GRITSTONE BIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and notes thereto included elsewhere in this report, and our audited financial statements and related notes thereto included as part of our Annual Report on Form 10K for the year endedDecember 31, 2021 . This discussion and analysis, and other parts of this report, contain forward-looking statements, including, but not limited to, statements related to the potential of Gritstone's programs. Such forward-looking statements involve substantial risks and uncertainties that could cause the outcome of Gritstone's programs, future results, performance or achievements to differ significantly from those expressed or implied by the forward-looking statements, including interim results obtained may differ from those at completion of the studies and clinical trials. Such risks and uncertainties include, among others, the uncertainties inherent in the drug development process, including Gritstone's programs' clinical development, the process of designing and conducting preclinical and clinical trials, the regulatory approval processes, the timing of regulatory filings, the challenges associated with manufacturing drug products, Gritstone's ability to successfully establish, protect and defend its intellectual property and other matters that could affect the sufficiency of existing cash to fund Gritstone's operations. Our actual results could differ materially from those discussed in these forward-looking statements. For a further description of the risks and uncertainties that could cause actual results to differ from those expressed in these forward-looking statements, as well as risks relating to our business in general, see the section titled "Risk Factors". These forward-looking statements speak only as of the date hereof. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason.
Overview
We discover, develop, manufacture and deliver next generation cancer and infectious disease vaccine candidates with the aim of improving patient outcomes and eliminating disease. The immune system sits at the nexus of many diseases, and manipulation of the immune system has enormous potential to drive transformational therapeutic and preventative benefits. Our approach seeks to generate a potent and durable therapeutic or protective immune response by leveraging insights into the immune system's ability to recognize and destroy diseased cells and eliminate virally-infected cells. Specifically, we focus on the induction of T cells, critical but underexplored components in treatment and prevention of disease, to generate differentiated immune responses that extend and improve the quality of life. Our programs are built on two key platforms. The first platform is our proprietary EDGE™ epitope identification platform, which enables us to identify antigens that can be recognized by the immune system on tumors or virally-infected cells with a high degree of accuracy. The second platform is our potent, flexible, vaccine platform, which we have engineered to deliver immunogens to the immune system to drive the destruction of tumors or virally-infected cells. Our vaccine platform leverages our two proprietary vaccine vectors, self-amplifying mRNA (samRNA) and chimpanzee adenovirus (ChAd ). We utilize these "mix and match" vectors in a variety of ways, including as a heterologous prime-boost (one vector followed by the other) or homologous prime-boost (use the same vector twice). Together, these proprietary and synergistic technologies enable us to build robust and distinct pipelines in oncology and infectious disease. Additionally, our in-house manufacturing capabilities enable us to drive down cost and production time, as well as maintain control over intellectual property and product quality of our products.
Self-amplifying mRNA (samRNA)
Our samRNA vector is based on a synthetic RNA molecule derived from a wild-type
Venezuelan Equine Encephalitis Virus (VEEV) replicon with the goal of extending
the duration and magnitude of immunogen expression to drive potent and durable
immune responses. The samRNA is delivered in a lipid nanoparticle (LNP)
formulation. Like traditional mRNA vaccines, samRNA vaccines use the host cell's
transcription system to produce target antigens to stimulate adaptive immunity.
Unlike traditional mRNA, samRNA has an inherent ability to replicate by creating
copies of the original strand of RNA once it is in the cell. Potential benefits
of samRNA may include extended duration and magnitude of antigen expression,
strong and durable induction of neutralizing antibody and T cell immunity (CD4+
and CD8+), dose sparing, and a refrigerator stable product.
The samRNA platform is a key asset for Gritstone. Within our oncology programs,
we have presented clinical data supporting the identification and selection of
an optimal dosing regimen for our novel samRNA vector against
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solid tumors. We also leverage our samRNA platform for infectious diseases, and
our preclinical and clinical studies to date demonstrate the potential overall
potency and dose sparing opportunity of samRNA in viral diseases.
The success of first-generation mRNA vaccines for SARS-CoV-2 (Comirnaty® and
Spikevax) has validated mRNA as a vaccine technology and we believe the samRNA
vector has the potential to offer key benefits over mRNA, including dose sparing
and more potent CD8+ T cell induction, within both oncology and viral diseases.
Chimpanzee Adenovirus (
Chimpanzee Adenoviral (
In-house Manufacturing
We manufacture our product candidates at our own fully integrated current good manufacturing practice (cGMP) biomanufacturing facilities. Our ability to control the manufacturing of high-quality tumor-specific immunotherapy and infectious disease vaccine candidates, and scale production, if early data are positive, is critical for efficient clinical development of our vaccine candidates and commercialization. Our manufacturing know-how also contributes to our translational science and optimization of our production candidates. Through our work, we gain insights from "bench to manufacturing to bedside" and back. We translate such insights across functions and systems to optimize antigen cassette design, dose and vaccine regimen to induce differentiated immune response.
Clinical Programs
The table below summarizes key information about our ongoing clinical trials.
