HCW BIOLOGICS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedDecember 31, 2022 included in the Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission (the "SEC") onMarch 28, 2023 . Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the "Company," "HCW Biologics ," "HCWB", "we," "us" and "our" refer toHCW Biologics Inc.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, adequacy of our cash resources and working capital, impact of COVID-19 pandemic on our research and development activities and business operations, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -"Risk Factors," in this Quarterly Report on Form 10-Q and in other filings we make with theSEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
HCW Biologics Inc. is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen healthspan by disrupting the link between chronic, low-grade inflammation and age-related diseases. We believe age-related, chronic, low-grade inflammation, or "inflammaging," is a significant contributing factor to several diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative but metabolically active senescent cells, which can also be caused by persistent activation of protein complexes, known as inflammasomes, in innate immune cells. These two elements share common mechanisms in promoting secretion of pro-inflammatory proteins and in many cases interact to drive senescence, and thus, inflammaging. Our novel approach is to reduce senescent cells and eliminate the pro-inflammatory factors they secrete systemically through multiple pathways. We believe our approach has the potential to fundamentally change the treatment of age-related diseases. Our lead product candidates address the two primary processes that promote chronic inflammation. HCW9218. Subcutaneous administration of our clinical-stage, lead drug candidate, HCW9218, activates NK cells, innate lymphoid group-1, and CD8+ T cells, and neutralizes TGF-?. This bifunctionality gives HCW9218 the ability to reduce senescent cells as well as function as a senomorphic that eliminates senescence-associated pro-inflammatory factors. As a result, we believe HCW9218 has the ability to lower chronic inflammation and restore tissue homeostasis. This lead product candidate is currently being evaluated in two Phase 1/1b clinical trials for chemo-refractory/chemo-resistant solid tumor cancers. 13 -------------------------------------------------------------------------------- HCW9302. Subcutaneous administration of our preclinical-stage, lead drug candidate, HCW9302, is designed to activate and expand Treg cells to reduce senescence by suppressing the activity of inflammasome-bearing cells and the inflammatory factors which they secrete. This molecule is a single-chain, IL-2-based fusion protein. Preclinical studies in mouse models have demonstrated the ability of HCW9302 to expand and activate Treg cells and reduce inflammation-related diseases, supporting the potential of HCW9302 to treat a wide variety of autoimmune and pro-inflammatory diseases, such as atherosclerosis. We are in the process of completing IND-enabling studies and intend to prepare and submit an Investigational New Drug ("IND") application to the FDA in 2023. Recent Developments • OnApril 27, 2023 , in the legal proceedings brought byAltor BioScience, LLC andNantCell, Inc. , or Altor/NantCell, the Court approved the parties' stipulation to move to arbitration and ordered the parties to proceed in arbitration before JAMS.
•
OnApril 21, 2023 , the Company entered into a$26.25 million development line of credit to refinance an existing$6.5 million mortgage and provide financing for the buildout of the Company's new headquarters and manufacturing facility.
•
OnMarch 26, 2023 , the Company published a pivotal scientific paper in Aging Cell entitled, "Immunotherapeutic Approach to Reduce Senescent Cells and Alleviate Senescence-Associated Secretary Phenotype in Mice," with Dr.Hing C. Wong , the Company's Founder and CEO, as lead and corresponding author. Trends and Uncertainties Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment Our operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war betweenRussia andUkraine , Chinese aggression towardsTaiwan , financial market volatility and currency movements. These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities. In addition, the Company may be impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs. Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt. The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable. OnMarch 12, 2023 , theU.S. government took extraordinary steps to stop a potential banking crisis after the historic failure ofSilicon Valley Bank , assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down. The Company had no exposure to a failed bank. The Company averts risks associated with such a crisis by holding minimum cash balances required for uninterrupted operations, federal funds money market fund, andU.S. government-backed securities. As ofMarch 31, 2023 , the Company held$17.0 million in a federal money market fund (the "Fund") with an investment objective is to seek to provide current income while maintaining liquidity and a stable share price of$1 . The Fund invests at least 99.5% of its total assets in cash,U.S. government securities, and/or repurchase agreements that are collateralized solely byU.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered. Long-Lasting Effects of COVID-19 The spread of COVID-19, including the resurgence of cases related to the spread of new variants, has caused significant volatility in theU.S. and international markets sinceMarch 2020 . The continuing direct and indirect impacts of the pandemic are significant and broad-based, including supply chain disruptions, and continue to represent business and financial risks. As such, the Company is continually coordinating with third-party contract manufacturing organizations ("CMOs"), service providers and vendors that constitute the Company's supply chain, with respect to risks and mitigating actions. Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, IND-enabling activities, buildout of our new headquarters, business, financial condition, and results of operations. 14 --------------------------------------------------------------------------------
Components of our Results of Operation
Revenues
We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. The principal source of our revenues to date have been generated from our Wugen License and Master Services Agreement (the "MSA") with Wugen. See Note 1 to our condensed financial statements included elsewhere in this Quarterly Report for these definitions and more information. We derive revenue from a license agreement granting rights to Wugen to further develop and commercialize products based on two of our internally-developed molecules. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products. Additionally,HCW Biologics retained manufacturing rights and has agreed to provide Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under separate agreements. We assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License. Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License onDecember 24, 2020 . The Company recognized revenue for the related consideration at a point in time. The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work ("SOW"), represents one performance obligation that is satisfied over time. The Company recognizes revenue generated for supply of material for clinical development using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion.
