HARPOON THERAPEUTICS, INC. The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part II, Item 1A "Risk Factors" included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Special Note Regarding Forward-Looking Statements" in this report. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.
Overview
We are a clinical-stage immunotherapy company developing a novel class of T cell
engagers that harness the power of the body's immune system to treat patients
suffering from cancer and other diseases. T cell engagers are engineered
proteins that direct a patient's own T cells to kill target cells that express
specific proteins, or antigens, carried by the target cells. Using our
proprietary platforms, TriTAC, ProTriTAC and our new platform, TriTAC-XR, we are
developing a pipeline of novel T cell engagers, initially focused on the
treatment of solid tumors and hematologic malignancies. In addition, to our
product candidates utilizing our TriTAC technology, we have also nominated our
first clinical candidate using our proprietary ProTriTAC platform, a prodrug
version of our TriTAC platform, designed to expand the target space for T cell
engagers and bring the TriTAC benefits to a broader number of patients.
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--------------------------------------------------------------------------------TriTAC
We currently have three TriTAC product candidates in clinical development. HPN328 is in a Phase 1/2 clinical trial targeting Delta-like canonical Notch ligand 3, or DLL3, for the treatment of small cell lung cancer, or SCLC, and other DLL3-expressing tumors. HPN217 is in in a Phase 1/2 clinical trial targeting B-cell maturation antigen, or BCMA, for the treatment of multiple myeloma. HPN536 is in a Phase 1/2a clinical trial for the treatment of ovarian cancer and other mesothelin-, or MSLN-, expressing solid tumors. As ofMarch 10, 2022 , we have discontinued further development of HPN424 as a treatment of metastatic castration-resistant prostate cancer, or mCRPC.
TriTAC Pipeline Update
HPN328
We are currently enrolling patients in a Phase 1/2 clinical trial, HPN328, for the treatment of small cell lung cancer, or SCLC, and other tumors associated with DLL3 expression. InJune 2022 , we presented interim results from the ongoing dose escalation Phase 1 portion of our HPN328 clinical trial at theAmerican Society of Clinical Oncology , or ASCO. As ofApril 21, 2022 , 18 patients had been enrolled and treated in the dose escalation portion of the study. These include 11 patients with SCLC, 2 with neuroendocrine prostate cancer, and 5 with other neuroendocrine cancers. The interim results showed that HPN328 demonstrated anti-tumor activity and a favorable safety profile. As of theApril 21, 2022 data cut-off date, there had been no dose-limiting toxicities observed and no discontinuations due to adverse events. Treatment-related adverse events occurred in 15 (83%) patients, with only 1 (6%) Grade-3 event and no Grade >3 events. Grade 1-2 cytokine release syndrome, or CRS, occurred in 4 (22%) patients, with no Grade-3 or higher CRS reported. No immune-effector cell associated neurotoxicity syndrome (ICANS) events have been reported. Treatment duration of >20 weeks was observed in 6 of 18 (33%) patients. At the data cut-off date, duration of treatment ranged from 4.1 to 41.4 weeks, with treatment ongoing in 5 patients. Treatment-emergent AEs observed in ?15% of patients included cytokine release syndrome, or , chills, constipation, dysgeusia, fatigue, hypotension, and vomiting. The highest target dose evaluated as of the data cut-off date was 12mg / week. Step dosing was initiated for target doses higher than 3.6 mg / week. Patients were premedicated with acetaminophen, dexamethasone and histamine-receptor blockers for initial doses. HPN328 demonstrated half-life extension, with a median half-life of 71 hours, and linear pharmacokinetics with dose-proportional increases in exposure at doses between 0.135 mg and 12 mg. T-cell margination and activation was observed, consistent with target engagement. Across all dose cohorts, 7 of 18 (39%) patients demonstrated decreases in sum of target lesion diameters on radiographic assessments. 3 of 11 (27%) SCLC patients had >30% decrease in sum of target lesion diameters, including 1 confirmed partial response ongoing treatment at 32 weeks. 4 of 6 (67%) SCLC patients treated at ?1.215mg/week had a decrease in sum of target lesion diameters. Additionally, 6 of 18 (33%) patients had a best overall response of stable disease. Dose escalation is ongoing, and the maximum tolerated dose, or MTD, is not yet reached. Dose exploration is continuing with the goal to identify an initial expansion dose in the Phase 1 safety study by year-end 2022. Additional clinical supply for the HPN328 study is on track for delivery early in the fourth quarter of 2022, which is expected to allow further exploration of select doses. Data is anticipated in the first half of 2023.