Program Phase Status Indication(s) Collaborator Commercial Rights
GRANITE 1/2 Enrollment Early stage & advanced - Gritstone
Complete; solid tumors
Treatment
Ongoing
GRANITE 2/3 Enrolling; MSS-CRC* first line - Gritstone
Treatment maintenance
Ongoing
GRANITE 2 Terminated MSS-colon cancer - Gritstone
adjuvant
SLATE 1/2 Complete p53, KRAS Advanced - Gritstone
Solid Tumors
SLATE 2 Enrolling KRASmut - Gritstone
CORAL 1 Enrollment COVID-19 naïve & NIAID, IDCRC Gritstone
Complete booster
CORAL 1 Enrollment COVID-19 booster - Gritstone
Complete
CORAL 1 Enrolling COVID-19 in South CEPI Gritstone
Africa (naïve,
convalescent, HIV+)
HIV 1 Ongoing HIV treatment/cure Gilead Sciences Gilead**
* MSS-CRC = microsatellite stable colorectal cancer ** Gilead is responsible for conducting a Phase 1 study
COVID-19 Update
Since the COVID-19 pandemic began, providers of healthcare services have had to
deal with significant strains on their operations. These strains have affected
all healthcare institutions, including those where we conduct our clinical
trials, with some institutions prohibiting or postponing the initiation of new
clinical trials, slowing or halting enrollment in existing trials and
restricting the on-site monitoring of clinical trials. Although our operations
have not been materially impacted by the COVID-19 pandemic, we have experienced
slowing of patient recruitment and sample collection in our ongoing clinical
trials. Additionally, as a result of the COVID-19 pandemic, competition for
potential patients in our trials may be further exaggerated as a result of
multiple clinical site closures. To date, the COVID-19 pandemic has not
materially affected our supply chain or production schedule, but further
escalation of the health
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--------------------------------------------------------------------------------crisis has the potential to cause delays in our supply chain and manufacturing operations, which could materially adversely impact our business.
In response to the COVID-19 pandemic, we have implemented heightened health and safety measures designed to comply with applicable federal, state and local guidelines, and transitioned to a flexible work environment, where employees who can work from home effectively are allowed to do so. We have implemented virtual meeting and messaging technology and encourage employees to follow local health authority guidance. As the pandemic and its impacts continue to evolve, we may need to undertake additional actions that could impact our operations if required by applicable laws or regulations or if we determine such actions to be in the best interests of our employees.
Oncology Program Updates
We are developing a portfolio of vaccine-based cancer immunotherapy product candidates using a heterologous prime (ChAd )/boost (samRNA) approach aimed at the highly targeted activation of tumor-specific neoantigens (TSNA) in solid tumors. Our two clinical-stage programs (GRANITE, which is "individualized" and SLATE, which is "off-the-shelf") aim to induce a substantial neoantigen-specific CD8+ T cell response using neoantigen-containing immunotherapies. GRANITE patients receive a product candidate made specifically for them, based upon their tumor DNA/RNA sequence. In contrast, SLATE patients receive an off-the-shelf product candidate made for a subset of patients based on common driver mutations.
Our first oncology program, GRANITE, consists of individualized neoantigen-based immunotherapy candidates for solid tumors. GRANITE was granted Fast Track designation by the FDA for the treatment of microsatellite stable colorectal cancer (MSS-CRC). In an ongoing Phase 1/2 study evaluating GRANITE in combination with checkpoint inhibitors for patients with MSS-CRC that have been treated with FOLFOX/FOLFIRI therapy as well as in patients with gastro-esophageal (GEA) cancer that have been treated with platinum-based chemotherapy, GRANITE has shown to be generally well-tolerated, with no dose limiting toxicities, and demonstrated consistent and potent immunogenicity (CD8+ neoantigen-specific T cell induction in all subjects), in addition to tumor lesion size reductions and molecular responses as measured by reduction in circulating tumor DNA (cDNA). Initial results from this study were presented during theEuropean Society of Medical Oncology (ESMO) Congress inSeptember 2021 , and follow-up for patients in the study continues. As of theAugust 5, 2021 data cutoff, 4 of 9 treated patients with MSS-CRC had a molecular response. Patients who demonstrated molecular response had median overall survival of >17 months (median not reached) whereas those without molecular response exhibited a median overall survival of 7.8 months, consistent with expected outcomes in 3rd line treatment of MSS-CRC. As of the next data cutoff onMay 9, 2022 , the observed median overall survival in this group exceeded 18 months with median OS not yet reached. All patients with MSS-CRC assessed for molecular response and alive at the time of our ESMO 2021 data presentation remained alive after an additional 35 weeks of follow-up. We believe these data demonstrate a correlation between a decrease in ctDNA and extended overall survival. Interim results from the Phase 1/2 study were published in Nature Medicine inAugust 2022 ("Individualized, heterologous chimpanzee adenovirus and self-amplifying mRNA neoantigen vaccine for advanced metastatic solid tumors: phase 1 trial interim results"). In the first quarter of 2022, we initiated a randomized Phase 2/3 study (GRANITE-CRC-1L, NCT05141721), evaluating GRANITE as a maintenance treatment in patients with newly diagnosed, metastatic MSS-CRC who have completed FOLFOX-bevacizumab induction therapy. This Phase 2/3 study has registrational intent and has been discussed with the FDA. In support of this study, we entered into a clinical trial collaboration and supply agreement withF. Hoffman-La Roche Ltd to evaluate the safety and tolerability of GRANITE in combination with TECENTRIQ (atezolizumab). Enrollment in GRANITE-CRC-1L study is ongoing, and the first patient was treated inJuly 2022 . Initial data from GRANITE-CRC-1L are expected in the fourth quarter of 2023. InAugust 2022 , we terminated the GRANITE-ADJUVANT study (NCT05456165), a randomized Phase 2 trial evaluating GRANITE in patients with stage II/III colon cancer who are circulating tumor DNA (ctDNA)+ after definitive surgery, due to reprioritization of resources. No patients had been enrolled at the time of study termination.
