Management's discussion and analysis of our financial condition and results of
operations should be read together with our 2020 10-K and our unaudited
condensed consolidated financial statements and accompanying notes and other
disclosures included in this Quarterly Report on Form 10-Q.
Overview
We are a biopharmaceutical company dedicated to discovering and developing novel
cancer immunotherapies using our proprietary ATLASTM platform. The ATLAS
platform can profile each patient's CD4+ and CD8+ T cell immune responses to
every potential target or "antigen" identified by next-generation sequencing of
that patient's tumor. ATLAS zeroes in on both antigens that activate anti-tumor
T cell responses and inhibitory antigens, or InhibigensTM, that drive pro-tumor
immune responses. We believe this approach ensures that cancer immunotherapies,
such as cellular therapies and vaccines, focus T cell responses on the tumor
antigens most vulnerable to T cell targeting. Consequently, we believe that
ATLAS may enable more immunogenic and efficacious cancer immunotherapies.
GEN-011 is an investigational adoptive T cell therapy comprising
neoantigen-targeted peripheral T cells ("NPTs"). NPTs are peripheral
blood-derived T cells targeted to ATLAS-identified neoantigens. By employing
ATLAS to optimize neoantigen selection and by using T cells derived from
peripheral blood, we believe GEN-011 will enable potential patient efficacy,
accessibility and cost advantages over other autologous T cell therapies. We are
conducting a first-in-human clinical trial (the "TiTANTM trial") for GEN-011,
and in the second quarter of 2021, we dosed our first patient in the trial.
GEN-009 is an investigational neoantigen vaccine delivering adjuvanted synthetic
long peptides from ATLAS-identified neoantigens. We reported long-term
immunogenicity and clinical response data from our GEN-009 neoantigen vaccine
Phase 1 clinical trial in June 2021, and we continue to monitor patients to
further evaluate these efficacy signals.
ATLAS platform
Harnessing and directing T cells to kill tumor cells is increasingly viewed as
having potential to treat many cancers. Cellular therapies or vaccines employing
this approach may be most effective when targeting specific differences from
normal tissue present in the patient, such as antigens arising from genetic
mutations or cancer-causing viruses. However, the discovery of optimal antigens
for such immunotherapies has been particularly challenging for two reasons.
First, the number of candidate antigens can be very large, with up to thousands
of candidates per patient in some cancers. Second, the genetic diversity of
human T cell responses means that effective antigens may vary from person to
person. An effective antigen selection system must therefore account both for
each patient's tumor and for their T cell repertoire.
ATLAS selects antigens through an ex vivo assay that unveils CD4+ and CD8+ T
cell immune responses each patient has made to nearly any possible
tumor-specific antigen, including candidate neoantigens, tumor-associated
antigens and tumor-associated viral antigens. In doing so, we believe that ATLAS
provides the most comprehensive and accurate system for identifying the right
and wrong antigens for cancer immunotherapies. Previously, all candidate
antigens were thought either to be targets of effective anti-tumor responses
(stimulatory) or irrelevant. However, using ATLAS, we have identified Inhibigens
and demonstrated, in preclinical studies, that such antigens can promote rapid
tumor growth, reduce or eliminate the protection of an otherwise effective
vaccine, and dampen or reverse the effects of checkpoint inhibitors ("CPI"). We
have also demonstrated that classical antigen prediction methodologies often
mischaracterize Inhibigens as stimulatory. We therefore believe that both by
identifying the optimal antigens and by excluding Inhibigens, ATLAS enables
differentiated immune responses and clinical efficacy.
We believe ATLAS could have beneficial uses beyond cancer. We have previously
demonstrated its effectiveness in identifying novel protective antigens for
infectious disease therapies, and we believe it also could provide benefits in
autoimmune and other disease therapies. While we believe Inhibigens should be
avoided in cancer immunotherapies, they could prove to be beneficial in other
therapies. ATLAS could be a key tool in optimizing antigen selection for
therapies across a number of diseases.
Intellectual property
Our ATLAS and immuno-oncology intellectual property portfolio comprises nine
patent families and one additional potential patent family, all but one of which
are wholly owned by us. The first patent family, in-licensed from Harvard
University, is directed to one arm of the ATLAS method for identifying antigens.