Operating Expenses
Our operating expenses are reported as research and development expenses and general and administrative expenses.
Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
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Employee-related expenses, including salaries, benefits, and stock-based compensation expense;
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Expenses related to manufacturing and materials, consisting primarily of expenses incurred primarily in connection with CMOs, which produce cGMP materials for clinical trials on our behalf;
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Expenses associated with preclinical activities, including research and development and other IND-enabling activities;
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Expenses incurred in connection with clinical trials; and
•
Other expenses, such as facilities-related expenses, direct depreciation costs for capitalized scientific equipment, and allocation for overhead.
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We expense research and development costs as they are incurred. Costs for
contract manufacturing are recognized based on an evaluation of the progress to
completion of specific tasks using information provided to us by our vendors.
Payments for these activities are based on the terms of the agreement, and the
pattern of payments for goods and services will change depending on the
material. Nonrefundable advance payments for goods or services to be received in
the future for use in research and development activities are recorded as
prepaid expenses and expensed as the related goods are delivered or the services
are performed.
We expect research and development expenses to increase substantially for the
foreseeable future as we continue the development of our product candidates. We
cannot reasonably determine the nature, timing, and costs of the efforts that
will be necessary to complete the development of, and obtain regulatory approval
for, any of our product candidates. Product candidates in later stages of
development generally have higher development costs than those in earlier
stages. See "Risk Factors -- Risks Related to the Development and Clinical
Testing of Our Product Candidates," in our Annual Report for the year ended
December 31, 2022 filed with the SEC on March 28, 2023 for a discussion of some
of the risks and uncertainties associated with the development and
commercialization of our product candidates. Any changes in the outcome of any
of these risks and uncertainties with respect to the development of our product
candidates in preclinical and clinical development could mean a significant
change in the costs and timing associated with the development of these product
candidates. For example, if the FDA or another regulatory authority were to
delay our planned start of clinical trials or require us to conduct clinical
trials or other testing beyond those that we currently expect or if we
experience significant delays in enrollment in any of our planned clinical
trials, we could be required to expend significant additional financial
resources and time on the completion of clinical development of that product
candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, related benefits, and stock-based compensation expense for employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as insurance costs, fees for professional services, such as legal, auditing and tax services, facilities administrative costs, and other expenses. During the period endedDecember 31, 2022 , Altor/NantCell, a former employer of Dr.Hing C. Wong , our Founder and Chief Executive Officer, initiated legal proceedings againstDr. Wong and the Company. OnApril 26, 2023 , the parties stipulated that Altor/NantCell's action against the Company would be consolidated with the Altor/NantCell arbitration demand againstDr. Wong . OnApril 27, 2023 , theU.S. District Court for the Southern District of Florida (the "Court") with jurisdiction over lawsuit against the Company approved the parties' stipulation and ordered the parties to arbitration. OnMay 1, 2023 , Altor/NantCell filed a demand against the Company before JAMS. OnMay 3, 2023 , Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case. Altor/NantCell's proceeding against the Company will now proceed in arbitration before JAMS. In connection with claims brought againstDr. Wong , Altor/NantCell has advancement obligations to him for claims brought against him. Thus, legal expenses incurred by him in connection with his arbitration will be advanced by Altor/NantCell; however, under certain circumstances, the Company may be required to advance his legal fees. The Company incurred legal expenses on its own behalf in the period endedMarch 31, 2023 , and we expect to continue to incur material costs and expenses in connection with defending the Company in the foregoing legal matters for the remainder of the year. We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, are expected to continue to increase for the foreseeable future as we scale our operations.