SLATE "Off the shelf"
Our second oncology program, SLATE, consists of "off-the-shelf", TSNA-directed
immunotherapy product candidates. SLATE contains a fixed cassette with TSNA that
are shared across a subset of cancer patients rather than a cassette unique to
an individual patient, which distinguishes it as a potential off-the-shelf
alternative candidate to
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--------------------------------------------------------------------------------GRANITE. Our long-term vision for the SLATE program is to develop a suite of novel vaccine candidates that target common tumor antigens to broaden addressable patient population and drive multiple antigens per patient.
The first version of SLATE (SLATE v1) was studied in a Phase 1/2 study, in collaboration with Bristol-Myers Squibb, in 26 patients with metastatic solid tumors, most of whom had KRAS-mutant tumors largely focused on non-small cell lung cancer (NSCLC), MSS-CRC, and pancreatic ductal adenocarcinoma. In the initial part of this study, which was focused on KRAS and p53 mutations, SLATE v1 demonstrated induction of CD8+ T cells against multiple KRAS driver mutations, and greatest activity was observed in a subset of NSCLC patients with the KRASmut G12C mutations. Although these initial outcomes were promising, we believed our SLATE candidate could be further optimized to maximize potential clinical benefit. Subsequently, we developed a next-generation, optimized SLATE candidate, SLATE-KRAS, (formerly referred to as SLATE v2) that exclusively includes epitopes from mutated KRAS and exhibited immunogenic superiority over v1 in human HLA-transgenic mice. SLATE-KRAS is now in Phase 2 testing under the same IND and protocol as SLATE v1 in patients with advanced NSCLC and CRC. We disclosed the initial results from the Phase 2 portion of the Phase 1/2 study, including data from both SLATE v1 and SLATE-KRAS, at the 2022 AACR Annual Meeting inApril 2022 and at the 2022ESMO Congress inSeptember 2022 . These data demonstrate a favorable safety and tolerability profile, support the potential of SLATE-KRAS to drive stronger CD8+ T cell responses to mutant KRAS than SLATE v1 and provide early signals of efficacy as measured by reduction in ctDNA (molecular response). Specifically, we saw a molecular response rate (MRR) of 39% in evaluable patients with advanced NSCLC and CRC, a figure consistent with the MRR seen in the Phase 1/2 studies of GRANITE (MRR of 44%). We believe these initial data also demonstrate a correlation between molecular response and overall survival (OS) among patients with NSCLC. Based on these data, we have begun evaluating moving SLATE-KRAS into additional studies and earlier lines of treatment.
Infectious Disease Program Updates
In early 2021, we initiated two programs in infectious diseases: CORAL, a second-generation prophylactic program against COVID-19, and a collaboration with Gilead Sciences to develop a therapeutic vaccine against HIV. Our infectious disease programs aim to deliver vaccine candidates that induce both B cell and T cell immunity with the potential to drive potent and durable immune response that can be applied for either protective or therapeutic benefit. This approach has demonstrated the ability to generate robust CD8+ T cells and neutralizing antibodies against SARS-CoV-2 in multiple preclinical and clinical studies and is being evaluated against multiple other pathogens in Gritstone-owned and partnered studies. We believe that initially evaluating our approach in SARS-CoV-2 can provide proof of concept for a number of infectious diseases.
CORAL - Second Generation COVID-19 Vaccine Program
Our CORAL program is a second-generation SARS-CoV-2 vaccine platform delivering spike and additional SARS-CoV-2 T cell epitopes. We believe this approach of inducing both neutralizing antibodies and T cell responses could offer the potential for more durable protection and broader immunity against SARS-CoV-2 variants than that provided by first-generation SARS-CoV-2 vaccines and serve as a basis for developing a pan-coronavirus vaccine. Within our CORAL program, we developed an optimized samRNA vaccine candidate that we believe is differentiated from first-generation mRNA vaccines. The program is supported by key relationships with theGates Foundation , theNational Institute of Allergy and Infectious Disease (NIAID), theCoalition for Epidemic Preparedness Innovations (CEPI), and through a license agreement with theLa Jolla Institute for Immunology (LJI). We have conducted preclinical studies demonstrating that our SARS-CoV-2 vaccine candidate induced significant and sustained levels of neutralizing antibodies and T cells against the Spike protein, plus a broad T cell response against epitopes from multiple viral genes outside of Spike. Results from one of these studies, a non-human primate challenge study (NHP Challenge Study), were published inNature Communications inJune 2022 . We are currently evaluating four distinct SARS-CoV-2 product candidates across three different Phase 1 clinical trials containing Spike plus additional non-Spike T cell epitope (TCE) sequences (and also full-length nucleocapsid). These studies include homologous and heterologous prime-boost regimens. All of these studies are ongoing and data from all are expected in the fourth quarter of 2022.
In
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--------------------------------------------------------------------------------administered at 10ug following two-dose administration of Vaxzervria. The neutralizing antibody titer levels against SARS-CoV-2 Spike protein shared at this time were consistent with published data from higher doses of first-generation mRNA vaccines in a similar clinical context.
InAugust 2022 , we reported 6-month follow-up data from a subset of patients within the first two cohorts of the CORAL-BOOST study who elected to receive only a single 10µg or 30µg samRNA boost vaccination (n=7). The data demonstrated the neutralizing antibody levels reported inJanuary 2022 persisted after 6 months, and durable neutralizing antibodies against wild type Spike as well as key Spike variants of concern (Beta, Delta and Omicron) were observed. Additionally, T cell responses to Spike and non-Spike T cell epitopes (TCEs) remained generally stable over the 6-month observation period.