This patent family is comprised of issued United States ("U.S.") patents, with
patent terms ranging from 2027 to 2031, as well as granted foreign patents. The
second family is directed to expanded ATLAS methods for identifying antigens, as
currently practiced by us. This family is comprised of issued U.S. patents, with
patent terms ranging from 2029 to 2030, as well as granted foreign patents and
pending U.S. and foreign applications. The third family is directed to
ATLAS-based methods for selecting or deselecting Inhibigens and stimulatory
antigens, cancer diagnosis, prognosis and patient selection, as well as related
compositions. This patent family is comprised of an issued U.S. patent with a
patent term to 2038, pending applications in eleven foreign jurisdictions, and a
pending U.S. application. Additional patents issuing from these applications are
expected to have patent terms until at least 2038. The fourth, fifth and sixth
families are directed to various methods using ATLAS-identified antigens. These
families comprise pending U.S. and foreign applications. Patents issuing from
these applications are expected to have patent terms until at least 2039. The
three further families and one additional potential family currently comprise
Patent Cooperation Treaty ("PCT") applications or a U.S. provisional application
and are directed to further methods using ATLAS-identified antigens, to dose
regimens for GEN-009, and to our cell-based therapy GEN-011.
                                       18
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Immuno-oncology programs
GEN-011
We believe that GEN-011 represents a new category of adoptive T cell therapy for
solid tumors, neoantigen-targeted peripheral T cells ("NPTs"). The first
neoantigen-targeted T cell therapy to demonstrate clinical efficacy in patients
with solid tumors is tumor-infiltrating lymphocyte ("TIL") therapy. TILs consist
of a subset of lymphocytes that have invaded a tumor but, importantly, are not
all necessarily specific for tumor antigens. TIL therapy requires a fresh,
uncontaminated, viable tumor resection from each patient, from which TILs will
be obtained. These TILs are then non-specifically expanded ex vivo in the
presence of high dose interleukin-2 ("IL-2") and infused into that same patient,
who has undergone lymphodepletion preconditioning, followed by high dose IL-2
treatment. In certain patients with solid tumors resistant to CPI therapy, TIL
therapy has resulted in durable clinical responses.
GEN-011 differs from TIL therapy in two critical ways. First, we use ATLAS to
design the product to be highly specific for the antigens of anti-tumor T cell
responses. Second, we rely on T cells extracted from peripheral blood, which are
readily available and we believe have greater potential for proliferation and
activity than TILs. We believe these differences may result in GEN-011, if
approved, offering efficacy, patient accessibility and cost advantages over
other neoantigen-targeting solid tumor adoptive T cell therapies.
The potential efficacy advantages derive from the following product features:
•Targeting up to 30 tumor-specific antigens simultaneously to limit tumor
escape, with minimal bystander, non-tumor-specific T cells;
•Avoiding T cells specific for Inhibigens that may be detrimental to clinical
response;
•Including both CD4+ and CD8+ tumor antigen-specific T cells; and
•Using peripheral blood-derived T cells, which are believed to have potential
for superior activity and persistence.
The potential patient accessibility and cost advantages derive from the fact
that:
•No extra surgery or viable tumor is required as starter material;
•GEN-011 can treat any patient, while some adoptive T cell therapies engineer T
cells for applicability to certain human leukocyte antigen types, often limiting
their clinical utility to certain subsets of western Caucasians; and
•The GEN-011 cell expansion process does not require T cell receptor ("TCR")
vector design or transduction.
Across more than 15 development and engineering runs in blood derived from
cancer patients and healthy donors, we have demonstrated that GEN-011 NPTs:
•Are 99% T cells made up of both CD4+ and CD8+ T cells with the desired T cell
phenotype (>98% central and effector memory, on average);
•Highly neoantigen-specific (up to 96% neoantigen-specific, with activity
against 89% of target neoantigens on average);
•Powerfully cytolytic against their targets with no off-target cytotoxicity in
vitro;
•Polyfunctional, secreting effector, stimulatory and chemoattractive mediators;
and
•Highly active and potent.
We are conducting the TiTAN trial, treating patients with GEN-011 as monotherapy
for tumors that have not achieved an adequate response after CPI therapy. Our
target indications include melanoma, non-small cell lung cancer, small cell lung
cancer, squamous cell carcinoma of the head and neck, urothelial carcinoma,
renal cell carcinoma, cutaneous squamous cell carcinoma, and anal squamous cell
carcinoma. In the second quarter of 2021, we dosed our first patient.
The TiTAN trial will contain two patient cohorts:
•Cohort A patients will receive GEN-011 in a repeated lower dose regimen with no
lymphodepletion and an intermediate dose of IL-2 after each GEN-011 dose;
•Cohort B patients will receive GEN-011 as a single high dose with both
lymphodepletion and high dose IL-2.
