KRONOS BIO, INC. The following discussion and analysis of our financial condition and results of operations should be read together with the condensed financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and related notes as of and for the fiscal year endedDecember 31, 2021 included in our Annual Report on Form 10-K, as filed with theSEC onFebruary 24, 2022 .
Forward Looking Statements
This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. In some cases, you could identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "should," "will," or the negative of these terms or similar expressions. As a result of many factors, including those factors set forth under "Risk Factors" included in Item 1A of Part II of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Overview We are an integrated discovery through late-stage clinical development biopharmaceutical company, with a focus on developing therapeutics that target the dysregulated transcription that causes cancer and other serious diseases. We have two investigational compounds in clinical trials, including one in a pivotal Phase 3 trial, and a third compound that we anticipate will enter the clinic in the second quarter of 2022. Our product engine, which includes our propriety small molecule microarray (SMM) screening platform, provides us with the capability to map and target transcription regulatory networks (TRNs) in a differentiated manner to enable discovery of novel compounds and improve our translational capabilities. Our lead product candidate, entospletinib, is an orally administered, selective spleen tyrosine kinase (SYK) inhibitor that has been previously tested in more than 1,300 people, including more than 200 patients with acute myeloid leukemia (AML). Based on clinical results in a biomarker-defined subset of patients and following discussions as part of an End-of-Phase 2 meeting with the FDA, we have initiated our randomized, double-blinded, placebo-controlled registrational Phase 3 AGILITY clinical trial of entospletinib in combination with intensive chemotherapy in approximately 180 patients with newly diagnosed NPM1-mutated AML. We are also developing lanraplenib, our next-generation orally-administered SYK inhibitor, and plan to initiate a Phase 1b/2 clinical trial in the second quarter of 2022. This clinical trial will evaluate lanraplenib in combination with gilteritinib in patients with relapsed or refractory FLT3-mutated AML. In addition, we are developing KB-0742, our internally discovered, oral cyclin dependent kinase 9 inhibitor (CDK9), for the treatment of MYC-amplified and other transcriptionally addicted solid tumors. The first patient in our Phase 1/2 clinical trial was dosed inFebruary 2021 , and we reported initial data in the fourth quarter of 2021. In our research efforts, we are leveraging our product engine to drive multiple oncology discovery programs targeting dysregulated transcription factors and their associated TRNs. InNovember 2021 , we announced the advancement of two programs, one focused on the MYC TRN and one focused on the androgen receptor (AR) TRN, based on this work. We also are executing on robust discovery programs across multiple TRNs, which focus on four cancer types where dysregulated transcription plays a central role: hematologic malignancies, prostate cancer, MYC-driven cancers, and small cell/neuroendocrine cancers. We continue to work toward the submission of an IND for a drug candidate arising from one of these programs, although we may not be successful in identifying product candidates that can selectively modulate the specific oncogenic TRNs associated with these malignancies. 18 -------------------------------------------------------------------------------- The following chart summarizes the current stages of our development programs, including our lead product candidate, entospletinib, as well as lanraplenib, KB-0742, and our next anticipated milestones: [[Image Removed: kron-20220331_g1.jpg]] The ongoing COVID-19 pandemic has presented substantial public health and economic challenges around the world. We cannot at this time predict the specific extent, duration or impact that COVID-19 will have on our financial condition and operations, including ongoing research activities, ongoing and planned clinical trials and our financial results. While we are currently conducting a pivotal Phase 3 clinical trial for entospetinib, a Phase 1/2 clinical trial for KB-0742 and are preparing to initiate an additional clinical trial in the second quarter of 2022, COVID-19 precautions may directly or indirectly impact their timelines and interrupt clinical enrollment. Since our formation inJune 2017 , we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying, acquiring and developing our product candidates, building our product engine, establishing our intellectual property portfolio, and providing general and administrative support for these operations. We have principally financed our operations to date through our IPO, and, before that, private placements of our convertible preferred stock and convertible notes. Since our formation, we have incurred significant operating losses, primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. Our net loss was$36.3 million and$26.1 million for the three months endedMarch 31, 2022 and 2021, respectively. As ofMarch 31, 2022 , we had an accumulated deficit of$299.2 million . As ofMarch 31, 2022 , we had$315.4 million of cash, cash equivalents and investments. 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. 19
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Strategic Agreements
Tempus R&D Services Agreement
InOctober 2021 , we entered into an agreement for research and development services (Tempus Agreement) withTempus Labs, Inc. (Tempus ), pursuant to whichTempus has agreed to provide us with research and development services for a period of three years. The three primary services are analytical services, data licensing, and organoid services. We intend to utilize the services contemplated under the Tempus Agreement to advance the development of KB-0742 and lanraplenib. In consideration for the access to the services throughout the term of the Tempus Agreement, we have agreed to pay an annual minimum commitment of$1.5 million in year one,$2.0 million in year two, and$2.5 million in year three. Payments are made in quarterly installments. As ofDecember 31, 2021 , we have not made any payments under the Tempus Agreement. In addition, we are required to make milestone payments upon successful achievement of certain regulatory milestones for KB-0742, lanraplenib, and other discovery pipeline compounds up to a combined maximum of$22.4 million . For each milestone payment that becomes due, we have the right to pay up to 50% of such milestone payment amount in shares of our common stock as long as certain regulatory requirements are met.