HIV Vaccine Collaboration with Gilead Sciences
InJanuary 2021 , we entered into a collaboration, option and license agreement with Gilead Sciences, Inc. (Gilead) to research and develop a vaccine-based immunotherapy for HIV. Together, we plan to develop an HIV-specific therapeutic vaccine using our proprietary prime-boost vaccine platform, comprised of samRNA and adenoviral vectors, with antigens developed by Gilead. The collaboration and the program are progressing well and a Phase I trial is ongoing. If Gilead decides to progress development beyond the Phase 1 study by exercising their exclusive option, the Company will receive a$40.0 million non-refundable option exercise fee.
Preclinical Research Updates
Beyond GRANITE, SLATE, CORAL and the collaboration with Gilead, we continue to apply our broad set of capabilities in oncology and infectious diseases through promising preclinical work and partnerships. These projects include a pan-coronavirus program, a flu program, and a program aiming to develop an optimal immunogen in the context of human papillomavirus (HPV), which is supported by theGates Foundation .
Components of Our Operating Results
Collaboration and Grant Revenue
We have no products approved for sale and have never generated any revenue from product sales. For the three and nine months endedSeptember 30, 2022 , respectively, we recognized$3.0 million and$15.7 million of revenue from the 2seventy Agreement, the Gilead Collaboration Agreement, and the grant agreements with CEPI and theGates Foundation . For the three and nine months endedSeptember 30, 2021 , we recognized$2.6 million and$45.1 million for the three and nine months endedSeptember 30, 2021 , respectively, of revenue from the 2seventy Agreement, the Gilead Collaboration Agreement, another small collaboration agreement, and the grant agreement with CEPI. See Note 9 to our condensed consolidated financial statements for additional information. In the future, we expect to continue to recognize revenue from the 2seventy Agreement and the Gilead Collaboration Agreement and may generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect our revenue to fluctuate on a quarterly and annual basis due to the timing and amount of license fees, reimbursement of costs incurred, milestone and other payments, as well as product sales, to the extent that any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Operating Expenses
Research and Development Expenses
Since our inception, we have committed significant resources to our research and
development activities, including conducting preclinical studies, manufacturing
development efforts and related development activities for our product
candidates.
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Research and development activities account for a significant portion of our
operating expenses. Research and development costs are expensed as incurred.
These costs include:
•
External research and development expenses, including:
o
expenses incurred under arrangements with third parties, including clinical research organizations, or CROs, preclinical testing organizations, CMOs, academic and non-profit institutions and consultants;
o
fees related to our license agreements;
•
Internal research and development expenses, including (i) headcount-related expenses, such as salaries, payroll taxes, benefits, non-cash stock-based compensation and travel, for employees contributing to research and (ii) development activities, including the costs associated with the development of our EDGE™ platform; and
•
Other expenses, which include direct and allocated expenses for laboratories, facilities and other costs.
Pursuant to our Arbutus License Agreement, Arbutus granted us a worldwide, exclusive license to certain technology of Arbutus, including Arbutus' portfolio of proprietary and clinically-validated LNP products and associated intellectual property, as well as technology transfer of Arbutus' manufacturing know-how. During the nine months endedSeptember 30, 2022 and 2021, we had no research and development expense under the agreement. Pursuant to our 2020 Genevant License Agreement, Genevant granted us exclusive license rights under certain intellectual property related to Genevant's LNP technology for a single indication, and we agreed to pay Genevant an initial payment of$2.0 million , and up to an aggregate of$71.0 million in specified development, regulatory, and commercial milestones, and low to mid-single digit royalties on net sales of licensed products. The upfront payment of$2.0 million was included in research and development expenses during 2020. InMarch 2022 , a milestone in the amount of$1.0 million was met, which was included in research and development expense for the nine months endedSeptember 30, 2022 . Pursuant to our 2021 Genevant License Agreement, we obtained a nonexclusive license to Genevant's LNP technology to develop and commercialize self-amplifying RNA, or samRNA, vaccines against SARS-CoV-2, the virus that causes COVID-19. Under the 2021 Genevant License Agreement, we made a$1.5 million upfront payment to Genevant, and Genevant is eligible to receive from us up to$141.0 million in contingent milestone payments per product, plus certain royalties on future product sales or licensing (or, in certain scenarios and subject to certain conditions, in lieu of these milestones and royalties Genevant would receive a percentage of amounts we receive from sublicenses). InMarch 2021 , a milestone was met following the initial patient treatment in the Phase 1 clinical trial conducted through the NIAID-supported IDCRC. Both the$1.5 million upfront and$1.0 million milestone payments were recorded as research and development expense for the nine months endedSeptember 30, 2021 . No research and development expense was recorded for the nine months endedSeptember 30, 2022 . We expect our research and development expenses to increase substantially in the future as we continue to advance our product candidates into and through clinical studies and pursue regulatory approval. Such activities are costly and time-consuming and we expect our clinical studies to generally become larger and more costly to conduct as they advance into later stages. The successful development of our product candidates is highly uncertain. The actual probability of success for our product candidates may be affected by a variety of risks and uncertainties associated with drug development, including those described in the section entitled "Risk Factors" included in Part II, Section 1A and elsewhere in this report. 37 --------------------------------------------------------------------------------
The following table summarizes our research and development expenses by program and category (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
GRANITE program external expenses $ 3,088 $ 3,387 $ 9,232 $ 8,767 SLATE program external expenses
604 1,024 2,076 2,935
CORAL program external expenses 2,802 1,193 9,002 2,828
Other program external research and
development expenses 5,463 5,996 17,702 19,533
Personnel-related expenses (1) 10,159 8,624 31,117 25,171
Other unallocated research and
development expenses 4,320 4,172 12,854 12,090
Total research and development expenses
(1)
Personnel-related expenses include stock-based compensation expense of
Since our research and development employees and infrastructure resources are utilized across our development programs, we do not track internal related expenses on a program-by-program basis.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and related costs, including, but not limited to, payroll taxes, benefits, non-cash stock-based compensation and travel. Other general and administrative expenses include legal costs of pursuing patent protection of our intellectual property and professional service fees for auditing, tax and general legal services. We expect our general and administrative expenses to continue to increase in the future as we expand our operating activities and prepare for potential commercialization of our current and future product candidates, increase our headcount and support our operations as a public company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with requirements of the Nasdaq Global Select Market and theSEC , directors and officers liability insurance premiums and investor relations activities. Allocated expenses consist of rent expenses related to our office and research and development facilities, depreciation and other allocated costs not otherwise included in research and development expenses.