Interest and Other Income (Loss), Net
Interest and other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments inU.S. government-backed securities, other income related to non-operating activities, and other non-operating expenses. OnAugust 15, 2022 , the Company entered into a short-term, market-rate lease with the former owner of the building purchased by the Company on the same date. The lease provides the former owner (tenant) with the right to occupy offices that comprise approximately 15,000 square feet of the building for a period of one year, endingAugust 14, 2023 . The lease may be terminated at any time by the tenant with 60 days' written notice. During the three months endedMarch 31, 2023 , the Company reported$59,453 in rental income, which is included within Interest and other income (loss), net in the unaudited statement of operations for the three months endedMarch 31, 2023 , included elsewhere in this Quarterly Report. 16 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
March 31,
2022 2023
Revenues:
Revenues $ 3,117,545 $ 41,883
Cost of revenues (1,328,076 ) (29,350 )
Net revenues 1,789,469 12,533
Operating expenses:
Research and development 1,789,678 2,255,813
General and administrative 1,880,601 3,117,290
Total operating expenses 3,670,279 5,373,103
Loss from operations (1,880,810 ) (5,360,570 )
Interest expense - (93,438 )
Other (expense) income, net (176,397 ) 383,322
Net loss $ (2,057,207 ) $ (5,070,686 ) Comparison of the Three Months ended
Revenues
The Company recognized$3.1 million and$41,883 of revenues in the unaudited statements of operations that appear elsewhere is this Quarterly Report for the three months endedMarch 31, 2022 and 2023, respectively. The difference in revenues for the comparative periods is primarily attributable to the recognition of deferred revenues as revenue in the three months endedMarch 31, 2022 , upon meeting requirements for revenue recognition when the Company entered into SOWs with Wugen for current and historical purchases onMarch 14, 2022 . For those transactions for which revenue was not recognized because one or more of the criteria for revenue recognition had not been met, the Company records deferred revenue. There were no deferred revenues as ofMarch 31, 2022 and as ofMarch 31, 2023 .
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended
March 31,
2022 2023 $ Change % Change
Salaries, benefits and related expenses $ 772,949 $ 744,465 $ (28,484 ) (4 )%
Manufacturing and materials 219,038 284,905 65,867 30 %
Preclinical expenses 513,117 737,686 224,569 44 %
Clinical trials 109,367 246,358 136,991 125 %
Other expenses 175,207 242,399 67,192 38 %
Total research and development expenses
26 %
Research and development expenses increased by $466,135 , or 26%, from $1.8
million for the three months ended March 31, 2022 to $2.3 million for the three
months ended March 31, 2023 . The increase was primarily due to an increase in
preclinical expenses and clinical expenses.
Salaries, benefits, and related expenses decreased by $28,484 , or 4%, from
$772,949 for the three months ended March 31, 2022 to $744,465 for the three
months ended March 31, 2023 . This decrease was primarily attributable to a
$59,000 increase in the amount of reimbursement for certain expenses incurred
under the terms of the Wugen License as well as a $11,381 decrease in
performance-based bonuses. These decreases were partially offset by an increase
of $43,410 in salaries and wages, benefits, and stock-based compensation
expenses.
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Manufacturing and materials expense increased by $65,867 , or 30%, from $219,038
for the three months ended March 31, 2022 to $284,905 for the three months ended
March 31, 2023 . In the three months ended March 31, 2022 , costs were primarily
from HCW9302 technology transfer and development process closeout through
finalization of reports and the project initiation of a 1000L run for HCW9218.
In the three months ended March 31, 2023 , costs were primarily costs associated
with a 200L cGMP run of HCW9302. Looking ahead for the remainder of 2023, costs
will primarily be associated with restoring supply of HCW9101, which is the
internally-developed affinity ligand used in our proprietary manufacturing
processes in the production of all of our molecules.
Expenses associated with preclinical activities increased by $224,569 , or 44%,
from $513,117 for the three months ended March 31, 2022 to $737,686 for the
three months ended March 31, 2023 . Expenses were related primarily to the cost
of toxicology studies and experimental materials related to IND-enabling
activities required to prepare our IND for Phase 1b/2 clinical trial to evaluate
HCW9302 in an autoimmune indication. We expect to complete the toxicology study
in the first half of 2023.