Gilead Asset Purchase Agreement
InJuly 2020 , we entered into the Gilead Asset Purchase Agreement, pursuant to which we acquired certain assets from Gilead related to entospletinib and lanraplenib, and patents and other intellectual property covering or related to the development, manufacture and commercialization of entospletinib and lanraplenib. In consideration for such assets, on the date of the Gilead Asset Purchase Agreement, we made a$3.0 million upfront cash payment and issued a$3.0 million principal amount convertible promissory note to Gilead (Gilead Note ). We also made a$0.7 million payment to reimburse Gilead for certain liabilities we assumed pursuant to the Gilead Asset Purchase Agreement. In addition, we are required to make milestone payments upon successful achievement of certain regulatory and sales milestones for entospletinib, lanraplenib and other SYK inhibitor compounds covered by the patent rights acquired pursuant to the Gilead Asset Purchase Agreement and developed by us as a back-up to entospletinib or lanraplenib (Other Compounds). Upon initiation of our registrational Phase 3 clinical trial of entospletinib in combination with induction chemotherapy in acute myeloid leukemia patients with NPM1 mutations inDecember 2021 , we paid a milestone to Gilead of$29.0 million . Upon successful completion of certain other regulatory milestones inthe United States ,European Union andUnited Kingdom for entospletinib, lanraplenib and any Other Compounds, across up to two distinct indications, we will be required to pay to Gilead an aggregate total of$51.3 million . Upon achieving certain thresholds for the aggregate annual net sales of entospletinib, lanraplenib and any Other Compounds combined, we would owe to Gilead potential milestone payments totaling$115.0 million . Gilead is also eligible to receive (i) tiered marginal royalties ranging from the very low-teens to high-teens on annual worldwide net sales of entospletinib, (ii) tiered marginal royalties ranging from high-single digits to the mid-teens on annual worldwide net sales of lanraplenib and (iii) tiered marginal royalties ranging from the low single digits to mid-single digits on annual worldwide net sales of any Other Compounds. The royalties in the foregoing clauses are subject to reduction, on a country-by-country basis, for products not covered by certain claims within the assigned patents, for generic entry and, in the case of entospletinib and lanraplenib, for any royalties paid for future licenses of third party intellectual property required to develop or commercialize entospletinib or lanraplenib. Our royalty obligation with respect to a given product in a given country begins upon the first commercial sale of such product in such country and ends on the latest of (i) expiration of the last claim of a defined set of the assigned patent rights covering such product in such country; (ii) loss of exclusive data or marketing rights to such product in such country; or (iii) 10 years from the first commercial sale of such product in such country. Under the Gilead Asset Purchase Agreement, we are required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize either entospletinib or lanraplenib. 20 --------------------------------------------------------------------------------
Harvard License Agreement
InJanuary 2018 , we entered into a license agreement with President and Fellows ofHarvard College (Harvard), pursuant to which Harvard granted us a non-exclusive, worldwide, royalty-free license to certain intellectual property for the purpose of commercializing products relating to our SMM platform. We paid a one-time license fee in the amount of$10,000 on the date of the agreement and an annual license maintenance fee of$20,000 on each of the first two anniversaries and an annual license fee of$25,000 on each subsequent anniversary until the last to expire of any valid claim included in the licensed patents. 21
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Components of Our Results of Operations
Operating Expenses
Our operating expenses consisted of research and development expenses and general and administrative expenses.
Research and Development Expenses
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with our therapeutic discovery efforts and the preclinical and clinical development of our product candidates, as well as the development of our product engine.
Direct costs include:
•expenses incurred under agreements with contract research organizations (CROs) and other vendors that conduct our clinical trials and preclinical activities;
•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•costs of acquiring, developing, and manufacturing clinical trial materials and lab supplies; and
•payments made under third-party strategic agreements.