In
InApril 2022 , we entered into a Master Clinical Supply Agreement withF. Hoffmann-La Roche Ltd , or Roche, for the supply of atezolizumab (Tecentriq®). Clinical trials are planned to evaluate HPN328, a DLL3 targeting TriTAC®, in combination with atezolizumab for the treatment of patients with SCLC. Under this agreement, we are the sponsor of the anticipated clinical trials, and Roche will supply atezolizumab. HPN217 InDecember 2021 , we announced the interim results of ongoing Phase 1/2 clinical trial of HPN217. As of theNovember 10, 2021 data cut-off date, 37 patients had been treated in 10 cohorts with fixed doses ranging from 5 to 2860 µg/week or a step dosing regimen of 1620 µg priming dose followed by a 3240 µg/week target dose. Premedication to minimize CRS includes dexamethasone and other standard therapies. Enrolled patients had a median of 7 prior therapies. The most frequent treatment-emergent adverse events, or TEAEs, occurring in greater than 20% were anemia, 17 patients (46%), fatigue, 12 patients (32%), and transient CRS, 9 patients (24%). No grade 3 or higher CRS was reported and one DLT was reported, grade 4 AST, which resolved. MTD has not been reached. Clinical benefit was observed in the patients receiving higher doses. In eight disease evaluable patients enrolled at 2150 µg/week an ORR of 63% was reported (five out of eight patients) consisting of one stringent CR, one very good partial response, or VGPR, and three PRs including one patient with prior BCMA-targeting therapy exposure. The disease control rate, or DCR, was 88% based on seven out of eight patients. For the 2860 µg/week cohort consisting of five evaluable patients, the ORR was two out of five 24 --------------------------------------------------------------------------------
(40%) including a PR and a stringent complete response, or sCR, with a DCR of 60%. As of the data cutoff, all responders remained on study treatment.
HPN217 demonstrated a dose proportional increase in Cmax and area under the curve, or AUC, with a median serum half-life of 74 hours (range of 38 - 197 hours), confirming half-life extension. Half-life, clearance rate, and volume of distribution were dose-independent, suggesting linear PK kinetics. Pharmacodynamic analysis shows a dose-dependent, transient increase in serum cytokines and chemokines (IL-6, IL-8, IL-10, TNF?). InJanuary 2021 , HPN217 received orphan drug designation for the treatment of multiple myeloma. InMarch 2022 , HPN217 was granted fast track designation for the treatment of relapsed, refractory and multiple myeloma.
Dose exploration is continuing with ongoing enrollment into initial expansion cohorts in the Phase 1 safety study. Interim data is expected by year end 2022.
HPN217 is covered by a global development and option agreement with AbbVie Inc., or AbbVie, and treatment of the first patient in the clinical trial triggered a$50 million milestone payment, which we received inJune 2020 . HPN217 targets B-cell maturation antigen, or BCMA, a well-validated target expressed on multiple myeloma cells. Harpoon is responsible for conducting the Phase 1/2 clinical trial, and we are actively enrolling patients in the dose escalation portion of the multi-country trial. Under the agreement with AbbVie, we are eligible to receive future payments totaling up to$430 million upon AbbVie's exercise of an exclusive license option and achievement of certain development, regulatory, and commercial milestones, in addition to royalties on commercial sales. HPN536 HPN536 is a MSLN-targeting T cell engager, and we are conducting a Phase 1/2a clinical trial for ovarian, pancreatic and other MSLN-expressing solid tumors. The study is collecting data to evaluate the safety, tolerability, pharmacokinetics and activity of HPN536. InDecember 2021 , we provided a clinical update that, at the time of theDecember 2, 2021 data cutoff, dosing had occurred across 9 fixed-dose cohorts of 6 to 280ng/kg and 4 step dose cohort up to 3600ng/kg. As ofJune 30, 2022 , we had further escalated to 7200n/kg. Tumor types treated included late-stage ovarian and pancreatic cancers and mesothelioma. As of theDecember 2, 2021 data cutoff date, HPN536 appeared to be well tolerated. One CRS grade 3 occurred in the absence of dexamethasone premedication treatment. The CRS resolved, and the patient continued on study with dexamethasone premedication. As of the data cutoff date, no new DLTs had been observed other than the two previously noted from theMay 31, 2021 data cutoff date. An MTD has not been identified and escalation to higher doses is underway.
HPN536 has successfully dose escalated in both fixed and step-dosing regimens and has been well tolerated at doses up to 7200ng/kg once weekly. Promising pharmacodynamic signals of T cell engagement have been observed even at sub-therapeutic doses in patients enrolled in our Phase 1 clinical study, consistent with published preclinical data.
InAugust 2022 , we announced that, based on our decision to prioritize assets in our portfolio, we intend to seek a partner to further develop HPN536 in monotherapy or combination studies. Patients enrolled in the trial who are benefiting from HPN536 will continue to receive doses and be followed per study protocol. HPN424 InMarch 2022 , we announced the discontinuation of further clinical development for HPN424, our PSMA-targeting TriTAC. We intend to wind down the clinical study for the remainder of calendar year 2022, while ensuring that patients on study have access to HPN424 for their course of therapy.
ProTriTAC
InDecember 2021 , as a part of our pipeline update, we also presented advancements in our second platform, ProTriTAC, which was designed to expand the universe of addressable targets and indications for T cell engagers. We have nominated the first ProTriTAC clinical candidate, HPN601, with Investigational New Drug application, or IND, enabling studies underway, and we expect to provide additional development updates later this year. Our ProTriTAC platform applies a prodrug concept to create a therapeutic T cell engager that remains inactive until it reaches the tumor. ProTriTACs therefore have the potential for additional tumor specificity and enhanced safety profiles because they are designed to have limited interaction with their molecular targets in healthy tissue, allowing us to target tumor-associated antigens that may be more broadly expressed. When a ProTriTAC penetrates a tumor, tumor-associated proteases cleave off the blocking domain of the ProTriTAC, thereby enabling the engagement of T cells to subsequently kill tumor cells. This activation process also diminishes the half-life of the resulting T cell engager. If active molecules leave the tumor tissue, they are rapidly eliminated from the body, therefore further limiting the potential side effects in normal tissues.