Interest Income
Interest income consists primarily of interest income and investment income earned on our cash, cash equivalents and marketable securities.
Interest Expense
Interest expense consists of interest expense related to our debt facility. A
portion of the interest expense is non-cash expense relating to the accretion of
the final payment fees and amortization of debt discount and debt issuance costs
associated with the Loan Agreement (as defined below).
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three and Nine Months Ended
The following table sets forth the significant components of our results of
operations (in thousands):
Three Months Ended September 30,
2022 2021 Change
Revenues:
Collaboration and license revenues $ 436 $ 2,401 $ (1,965 )
Grant revenues 2,585 213 2,372
Total revenues 3,021 2,614 407
Operating expenses:
Research and development 26,436 24,396 2,040
General and administrative 6,462 6,373 89
Total operating expenses 32,898 30,769 2,129
Net loss from operations (29,877 ) (28,155 ) (1,722 )
Interest income 462 37 425
Interest expense (551 ) - (551 )
Net loss $ (29,966 ) $ (28,118 ) $ (1,848 )
Nine Months Ended September 30,
2022 2021 Change
Revenues:
Collaboration and license revenues $ 7,942 $ 44,937 $ (36,995 )
Grant revenues 7,741 213 7,528
Total revenues 15,683 45,150 (29,467 )
Operating expenses:
Research and development 81,983 71,324 10,659
General and administrative 22,209 19,251 2,958
Total operating expenses 104,192 90,575 13,617
Net loss from operations (88,509 ) (45,425 ) (43,084 )
Interest income 663 112 551
Interest expense (551 ) - (551 )
Net loss $ (88,397 ) $ (45,313 ) $ (43,084 ) Collaboration and License and Grant Revenues
Collaboration and license revenues from our collaboration arrangements and grant revenues were$3.0 million and$15.7 million for the three and nine months endedSeptember 30, 2022 , respectively. During the three months endedSeptember 30, 2022 , we recognized$0.2 million in collaboration revenue related to the 2seventy Agreement,$0.2 million in collaboration revenue related to the Gilead Collaboration Agreement,$2.3 million in grant revenue from the CEPI Funding Agreement, and$0.3 million in grant revenue from theGates Foundation . During the nine months endedSeptember 30, 2022 , we recognized$6.5 million in collaboration revenue related to the 2seventy Agreement,$1.5 million in collaboration revenue related to the Gilead Collaboration Agreement,$6.9 million in grant revenue from the CEPI Funding Agreement, and$0.8 million in grant revenue from theGates Foundation . The amount of collaboration revenue recognized related to the 2seventy Agreement during the nine months endedSeptember 30, 2022 included cumulative catch-up adjustments increasing contribution revenue by$5.5 million due to revisions to estimated costs to complete the remaining performance obligation. Collaboration and license revenues from our collaboration arrangements and grant revenues were$2.6 million and$45.1 million for the three and nine months endedSeptember 30, 2021 , respectively. During the three months endedSeptember 30, 2021 , we recorded$1.6 million in collaboration revenue related to the Gilead Collaboration Agreement,$0.8 million in collaboration revenue related to the 2seventy Agreement, and$0.2 million in grant revenue related to the CEPI agreement. During the nine months endedSeptember 30, 2021 , we recorded$38.6 million in license revenue and$4.1 million in collaboration revenue related to the Gilead Collaboration Agreement,$2.1 million 39 --------------------------------------------------------------------------------
in collaboration revenue related to the 2seventy Agreement,
See Note 9 to our condensed consolidated financial statements for additional information.
Research and Development Expenses
Research and development expenses were$26.4 million and$82.0 million for the three and nine months endedSeptember 30, 2022 , respectively, and$24.4 million and$71.3 million for the three and nine months endedSeptember 30, 2021 , respectively. The increase of$2.0 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was primarily due to increases of$1.6 million in personnel-related expenses,$1.0 million in outside services, consisting primarily of clinical trial and other chemistry, manufacturing and controls ("CMC") related expenses, and$0.6 million in facilities-related costs, offset by a decrease of$1.2 million in laboratory supplies. The increase of$10.7 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 was primarily due to increases of$6.4 million in personnel-related expenses,$7.1 million in outside services, consisting primarily of clinical trial and other CMC related expenses, and$1.7 million in facilities-related costs, offset by decreases of$2.7 million in laboratory supplies and$1.8 million in milestone and license payments.