The TiTAN trial's objectives are safety, clinical activity including overall
response rate and duration of response, and GEN-011's proliferation and
persistence as well as tumor T cell penetration. We expect to have initial data
from a small subset of patients in the first quarter or early in the second
quarter of 2022. However, patient accrual to clinical trials and subsequent
dosing and trial participation are dependent upon both patient choice and
health, and investigator decisions. Predictions of data availability and release
of results may be affected by individual patient events among other factors.
                                       19
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GEN-009


GEN-009 is a neoantigen vaccine candidate delivering adjuvanted synthetic long
peptides spanning ATLAS-identified anti-tumor neoantigens. We are conducting a
Phase 1/2a clinical trial for GEN-009 across a range of solid tumor types. Part
A of the trial is assessing the monotherapy GEN-009 for safety, immunogenicity
and ability to prevent disease relapse in certain cancer patients with no
detectable tumor at the time of vaccination but with a risk of relapse. Part B
of the trial is assessing the safety, immunogenicity and preliminary anti-tumor
activity of GEN-009 in combination with CPI therapy in patients with advanced or
metastatic tumors.
We have observed the following from our data, most recently presented at the
American Society of Clinical Oncology Annual Meeting in June 2021:
In Part A of the trial, we have observed the following in the eight dosed
patients:
•100% of patients had measurable CD4+ and/or CD8+ T cell responses to their
GEN-009 vaccine;
•Responses were detected against 99% of the administered vaccine neoantigens
(N=88 administered antigens), a response rate in excess of that which has been
reported previously by others in response to candidate neoantigen vaccines;
•GEN-009 was well tolerated, with no dose-limiting toxicities observed; and
•Only two of the eight vaccinated patients have developed a recurrence of their
targeted tumor.
In Part B of the trial, we continue to evaluate immune responses and efficacy in
two cohorts of patients, those who are checkpoint-sensitive and those who are
checkpoint-resistant.
•In the checkpoint-sensitive cohort, we believe we have shown compelling signals
of response.
•Of the nine checkpoint-sensitive patients, four have independent RECIST
criteria responses that appear to be attributable to GEN-009.
•Of those four patients, one patient achieved a complete response and three
patients achieved a partial response after vaccination.
•In the checkpoint-resistant cohort, we believe that GEN-009 has shown early
evidence of stabilization of disease.
•This group of seven patients initially started their CPI therapy but quickly
progressed and transitioned to standard-of-care therapy which generally consists
of radiation and/or chemotherapy. After completing the standard-of-care therapy,
these patients received GEN-009 vaccination.
•Of the seven patients, one patient achieved a partial response and two achieved
prolonged disease stabilization.
We believe the GEN-009 data confirm the potential antigen selection advantages
of ATLAS and suggest a differentiating advantage for GEN-011.
Other research activities
In addition to our two clinical programs, we are conducting research in several
areas:
•Exploring the potential for novel antigens of protective T cell responses to
SARS-CoV-2, or COVID-19, to provide effectiveness against multiple virus
strains;
•Identifying TCRs to ATLAS-identified shared neoantigens, in collaboration with
the University of Minnesota;
•Exploring T cell responses to oncoviruses associated with certain cancers such
as Epstein-Barr virus and human papilloma virus;
•Identifying shared antigen immunotherapies encompassing shared neoantigens and
non-mutated tumor-associated antigens;
•Exploring Inhibigen biology; and
•Further optimizing ATLAS.
Since these other research activities are early stage, we cannot provide
specific timelines for if, or when, these activities may result in new clinical
candidates.
Business update regarding COVID-19
The current COVID-19 pandemic has presented a substantial public health and
economic challenge around the world and is affecting our employees, patients,
communities and business operations, as well as the U.S. economy and financial
markets. The full extent to which the COVID-19 pandemic will directly or
indirectly affect our business, results of operations and financial condition
will depend on future developments that are highly uncertain and cannot be
accurately predicted, including new information that may emerge concerning
COVID-19, the actions taken to contain it or treat its impact and the economic
impact on local, regional, national and international markets.
                                       20
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To date, we have been able to continue our operations and do not anticipate any
material interruptions for the foreseeable future. However, we are continuing to
assess the potential impact of the COVID-19 pandemic on our business and
operations, including our expenses, supply chain and preclinical and clinical
trials.
Our third-party contract manufacturing partners continue to operate their
manufacturing facilities at or near normal levels. While we currently do not
anticipate any interruptions in our supply chain, it is possible that the
COVID-19 pandemic and response efforts may have an impact in the future on us
and/or our third-party suppliers and contract manufacturing partners' ability to
manufacture our products or the products of our partners.