Expenses associated with clinical activities increased by $136,991 , or 125%,
from $109,367 for the three months ended March 31, 2022 to $246,358 for the
three months ended March 31, 2023 related to the two ongoing clinical trials to
evaluate HCW9218 in chemo-resistant/chemo-refractory solid tumors. The
Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center ,
University of Minnesota is designed as a dose escalation study of HCW9218 to
identify the maximum tolerated dose for future evaluation. The primary
objectives are to determine safety, maximum tolerated dose, and the recommended
Phase 2 dose. The Company expects this phase of the study to be complete in the
first half of 2023. The Company-sponsored, multi-center Phase 1b/2 clinical
trial to evaluate HCW9218 in advanced pancreatic cancer was initiated in October
2022 . There are currently four clinical sites participating in this trial,
including the NCI Center for Cancer Research , Medical University of South
Carolina (an NCI-designated Comprehensive Cancer Center ), Washington University
in St. Louis (an NCI-designated Comprehensive Cancer Center ), and HonorHealth
Research Institute . A preliminary human data readout is expected in the first
half of 2023. We expect to complete the Phase 1b portion of this study in 2023.
Other expenses, which include overhead allocations, increased by $67,191 , or
38%, from $175,207 for the three months ended March 31, 2022 to $242,399 for the
three months ended March 31, 2023 . The increase in other expenses is due
primarily to an increase of $55,773 in the allocation for depreciation.
Depreciation increased in the third quarter of 2022, when the Company purchased
a property to buildout for a new headquarters and manufacturing facility.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended
March 31,
2022 2023
$ Change % Change
Salaries, benefits and related expenses
15 %
Professional services 459,164 1,707,588 1,248,424 272 %
Facilities and office expenses 100,679 122,221 21,542 21 %
Depreciation 35,605 69,213 33,608 94 %
Rent and occupancy expense 29,979 42,159 12,180 41 %
Other expenses 540,888 356,331 (184,557 ) (34 )%
Total general and administrative expenses
66 %
General and administrative expenses increased $1.2 million , or 66%, from $1.9
million for the three months ended March 31, 2022 to $3.1 million for the three
months ended March 31, 2023 . The increase was primarily due to an increase in
professional fees, which includes legal fees associated with the proceedings
brought against the Company by Altor/NantCell. Other increases included a
$105,492 increase in salaries, benefits and related expenses due to an annual
adjustments made in April 2022 and new hires.
Depreciation increased by $33,608 , or 94%, from $35,605 for the three months
ended March 31, 2022 to $69,213 for the three months ended March 31, 2023 . In
the third quarter of 2022, the Company purchased a property to buildout for its
new headquarters and manufacturing facility. As a result depreciation expense
allocated to general and administrative expenses for the three months ended
March 31, 2023 reflects depreciation of that acquisition.
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Professional services increased $1.2 million , or 272%, from $459,164 for the
three months ended March 31, 2022 to $1.7 million for the three months ended
March 31, 2023 . Professional services include corporate legal services, expenses
related to legal actions brought by Altor/NantCell, and other professional
services, such as auditing and tax advisory fees. For the three months ended
March 31, 2023 , the Company incurred $1.1 million for legal fees in connection
with the Altor/NantCell matter, $359,754 for legal fees in connection to
patents, and $233,007 in fees associated with other professional services such
as audit fees and tax advisory services.