General and Administrative Expenses
General and administrative expenses were$6.5 million for the three months endedSeptember 30, 2022 compared to$6.4 million for the three months endedSeptember 30, 2021 . The increase of$0.1 million was primarily attributable to an increase of$0.7 million in personnel-related expenses, offset by decreases of$0.4 million in outside services and$0.2 million in facilities-related costs. General and administrative expenses were$22.2 million for the nine months endedSeptember 30, 2022 compared to$19.2 million for the nine months endedSeptember 30, 2021 . The increase of$3.0 million was primarily attributable to increases of$3.7 million in personnel-related expenses, offset by decreases of$0.4 million in outside services and$0.3 million in facilities-related costs.
Interest Income
Interest income was$0.5 million and$0.7 million for the three and nine months endedSeptember 30, 2022 , respectively. Interest income was immaterial and$0.1 million for the three and nine months endedSeptember 30, 2021 , respectively. The income for both periods represent interest and investment income from cash, cash equivalents and marketable securities.
Interest Expense
Interest expense was$0.6 million for the three and nine months endedSeptember 30, 2022 . There was no interest expense for the three and nine months endedSeptember 30, 2021 . The interest expense is comprised of the contractual coupon interest expense, the amortization of the debt discount and issuance costs and the accretion of the final payment fee associated with the Loan Agreement (as defined below).
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations primarily through sales of our convertible preferred stock, sales of our common stock in public offerings and under our "at-the-market" offering programs, private placements of our common stock and pre-funded warrants, proceeds from the Loan Agreement (as defined below), and our collaborations, including with the receipt of proceeds under the 2seventy Agreement and the Gilead Collaboration Agreement, and non-dilutive grants from various nonprofit organizations. As ofSeptember 30, 2022 , we had cash, cash equivalents, and marketable securities of$139.8 million and an accumulated deficit of$489.8 million , compared to cash, cash equivalents, and marketable securities of$206.3 million and an accumulated deficit of$401.4 million as ofDecember 31, 2021 . We expect that our cash, cash equivalents, and marketable securities as ofSeptember 30, 2022 40 -------------------------------------------------------------------------------- will enable us to fund our current and planned operating expenses and capital expenditures for at least the next 12 months from the date of the filing of this report. InOctober 2019 , we filed the 2019 Shelf Registration Statement, covering the offering of up to$250.0 million of various equity and debt securities, including the sale and issuance of up to$75.0 million worth of shares of our common stock under the 2019 ATM Offering Program. ThroughSeptember 30, 2022 , we have received aggregate proceeds from our 2019 ATM Offering Program of$50.0 million , net of commissions and offering costs, pursuant to the issuance of 5,642,712 shares. InMarch 2022 , we filed the 2022 Shelf Registration Statement, covering the offering of up to$250.0 million of various equity and debt securities, including the sale and issuance of up to$100.0 million worth of shares of our common stock under the 2022 ATM Offering Program. As ofSeptember 30, 2022 , we have received$0.2 million in gross proceeds from our 2022 ATM Offering Program and have$99.8 million available thereunder.
In
InJuly 2022 , we entered into a loan and security agreement (the "Loan Agreement") with Hercules Capital, Inc. ("Hercules") andSilicon Valley Bank ("SVB"), which provides us with a 60-month term loan facility for the Company up to$80.0 million in borrowing capacity across five potential tranches. At the closing of the Loan Agreement, we drew$20.0 million from the first tranche, and we can draw up to an additional$10.0 million throughMarch 2023 . The remaining tranches provide up to$50.0 million borrowing capacity and become available if and when we meet certain milestones set forth in the Loan Agreement. The term loan is secured by substantially all of our assets, other than intellectual property. There are no warrants associated with the Loan Agreement. Borrowings under the Loan Agreement bear interest (i) at an annual cash rate equal to the greater of (x) the lesser of (1) the prime rate (as customarily defined) and (2) 5.50%, in either case, plus 3.15%, and (y) 7.15% and (ii) at an annual payment-in-kind rate, which may equal 2.00%. We are required to make monthly interest-only payments prior to the amortization date ofJanuary 1, 2025 , subject to a potential six-month and one-year extension upon satisfaction of certain conditions. We will also be required to pay a facility charge equal to 0.50% of the principal amount of any borrowings made pursuant to the last four tranches. All unpaid principal and accrued and unpaid interest with respect to each term loan is due and payable in full onJuly 19, 2027 . At our option, we may prepay all or any portion of the outstanding borrowings, plus accrued and unpaid interest thereon and fees and expenses, subject to a prepayment premium ranging from zero to 2.5%, during the first three years after closing, depending on the year of such prepayment. Upon repayment of the term loan, we will be required to make a final payment fee to the lenders equal to 5.75% of the aggregate original principal amount of the loan. Beginning onApril 1, 2023 , so long as our market capitalization is equal to or less than$400.0 million , we are subject to a minimum liquidity requirement equal to the then outstanding balance under the Loan Agreement multiplied by 0.55 or 0.45, which multiplier depends on whether we achieve certain performance milestones. Our obligations under the Loan Agreement are subject to acceleration upon the occurrence of customary events of default, including payment default, insolvency and the occurrence of certain events having a material adverse effect, including (but not limited to) material adverse effects upon the business, operations, properties, assets or financial condition of us and our subsidiaries, taken as a whole.
Future Funding Requirements
We do not expect positive cash flows from operations in the foreseeable future.
