FORTE BIOSCIENCES, INC. The following discussion and analysis of financial condition and results of operations should be read together with the consolidated financial statements ofForte Biosciences, Inc. ("Forte", "we", "our") and the accompanying notes appearing elsewhere in the Form 10-Q and in our Form 10-K as filed with theSecurities and Exchange Commission , orSEC , onMarch 31, 2022 . This discussion of the financial condition and results of operations regarding matters that are not historical facts, are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and the Private Securities Litigation Act of 1995 and, known as the PSLRA. These include statements regarding management's intention, plans, beliefs, expectations or forecasts for the future, and, therefore, you are cautioned not to place undue reliance on them. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by law. We use words such as "anticipates," "believes," "plans," "expects," "projects," "intends," "may," "will," "should," "could," "estimates," "predicts," "potential," "continue," "guidance," and similar expressions to identify these forward-looking statements that are intended to be covered by the safe-harbor provisions of the PSLRA. 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-102; the timing of initiation of Forte's planned preclinical studies and potential future clinical trials and the timing of the availability of data from such preclinical studies and potential future 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 theSEC onMarch 31, 2022 . Forward-looking statements included in this Form 10-Q are based on information available to Forte as of the date of this Form 10-Q. Accordingly, our actual results may materially differ from our current expectations, estimates and projections. Forte undertakes no obligation to update such forward-looking statements to reflect events or circumstances after the date of this presentation.
Overview
Forte Biosciences, Inc. and its subsidiaries (www.fortebiorx.com) ("Forte", "we", "our") is a biopharmaceutical company that had been advancing through clinical trials its product candidate, FB-401, which is a topical live biotherapeutic for the treatment of inflammatory skin diseases, including pediatric and adult patients with atopic dermatitis ("AD"). FB401 was developed in collaboration with theDepartment of Health and Human Services ("DHHS"), as represented by theNational Institutes of Health ("NIH"), and theNational Institute of Allergy and Infectious Diseases ("NIAID"). OnSeptember 2, 2021 , Forte announced that the clinical trial of FB-401 for the treatment of AD failed to achieve statistical significance for its primary endpoint ofEASI -50 (the proportion of patients with at least a 50% improvement in atopic dermatitis disease severity as measured byEASI ). Following the announcement of the FB-401 trial results, the Company ceased further development of FB-401 and conducted an extensive process to evaluate strategic alternatives. Following that process, the Company decided to focus on developing its FB-102 program, which the Company believes has potentially broad application for autoimmune 16 -------------------------------------------------------------------------------- diseases such as alopecia areata, graft-vs-host disease and vitiligo. FB-102 is currently in preclinical development. We had$40.0M in cash and cash equivalents as ofMarch 31, 2022 . InJune 2021 , the Company filed a shelf registration statement on Form S-3 that went effective inJune 2021 which will allow the Company to raise up to$300.0 million in additional capital. The Company incurred$106 thousand in offering costs related to this shelf registration statement which is recorded in Other Assets in the condensed consolidated balance sheet as ofMarch 31, 2022 . The Company has not issued any securities under the new shelf registration statement as of the filing date of this Form 10-Q. OnMarch 31, 2022 , the Company entered into an "at-the-market" equity offering program ("ATM Facility") whereby the Company may from time to time offer and sell shares of its common stock up to an aggregate offering price of$25.0 million during the term of the ATM Facility. The Company has also filed a prospectus supplement relating to the offer and sale of the shares pursuant to the ATM Facility covering sales of up to$7.0 million of shares of common stock. The Company is not obligated to sell any shares under the ATM Facility. The ATM Facility may be terminated at any time upon ten days' prior notice, or at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. The Company has agreed to pay the sales agent a commission equal to 3.0% of the gross proceeds from the sales of shares under the ATM Facility and has agreed to provide the sales agent with customary indemnification and contribution rights. The Company incurred$156 thousand in offering costs related to the ATM facility which is recorded in Other Assets in the condensed consolidated balance sheet for the period endedMarch 31, 2022 . The Company has not issued any shares of common stock under the ATM Facility through the filing date of this Form 10-Q
Intellectual Property
InDecember 2017 , Forte entered into an exclusive license agreement with the DHHS, as amended inMay 2020 . Under the agreement, the DHHS granted Forte an exclusive, sublicensable and worldwide license to certain rights in 12 patents under which we may develop and commercialize pharmaceutical and biological compositions comprising Gram-negative bacteria for the topical treatment of dermatological diseases and conditions. The Company terminated its license agreement with DHHS effectiveApril 2, 2022 .
We own one US patent for administering a combination of Gram-positive and Gram-negative bacteria along with metabolites for treatment of a wide variety of skin conditions. The patent's estimated expiration date is 2039.
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.
Components of Operating Results
Revenue
We have no products approved for commercial sale or in active development 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.
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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, drug manufacturing, and, in 2021, wind down costs
incurred following the announcement of our unfavorable clinical trial results
and the write-off of manufacturing property and equipment. 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.
The Company significantly reduced its research and development expenses as it
wound down the FB-401 program, however, we anticipate research and development
expenses to increase in the future as we develop our current lead product
candidate, FB-102.
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 to incur significant costs associated with being aSEC registrant such as legal fees, costs associated with Sarbanes-Oxley compliance, accounting fees, directors' and officers' liability insurance premiums, and other expenses. Our general and administrative expenses may increase due to increases in professional and advisory fees as a result of being anSEC registrant and as we build out our infrastructure to develop FB-102.
