FORTE BIOSCIENCES, INC. The following discussion and analysis of financial condition and results of
operations should be read together with the consolidated financial statements of
Such forward-looking statements are based on our expectations and involve risks and uncertainties; consequently, actual results may differ materially from those expressed or implied in the statements due to a number of factors, including, but not limited to, risks relating to the sufficiency of the Company's cash balance to fund the Company's activities, and the expectations with respect thereto; the business and prospects of the Company; Forte's plans to develop and potentially commercialize its product candidates, including FB-401; the timing of initiation of Forte's planned clinical trials; the timing of the availability of data from Forte's clinical trials; the timing of any planned investigational new drug application or new drug application; Forte's plans to research, develop and commercialize its current and future product candidates; Forte's ability to successfully enter into collaborations, and to fulfill its obligations under any such collaboration agreements; the clinical utility, potential benefits and market acceptance of Forte's product candidates; Forte's commercialization, marketing and manufacturing capabilities and strategy; Forte's ability to identify additional products or product candidates with significant commercial potential; developments and projections relating to Forte's competitors and its industry; the impact of government laws and regulations; Forte's ability to protect its intellectual property position; Forte's estimates regarding future revenue, expenses, capital requirements and need for additional financing; and the impact of COVID-19 on the Company, the Company's industry or the economy generally.
The known risks and uncertainties are described in detail under the caption
"Risk Factors" and elsewhere in this Form 10-Q and our Form 10-K filed with the
Overview
On
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Nasdaq Capital Market under the ticker symbol FBRX. Prior to the
Merger, Forte was a privately held company incorporated in
On
On
We issued 673,463 and 560,402 shares of our common stock pursuant to cashless
exercises by certain warrant holders in
FB-401
We are developing a new approach to treating inflammatory skin disease using a topical live biotherapeutic, FB-401, which consists of three therapeutic strains of a commensal Gram-negative bacteria, Roseomonas mucosa, that were specifically selected for their impact on key parameters of inflammatory skin disease. Genetic-based microbiome identification revealed significant differences in the Gram-negative skin biome between AD patients and healthy volunteers. Over 50% of AD patients did not have any culturable Gram-negative flora. Our extensive preclinical and mechanism of action data demonstrate that FB-401 improves AD disease parameters by:
• driving immune pathways that are defective; • potentially suppressing S. aureus growth; and • improving the skin barrier function.
To date, a Phase 1/2a study has been completed with pediatric and adult patients 3 years of age and older, demonstrating significant reduction in AD disease and pruritus (severe itch), as well as control of S. aureus while tapering or eliminating steroid use. The phase 1/2a trial data demonstrated good tolerability as well as significant consistent activity with patients with mild, moderate and severe disease, across age groups including pediatrics and adults, and across key endpoints including Eczema Activity and Severity Index ("EASI"), SCORAD and pruritus.
Specifically, in the 20 pediatric subjects, FB-401 demonstrated a nearly 80%
improvement from baseline in AD disease activity as measured by
In
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For additional information about the trial, see ClinicalTrials.gov using the
identifier NCT04504279. In
In
Intellectual Property
We own or exclusively license eleven
In
Components of Operating Results
Revenue
We have no products approved for commercial sale and have not generated any revenue from product sales. In the future, we may generate revenue from product sales, royalties on product sales, license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits of research and development personnel and costs related to research activities, preclinical studies, clinical trials and drug manufacturing. Non-refundable advance payments for goods or services that will be used in future research and development activities are deferred and capitalized and are only expensed when the goods have been received or when the service has been performed rather than when the payment is made.
Drug manufacturing and clinical trial costs are a component of research and development expenses. The Company expenses costs for its drug manufacturing activities performed by Contract Manufacturing Organizations ("CMOs"), costs for its preclinical and clinical trial activities performed by Contract Research Organizations ("CROs") and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the percentage of completion and therefore the expense to be incurred.
We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing regulatory, research and development activities, initiate new clinical trials and build our pipeline. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of our clinical trials, and as a result, the actual costs to complete our planned clinical trials may exceed the expected costs.
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General and Administrative Expenses
General and administrative expenses consist primarily of professional fees for
legal, auditing, tax and business consulting services, personnel expenses and
travel costs. We expect that general and administrative expenses will increase
in the future as we expand our operating activities. In addition, we expect to
incur significant additional costs associated with being a
The Company acquired in-process research and development assets in connection
with its Merger with
Other Expenses, Net
Other expenses, net consists of foreign exchange gains or losses and franchise taxes, partially offset by interest earned on our cash and cash equivalents balances.