Historically, we have incurred operating losses as a result of ongoing efforts
to develop our cancer immunotherapy candidates, including conducting ongoing
research and development, clinical and preclinical studies and providing general
and administrative support for these operations. We do not have any products
approved for sale, and we do not expect to generate any meaningful revenue
unless and until we obtain regulatory approval of and commercialize any of our
current and future product candidates and/or enter into additional significant
collaboration or grant agreements with third parties, and we do not know when,
or if, either will occur. We expect to continue to incur net operating losses
for at least the next several years and we expect the losses to increase as we
advance our CORAL, GRANITE, and SLATE programs, as well as any future product
candidates, through clinical development, seek regulatory approval, prepare for
and, if approved, proceed to commercialization, continue our research and
development efforts and invest in our manufacturing facility. We are subject to
all the risks typically related to the development of new product candidates,
and we may encounter unforeseen expenses, difficulties, complications, delays
and other unknown factors that may adversely affect our
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business. Moreover, we incur substantial costs associated with operating as a
public company. We anticipate that we will need substantial additional funding
in connection with our continuing operations.
Until we can generate a sufficient amount of revenue from the commercialization
of immunotherapy product candidates or from additional significant collaboration
or license agreements with third parties, if ever, we expect to finance our
future cash needs through private and public equity offerings, including our
"at-the-market" offering programs, debt financings, and potential future
collaboration, license and development agreements. Additional capital may not be
available on reasonable terms, if at all. If we are unable to raise additional
capital in sufficient amounts or on terms acceptable to us, we may have to
significantly delay, scale back or discontinue the development or
commercialization of one or more of our current or future product candidates. If
we raise additional funds by issuing equity or convertible debt securities, it
could result in dilution to our existing stockholders and increased fixed
payment obligations. In addition, as a condition to providing additional funds
to us, future investors may demand, and may be granted, rights superior to those
of existing stockholders. If we incur indebtedness, we could become subject to
covenants that would restrict our operations and potentially impair our
competitiveness, such as limitations on our ability to incur additional debt,
limitations on our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact our ability
to conduct our business. Additionally, any future collaborations we enter into
with third parties may provide capital in the near term, but we may have to
relinquish valuable rights to our product candidates or grant licenses on terms
that are not favorable to us. Any of the foregoing could significantly harm our
business, financial condition and prospects.
Since our inception, we have incurred significant losses and negative cash flows
from operations. We have an accumulated deficit of $489.8 million through
September 30, 2022 . We expect to incur substantial additional losses in the
future as we conduct and expand our research and development activities. We
believe that our existing cash, cash equivalents and marketable securities will
be sufficient to enable us to fund our projected operations through at least the
next twelve (12) months from the date of this Quarterly Report on Form 10-Q. We
have based our projections of operating capital requirements on assumptions that
may prove to be incorrect and we may use all our available capital resources
sooner than we expect. Because of the numerous risks and uncertainties
associated with research, development and commercialization of product
candidates, we are unable to estimate the exact amount of our operating capital
requirements. Our future capital requirements depend on many factors, including:
•
the scope, progress, results and costs of developing our product candidates, and of conducting preclinical studies and clinical trials, including our clinical trials for GRANITE, SLATE and CORAL;
•
the timing of, and the costs involved in, obtaining regulatory approvals for our oncology and infectious disease immunotherapy product candidates; in particular, any costs incurred in connection with any future regulatory requirements that may be imposed by the FDA or foreign regulatory bodies;
•
the number and characteristics of any additional product candidates we develop or acquire;
•
the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or future collaboration or license agreements;
•
potential delays in our ongoing clinical trials as a result of the COVID-19 pandemic;
•
the cost of manufacturing our product candidates we successfully commercialize, including the cost of scaling up our internal manufacturing operations;
•
the cost of building a sales force in anticipation of product commercialization;
•
the cost of commercialization activities, including building a commercial infrastructure, marketing, sales and distribution costs;
•
our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
•
any product liability or other lawsuits related to our products;
•
the costs to attract, hire and retain skilled personnel;
•
the costs associated with being a public company;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and
•
the timing, receipt and amount of sales of any future approved products, if any.
A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will need additional funds to meet operational needs and capital requirements associated with such operating plans.
Cash Flows
The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):
Nine Months
Ended
2022 2021
Cash used in operating activities$ (85,572 ) $ (26,899 ) Cash provided by (used in) investing activities 33,188 (71,927 ) Cash provided by financing activities 18,733 75,883 Net decrease in cash and cash equivalents$ (33,651 )
Cash Used in Operating Activities
During the nine months endedSeptember 30, 2022 , cash used in operating activities was$85.6 million , which consisted of net loss of$88.4 million , adjusted by non-cash charges of$21.6 million and net changes in our operating assets and liabilities of$18.8 million . The non-cash charges consisted primarily of depreciation and amortization expense of$4.8 million , stock-based compensation of$9.5 million , non-cash operating lease expense of$6.9 million and net amortization of premiums, discounts on marketable securities of$0.3 million , and amortization of debt discount and issuance costs of$0.1 million . The change in our operating assets and liabilities was primarily due to decreases of$11.6 million in deferred revenue,$0.2 million in accrued compensation,$6.5 million in lease liability,$0.9 million in accounts payable, and$3.2 million in deposits and other long term assets, offset by increases of$1.5 million in accrued and other non-current liabilities,$1.3 million in accrued research and development expenses, and$0.8 million in prepaid expenses and other current assets. During the nine months endedSeptember 30, 2021 , cash used in operating activities was$26.9 million , which consisted of net loss of$45.3 million , adjusted by non-cash charges of$18.8 million and net changes in our operating assets and liabilities of$0.4 million . The non-cash charges consisted primarily of depreciation and amortization expense of$4.8 million , stock-based compensation of$7.8 million , non-cash operating lease expense of$5.7 million and net amortization of premiums and discounts on marketable securities of$0.5 million . The change in our operating assets and liabilities was primarily due to decreases of$5.9 million in lease liability,$0.9 million in accounts payable and$0.2 million in accrued compensation, and increases of$3.5 million in prepaid expenses and other current assets and$0.3 million in deposits and other long-term assets, offset by increases$8.9 million in deferred revenue,$1.5 million in accrued research and development and$0.1 million in accrued and other non-current liabilities.