Indirect costs include:
•personnel costs, which include salaries, benefits, and other employee related costs, including stock-based compensation, for personnel engaged in research and development functions;
•costs related to compliance with regulatory requirements; and
•facilities costs, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies. We expense research and development costs as the services are performed or the goods are received. We recognize costs for certain development activities based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our internal management. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses. Because we are working on multiple research and development programs at any one time, we intend to track our direct costs by the stage of program, clinical or preclinical. However, our internal costs, employees and infrastructure are not directly tied to any one program and are deployed across multiple programs. As such, we do not track indirect costs on a specific program basis.
Our research and development expenses may vary significantly based on a variety of factors, such as:
•the scope, rate of progress, expense and results of our preclinical development activities;
•per patient trial costs;
•the number of trials required for approval; the number of sites included in the trials;
•the number of patients that participate in the trials;
•the countries in which the trials are conducted;
•uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates, particularly in light of the current COVID-19 pandemic environment;
•potential additional safety monitoring requested by regulatory agencies;
•the duration of patient participation in the trials and follow-up;
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--------------------------------------------------------------------------------•the safety and efficacy of our product candidates;
•the timing, receipt, and terms of any approvals from applicable regulatory
authorities including the FDA and non-
•significant and changing government regulation and regulatory guidance;
•potential additional trials requested by regulatory agencies;
•establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
•the extent to which we establish additional strategic collaborations or other arrangements;
•the impact of any business interruptions to our operations or to those of the third parties with whom we work, particularly in light of the current COVID-19 pandemic environment;
•the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; and
•maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we continue to identify and develop additional product candidates and as more of our product candidates move into later stages of clinical development, which typically have higher development costs than those in earlier stages of clinical development due to the increased size and duration of later-stage clinical trials. 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. We may never succeed in achieving regulatory approval for any of our product candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates' development, which could increase our research and development expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, which include salaries, benefits and other employee related costs, such as stock-based compensation, for personnel in our executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; recruiting costs; travel expenses; and facilities-related costs. We expect that our general and administrative expenses will continue to increase substantially for the foreseeable future as we continue to increase our general and administrative personnel headcount to support personnel in research and development, and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our product candidates. We also expect to continue to incur significant expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance costs, and investor and public relations costs.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest earned on our cash, cash equivalents and investments.
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--------------------------------------------------------------------------------Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development $ 24,438 $ 17,594 $ 6,844
General and administrative 11,927 8,584 3,343
Total operating expenses 36,365 26,178 10,187
Loss from operations (36,365) (26,178) (10,187)
Other income (expense), net:
Interest and other income, net 102 92 10
Total other income (expense), net 102 92 10
Net loss $ (36,263) $ (26,086) $ (10,177) Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended March 31,
2022 2021 Change
(in thousands)
Direct Costs $ 10,714 $ 9,763 $ 951
Indirect Costs:
Personnel 9,364 6,071 3,293
Facilities, depreciation and other expenses 4,360 1,760 2,600
Total research and development expenses $ 24,438 Research and development expenses were$24.4 million for the three months endedMarch 31, 2022 , compared to$17.6 million for the three months endedMarch 31, 2021 . The increase of$6.8 million was primarily due to an increase of$3.3 million in personnel costs primarily attributable to increased research and development personnel headcount, including an increase in stock-based compensation of$1.3 million . Also contributing to this increase in research and development expenses was an increase of$3.3 million in outside and consulting research expenses and an increase of$0.5 million in facilities, depreciation and other expenses attributable to ourSan Mateo lease. These increases were partially offset by a decrease of$0.2 million in lab supplies.
General and Administrative Expenses
General and administrative expenses were$11.9 million for the three months endedMarch 31, 2022 compared to$8.6 million for the three months endedMarch 31, 2021 . The increase of$3.3 million was primarily due to an increase in stock-based compensation of$1.3 million and an increase of$0.9 million in personnel costs, primarily attributable to increased general and administrative personnel headcount to support the growth of our research and development organization. Also contributing to this increase in general and administrative expenses is an increase of$0.7 million in professional fees primarily attributable to insurance and other professional services and an increase of$0.4 million in other general and administrative expenses. 24 --------------------------------------------------------------------------------
Interest and Other Income, Net
Interest and other income, net primarily consists of interest earned on our cash, cash equivalents, and investments.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years, if ever. Prior to our IPO, our operations were financed primarily by net proceeds from the sale and issuance of our convertible preferred stock and convertible notes, totaling aggregate gross proceeds of$278.2 million . Upon completion of our IPO onOctober 14, 2020 , we sold an aggregate of 15,131,579 shares of our common stock including 1,973,684 shares of common stock sold pursuant to the full exercise of the underwriters' option to purchase additional shares at a price of$19.00 per share and received approximately$263.7 million in net proceeds after deducting underwriting discounts and commissions and offering expenses. As ofMarch 31, 2022 , we had cash, cash equivalents and investments of$315.4 million . We expect that our cash, cash equivalents and investments as ofMarch 31, 2022 , will enable us to fund our planned operating expenses and capital expenditure requirements for at least one year from the date of this report. Material Cash Requirements Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to entospletinib, lanraplenib and KB-0742, and our other research efforts, and to a lesser extent, general and administrative expenditures. 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. Our product candidates are still in the early stages of clinical and preclinical development, and the outcomes of these efforts are uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration agreements. If we do raise additional capital through public or private equity 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 existing 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, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans.