Other Income (Expense), Net
Other expense, net, consists of net foreign exchange 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 three months endedMarch 31, 2022 to our critical accounting policies, significant judgments and estimates as disclosed in our management's discussion and analysis of financial condition and results of operations included in our Annual Report on our Form 10-K for the year endedDecember 31, 2021 as filed with theSEC onMarch 31, 2022 .
Results of Operations
Comparison of Three months ended
The following tables summarize our results of operations for the three
months ended
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For the Three Months Ended March 31,
2022 2021 Change
Operating expenses:
Research and development $ 693 $ 3,322 $ (2,629 )
General and administrative 1,821 1,419 402
Total operating expenses 2,514 4,741 (2,227 )
Other expenses, net (53 ) (63 ) 10
Net Loss $ 2,567 $ 4,804 $ (2,237 ) Research and Development Expenses
Research and development expenses were$0.7 million for the three months endedMarch 31, 2022 , compared to$3.3 million for the same period in 2021. The decrease of$2.6 million was primarily due to a net decrease of approximately$2.1 million in manufacturing, clinical, regulatory and other expenses as we wound down our FB-401 program following the announcement of our unfavorable clinical trial results, and a decrease of approximately$0.5 million in payroll and related expenses including stock-based compensation expense as a result of reduced headcount. While research and development expenses decreased for the three months endedMarch 31, 2022 , we anticipate research and development expenses to increase in the future as we develop our current lead product candidate, FB-102.
General and Administrative Expenses
General and administrative expenses were$1.8 million for the three months endedMarch 31, 2022 , compared to$1.4 million for the same period in 2021. The increase of$0.4 million was primarily due to an increase of approximately$0.5 million in payroll expenses including stock-based compensation expense, partially offset by a decrease of$0.1 million in legal, professional, insurance and other expenses.
Our general and administrative expenses may increase due to increases in
professional and advisory fees as a result of being an
Other Expenses, net
The net decrease in other expenses, net of approximately$10,000 for the three months endedMarch 31, 2022 , compared with the same period in the prior year were primarily due to decreased foreign currency transaction losses related to contracts denominated in currencies other than theU.S. dollar due to differences between the exchange rates on the billing and payment dates, partially offset by higher franchise taxes.
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 each year since inception. Our net loss was approximately$2.6 million for the three months endedMarch 31, 2022 . As ofMarch 31, 2022 , we had an accumulated deficit of approximately$75.7 million . We had cash and cash equivalents of approximately$40.0 million as ofMarch 31, 2022 . We believe that our existing cash and cash equivalents will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-Q. We expect to incur expenses and operating losses in the future as we develop our current lead product candidate, FB-102. InJune 2021 , the Company filed a shelf registration statement on Form S-3 that went effective inJune 2021 which will allow the Company to raise up to$300 million in additional capital. The Company incurred$106 thousand in offering costs related to this shelf registration statement which is recorded in Other Assets in the 19
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condensed consolidated balance sheet as of
OnMarch 31, 2022 , the Company entered into an "at-the-market" equity offering program ("ATM Facility") whereby the Company may from time to time offer and sell shares of its common stock up to an aggregate offering price of$25.0 million during the term of the ATM Facility. The Company has also filed a prospectus supplement relating to the offer and sale of the shares pursuant to the ATM Facility covering sales of up to$7,000,000 of shares of common stock. The Company is not obligated to sell any shares under the ATM Facility. The ATM Facility may be terminated at any time upon ten days' prior notice, or at any time in certain circumstances, including the occurrence of a material adverse effect on the Company. The Company has agreed to pay the sales agent a commission equal to 3.0% of the gross proceeds from the sales of shares under the ATM Facility and has agreed to provide the sales agent with customary indemnification and contribution rights. The Company incurred$156 thousand in offering costs related to the ATM facility which is recorded in Other Assets in the condensed consolidated balance sheet for the period endedMarch 31, 2022 . The Company has not issued any shares of common stock under the ATM Facility through the filing date of this Form 10-Q
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 expect to incur ongoing losses as we develop our current lead product candidate, FB-102, which has potentially broad application for autoimmune diseases such as alopecia areata, graft-vs-host disease and vitiligo. FB-102 is in preclinical development. Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
• the initiation and progress of preclinical studies and any clinical trials
for our product candidates;
• the terms and timing of any strategic alliance, licensing and other
arrangements that we may establish;
• 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.
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The following table shows a summary of our cash flows for the three months ended
For the Three
Months Ended
2022 2021
Net cash (used in) provided by:
Operating activities $ (1,975 ) $ (4,030 )
Financing activities (34 ) 27
Net decrease in cash and cash equivalents $ (2,009 ) $ (4,003 )
Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022
was $2.0 million and consisted primarily of a net loss of $2.6 million adjusted
for non-cash stock-based compensation of $1.1 million and increases in net
operating assets of $0.5 million .
Net cash used in operating activities for the three months ended March 31, 2021
was $4.0 million and consisted primarily of a net loss of $4.8 million adjusted
for non-cash items primarily related to stock-based compensation of $0.5 million
and decreases in net operating assets of $0.3 million .
Financing Activities
Net cash used in financing activities of$34,000 for the three months endedMarch 31, 2022 was primarily due to payment of$46,000 for deferred financing costs, offset by$12 thousand received from issuance of our common stock under the ESPP and for exercise of stock options.
Net cash provided by financing activities for the three months ended
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 4 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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