HPN601
25
--------------------------------------------------------------------------------Our first ProTriTAC candidate is currently in preclinical development. HPN601 targets EPCAM, which is expressed on variety of solid tumors.
Following a contract manufacturer-driven delay, we expect to submit an IND for HPN601 in the first half of 2023.
TriTAC-XR
InNovember 2021 , we presented preclinical data on TriTAC-XR at the 35thSociety for Immunotherapy of Cancer , or SITC, annual meeting and, inApril 2022 , we presented additional preclinical data on TriTAC-XR platform at theAmerican Association for Cancer Research , or AACR, annual meeting. Both poster presentations demonstrated the efficacy of the platform, in vitro and showed in non-human-primates that TriTAC-XR can produce pharamacodynamic, or PD, effects similar to a TriTAC with significantly lower cytokine release than a comparable TriTAC. In addition, the expected safety improvement of TriTAC-XR could enable the treatment of non-oncology diseases in addition to solid tumors and hematologic malignancies.
Nomination of a second clinical candidate from one of our new discovery platforms is expected by the end of 2022.
Business Operations
Since commencing operations in 2015, we have devoted substantially all of our resources to performing research and development and manufacturing activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily from proceeds from the issuance of convertible notes, the sale of redeemable convertible preferred stock and warrants, the sale of common stock and payments received under our discovery collaboration agreement with AbbVie. Since our inception, we have incurred significant net operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net losses were$17.4 million and$16.7 million for the three months endedJune 30, 2022 andJune 30, 2021 , respectively. As ofJune 30, 2022 , we had an accumulated deficit of$322.5 million . Our primary use of cash is to fund net losses, operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:
•
continue the research and development of HPN328, HPN217, HPN536 and HPN601, as well as our other product candidates;
•
initiate preclinical studies and clinical trials for any additional product candidates that we may pursue in the future;
•
seek marketing approvals for product candidates that successfully complete clinical trials;
•
establish a sales, marketing, manufacturing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;
•
continue to invest in our technology platforms, including TriTAC, ProTriTAC and TriTAC-XR;
•
maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how;
•
implement operational, financial and management systems; and
•
attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.
Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. InJanuary 2021 , we closed a follow-on public offering of 6,764,704 shares of our common stock, including 882,352 shares sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares at$17.00 per share. The net proceeds to us were approximately$107.6 million , after deducting underwriting discounts and commissions and offering costs payable by us. 26 -------------------------------------------------------------------------------- FromOctober 2020 through the period endedJune 30, 2022 , pursuant to our Sales Agreement withCantor Fitzgerald , we received an aggregate of approximately$5.8 million in net proceeds from the sale of shares of our common stock.
COVID-19 Update
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 theU.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact 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 the COVID-19 virus or current or newly discovered variants, the actions taken to contain it or mitigate its impact and the economic impact on local, regional, national and international markets. Our assessment to date continues to support that we have not experienced any material delays or significant financial impacts directly related to the pandemic other than some minor disruptions to clinical operations, including some disruptions in our manufacturing supply chain that affected and may continue to affect our drug supply, disruptions in patient enrollment in some of our clinical trials and delays in collecting, receiving and analyzing data from patients enrolled in our clinical trials due to limited staff at our clinical trial sites. We will continue to monitor the overall impact of the COVID-19 pandemic on our business, financial condition, liquidity, assets and operations, including our personnel, programs, expected timelines, expenses, third-party contract manufacturing, contract research organizations and clinical trials. While we are currently continuing our clinical trials we have underway in sites inthe United States , theUnited Kingdom , andEurope , we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials, as a result of potential delays or difficulties in enrolling or assessing patients in our clinical trials, clinical site initiation, diversion of healthcare resources away from the conduct of clinical trials, interruption of key clinical trial activities, disruptions in our manufacturing supply chain, among other factors. While our third-party contract manufacturers have been operating at or near normal levels and while we have not experienced any major interruptions to our contract manufacturers' processes, it is possible that the pandemic and response efforts may have an impact in the future on our third-party contract manufacturers' ability to produce quantities of our product candidates for preclinical testing and clinical trials. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the pandemic. Certain of our clinical trial sites have experienced, and others may experience in the future, delays in collecting, receiving and analyzing data from patients enrolled in our clinical trials due to limited staff at such sites, limitation or suspension of on-site visits by patients, or patients' reluctance to visit the clinical trial sites during the pandemic. We and our contract research organizations may also need to make certain adjustments to the operation of our clinical trials in an effort to ensure the monitoring and safety of patients and minimize risk to trial integrity during the pandemic and generally. We could also see an impact on our ability to interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority, personnel resources or otherwise. In addition, in response to the ongoing spread of COVID-19, we have established testing protocols for personnel access to our headquarter offices and laboratory. The effects of the COVID-19 pandemic could adversely impact our business, assets, operations and clinical trials, particularly if the COVID-19 pandemic continues for an extended period of time. See "Risk factors-Our business could be adversely affected by the effects of health epidemics, including the COVID-19 pandemic. The COVID-19 pandemic is ongoing in many parts of the world and may result in significant disruptions which could materially affect our operations, including at our headquarters in theSan Francisco Bay Area and at our clinical trial sites." for more information regarding the potential impact of the COVID-19 pandemic on our business and operations. We continue to actively monitor this situation and the possible effects on our business and operations.
