LEAP THERAPEUTICS, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help the reader understand our
results of operations and financial condition. This MD&A is provided as a
supplement to, and should be read in conjunction with, our condensed
consolidated financial statements and the accompanying notes thereto and other
disclosures included in this Quarterly Report on Form 10-Q, including the
disclosures under Part II, Item IA "Risk Factors," and our audited condensed
consolidated financial statements and the accompanying notes thereto included in
our Annual Report on Form 10-K for the year ended December 31, 2021 , which was
filed with the Securities and Exchange Commission , or the SEC , on March 11,
2022 . Our condensed consolidated financial statements have been prepared in
accordance with U.S. GAAP and, unless otherwise indicated, amounts are presented
in U.S. dollars.
Company Overview
We are a biopharmaceutical company developing novel therapies designed to treat
patients with cancer by inhibiting fundamental tumor-promoting pathways and by
harnessing the immune system to attack cancer cells. Our strategy is to
identify, acquire, and develop molecules that will rapidly translate into high
impact therapeutics that generate durable clinical benefit and enhanced patient
outcomes.
Our lead clinical stage program is DKN-01, a monoclonal antibody that inhibits
Dickkopf-related protein 1, or DKK1 . DKK1 is a protein that regulates the Wnt
signaling pathways and enables tumor cells to proliferate and spread, as well as
suppresses the immune system from attacking the tumor. When DKN-01 binds to
DKK1 , an anti-tumor effect can be generated. DKN-01-based therapies have
generated responses and clinical benefit in several patient populations. We are
currently studying DKN-01 in multiple ongoing clinical trials in patients with
esophagogastric cancer, hepatobiliary cancer, gynecologic cancers, or prostate
cancer. We entered into an exclusive option and license agreement (the "BeiGene
Agreement") with BeiGene, Ltd., or BeiGene, which granted BeiGene the right to
develop and commercialize DKN-01 in Asia (excluding Japan ), Australia , andNew Zealand . Recent Developments
Since
Positive New Data from the DisTinGuish Clinical Trial of DKN-01 Plus
? Tislelizumab and Chemotherapy Presented at ASCO GI Cancers Symposium 2022. We
presented positive new data from the Phase 2a study in patients with gastroesophageal junction or gastric (GEJ/G) cancer.
Part A First-Line Patients: Of the 25 first-line GEJ/G cancer patients who
received a full cycle of DKN-01 therapy, overall response rate (ORR) was 68.2%,
with 90% ORR in
patients (1 complete response, 4 partial responses). Among those patients with
? low PD-L1 expression ORR was 79% (with 100% ORR in
ORR in
67% (with 75% ORR in
preliminary median progression-free survival (PFS) was 10.7 months in the
overall first-line population, and median overall survival had not been reached.
Part B Second-Line Patients: Of the 30 second-line
? patients who received a full cycle of DKN-01 therapy and were response
evaluable, ORR was 25%, with an additional patient who experienced an irPR by
iRECIST criteria.
Completed Enrollment in the DisTinGuish Clinical Trial (NCT04363801) of DKN-01
Plus Tislelizumab in
? we completed enrollment in Part B of the DisTinGuish clinical trial, studying
DKN-01 and tislelizumab in second-line advanced GEJ/G patients with high tumoralDKK1 expression.
Care for Cancer Patients. In
diagnostics company, entered into an agreement to develop a companion
? diagnostic to detect
Leica will utilize RNAscope™ technology on the BOND-III Automated Staining
System, which allows for detection ofDKK1 with high sensitivity and specificity to help identify patients for DKN-01 treatment. 24 Table of Contents
Abstract Accepted for Poster Presentation at the Upcoming 2022 ASCO Annual
Meeting Highlighting Initial Clinical Data from the Phase 1b/2a Clinical Trial
(NCT03837353) of DKN-01 Plus Docetaxel in Prostate Cancer. We will present
initial clinical data from the investigator-sponsored Phase 1b/2a dose
? escalation and dose expansion study testing DKN-01 as monotherapy or in
combination with docetaxel in metastatic castration-resistant prostate cancer
at the upcoming 2022 ASCO Annual Meeting taking place in
3-7. Dr.