Contractual Obligations and Commitments
InFebruary 2021 , we entered into a new lease agreement for our office space inSan Mateo, California , in order to move from our former suites, totaling 8,075 square-feet, to a single, larger suite totaling 17,340 square-feet, and relocated in the third quarter of 2021. The initial annual base rent for the new suite is$1.2 million , and such amount will increase by 3% annually on each anniversary of the new premises commencement date. In connection with the larger space leased, we have also made an additional one-time cash security deposit in the amount of$59,000 . The new lease commenced inApril 2021 while tenant improvements were being made and the new lease agreement extends the termination date fromApril 30, 2025 toAugust 31, 2026 . In 2020, we entered into additional lease agreements to expand our office and lab spaces. OnFebruary 28, 2020 , we entered into an 11-year lease agreement to move our research and development operations to a 40,514 square-foot facility at301 Binney Street ,Cambridge, Massachusetts (newCambridge facility). The initial annual base rent is approximately$4.1 million and such amount will increase by 3% annually on each anniversary of the rent commencement date, which wasOctober 2020 . 25
-------------------------------------------------------------------------------- Pursuant to the Gilead Asset Purchase Agreement, we are obligated to make milestone payments upon the achievement of specified regulatory and clinical milestones as well as royalty payments. The payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones or generating product sales. We are currently unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See the subsection titled "-Strategic Agreements-Gilead Asset Purchase Agreement" above. Pursuant to the Tempus Agreement, we are obligated to make milestone payments upon the achievement of specified regulatory milestones as well as annual minimum commitments in quarterly installments. Some payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones. We are currently unable to estimate the timing or likelihood of achieving these milestones. See the subsection titled "-Strategic Agreements-Tempus R&D Services Agreement" above.
We enter into contracts in the ordinary course of business with CROs for clinical trials, preclinical and clinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are generally terminable by us upon prior notice. Payments due upon termination generally consist only of payments for services provided and expenses incurred up to the date of termination.
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Three Months Ended March 31,
2022 2021
(unaudited)
(in thousands)
Cash used in operating activities $ (23,484) $ (18,998)
Cash used in (provided by) investing activities (26,336) (88,149)
Cash provided by financing activities 529 585
Net decrease in cash and cash equivalents $
(49,291)
Operating Activities
During the three months endedMarch 31, 2022 , cash used in operating activities was$23.5 million , which was primarily attributable to our net loss of$36.3 million , partially offset non-cash charges of$9.7 million . The non-cash charges primarily consisted of$7.8 million in stock-based compensation, net amortization and accretion of investment securities of$0.5 million , noncash lease expense of$0.5 million , and depreciation and amortization of$0.6 million . During the three months endedMarch 31, 2021 , cash used in operating activities was$19.0 million , which was primarily attributable to our net loss of$26.1 million , primarily offset by non-cash charges of$7.1 million . The non-cash charges primarily consisted of$5.2 million in stock-based compensation, net amortization and accretion of investment securities of$0.9 million , noncash lease expense of$0.5 million , and depreciation and amortization of$0.4 million .
Investing Activities
During the three months endedMarch 31, 2022 , cash used in investing activities was$26.3 million , consisting of$94.5 million in purchases of marketable securities and$0.4 million for the purchase of property and equipment partially offset by$68.6 million in maturities of marketable securities. During the three months endedMarch 31, 2021 , cash used in investing activities was$88.1 million , consisting of$126.0 million of net investment purchases and$1.5 million for the purchase of property and equipment, partially offset by$39.4 million in investment maturities. 26 --------------------------------------------------------------------------------
Financing Activities
During the three months endedMarch 31, 2022 , net cash provided by financing activities was$0.5 million , consisting of proceeds from the exercise of stock options of$0.5 million . During the three months endedMarch 31, 2021 , net cash provided by financing activities was$0.6 million , consisting primarily of proceeds from the exercise of stock options of$0.6 million .
Critical Accounting Policies and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our unaudited condensed financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results could differ from our estimates.
We believe that there have been no significant changes in our critical
accounting policies and estimates from those described under the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is provided in Note 2 to
our condensed financial statements included elsewhere in Item 1 of Part I of
this Quarterly Report on Form 10-Q.
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