Financing and business operations
We commenced business operations in August 2006. To date, our operations have
been limited to organizing and staffing our company, acquiring and developing
our proprietary ATLAS technology, identifying potential product candidates, and
undertaking preclinical studies and clinical trials for our product candidates.
We have not generated any product revenue and do not expect to do so for the
foreseeable future. We have financed our operations primarily through the
issuance of our equity securities and through debt financings. As of
September 30, 2021, we had received an aggregate of $453.5 million in net
proceeds from the issuance of equity securities, we had outstanding borrowings
of $10.5 million, and our cash and cash equivalents were $48.9 million.
Since inception, we have incurred significant operating losses. We expect to
incur significant expenses and increasing operating losses for the foreseeable
future. Our net losses may fluctuate significantly from quarter-to-quarter and
year-to-year. We will need to generate significant revenue to achieve
profitability, and we may never do so.
In January 2021, we entered into a sublease agreement for one floor of lab and
office space through June 2022, with an option for the sublessee to extend the
sublease for an additional two months. After the initial option, which is at the
sublessee's sole discretion, the sublease agreement contains additional options
for us and the sublessee to mutually extend the sublease for up to an additional
eighteen months. As we retained our obligations under the sublease, we are
recording the payments received from the sublease as a reduction of lease
expense. Sublease income of $0.4 million and $1.1 million was recorded as a
reduction of lease expense during the three and nine months ended September 30,
2021, respectively.
On February 18, 2021 (the "2021 Loan Closing Date"), we entered into a loan and
security agreement (the "2021 Loan Agreement") with Silicon Valley Bank ("SVB")
for a $10.0 million secured term loan (the "2021 Term Loan"). $9.0 million of
the proceeds from the 2021 Term Loan were used to repay our borrowings that were
outstanding at the 2021 Loan Closing Date under our previous loan and security
agreement with Hercules Capital, Inc. ("Hercules"), paying off all obligations
owing under, and extinguishing, the previous loan and security agreement with
Hercules on the 2021 Loan Closing Date. The remaining proceeds from the 2021
Term Loan of $1.0 million were received by us for working capital and general
corporate purposes. The 2021 Term Loan is subject to a final payment charge of
$0.5 million that will be amortized as a debt issuance cost over the expected
term of the loan.
We have an agreement with Cowen and Company, LLC ("Cowen") to establish an
at-the-market ("ATM") equity offering program pursuant to which Cowen is able to
offer and sell up to $50.0 million of our common stock at prevailing market
prices. In the nine months ended September 30, 2021, we sold approximately 4.0
million shares under our ATM and received net proceeds of $9.9 million, after
deducting commissions. Through September 30, 2021, we have sold an aggregate of
approximately 6.9 million shares under our ATM and received $19.8 million in net
proceeds. As of September 30, 2021, we had $29.7 million in gross proceeds
remaining under our ATM.
We have a purchase agreement with Lincoln Park Capital ("LPC") pursuant to
which, for a period of 30 months beginning in October 2019, we have the right,
at our sole discretion, to sell up to $30.0 million of our common stock to LPC
based on prevailing market prices of our common stock at the time of each sale.
The purchase agreement limits our sales of shares of common stock to LPC to
approximately 5.2 million shares of common stock, representing 19.99% of the
shares of common stock outstanding on the date of the purchase agreement. The
purchase agreement also prohibits us from directing LPC to purchase any shares
of common stock if those shares, when aggregated with all other shares of our
common stock then beneficially owned by LPC and its affiliates, would result in
LPC and its affiliates having beneficial ownership, at any single point in time,
of more than 9.99% of the then total outstanding shares of our common stock. As
of September 30, 2021, we had $24.0 million remaining under our agreement with
LPC.
As reflected in our condensed consolidated financial statements, we used cash
of $34.3 million to fund operating activities during the nine months ended
September 30, 2021 and had $48.9 million available in cash and cash equivalents
at September 30, 2021. In addition, we had an accumulated deficit of $394.6
million and anticipate that we will continue to incur significant operating
losses for the foreseeable future as we continue to develop our product
candidates. Until such time, if ever, as we attempt to generate substantial
product revenue and achieve profitability, we expect to finance our cash needs
through a combination of equity offerings and strategic transactions, and other
sources of funding. If we are unable to raise additional funds when needed, we
may be required to implement cost reduction strategies, including ceasing
development of GEN-011 or other corporate programs and activities, including our
Inhibigens and COVID-19 programs. We expect that our available cash and cash
equivalents at September 30, 2021 should be sufficient to fund operations into
the third quarter of 2022.