the study. Financial Overview Revenues Our revenues relate to our performance obligations under the BeiGene Agreement and may include such things as providing intellectual property licenses, performing technology transfer, performing research and development consulting services and notifying the customer of any enhancements to licensed technology or new technology that we discover, among others. We have determined that our performance obligations under the BeiGene Agreement, as evaluated at contract inception, were not distinct and represented a single performance obligation. Upfront payments are amortized to revenue on a straight-line basis over the performance period. Upfront payment contract liabilities resulting from the BeiGene Agreement do not represent a financing component as the payment is not financing the transfer of goods or services, and the technology underlying the license granted reflects research and development expenses already incurred by us. Generally, all amounts received or due other than sales-based milestones and royalties are classified as license revenues. Sales-based milestones and royalties under the BeiGene Agreement will be recognized as royalty revenue in the period the related sale occurred. We generally invoice our licensee upon the completion of the effort or achievement of a milestone, based on the terms of the BeiGene Agreement. Deferred revenue arises from amounts received in advance of the culmination of the earnings process and is recognized as revenue in future periods as performance obligations are satisfied. Deferred revenue expected to be recognized within the next twelve months is classified as a current liability.
Research and Development Expenses
Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for DKN-01 and TRX518. We recognize research and development expenses as they are incurred. Our research and development expenses consist primarily of:
? salaries and related overhead expenses for personnel in research and
development functions, including costs related to stock-based compensation;
fees paid to consultants and CROs for our nonclinical and clinical trials, and
? other related clinical trial fees, including but not limited to laboratory
work, clinical trial database management, clinical trial material management
and statistical compilation and analysis;
? costs related to acquiring and manufacturing clinical trial material; and
? costs related to compliance with regulatory requirements.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of DKN-01 and any other product candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such as employee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs in connection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities. We participate, through our subsidiary inAustralia , in the Australian government's research and development ("R&D") Incentive program, such that a percentage of our eligible research and development expenses are reimbursed by the Australian government as a refundable tax offset and such incentives are reflected as other income. 25
Table of Contents
The table below summarizes our research and development expenses incurred by development program and the R&D Incentive income for the three months endedMarch 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 (in thousands) Direct research and development by program: DKN01 program$ 7,740 $
6,615
TRX518 program 44
192
Total research and development expenses$ 7,784 $
6,807
Australian research and development incentives $ 37 $
71
The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
? the scope, rate of progress and expense of our ongoing, as well as any
additional, clinical trials and other research and development activities;
? future clinical trial results; and
? the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. Interest income
Interest income consists primarily of interest income earned on cash and cash equivalents.
Research and development incentive income
Research and development incentive income includes payments under the R&D Incentive program from the government ofAustralia . The R&D Incentive program is one of the key elements of the Australian Government's support forAustralia's innovation system. It was developed to assist businesses in recovering some of the costs of undertaking research and development. The research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities.
Companies engaged in research and development may be eligible for either:
? a 43.5% refundable tax offset for entities with an aggregated turnover of less
than
26
Table of Contents
? a 38.5% non-refundable tax offset for all other entities.
We recognize as income the amount we expect to be reimbursed for qualified expenses.