Collaborations with AbbVie
Development and Option Agreement
OnNovember 20, 2019 , we entered into a Development and Option Agreement, which we refer to, as amended, as the Development and Option Agreement, with AbbVie in connection with our HPN217 program, which targets B cell maturation antigen, or BCMA. Pursuant to such agreement, we granted to AbbVie an option to a worldwide, exclusive license to our patents and know-how applicable to the HPN217 program to develop, manufacture, and commercialize products arising from the HPN217 program and targeting BCMA, or HPN217 Products. Under the Development and Option Agreement, we filed an IND for HPN217 and are responsible for conducting clinical development activities pursuant to a mutually agreed upon development plan, including conducting a Phase 1/2 clinical trial of HPN217, in order for AbbVie to determine whether it wishes to exercise its option to a worldwide, exclusive license to such HPN217 program. We initiated a Phase 1/2 clinical trial inApril 2020 . Under the Development and Option Agreement, AbbVie may exercise its license option at any time during a period commencing on the effective date of the agreement and expiring after a specified period following delivery by us of a specified data package arising from the first Phase 1/2 trial for the HPN217 Products. Following AbbVie's exercise of its option, and except for completion of certain development activities by us under the development plan, AbbVie will be solely responsible, at its cost, for the 27 -------------------------------------------------------------------------------- development, manufacture and commercialization of HPN217 and any other HPN217 Products. AbbVie is required to use commercially reasonable efforts to develop and obtain regulatory approval for one HPN217 Product, for at least one indication, for use in eachMajor Market (as defined in the Development and Option Agreement). AbbVie paid an upfront payment of$30.0 million and, inJune 2020 , a development milestone payment of$50.0 million , as we dosed our first patient in the Phase 1/2 clinical trial of HPN217 inApril 2020 . If AbbVie exercises its option, AbbVie will pay us an option exercise fee of$200.0 million . Following option exercise, AbbVie will be required to make further payments to us of up to$230.0 million in the aggregate for the achievement of specified development, regulatory and commercial sales milestones for HPN217 Products. We will also receive tiered royalties on net sales by AbbVie, its affiliates and sublicensees of HPN217 Products at percentages ranging from the high single digits to the very low double digits, subject to specified offsets and reductions. Royalties will be payable under the Development and Option Agreement on a product-by-product and country-by-country basis commencing on the date of first commercial sale of HPN217 and other HPN217 Products, and ending on the later of expiration of all valid claims of specified licensed patents in such country, expiration of regulatory exclusivity in such country, or ten years following first commercial sale of such HPN217 Product in such country. We will recognize revenue under the Development and Option Agreement as the initial development activities are performed using an input method, according to the costs incurred as related to the estimated costs for the development and regulatory activities to be performed through the completion of a Phase 1/2 clinical trial of HPN217. Accordingly, of the$30.0 million upfront payment received in 2019 and$50.0 million development milestone received in 2020,$8.3 million and$14.2 million of revenue was recognized for the three and six months endedJune 30, 2022 , respectively, and as ofJune 30, 2022 , we had$31.9 million of deferred revenue under the Development and Option Agreement.