                                       21
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Costs related to clinical trials can be unpredictable, and there can be no
guarantee that our current balances of cash and cash equivalents, combined with
proceeds received from other sources, will be sufficient to fund our trials or
operations through this period. These funds will not be sufficient to enable us
to conduct pivotal clinical trials for, seek marketing approval for, or
commercially launch GEN-011, GEN-009 or any other product candidate.
Accordingly, we will be required to obtain further funding through public or
private equity offerings, collaboration and licensing arrangements, or other
sources. Adequate additional financing may not be available to us on acceptable
terms, or at all, which could result in a decision to pause or delay development
or advancement of clinical trials for one or more of our product candidates.
Similarly, we may decide to pause or delay development or advancement of
clinical trials for one or more of our product candidates if we believe that
such development or advancement is imprudent or impractical.
Financial Overview
Revenues
We have not generated any revenues from product sales to date, and we do not
expect to generate revenues from product sales for the foreseeable future. Our
license revenue in the three and nine months ended September 30, 2021 and 2020
was derived from a material transfer agreement (the "MTA") with Shionogi & Co.,
Ltd. ("Shionogi"). In July 2021, Shionogi informed us that their studies under
the MTA were successful and demonstrated that GEN-003 antigen vaccination was
protective in animal models of genital herpes. However, due to a change in
Shionogi's corporate focus, Shionogi allowed its option to negotiate an
exclusive development and commercialization license for the HSV-2 antigens prior
to the expiration of the MTA to lapse. See Note 3. Revenue within the notes to
the condensed consolidated financial statements in this Quarterly Report on Form
10-Q.
Research and development expenses
Research and development expenses consist primarily of costs incurred to advance
our preclinical and clinical candidates, which include:
•payroll and other headcount-related expenses;
•expenses incurred under agreements with contract research organizations,
contract manufacturing organizations, consultants, and other vendors that
conduct our clinical trials and preclinical activities;
•costs of acquiring, developing, and manufacturing clinical trial materials and
lab supplies; and
•facility costs, depreciation, and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance, and other
supplies.
The following table summarizes research and development expenses for our product
candidates for the three and nine months ended September 30, 2021 and 2020 (in
thousands):
                                        Three Months Ended September 30                  Nine Months Ended September 30
                                           2021                    2020                    2021                    2020
Phase 1/2a programs                $           6,526          $      2,135          $         19,777          $     10,544
Discovery and pre-IND                          1,496                 3,722                     4,960                11,075
Other research and development                 1,451                 1,691                     4,000                 4,504
Total research and development     $           9,473          $      7,548

$ 28,737 $ 26,123




Phase 1/2a programs are Phase 1 or Phase 2 development activities. Discovery and
pre-IND includes costs incurred to support our discovery research and
translational science efforts up to the initiation of Phase 1 development. Other
research and development include costs that are not specifically allocated to
active programs, including facility costs, depreciation expense, and other
costs.
General and administrative expenses
General and administrative expenses consist primarily of payroll and other
headcount-related expenses for executive and other administrative functions.
Other general and administrative expenses include facility costs, professional
fees associated with consulting, corporate and intellectual property legal
expenses, and accounting services.
Other income (expense)
Other income (expense) consists of the change in the fair value of the warrant
liability, transaction expenses, interest expense, net of interest income, gains
and losses on the sale and disposal of assets, and gains and losses on foreign
currency.
Critical Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies have not changed from those described in the
2020 10-K.
                                       22
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Results of Operations Comparison of the three and nine months ended September 30, 2021 and 2020 License revenue


                                       Three Months Ended September 30               Nine Months Ended September 30
                                          2021                  2020                   2021                    2020
                                                                       (in thousands)
License revenue                     $       1,641          $       453          $          1,641          $     1,359


License revenue increased $1.2 million in three months ended September 30, 2021,
as compared to the three months ended September 30, 2021, and increased $0.3
million in the nine months ended September 30, 2021, as compared to the nine
months ended September 30, 2020. The increase in both periods relates to revenue
recognized in connection with the expiration of the MTA with Shionogi during the
three and nine months ended September 30, 2021.
Research and development expenses
                                               Three Months Ended September 30                 Nine Months Ended September 30
                                                  2021                    2020                   2021                    2020
                                                                               (in thousands)
Research and development                  $           9,473          $

7,548 $ 28,737 $ 26,123




Research and development expenses increased $1.9 million in the three months
ended September 30, 2021, as compared to the three months ended September 30,
2020. The increase was largely due to higher manufacturing and clinical costs of
$1.3 million and higher headcount and headcount-related costs of $0.7 million.
