply requirements for clinical trials
        and commercialized products using third-party manufacturers;


     ?  the terms and timing of any additional collaboration, license or other
        arrangement, including the terms and timing of any payments thereunder;


     ?  the ability to develop and obtain clearance or approval of companion
        diagnostic tests, if required, on a timely basis, or at all;


     ?  obtaining and maintaining third-party coverage and adequate reimbursement,
        if FT-4202 or FT-7051 is approved;


     ?  acceptance of our lead product candidates, if and when approved, by
        patients, the medical community and third-party payors;


     ?  effectively competing with other therapies, if FT-4202 or FT-7051 is
        approved;


     ?  our ability to obtain and maintain patent, trade secret and other
        intellectual property protection for FT-4202 and FT-7051 and regulatory
        exclusivity for FT-4202 and FT-7051 if and when approved;


     ?  our receipt of marketing approvals for FT-4202 and FT-7051 from applicable
        regulatory authorities; and


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     ?  the continued acceptable safety profiles of our lead products following
        approval.

A change in any of these variables with respect to any of our programs would significantly change the costs, timing and viability associated with that program.

General and Administrative Expense

General and administrative expense consists primarily of salaries and other related costs, including equity-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.

Our general and administrative expenses may increase in the future as our organization and headcount needed to support our research and development activities grows and the potential commercialization of our product candidates, if approved. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.

Restructuring Charges

Restructuring charges consist of termination costs, including employee severance, health benefits, and outplacement services, incurred as a result of our January 2019 organization realignment. See Note 9 to our consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 30, 2021 and unaudited condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q for additional information on our restructuring charges.

Interest Income

Interest income consists of interest generated from our cash, cash equivalents and marketable securities, amortization and accretion of purchase premiums and discounts associated with our investments, and the accretion of the carrying value of the installment receivable from the divestiture of our hit discovery capabilities to Valo Health, Inc., or Valo Health, to its fair value.

Gain on Hit Discovery Divestiture

Gain on Hit Discovery divestiture consists of the gain recognized on the divestiture of our hit discovery capabilities and represents the fair value of the consideration received in excess of net assets sold.

Other (Expense) Income, Net

Other (expense) income, net primarily consists of gains and losses recognized from recording our warrants at fair value.

Income Taxes

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. Among other things, the CARES Act permits corporate taxpayers to carryback net operating losses, or NOLs originating in 2018 through 2020 to each of the five preceding tax years. Further, the CARES Act removed the 80% taxable income limitation on utilization of those NOLs allowing corporate taxpayers to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. This change resulted in the generation of refunds of previously paid income taxes for which some refunds have been received in 2020 and some refunds are expected to be received over the next twelve months. We have filed refund claims related to our 2018 and 2019 tax years and anticipate filing a refund claim related to our 2020 tax year to carryback NOLs to 2015, 2016, 2017 and 2018 tax years for federal tax purposes which will result in total expected refunds of $29.7 million, of which $19.5 million was recognized through March 31, 2020.

Income tax expense is comprised of domestic (US federal and state) income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.


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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands):



                                              Three Months Ended
                                                   March 31,             Change
                                              2021          2020            $
        Collaboration revenue               $       -     $       -     $       -
        Operating expenses:
        Research and development               26,343        23,210         3,133
        General and administrative              9,867         8,933           934
        Restructuring charges                       -            83           (83 )
        Total operating expenses               36,210        32,226         3,984
        Loss from operations                  (36,210 )     (32,226 )      (3,984 )
        Other income:
        Gain on Hit Discovery divestiture           -        23,312       (23,312 )
        Interest income                           262           641          (379 )
        Other (expense) income, net                (4 )          18           (22 )
        Total other income, net                   258        23,971       (23,713 )
        Loss before taxes                     (35,952 )      (8,255 )     (27,697 )
        Income tax expense (benefit)                8       (19,485 )      19,493
        Net (loss) income                   $ (35,960 )   $  11,230     $ (47,190 )






Collaboration Revenue

There was no collaboration revenue for the three months ended March 31, 2021 and 2020.