Critical Accounting Policies and Estimates
There have been no significant changes during the six months ended
COVID-19
The pandemic caused by an outbreak of a new strain of coronavirus, or COVID-19 and its variants, has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our operations. We are actively monitoring the impact of COVID-19 and the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. However, the full extent, consequences, and duration of the COVID-19 pandemic and the resulting impact on us cannot currently be predicted. We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows during the remainder of fiscal year 2021.
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Results of Operations
Comparison of Three and Six Months Ended
The following tables summarize our results of operations for the three and six
months ended
Three Months Ended June 30,
2021 2020 Change
Operating expenses:
Research and development $ 3,523 $ 1,937 $ 1,586
General and administrative 2,224 760 1,464
In-process research and development assets
acquired - 32,057 (32,057 )
Total operating expenses 5,747 34,754 (29,007 )
Other expenses, net (65 ) (7 ) (58 )
Net loss $ (5,812 ) $ (34,761 ) $ 28,949
Six Months Ended June 30,
2021 2020 Change
Operating expenses:
Research and development $ 6,845 $ 3,291 $ 3,554
General and administrative 3,643 1,433 2,210
In-process research and development assets
acquired - 32,057 (32,057 )
Total operating expenses 10,488 36,781 (26,293 )
Other expenses, net (128 ) (30 ) (98 )
Net loss $ (10,616 ) $ (36,811 ) $ 26,195 Research and Development Expenses
Research and development expenses were
Research and development expenses were
We expect our research and development expenses to increase substantially during
the next few years as we continue to advance FB-401 through
General and Administrative Expenses
General and administrative expenses were
General and administrative expenses were
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We expect our general and administrative expenses to increase substantially during the next few years as a result of staff expansion, higher insurance premiums, increased legal, accounting and other compliance costs associated with operating and scaling a public company.
In-process research and development assets acquired
In connection with the Merger, we recognized a charge of
Other Expense, net
The increases in other expenses, net of approximately
Liquidity and Capital Resources
We have no products approved for commercial sale and have not generated any
revenue from product sales or out-licenses. We have never been profitable and
have incurred operating losses in each year since inception. Our net loss was
approximately
Prior to the closing of the Merger, we had raised net cash proceeds of
approximately
On
On
We issued 673,463 and 560,402 shares of our common stock pursuant to cashless
exercises of Concurrent Financing Warrants by certain warrant holders in
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We had cash and cash equivalents of approximately
Future Capital Requirements
We have not generated any revenue from product sales or from out-licensing. We
do not know when, or if, we will generate any revenue. We do not expect to
generate any revenue from product sales unless and until we obtain regulatory
approval and commercialize our product candidates. At the same time, we expect
our expenses to increase in connection with our ongoing development and
manufacturing activities, particularly as we continue the research, development,
manufacturing and clinical trials of, and seek regulatory approval for FB-401.
We expect to incur additional costs associated with operating as a
We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we continue to advance FB-401 in the clinic.
Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
• the terms and timing of any strategic alliance, licensing and other
arrangements that we may establish;
• the initiation and progress of our ongoing clinical trials for our product
candidates;
• the number of programs we pursue;
• the outcome, timing and cost of regulatory approvals;
• the cost and timing of hiring new employees to support our continued growth;
• the costs involved in patent filing, prosecution, and enforcement; and
• the costs and timing of having clinical supplies of our product candidates
manufactured.
If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any equity or debt financing may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to other parties rights to develop or commercialize our drug candidates that we would prefer to retain.
See the "Risk Factors" section on this Form 10-Q for additional risks associated with our substantial capital requirements.
The following table shows a summary of our cash flows for the six months ended
Six Months Ended June 30,
2021 2020
Net cash (used in) provided by:
Operating activities $ (7,968 ) $ (6,881 )
Investing activities - 3,583
Financing activities (2 ) 24,108
Net (decrease) increase in cash and cash equivalents
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Operating Activities
Net cash used in operating activities for the six months ended
Net cash used in operating activities for the six months ended
Investing activities
Cash provided from investing activities for the six months ended
Financing Activities
Net cash used in financing activities for the six months ended
Net cash provided by financing activities was
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Contractual Obligations
See Note 5 to the Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.
Recent Accounting Standards
See Note 2 to the Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.
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