Research and development expenses increased $2.6 million in the nine months
ended September 30, 2021, as compared to the nine months ended September 30,
2020. The increase was largely due to higher headcount and headcount-related
costs of $2.1 million and higher manufacturing and clinical costs of $0.6
million.
General and administrative expenses
                                                 Three Months Ended September 30                 Nine Months Ended September 30
                                                    2021                    2020                   2021                    2020
                                                                                 (in thousands)
General and administrative                  $           3,884          $

3,644 $ 11,588 $ 10,511




General and administrative expenses increased $0.2 million in the three months
ended September 30, 2021, as compared to the three months ended September 30,
2020. The increase was primarily due to higher headcount and headcount-related
costs of $0.6 million, partially offset by lower facilities costs, net of
sublease income, of $0.6 million.
General and administrative expenses increased $1.1 million in the nine months
ended September 30, 2021, as compared to the nine months ended September 30,
2020. The increase was primarily due to higher headcount and headcount-related
costs of $1.9 million, increased professional services fees of $0.4 million and
higher depreciation expense of $0.3 million, partially offset by lower
facilities costs, net of sublease income, of $1.8 million.
Change in fair value of warrants
                                    Three Months Ended September 30                 Nine Months Ended September 30
                                       2021                    2020                   2021                    2020
                                                                    (in thousands)
Change in fair value of
warrants                        $          8,382          $    10,767          $         19,753          $    11,770


Change in fair value of warrants reflects the non-cash change in the fair value
of our liability-classified warrants, which were recorded at their fair value on
the date of issuance and are remeasured at the end of each reporting period. The
fair value of our warrant liabilities is determined using a Monte Carlo
simulation. See Note 9. Warrants for the assumptions and methodologies used in
calculating the estimated fair value. At the expiration of the down-round
protection feature on July 25, 2021, the 2020 Warrants were remeasured to their
fair value and subsequently reclassified to equity. The increase in both the
three and nine months ended September 30, 2021, as compared to the three and
nine months ended September 30, 2020, was primarily due to the July 2020
issuance of liability-classified warrants for 33.6 million shares of our common
stock in connection with our 2020 private placement.
                                       23
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Interest expense, net


                                            Three Months Ended September 30                Nine Months Ended September 30
                                               2021                    2020                  2021                   2020
                                                                           (in thousands)
Interest expense, net                   $           (290)         $      (377)         $         (851)         $    (1,001)


Interest expense, net, consists primarily of interest expense on our long-term
debt facilities, partially offset by interest earned on our cash equivalents.
Other income (expense)
                                             Three Months Ended September 30              Nine Months Ended September 30
                                                2021                  2020                  2021                   2020
                                                                            (in thousands)
Other income (expense)                    $           2          $    (4,206)         $         (134)         $    (4,223)


Other expense during the nine months ended September 30, 2021 consists primarily
of debt prepayment and extinguishment costs. Other expense during the three and
nine months ended September 30, 2020 consists primarily of transaction costs
incurred in connection with our 2020 private placement.
Liquidity and Capital Resources
Overview
Since our inception in 2006, we have funded operations primarily through
proceeds from issuances of common stock and long-term debt.
As of September 30, 2021, we had $48.9 million in cash and cash equivalents.
In April 2018, we entered into an amended and restated loan and security
agreement, which was subsequently amended in November 2019 (as amended, the
"Hercules Loan Agreement"), with Hercules. The Hercules Loan Agreement provided
a $14.0 million secured term loan that was scheduled to mature on May 1, 2021
and that accrued interest at a floating rate per annum equal to the greater of
(i) 8.00%, or (ii) the sum of 3.00% plus the prime rate. We were also obligated
to pay a final payment charge of $1.0 million at maturity.
On the 2021 Loan Closing Date, we entered into the 2021 Loan Agreement with SVB
for the $10.0 million 2021 Term Loan. $9.0 million of the proceeds from the 2021
Term Loan were used to repay our borrowings that were outstanding at the 2021
Loan Closing Date under the Hercules Loan Agreement, paying off all obligations
owing under, and extinguishing, the Hercules Loan Agreement, on the 2021 Loan
Closing Date. The remaining proceeds from the 2021 Term Loan of $1.0 million
were received by us for working capital and general corporate purposes. The 2021
Term Loan is subject to a final payment charge of $0.5 million that will be
amortized as a debt issuance cost over the expected term of the loan.