Research and Development Expense

The following table summarizes our research and development expenses for each period presented (in thousands):



                                                      Three Months Ended
                                                           March 31,             Change
                                                       2021          2020         ($)
 FT-4202                                            $    9,794     $  3,709     $  6,085
 FT-7051                                                   969          570          399
 Olutasidenib                                            3,963        7,225       (3,262 )
 FT-8225                                                    39        1,062       (1,023 )

External predevelopment and unallocated expenses 2,492 1,533 959

 Internal research and development expenses              9,086        9,111          (25 )
 Total research and development expense             $   26,343     $ 23,210     $  3,133




Research and development expense increased by $3.1 million from $23.2 million for the three months ended March 31, 2020 to $26.3 million for the three months ended March 31, 2021.

The increase in research and development expense was primarily attributable to a $6.1 million increase in FT-4202 due to the conduct of our Phase I trial, clinical product manufacturing, and the advancement of our Phase II/III trial, a $1.0 million increase in spending on external predevelopment candidate expenses and unallocated expenses due to advancement of prioritized programs, a decrease in spending of $3.3 million on olutasidenib related to the timing of product manufacturing, completion of enrollment in the pivotal study and decrease in activities related to the companion diagnostic, and a decrease of $1.0 million in FT-8225 due to completion of preclinical studies and timing of product manufacturing.

General and Administrative Expense

General and administrative expense increased by approximately $1.0 million to $9.9 million for the three months ended March 31, 2021 from $8.9 million for the three months ended March 31, 2020.

The increase in general and administrative expense was primarily attributable to a $1.6 million increase in equity-based compensation, and a $0.6 million increase in insurance related expense, partially offset by a reduction of $1.0 million related to legal, consulting, and other professional fee expenses.


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Restructuring Charges

In the three months ended March 31, 2020, we incurred restructuring charges of approximately $0.1 million due to termination costs, including employee severance, health benefits, and outplacement services associated with our January 2019 organization realignment.

Gain on Hit Discovery Divestiture

In the quarter ended March 31, 2020, we recognized a gain of $23.3 million related to the divestiture of our hit discovery capabilities. See Note 17 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for the three months ended March 31, 2021 for additional information on the gain on Hit Discovery divestiture.

Interest Income

Interest income decreased by approximately $0.4 million from $0.6 million for the three months ended March 31, 2020 compared to $0.3 million for the three months ended March 31, 2021. The decrease was primarily due to interest on the future cash payments from Valo Health and offset by the amortization and accretion of purchase premiums and discounts associated with our investments.

Income Taxes

In the three months ended March 31, 2021, we recorded an insignificant income tax expense which is related to the state tax expense generated against investment income. In the three months ended March 31, 2020, we recorded an income tax benefit of $19.5 million, which is related to the impact on projected 2020 carryback refunds arising from the CARES Act.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily with proceeds from our license and collaboration agreements, through the issuance and sale of our preferred shares and preferred stock to outside investors and completion of the IPO. From inception through March 31, 2021, we have raised an aggregate of $144.0 million in gross proceeds from sales of our preferred shares and preferred stock, $551.9 million in net proceeds from the sale of our common stock, and approximately $895.8 million in proceeds from our collaboration arrangements with third parties. As of March 31, 2021, we had cash, cash equivalents and marketable securities of $603.7 million.

Continued cash generation is highly dependent on our ability to establish new third-party collaborators, through out-licensing of assets and from potential milestones from existing out-licensed programs with Celgene and Boehringer Ingelheim, in addition to our ability to finance our operations through a combination of equity offerings, debt financings, collaboration arrangements and strategic transactions. Although we have been profitable in prior years, due to our significant research and development expenditures and the termination of certain collaboration arrangements, we have experienced periods of negative cash flows from operations, even in periods of operating income. For the three months ended March 31, 2021 we experienced a loss from operations and negative cash flows from operations. We anticipate incurring operating losses and negative cash flows from operations for the foreseeable future, particularly as we move forward with our clinical-stage programs. We do not expect to generate revenue from product sales for several years, if at all.

Cash Flows


The following table summarizes our sources and uses of cash for each period
presented (in thousands):



                                                                Three Months Ended
                                                                    March 31,
                                                                2021          2020
Net cash used in:
Operating activities                                         $  (41,237 )   $ (33,419 )
Investing activities                                           (143,451 )     (29,318 )
Financing activities                                               (167 )        (235 )

Net decrease in cash, cash equivalents and restricted cash $ (184,855 ) $ (62,972 )




Operating Activities

We derive cash flows from operating activities primarily from cash collected from collaboration agreements and strategic transactions. Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our platform, drug discovery efforts and related infrastructure.