Amended and Restated Discovery Collaboration Agreement
OnAugust 16, 2021 , we entered into Amendment No. 1 to the Amended and Restated Discovery Collaboration and License Agreement, or the First Amendment, with AbbVie, which amends the Amended and Restated Discovery Collaboration and License Agreement, or, as amended by the First Amendment, the Restated Collaboration Agreement, entered onNovember 20, 2019 , between us and AbbVie, which agreement amends and restates the Discovery Collaboration and License Agreement entered into between us and AbbVie, datedOctober 20, 2017 and amendedApril 3, 2019 , or the Original Collaboration Agreement. Pursuant to the First Amendment, we and AbbVie agreed to include the ProTriTAC technology within the Restated Collaboration Agreement. Pursuant to the Original Collaboration Agreement, we granted to AbbVie worldwide exclusive rights to develop and commercialize products that incorporate our proprietary TriTAC technology together with soluble TCRs provided by AbbVie that bind to targets accepted by the parties. Under the terms of the Original Collaboration Agreement, AbbVie was granted the right to designate up to two targets for development of TriTAC constructs, which it selected in 2017 and 2019, respectively. Pursuant to the Restated Collaboration Agreement, AbbVie is permitted to designate two further targets, with an option to select up to four additional targets, selected during a specified period following the effective date, to be the subject of activities under the collaboration, and is granted a worldwide, exclusive license to develop and commercialize products that incorporate either our proprietary TriTAC platform technology, or (as a result of and pursuant to the First Amendment) our ProTriTAC platform technology, together with soluble T cell receptors, or TCRs. Such products may incorporate antibodies provided by AbbVie or by us. During a period of up to four years following the date of AbbVie's designation of each target for the products, and subject to confirmation of target availability, we and AbbVie will conduct certain research and discovery activities under a mutually agreed discovery and research plan in connection with the creation and evaluation of constructs comprising our proprietary TriTAC or ProTriTAC technologies, in conjunction with the soluble TCR or antibody sequences directed at the agreed upon targets of interest. We may not, including through any third party, develop or commercialize any competing product that binds to any of the included targets. As was the case under the Original Collaboration Agreement, following the discovery phase, AbbVie will be solely responsible, at its cost, for the development, manufacture and commercialization of the products that arise from the activities under the discovery plan. AbbVie is required to use commercially reasonable efforts to develop and commercialize one such product directed to each target for which the discovery activities were completed in eachMajor Market (as defined in the Restated Collaboration Agreement). In addition to the upfront payment of$17.0 million already paid under the Original Collaboration Agreement, we received an upfront payment of$20.0 million under the Restated Collaboration Agreement for AbbVie's right to select two further targets and an option to select up to four further targets. AbbVie will be required to make payments to us, upon target selection, of$10.0 million for each target, for up to four additional targets selected by AbbVie. For each of the up to eight targets selected, we are eligible to receive up to$300.0 million in the aggregate for the achievement of specified development, regulatory and commercial sales milestones for licensed products indicated for human therapeutic or prophylactic use. We will also be eligible to receive tiered royalties on net sales by AbbVie, its affiliates and sublicensees of licensed products at percentages in the mid-single digits, subject to specified offsets and reductions. Royalties will be payable under the Restated Collaboration Agreement on a product-by-product and country-by-country basis commencing on the date of first commercial sale of each product, and ending on the later of expiration of all valid claims of specified licensed patents in such country, expiration of regulatory exclusivity in such country or ten years following first commercial 28 -------------------------------------------------------------------------------- sale of such product in such country. If licensed products are developed and commercialized for diagnostic or veterinary use, or certain screening or monitoring uses, the parties have agreed to negotiate an appropriate reduction in the economic terms applicable to such non-therapeutic and prophylactic applications. We recognized revenue under the Original Collaboration Agreement over a period in which related research and development activities occur. Accordingly, of the$17.0 million upfront payment received in 2017, zero and$4.3 million of revenue was recognized for the three months endedJune 30, 2022 andJune 30, 2021 , respectively. As ofJune 30, 2022 , the Company had recognized the full$17.0 million upfront payment related to the initial two targets. We will recognize revenue under the Restated Collaboration Agreement over a period in which related research and development activities occur. Accordingly, of the$20.0 million upfront payment received in 2019, zero revenue was recognized for the three and six months endedJune 30, 2022 . As ofJune 30, 2022 , we had$19.1 million of deferred revenue under the Restated Collaboration Agreement. The Restated Collaboration Agreement will terminate upon the date of the expiration of all AbbVie's royalty payment obligations in all countries. The Restated Collaboration Agreement may be terminated by either party immediately for the insolvency of the other party or on 90 days' written notice for an uncured material breach of such agreement by the other party. AbbVie may also terminate the Restated Collaboration Agreement in its entirety or on a target-by-target or country-by-country basis for any reason on 30 days' written notice to the Company. In addition, AbbVie may terminate the Restated Collaboration Agreement immediately in its entirety or on a target-by-target basis if AbbVie considers in good faith that there has been a failure of the discovery or development efforts with respect to such target, or that further development or commercialization of products directed to such target is not advisable as a result of a serious safety issue.
Financial Operations Overview
Revenue
We have no products approved for commercial sale and have not generated any revenue from product sales. Our collaboration and license revenue to date is related to work performed by us under the Restated Collaboration Agreement and Development and Option Agreement, and is recognized when designated research and development services are performed. To date, we have not received any milestone or royalty payments under the Original Collaboration Agreement or the Restated Collaboration Agreement. We expect that any collaboration and license revenue we generate from the Restated Collaboration Agreement and the Development and Option Agreement and any future collaboration partners will fluctuate from period to period as a result of the timing and amount of milestones and other payments. Additionally, for research and development services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.
Operating Expenses
Research and Development
Research and development expenses represent costs incurred in performing
research, development and manufacturing activities in support of our own product
development efforts and those of our collaborators, and include salaries,
employee benefits, stock-based compensation, laboratory supplies, outsourced
research and development expenses, professional services and allocated
facilities-related costs. We expense both internal and external research and
development expenses as they are incurred. We do not allocate our costs by
product candidates, as our research and development expenses include internal
costs, such as payroll and other personnel expenses, and external costs, neither
of which are tracked by product candidate. In particular, with respect to
internal costs, several of our departments support multiple product candidate
research and development programs. Non-refundable advance payments for services
that will be used or rendered for future research and development activities are
recorded as prepaid expenses and recognized as expenses as the related services
are performed.