The 2021 Loan Agreement contains customary covenants and representations,
including a financial reporting covenant and limitations on dividends,
indebtedness, collateral, investments, distributions, transfers, mergers or
acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
There are no financial covenants. As of September 30, 2021, we were in
compliance with all covenants under the 2021 Loan Agreement.
The 2021 Loan Agreement also includes customary events of default, including
payment defaults, breaches of covenants, change of control and occurrence of a
material adverse effect. Amounts outstanding during an event of default shall be
payable on demand and shall accrue interest at an additional rate of 4.0% per
annum of the past due amount outstanding. We have determined that the risk of
subjective acceleration under the material adverse effects clause was remote and
therefore has classified the long-term portion of the outstanding principal in
non-current liabilities.
We have not generated any revenues from product sales to date, and we do not
expect to generate revenues from product sales for the foreseeable future.
We have an agreement with Cowen to establish an ATM equity offering program
pursuant to which Cowen is able to offer and sell up to $50.0 million of our
common stock at prevailing market prices. In the nine months ended September 30,
2021, we sold approximately 4.0 million shares under our ATM and received net
proceeds of $9.9 million, after deducting commissions. Cumulatively through
September 30, 2021, we have sold an aggregate of approximately 6.9 million
shares under the ATM and received $19.8 million in net proceeds. As of
September 30, 2021, we had $29.7 million in gross proceeds remaining under the
ATM.
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We have a purchase agreement with LPC pursuant to which, for a period of 30
months beginning in October 2019, we have the right, at our sole discretion, to
sell up to $30.0 million of our common stock to LPC based on prevailing market
prices of our common stock at the time of each sale. The purchase agreement
limits our sales of shares of common stock to LPC to approximately 5.2 million
shares of common stock, representing 19.99% of the shares of common stock
outstanding on the date of the purchase agreement. The purchase agreement also
prohibits us from directing LPC to purchase any shares of common stock if those
shares, when aggregated with all other shares of our common stock then
beneficially owned by LPC and its affiliates, would result in LPC and its
affiliates having beneficial ownership, at any single point in time, of more
than 9.99% of the then total outstanding shares of our common stock. As of
September 30, 2021, we had $24.0 million remaining under our agreement with LPC.
Cash flows from operating activities
Cash flows from operating activities consist of our net loss adjusted for
various non-cash items, changes in working capital and changes in certain other
balance sheet accounts. Cash used in operating activities for the nine months
ended September 30, 2021 and 2020 was $34.3 million and $32.0 million,
respectively. Cash used in operating activities for the nine months ended
September 30, 2021 increased by $2.3 million when compared to the nine months
ended September 30, 2020. This increase was primarily due to increased research
and development expenses for GEN-011 and growth of our corporate infrastructure.
Cash flows from investing activities
Investing activities used $2.3 million and $1.2 million of cash in nine months
ended September 30, 2021 and 2020, respectively. Cash used by investing
activities was primarily for purchases of property and equipment in both of the
nine months ended September 30, 2021 and 2020.
Cash flows from financing activities
Financing activities provided $5.7 million and $80.7 million of cash in the nine
months ended September 30, 2021 and 2020, respectively. In the nine months ended
September 30, 2021, we repaid $14.0 million in long-term debt and paid deferred
financing charges of $0.3 million, partially offset by the issuance of long-term
debt for proceeds of $10.0 million and the issuance of shares of our common
stock under our ATM for net proceeds of $9.9 million. In the nine months ended
September 30, 2020, the 2020 private placement generated net proceeds of
$74.5 million, we issued shares of common stock to LPC for net proceeds of $3.5
million, and we issued shares of common stock under our ATM for net proceeds of
$2.7 million.
Operating capital requirements
Our primary uses of capital are for headcount-related costs, manufacturing costs
for preclinical and clinical materials, third-party clinical trial services,
laboratory and related supplies, legal and other regulatory expenses, facilities
and general overhead costs. We expect these costs will continue to be the
primary operating capital requirements for the near future.
We expect that our cash and cash equivalents as of September 30, 2021 of $48.9
million should be sufficient to fund operations into the third quarter of 2022.
These funds may not be sufficient to fund operations for at least the next
twelve months from the date of issuance of these condensed consolidated
financial statements which raises substantial doubt about our ability to
continue as a going concern. Our future viability beyond one year from the date
of issuance of the condensed consolidated financial statements is dependent on
our ability to raise additional capital to finance its operations. If we are
unable to raise additional funds when needed, we may be required to implement
cost reduction strategies, including ceasing development of GEN-011 or other
research programs and activities, including our Inhibigens and COVID-19
programs. We expect to finance our cash needs through a combination of equity
offerings, strategic transactions, or other sources of funding, including
utilization of our purchase agreement with LPC and our ATM equity offering
program with Cowen. We expect that our operating plan, which includes these
funding sources, extends operations to the end of 2022. Although we plan to
pursue additional funding, there is no assurance that we will be successful in
obtaining sufficient funding on terms acceptable to us to fund continuing
operations, or at all.