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Net cash used in operating activities increased by approximately $7.8 million from $33.4 million for the three months ended March 31, 2020 to $41.2 million for the three months ended March 31, 2021. The increase was primarily attributable to the net loss incurred in the three months ended March 31, 2021.

Investing Activities

Net cash used in investing activities increased by approximately $114.1 million from $29.3 million for the three months ended March 31, 2020 to $143.5 million for the three months ended March 31, 2021. The increase was primarily attributable to a $114.5 million increase in proceeds from the maturity of marketable securities, offset by a $225.0 million increase in purchases of held-to-maturity marketable securities.

Financing Activities

For the three months ended March 31, 2021, our net cash used in financing activities was attributable to proceeds of $0.3 million from the exercise of options to purchase common stock, offset by the payment of $0.5 million of public offering costs. For the three months ended March 31, 2020, our net cash used in financing activities was primarily attributable to the payment of $0.2 million of issuance costs associated with our Series D redeemable convertible preferred stock.

Plan of Operation and Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical and clinical activities of our programs. If we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, which costs we might offset through entry into collaboration agreements with third parties. In addition, as a result of the completion of the IPO, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows in the foreseeable future.

As of March 31, 2021, our cash, cash equivalents and marketable securities of $603.7 million will be sufficient to finance our operating expenses and capital expenditure requirements through the third quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may receive payments under collaboration arrangements or enter into collaborations with third parties is unknown, we may incorrectly estimate the timing and amounts of operating expenses and capital expenditures. Our future capital requirements will depend on many factors, including, but not limited to:

     ?  the scope, progress, results and costs of preclinical studies and clinical
        trials for our programs;


     ?  the number and characteristics of programs and technologies that we
        develop or may in-license;


     ?  the costs and timing of future commercialization activities, including
        manufacturing, marketing, sales and distribution, for any of our product
        candidates for which we receive marketing approval;


     ?  the costs necessary to obtain regulatory approvals, if any, for products
        in the United States and other jurisdictions, and the costs of
        post-marketing studies that could be required by regulatory authorities in
        jurisdictions where approval is obtained;


     ?  the costs and timing of preparing, filing and prosecuting patent
        applications, maintaining and enforcing our intellectual property rights
        and defending any intellectual property-related claims;


     ?  the continuation of our existing licensing arrangements and entry into new
        collaborations and licensing arrangements;


  ? the costs we incur in maintaining business operations;


  ? the costs associated with being a public company;


     ?  the revenue, if any, received from commercial sales of any product
        candidates for which we receive marketing approval;


  ? the effect of competing technological and market developments;


     ?  the impact of any business interruptions to our operations or to those of
        our manufacturers, suppliers, or other vendors resulting from the COVID-19
        pandemic or similar public health crisis; and


     ?  the extent to which we acquire or invest in businesses, products and
        technologies, including entering into licensing or collaboration
        arrangements for programs.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. 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. However, we may be unable to raise additional funds or enter into such other


                                       33

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arrangements when needed on favorable terms or at all. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity offerings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock.

If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity offerings or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

There have been no material changes to our contractual obligations during the three months ended March 31, 2021. For a complete discussion of our contractual obligations, refer to our "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC on March 30, 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 the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. 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 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.

There have been no material changes to our critical accounting policies from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 30, 2021, with the exception of those noted within Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q.

JOBS Act and Emerging Growth Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to avail ourselves of this exemption and, therefore, while we are an EGC, we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs. We have also elected to take advantage of certain of the reduced disclosure obligations within this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than the information you receive from other public companies in which you hold stock.

We will remain classified as an EGC until the earlier of: (i) the last day of our first fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the IPO; (iii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years; or (iv) the date on which we are deemed a "large accelerated filer" under the rules of the SEC.


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Recently Issued Accounting Pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1, "Notes to Unaudited Condensed Consolidated Financial Statements," of this Quarterly Report on Form 10-Q, such standards will not have a material impact on our unaudited condensed consolidated financial statements or do not otherwise apply to our operations.

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