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We expect our research and development expenses to continue to increase
substantially in absolute dollars for the foreseeable future as we advance our
product candidates into and through preclinical studies and clinical trials,
pursue regulatory approval of our product candidates and expand our pipeline of
product candidates. The process of conducting the necessary preclinical and
clinical research to obtain regulatory approval is costly and time consuming.
The actual probability of success for our product candidates may be affected by
a variety of factors, including the safety and efficacy of our product
candidates, early clinical data, investment in our clinical programs, the
ability of collaborators to successfully develop our licensed product
candidates, competition, manufacturing capability and commercial viability. We
may never succeed in achieving regulatory approval for any of our product
candidates. As a result of the uncertainties discussed above, we are unable to
determine the duration and completion costs of our research and development
projects or when and to what extent we will generate revenue from the
commercialization and sale of our product candidates.
General and Administrative
Our general and administrative expenses consist primarily of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resource, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. We expect to continue to incur expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSecurities and Exchange Commission , or theSEC , Nasdaq and any other securities exchange on which our securities are traded, insurance expenses, investor relations activities and other administrative and professional services.
Litigation Settlement
Litigation settlement related to the damages settlement resulting from the Maverick Litigation described in Note 6 Commitments and Contingencies to our condensed financial statements included elsewhere in this report.
Interest Income, net
Interest income, net is primarily comprised of interest income and gains or losses realized on cash and cash equivalents and marketable securities.
Other Expense, net
Other expense, net is primarily comprised of foreign currency transaction gains or losses related to certain transactions with European third-party vendors.
Results of Operations
Comparison of the Three and Six Months ended
For the Three Months Ended For the Six Months Ended
June 30, June 30,
Change Change Change Change
2022 2021 ($) (%) 2022 2021 ($) (%)
(dollars in thousands) (dollars in thousands)
Revenue:
Collaboration
and license
revenue $ 8,303 $ 5,838 $ 2,465 42 %
5,838 2,465 42 % 14,209 14,845 (636 ) -4 %
Operating
expenses:
Research and development 20,651 18,271 2,380 13 % 41,469 34,487 6,982 20 % General and administrative 5,063 4,335 728 17 % 10,464 8,939 1,525 17 %
Litigation
settlement - - - * - 49,954 (49,954 ) * Total operating expenses 25,714 22,606 3,108 14 % 51,933 93,380 (41,447 ) -44 % Loss from operations (17,411 ) (16,768 ) 643 4 % (37,724 ) (78,535 ) (40,811 ) -52 % Interest income, net 104 62 42 67 % 144 156 (12 ) -8 % Other expense, net (44 ) (58 ) (14 ) 24 % (92 ) (108 ) (16 ) 15 % Net loss$ (17,351 ) $ (16,764 ) $ 587 4 %$ (37,672 ) $ (78,487 ) $ (40,815 ) -52 % Revenue 30
-------------------------------------------------------------------------------- Collaboration and license revenue increased by$2.5 million , or 42%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase was primarily due to a$3.2 million increase in revenue recognized related to the Development and Option Agreement, for research and development services performed, offset by a$0.7 million decrease in revenue recognized in the second quarter of 2021 for research and development services performed under the Restated Collaboration Agreement related to research and development services performed on the third target, under the agreement. Collaboration and license revenue decreased by$0.6 million , or 4%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was primarily due to a$5.2 million decrease in revenue recognized related to Restated Collaboration Agreement due to the delivery of the second target under the agreement in the first quarter of 2021, where all remaining deferred revenue associated with that target was recognized as we had no further continuing performance obligations, offset by a$4.6 million increase in revenue recognized related to the Development and Option Agreement, for research and development services performed.
Research and Development
The following table summarizes our research and development expenses incurred during the respective periods:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(In thousands) (In thousands)
Product and clinical
development $ 9,830 $ 8,185 $ 18,384 $ 14,606
Research and technology
services 546 1,083 1,429 1,910
Laboratory supplies and
equipment 696 628 1,247 1,233
Pharmacology services 76 324 429 383
Personnel-related 6,710 5,129 14,427 10,710
Facility and other allocated
expenses 2,143 1,818 4,187 3,485
Consulting 650 1,104 1,366 2,160
Total research and
development expenses $ 20,651 $ 18,271 $ 41,469 $ 34,487
Research and development expenses increased by $2.4 million , or 13%, for the
three months ended June 30, 2022 compared to the three months ended June 30,
2021 . The increase was primarily due to a $1.9 million increase in
personnel-related and facility and other allocated expenses due to an increase
in headcount, a $1.1 million net increase in product and clinical development
expense and research and technology services due to continued development of our
product candidates which included conducting preclinical and clinical studies
and manufacturing runs to support ongoing clinical development, offset by a $0.4
million decrease in consulting fees and a $0.2 million decrease in research and
pharmacology services.