We have based our projections of operating capital requirements on assumptions
that may prove to be incorrect, and we may use all of our available capital
resources sooner than we expect. Because of the numerous risks and uncertainties
associated with research, development and commercialization of pharmaceutical
products coupled with the global economic uncertainty that has arisen with the
outbreak of COVID-19, 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 timing and costs of our planned clinical trials for GEN- 011;
•the progress, timing, and costs of manufacturing GEN-011;
•the timing of GEN-011 patient enrollment and dosing;
•the availability of GEN-011 third-party manufacturing capacity;
•the availability and timing of additional financing;
•the initiation, progress, timing, costs, and results of preclinical studies and
clinical trials for our potential product candidates;
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•the terms and timing of any future collaborations, grants, licensing,
consulting, or other arrangements that we may establish;
•the amount and timing of any payments we may be required to make, or that we
may receive, in connection with the licensing, filing, prosecution, defense and
enforcement of any patents or other intellectual property rights, including
milestone payments, royalty payments and patent prosecution fees that we are
obligated to pay pursuant to our license agreements;
•the costs of preparing, filing, and prosecuting patent applications,
maintaining and protecting our intellectual property rights, and defending
against intellectual property related claims;
•the extent to which we in-license or acquire other products and technologies;
•the costs to manufacture material for clinical trials;
•the costs to seek regulatory approvals for any product candidates that
successfully complete clinical trials;
•the costs to attract and retain skilled personnel; and
•the costs to create additional infrastructure to support our operations as a
public company and our product development and planned future commercialization
efforts.
We will need to obtain substantial additional funding in order to complete
clinical trials and receive regulatory approval for GEN-011, GEN-009 and our
other product candidates. To the extent that we raise additional capital through
the sale of our common stock, convertible securities, or other equity
securities, the ownership interests of our existing stockholders may be
materially diluted, and the terms of these securities could include liquidation
or other preferences that could adversely affect the rights of our existing
stockholders. If we are unable to raise capital when needed or on attractive
terms, we could be forced to significantly delay, scale back, or discontinue the
development of GEN-011, GEN-009 or our other product candidates, seek
collaborators at an earlier stage than otherwise would be desirable or on terms
that are less favorable than might otherwise be available, and relinquish or
license, potentially on unfavorable terms, our rights to GEN-011, GEN-009 or our
other product candidates that we otherwise would seek to develop or
commercialize ourselves.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk
We had cash and cash equivalents of $48.9 million as of September 30, 2021. The
primary objectives of our investment activities are to preserve principal,
provide liquidity and maximize income without significantly increasing risk. Our
primary exposure to market risk relates to fluctuations in interest rates, which
are affected by changes in the general level of U.S. interest rates. Given the
short-term nature of our cash and cash equivalents, we believe that a sudden
change in market interest rates would not be expected to have a material impact
on our financial condition and/or results of operations. We do not own any
derivative financial instruments.
We do not believe that our cash and cash equivalents have significant risk of
default or illiquidity. While we believe our cash and cash equivalents do not
contain excessive risk, we cannot provide absolute assurance that in the future
our investments will not be subject to adverse changes in market value. In
addition, we maintain significant amounts of cash and cash equivalents at one or
more financial institutions that are in excess of federally insured limits.
We currently do not have significant exposure to foreign currencies as we hold
no foreign exchange contracts, option contracts, or other foreign hedging
arrangements. Further, our operations are primarily denominated in U.S. dollars.
Our operations may be subject to fluctuations in foreign currency exchange rates
in the future.
Inflation generally affects us by increasing our cost of labor and clinical
trial costs. We do not believe that inflation had a material effect on our
results of operations during the nine months ended September 30, 2021.
Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), is (1)
recorded, processed, summarized, and reported within the time periods specified
in the SEC's rules and forms, and (2) accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and
principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures as of September 30, 2021 (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives, and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our principal executive officer and principal
financial officer have concluded based upon the evaluation described above that,
as of September 30, 2021, our disclosure controls and procedures were effective
at the reasonable assurance level.
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Changes in Internal Control Over Financial Reporting
During the three months ended September 30, 2021, there have been no changes in
our internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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