Liquidity and Capital Resources
Sources of Liquidity
As ofMarch 31, 2023 , our principal source of liquidity was$18.4 million in cash and cash equivalents, including money market investments, and$9.8 million held inU.S. government-backed securities presented in Short-term investments. These funds were provided primarily from the$49.2 million of net proceeds from our IPO and to a lesser extent the Wugen License. OnApril 21, 2023 , the Company entered into a$26.3 million development line of credit agreement. We expect our principal sources of liquidity will continue to be our cash and cash equivalents, the development line of credit, out-licensing agreements, and any additional capital we may obtain through debt or equity offerings. OnAugust 15, 2022 , we purchased a 36,000 square foot building located inMiramar, Florida for approximately$10.1 million , including transaction costs. A portion of the acquisition cost was funded with a$6.5 million five-year loan obtained from theCogent Bank ("Cogent Loan") and is secured by the building. As ofMarch 31, 2023 , the Company owed$6.5 million on the Cogent Loan and was in compliance with all covenants under the Cogent Loan agreement and related documents. The Company obtained a$26.25 million development line of credit onApril 21, 2023 . We intend to repay the Cogent Loan with part of the proceeds from the development line of credit at the time we draw our first advance under the new loan agreement. We will not incur any prepayment penalties. We believe that our cash and cash equivalents and short-term investments as ofMarch 31, 2023 will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. We have based our projections of operation expenses requirements on assumptions, including our existing commitments and contingencies, that may prove to be incorrect, and we may use all of our available capital sooner than we expect. Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to:
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timing, progress, costs, and results of our ongoing preclinical studies and clinical trials of our immunotherapeutic products;
•
impact of COVID-19 on the timing and progress of our IND-enabling activities, clinical trials and our ability to identify and enroll patients;
•
costs, timing, and outcome of regulatory review of our product candidates;
•
number of trials required for regulatory approval;
•
whether we enter into any cooperative, collaboration or co-development agreements and the terms of such agreements;
•
whether we raise additional funding through bank loan facilities, other debt arrangements, out-licensing or joint ventures, cooperative agreements or strategic collaborations;
•
effect of competing technology and market developments;
•
cost of maintaining, expanding, and enforcing our intellectual property rights;
•
impact of arbitration, litigation, regulatory inquiries, or investigations, as well as costs to indemnify our officers and directors against third-party claims related to our patents and other intellectual property:
•
cost and timing of buildout of new headquarters, including risks of cost overruns and delays, and ability to obtain additional financing, if needed; and
•
costs and timing of future commercialization activities, including product
manufacturing, marketing, sales, and distribution, for any of our product
candidates for which we receive regulatory approval.
A change in the outcome of any of these or other factors with respect to the
clinical development and commercialization of our product candidates could
significantly change the costs and timing associated with the development of
that product candidate.
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--------------------------------------------------------------------------------Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.
Comparison of the Cash Flows for the Three Months Ended
The following table summarizes our cash flows for the three months endedMarch 31, 2022 andMarch 31, 2023 : Three Months Ended March 31, 2022 2023 Cash used in operating activities$ (1,592,162 ) $ (3,638,213 ) Cash provided by (used in) investing activities 7,976,286 (300,385 ) Cash provided by financing activities 2,273
1,901
Net increase in cash and cash equivalents
Operating Activities Net cash used in operating activities were$1.6 million for the three months endedMarch 31, 2022 , compared with net cash used by operating activities of$3.6 million for the three months endedMarch 31, 2023 . The difference was primarily due to an increase in net loss from$2.1 million for the three months endedMarch 31, 2022 to$5.1 million for the three months endedMarch 31, 2023 . Cash used in operating activities for the three months endedMarch 31, 2022 consisted primarily of net loss for the period of$2.1 million ,$420,000 due to an increase in accounts receivable arising from billed but unpaid amounts that were recognized in revenue for delivery of clinical development materials purchased by Wugen, and$1.1 million due to a decrease in accounts payable and other liabilities. Cash provided by operations consisted primarily of a decrease of$1.4 million in prepaid expenses and other assets. In addition, there were adjustments for non-cash transactions that increased cash provided by operating activities primarily arising from$185,122 for net unrealized loss on investments,$142,785 for depreciation and amortization expense, and$260,348 for compensation expense due to stock-based compensation. Cash used in operating activities for the three months endedMarch 31, 2023 consisted primarily of net loss for the period of$5.1 million and$112,500 unrealized loss on investments, net. These amounts were offset by cash provided by operations arising from a$718,675 increase from accounts payable and other liabilities,$164,967 resulting from a decrease in accounts receivable, and$182,294 resulting from a decrease in prepaid expenses and other assets. Further offsets were provided by noncash adjustments arising from addbacks of$298,847 from depreciation and amortization and$259,206 from stock-based compensation.
Investing Activities
Cash provided by investing activities for the three months endedMarch 31, 2022 consisted of$8.0 million of cash provided when short-term investments reached maturity, offset by$23,554 of cash used to purchase equipment.
Cash used by investment activities for the three months ended
Financing Activities
During the three months ended
Critical Accounting Policies, Significant Judgements and Use of Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed interim financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgements and estimates. 20 --------------------------------------------------------------------------------
Revenue Recognition
We recognize revenue under the guidance of Topic 606. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information.
Other than the above, there have been no material changes to our critical
accounting policies and estimates from those described under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations- Critical Accounting Policies, Significant Judgements and Use of
Estimates" in our Annual Report on Form 10-K for the year ended
Recent Accounting Pronouncements
See Note 1 to our unaudited condensed interim financial statements appearing elsewhere in this Quarterly Report for more information about recent accounting pronouncements.
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