Research and development expenses increased by $7.0 million , or 20%, for the six
months ended June 30, 2022 compared to the six months ended June 30, 2021 . The
increase was primarily due to a $4.4 million increase in personnel-related and
facility and other allocated expenses due to an increase in headcount, a $3.3
million net increase in product and clinical development expense and research
and technology services due to continued development of our product candidates
which included conducting preclinical and clinical studies and manufacturing
runs to support ongoing clinical development, offset by a $0.7 million decrease
in consulting fees.
General and Administrative
General and administrative expenses increased by $0.7 million , or 17%, for the
three months ended June 30, 2022 compared to the three months ended June 30,
2021 . The increase was primarily due to a $0.4 million increase in legal fees
and other professional services to support our operations as a public company
and a $0.3 million increase in personnel-related expenses due to an increase in
headcount.
General and administrative expenses increased by $1.5 million , or 17%, for the
six months ended June 30, 2022 compared to the six months ended June 30, 2021 .
The increase was primarily due to a $0.8 million increase in legal fees and
other professional services to support our operations as a public company and a
$0.7 million increase in personnel-related expenses due to an increase in
headcount.
Litigation Settlement
Litigation settlement decreased by$50.0 million , for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was due to the litigation settlement incurred in the first quarter of 2021. OnApril 23, 2021 , following a damages phase, theDelaware Chancery Court issued a memorandum opinion awardingMillennium Therapeutics, Inc. $38.2 million in damages, plus pre-judgment interest. OnMay 5, 2021 , we paid the full amount of damages awarded by the court, equal to$50.0 million , consisting of$38.2 million in damages plus$11.8 million in pre-judgment interest throughMay 5, 2021 . See Note 6 Commitments and Contingencies to our condensed financial statements included elsewhere in this report. 31 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Liquidity
Since our inception and throughJune 30, 2022 , we have financed our operations primarily through proceeds from the issuance of convertible notes, the sale of redeemable convertible preferred stock and warrants, the sale of common stock, and upfront payments received by us from our collaboration and license agreements. As ofJune 30, 2022 , we had$90.2 million in cash, cash equivalents and marketable securities, an accumulated deficit of$322.5 million and working capital of$35.8 million .
In
FromOctober 2020 throughJune 30, 2022 , pursuant to our Sales Agreement withCantor Fitzgerald , we received an aggregate of approximately$5.8 million in net proceeds from the sale of shares of our common stock. With respect to the Maverick Litigation described in Note 6 Commitments and Contingencies to our condensed financial statements included elsewhere in this report, onMay 5, 2021 , we paid the full amount of damages awarded by the Court, equal to$50.0 million , consisting of$38.2 million in damages plus$11.8 million in pre-judgment interest throughMay 5, 2021 . We expect to continue to incur substantial costs in order to conduct research and development activities necessary to develop and commercialize our product candidates. Additional capital will be needed to undertake these activities and commercialization efforts, and, therefore, we intend to raise such capital through the issuance of additional equity, borrowings, and potentially strategic alliances with other companies. However, if such financing is not available at adequate levels or on acceptable terms, we could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of the development programs or commercialization efforts, out-license intellectual property rights to our product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the our business, results of operations, financial condition and/or out ability to fund our scheduled obligations on a timely basis or at all. 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 theU.S. economy and financial markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact our financial condition, liquidity, and future results of operations will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the COVID-19 virus or current or newly discovered variants, the actions taken to contain it or mitigate its impact and the economic impact on local, regional, national and international markets. We will continue to monitor the overall impact of the COVID-19 pandemic on our results of operations, financial condition, and liquidity. If the disruption caused by the COVID-19 pandemic persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our results of operations. Capital Resources Our primary uses of cash are to fund net losses and operating expenses, which consist primarily of funding our clinical and preclinical trials, research and development expenditures and related personnel costs. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. The timing and amount of our future funding requirements depends on many factors, including the following:
•
the scope, rate of progress, results and cost of our preclinical studies, clinical trials and other related activities;
•
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;
•
the number and characteristics of product candidates that we pursue;
•
the cost, timing and outcomes of regulatory approvals;
•
the cost and timing of establishing sales, marketing and distribution capabilities;
•
the terms and timing of any other collaborative, licensing and other arrangements that we may establish;
•
the timing, receipt and amount of sales, profit sharing or royalties, if any, from our potential products;
•
the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights
•
the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;
•
the compliance and administrative costs associated with being a public company; and
32
--------------------------------------------------------------------------------•
the cost of attracting, hiring and retaining additional administrative, clinical, regulatory and scientific personnel.
