GENOCEA BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and accompanying notes and other disclosures included in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, 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 Annual Report on Form 10-K, 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 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.
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GEN-011 is an investigational next-generation solid tumor cell therapy candidate
comprised of CD4+ and CD8+ neoantigen-targeted peripheral T cells ("NPTs") which
are specific for up to 30 antigens, designed to limit tumor escape. GEN-011 is
comprised of T cells extracted from the patient's peripheral blood and specific
for ATLAS-prioritized neoantigens. NPTs have minimal bystander,
non-tumor-specific cells, and are designed to be devoid of Inhibigen-specific
cells which may be detrimental to clinical response. GEN-011 has the potential
to be differentiated from other cell therapies because of the breadth of
surface-presented neoantigens it targets and the ease of manufacturing
tumor-relevant T cells extracted from readily accessible peripheral blood.
TiTANTM is an open-label, multi-center Phase 1/2a trial evaluating the safety,
tolerability, T cell persistence and proliferation, and clinical efficacy of
GEN-011. The TiTAN clinical trial is testing two dosing regimens. Initial data
from the TiTAN trial is expected during the AACR Annual Meeting 2022 to be held
from
Financing and business operations
We commenced business operations in
In
On
We have an agreement with
We have a purchase agreement with
As of
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These factors, combined with our forecast of cash required to fund operations for a period of at least one year from the date of issuance of these consolidated financial statements, raise substantial doubt about our ability to continue as a going concern. Our future viability beyond one year from the date of issuance of the consolidated financial statements is dependent on our ability to raise additional capital to finance our 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 our Inhibigens program. We expect to finance our cash needs through the execution of our operating plan which includes a combination of equity offerings, strategic transactions, or other sources of funding, including utilization of our ATM equity offering program with Cowen. 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. Our existing cash and cash equivalents are sufficient to support our current operations into Q3 2022.
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. 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 2021 and 2020 was derived from the material transfer
agreement ("Shionogi MTA") with Shionogi & Co. Ltd. In
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 ("CROs"), contract manufacturing organizations ("CMOs"), 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 in 2021 and 2020 (in thousands):
Years Ended December 31
2021 2020
Phase 1/2a programs $ 28,637 $ 15,227
Discovery and pre-IND 6,108 12,813
Other research and development 4,275 5,920
Total research and development $ 39,020 $ 33,960 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.
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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 management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in conformity with
While our significant accounting policies are described in more detail in Note 2. Summary of significant accounting policies within the notes to the consolidated financial statements in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical to fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.
Revenue recognition
We recognize revenue when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled in exchange for these goods and services. To achieve this core principle, we apply the following five steps: 1) identify the customer contract; 2) identify the contract's performance obligations; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when or as a performance obligation is satisfied.
The transaction price is determined based on the consideration to which we will be entitled. The transaction price may include fixed amounts, variable amounts, or both. We allocate the transaction price based on the estimated standalone selling price of the underlying performance obligations. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs to complete the respective performance obligation. We also utilize judgement in assessing whether or not variable consideration is constrained or if it can be allocated specifically to one or more performance obligations in the arrangement.
When a performance obligation is satisfied, revenue is recognized for the amount of the transaction price allocated to that performance obligation on a relative standalone selling price basis, which excludes estimates of variable consideration that are constrained. For performance obligations consisting of licenses and other promises, we utilize judgment to assess whether the combined performance obligation is satisfied over time or at a point in time and the recognition pattern for the portion of the transaction price allocated to the performance obligation.
Research and development expenses
Research and development costs are expensed as incurred. Research and development expenses include fees paid to CROs in connection with clinical trials, CMOs with respect to preclinical and clinical materials and intermediaries, and other vendors in connection with preclinical development activities. Nonrefundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed rather than when the payment is made. We conduct a thorough review of open purchase orders to identify goods received or services that have been performed, including corroboration with internal personnel, in order to establish an estimate of the associated cost incurred for which we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary.
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We base our expenses related to clinical trials on our estimates of the services performed pursuant to contracts with clinical sites that conduct clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of required data submission. In recording service fees, we make estimates based upon the time period over which services will be performed or other observable and measurable progress points as defined in the contracts, such as number of patients enrolled, number of sites, or extent of services performed in each period. The calculated amount of service fee expense is compared to the actual payments made pursuant to the contract's billing schedule to determine the resulting prepaid or accrual position. If our estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.
Fair value of warrant liabilities
We remeasure the fair value of our liability-classified warrants at each reporting date. We calculate the estimated fair value of the liability-classified warrants using a Monte Carlo simulation. The Monte Carlo simulation requires the input of assumptions, including our stock price, the volatility of our stock price, remaining term in years, expected dividend yield, and risk-free rate. In addition, the valuation model considers our probability of being acquired during each annual period within the terms of our liability-classified warrants, as an acquisition event can potentially impact the settlement. Changes to the assumptions used in determining the fair value of our liability-classified warrants could result in materially different fair values for these warrant liabilities.
Results of Operations
Comparison of 2021 and 2020
License revenue
Years Ended December 31
2021 2020
(in thousands)
License revenue $ 1,641 $ 1,359 During 2021, we recorded license revenue of
Research and development expenses
Years Ended December 31
2021 2020
(in thousands)
Research and development $ 39,020 $ 33,960 Research and development expenses increased
We expect that our overall research and development expenses will increase in the future due to the continued development of GEN-011 and the related manufacturing, clinical and research costs.
General and administrative expenses
Years Ended December 31
2021 2020
(in thousands)
General and administrative $ 14,714 $ 14,388 General and administrative expense increased
We anticipate that our general and administrative expenses will increase in the future to support the expected growth in our business as we expand our operations and organizational capabilities.
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Change in fair value of warrants
Years Ended December 31
2021 2020
(in thousands)
Change in fair value of warrants $ 20,140 $ 8,889 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
Interest expense, net
Years Ended December 31
2021 2020
(in thousands)
Interest expense, net $ (1,121) $ (1,380) Interest expense, net, consists primarily of interest expense on our long-term debt facility, partially offset by interest earned on our cash equivalents.
Other expense
Years Ended December 31
2021 2020
(in thousands)
Other expense $ (122) $ (4,234) Other expense during 2021 consists primarily of debt prepayment and extinguishment costs. Other expense in 2020 consists primarily of transaction costs incurred in connection with our 2020 private placement.
Liquidity and Capital Resources
Overview
As of
On the 2021 Loan Closing Date, we entered into the 2021 Loan Agreement with SVB
for the
The 2021 Term Loan will mature on
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
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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. As of
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
We have a purchase agreement with LPC, pursuant to which, for a period of 30
months beginning in
Cash flows from operating activities
Cash flows from operating activities consist of our net loss adjusted for
various non-cash items and changes in operating assets and liabilities. Cash
used in operating activities during 2021 and 2020 was
Cash flows from investing activities
Investing activities used
Cash flows from financing activities
Financing activities provided
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Operating capital requirements
Our primary uses of capital are for payroll and other headcount-related costs, manufacturing costs for clinical materials, third-party clinical trial services, research, laboratory and related supplies, legal and other regulatory expenses, facility and general overhead costs. We expect these costs will continue to be the primary operating capital requirements for the near future.
We had available cash and cash equivalents of
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 ongoing and 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;
•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.
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