Cash Provided by (Used in) Investing Activities
During the nine months endedSeptember 30, 2022 , cash provided by investing activities was$33.2 million which consisted of$102.2 million in proceeds from the maturity of marketable securities, offset by$64.6 million in purchases of marketable securities and$4.4 million of capital expenditures to purchase property and equipment. During the nine months endedSeptember 30, 2021 , cash used in investing activities was$71.9 million , which consisted of$133.4 million in purchases of marketable securities and$4.1 million of capital expenditures to purchase property and equipment, offset by$59.4 million in proceeds from the maturity of marketable securities and$6.2 million from sales of marketable securities. 43 --------------------------------------------------------------------------------
Cash Provided by Financing Activities
During the nine months endedSeptember 30, 2022 , cash provided by financing activities was$18.7 million , which primarily consisted of$19.2 million in proceeds from long-term debt,$0.2 million in proceeds from the 2022 ATM Offering Program,$0.2 million in proceeds from the issuance of common stock from option and warrant exercises and$0.3 million in proceeds from issuance of common stock under the employee stock purchase plan, offset by$0.9 million in tax withholding on vesting of restricted stock units,$0.1 million in payment of financing costs, and$0.2 million in payment of financing lease. During the nine months endedSeptember 30, 2021 , cash provided by financing activities was$75.9 million , which primarily consisted of$21.2 million in proceeds from the issuance of common stock pursuant to the Gilead Stock Purchase Agreement,$55.0 million in proceeds from the Second PIPE Financing,$0.3 million in proceeds from the issuance of common stock under the employee stock purchase plan,$2.3 million in proceeds from the issuance of common stock through the 2019 ATM Offering Program and$3.1 million in proceeds from the exercise of stock options, warrants and other, offset by$6.0 million in financing and offering costs.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements, as defined under
Contractual Obligations and Commitments
We lease office, laboratory and storage space in facilities at several locations inCalifornia andMassachusetts . The terms of our lease agreements have expiration dates between 2023 to 2033. The total future minimum lease payments under the agreements are$108.1 million , of which$2.5 million of the payments are due in the fourth quarter of 2022. See Note 6 to our condensed consolidated financial statements. We are party to license agreements pursuant to which we have in-licensed various intellectual property rights. These license agreements obligate us to make certain milestone payments related to achievement of specified events, as well as royalties in the low-single digits based on sales of licensed products. During the nine months endedSeptember 30, 2022 and 2021, no royalties were due from the sales of licensed products. The table above does not include any milestone or royalty payments to the counterparties to these agreements as the amounts, timing and likelihood of such payments are not known. See Note 9 to our condensed consolidated financial statements for additional information. InSeptember 2017 , we entered into a contract research and development agreement with a third party CRO to provide research, analysis and antibody samples to further the development of our antibody drug candidates. InJune 2022 , we notified the CRO of our intent to terminate the agreement effective inAugust 2022 . During the three and nine months endedSeptember 30, 2022 , we had no research and development expense under this agreement. During the three and nine months endedSeptember 30, 2021 , we had immaterial research and development expense under this agreement. We are also obligated to pay the CRO certain milestone payments of up to$36.4 million on achievement of specified events. None of these events had occurred as ofSeptember 30, 2022 . However, we are unable to estimate the timing or likelihood of achieving the milestones and, therefore, any related payments are not included in the table above. InMay 2019 , we entered into a contract research and testing agreement with another third-party CRO to provide antibody discovery related services. InMarch 2022 , we notified such CRO of our intent to terminate the agreement effective as ofMay 17, 2022 . Under the agreement, we are obligated to pay such CRO certain milestone payments of up to$34.8 million on achievement of specified events. None of these events had occurred as ofSeptember 30, 2022 . No research and development expense was recorded under the agreement during the three and nine months endedSeptember 30, 2022 and 2021. From time to time, in the normal course of business, we enter into contracts with CROs for clinical trials, CMOs for clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination within 30 days of notice. Therefore, all such contracts are cancelable contracts and not included in the table above. 44 --------------------------------------------------------------------------------
Critical Accounting Policies and Use of Estimates
This discussion and analysis of financial condition and results of operation is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP. The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to preclinical study trial accruals, fair value of assets and liabilities, and the fair value of common stock and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. There have been no changes to our critical accounting policies since we filed our Annual Report on Form 10-K for the year endedDecember 31, 2021 with theSEC onMarch 10, 2022 . For a description of our critical accounting policies, please refer to our Annual Report on Form 10-K we filed with theSEC onMarch 10, 2022 .
Recent Accounting Pronouncements
Refer to "Note 2. Summary of Significant Accounting Policies" in the notes to our unaudited interim condensed consolidated financial statements in Part I, Item 1 of this report, for a discussion of recent accounting pronouncements.
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