InMarch 2020 , we entered into a Controlled Equity OfferingSM Sales Agreement, or Sales Agreement, withCantor Fitzgerald & Co. , orCantor Fitzgerald , under which we may offer and sell, from time to time at our sole discretion throughCantor Fitzgerald , as our sales agent, shares of our common stock having an aggregate offering price of up to$75.0 million .Cantor Fitzgerald may sell the common stock by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including sales made directly on or through The Nasdaq Global Select Market or on any other existing trading market for our common stock. Any shares of our common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-237175). We will payCantor Fitzgerald a commission up to 3.0% of the gross sales proceeds of any shares of our common stock sold throughCantor Fitzgerald under the Sales Agreement. FromOctober 2020 throughJune 30, 2022 , we had sold a total of 330,222 shares of our common stock under the Sales Agreement, resulting in aggregate net proceeds of$5.8 million . As ofJune 30, 2022 , there was approximately$69.0 million remaining available to be sold under the terms of the Sales Agreement. Based on our current business plans, we believe that our existing cash, cash equivalents and marketable securities, will be sufficient to fund our planned operations for at least the next 12 months from the issuance date of these unaudited condensed financial statements. However, we will require additional capital in order to complete development of our product candidates and commercialize our products, if approved. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, or we may seek to control expenses by rationalizing our portfolio and reducing internal expenditures. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies and clinical trials, research and development programs or commercialization efforts. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, operating and capital leases, making capital expenditures or declaring dividends. Please see the section entitled "Risk Factors" for additional risks associated with our substantial capital requirements and the challenges we may face in raising capital. Cash Flows For the Six Months Ended June 30, 2022 2021 (In thousands) Net cash provided by (used in): Operating activities$ (46,841 ) $ (84,643 ) Investing activities 69,840 29,790 Financing activities 882 111,096 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 23,881 $ 56,243
Cash Flows from Operating Activities
During the six months endedJune 30, 2022 , cash used in operating activities was$46.8 million , which consisted of a net loss of$37.7 million and a net change of$16.5 million in our net operating assets and liabilities, partially offset by$7.3 million in non-cash charges. The non-cash charges consisted of stock-based compensation of$5.4 million , depreciation and amortization of$1.2 million , net amortization of premiums and accretion of discounts on marketable securities of$0.4 million and amortization of operating right-of-use lease asset of$0.3 million . The change in operating assets and liabilities was primarily due to a decrease in deferred revenue of$14.2 million resulting from the recognition of revenue related to the AbbVie and the Development Option Agreement, a decrease of$0.8 million in operating lease obligations, and a decrease in accrued liabilities of$0.3 million related to timing for research and development activities, which was offset by a net increase in prepaid expenses and other assets of$1.3 million resulting from the timing of payments made for ongoing research and development activities and operating costs to support our operations as a public company and a$0.1 million increase in accounts payable resulting from the timing of payments made for operating costs. 33 -------------------------------------------------------------------------------- During the six months endedJune 30, 2021 , cash used in operating activities was$84.6 million , which consisted of a net loss of$78.5 million and a net change of$13.1 million in our net operating assets and liabilities, partially offset by$6.8 million in non-cash charges. The non-cash charges consisted of stock-based compensation of$4.5 million , depreciation and amortization of$1.1 million , net amortization of premiums and accretion of discounts on marketable securities of$1.2 million and amortization of operating right-of-use lease asset of$0.2 million . The change in operating assets and liabilities was primarily due to a decrease in deferred revenue of$14.8 million resulting from the recognition of revenue related to the AbbVie Restated Collaboration Agreement and the Development Option Agreement, a decrease of$0.6 million in operating lease obligations, which was offset by an increase in accrued liabilities and account payables of$2.9 million related to timing of research and development activities, a net increase in prepaid expenses and other assets of$0.6 million resulting from the timing of payments made for operating costs to support our operations as a public company, including director and officers liability insurance policies, and timing for ongoing research and development activities.
Cash Flows from Investing Activities
During the six months endedJune 30, 2022 , cash provided in investing activities of$69.8 million was primarily related to$69.9 million of net purchases and maturities of marketable securities, offset by purchases of lab equipment of$0.1 million .
During the six months ended
Cash Flows from Financing Activities
During the six months endedJune 30, 2022 , cash provided by financing activities of$0.9 million was primarily from$0.5 million in proceeds from the exercise of common stock options and$0.4 million from purchases of our common stock under our 2019 employee stock purchase plan. During the six months endedJune 30, 2021 , cash provided by financing activities of$111.1 million was primarily from$107.6 million in net proceeds from the follow-on offering completed inJanuary 2021 ,$2.8 million in net proceeds from the sale of our common stock pursuant to our Sales Agreement withCantor Fitzgerald throughJune 30, 2021 ,$0.4 million in proceeds from the exercise of common stock options and$0.3 million from purchases of our common stock under our 2019 ESPP.
Contractual Obligations and Other Commitments
There have been no material changes to our contractual obligations and other commitments during the six months endedJune 30, 2022 from those described in "-Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2021 Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC onMarch 10, 2022 .
Critical Accounting Policies and Estimates
The preparation of condensed financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses. Our critical accounting policies are those that significantly impact our financial condition and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates.
There have been no material changes to our critical accounting policies and
estimates during the six months ended
Recently Issued Accounting Pronouncements
See Note 2 Summary of Significant Accounting Policies to our condensed financial statements included elsewhere in this report for more information.
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth
companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. We elected to use this extended transition period
for complying with new or revised accounting standards that have different
effective dates for public and private companies until the earlier of the date
that we (i) are no longer an emerging growth company or (ii) affirmatively and
irrevocably opt out of the
34
--------------------------------------------------------------------------------extended transition period provided in the JOBS Act. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.
We will remain an emerging growth company until the earliest of (i) the last day of our first fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenues of at least$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th and (ii) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period.
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