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our Australian subsidiary.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, 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. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K filed with theSEC onMarch 11, 2022 and the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity: ? revenue recognition;
? accrued research and development expenses;
? research and development incentive receivable; and
? stock-based compensation. Results of Operations
Comparison of the 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)
License revenue $ - $ 375 $ (375)
Operating expenses:
Research and development 7,784 6,807 977
General and administrative 2,848 2,740 108
Total operating expenses 10,632 9,547 1,085
Loss from operations (10,632) (9,172) (1,085)
Interest income 5 2 3
Interest expense (21) (14) (7)Australian research and development incentives 37 71 (34) Foreign currency gain (loss) 235
(21) 256
Net loss $ (10,376) $ (9,134) $ (1,242)
27
Table of Contents
Revenues
License revenue for the three months endedMarch 31, 2021 was$0.4 million and relates to the BeiGene Agreement for the development and commercialization of DKN-01 inAsia (excludingJapan ),Australia, and New Zealand . No such license revenue was recorded in the three months endedMarch 31, 2022 as the upfront payment was fully recognized as ofDecember 31, 2021 .
Research and Development Expenses
Three Months Ended March 31,
Increase
2022 2021 (Decrease)
(in thousands)
Direct research and development by program:
DKN01 program $ 7,740 $ 6,615 $ 1,125
TRX518 program 44 192 (148)
Total research and development expenses $ 7,784 $
6,807
Research and development expenses were$7.8 million for the three months endedMarch 31, 2022 , compared to$6.8 million for the three months endedMarch 31, 2021 . The increase of$1.0 million in research and development expenses was due to an increase of$0.6 million in clinical trial costs due to timing of patient enrollment, an increase of$0.6 million in payroll and other related expenses due to an increase in headcount of our research and development full time employees and an increase of$0.2 million in stock based compensation expense due to new stock options and restricted stock units granted to research and development full time employees during the three months endedMarch 31, 2022 . These increases were partially offset by a$0.4 million decrease in manufacturing costs related to clinical trial material due to timing of manufacturing campaigns.
General and Administrative Expenses
General and administrative expenses were$2.8 million for the three months endedMarch 31, 2022 , compared to$2.7 million for the three months endedMarch 31, 2021 . The increase of$0.1 million in general and administrative expenses was due an increase of a$0.2 million in stock based compensation expense due to new stock options and restricted stock units granted to general and administrative full time employees during the three months endedMarch 31, 2022 and an increase of$0.1 million in payroll and other related expenses due to an increase in compensation expense. These increases were partially offset by a$0.2 million decrease in professional fees during the three months endedMarch 31, 2022 as compared to the same period in 2021.
Interest Income
We recorded an immaterial amount of interest income in the three months ended
We recorded R&D incentive income of$0.1 million during the three months endedMarch 31, 2021 , based upon the applicable percentage of eligible research and development activities under the Australian Incentive Program, which expenses included the cost of manufacturing clinical trial material. We recorded an immaterial amount of R&D incentive income during the three months endedMarch 31, 2022 .
The R&D incentive receivable has been recorded as "Research and development incentive receivable" in the condensed consolidated balance sheets.
Foreign Currency Gains (loss)
During the three months endedMarch 31, 2022 , we recorded a foreign currency gain of$0.2 million . During the three months endedMarch 31, 2021 , we recorded an immaterial amount of foreign currency loss. Foreign currency gains and losses are due to changes in the Australian dollar exchange rate related to activities of the Australian entity. 28 Table of Contents
Financial Position, Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities, including raising capital, and research and development activities. We do not yet have a product that has been approved by theFood and Drug Administration (the "FDA"), have not yet achieved profitable operations, nor have we ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, our future operations are dependent on the success of efforts to raise additional capital, our research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of our products. In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As ofMarch 31, 2022 , we had cash and cash equivalents of$103.2 million . Additionally, we had an accumulated deficit of$273.9 million atMarch 31, 2022 , and during the three months endedMarch 31, 2022 , we incurred a net loss of$10.4 million . We expect to continue to generate operating losses in the foreseeable future. We believe that our cash and cash equivalents of$103.2 million as ofMarch 31, 2022 will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of these financial statements. In addition, we will seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If we do not obtain additional funding or development program cost-sharing, we will be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, which would adversely affect our business prospects. The inability to obtain funding, as and when needed, would have a negative impact on our financial condition and ability to pursue our business strategies.
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Three Months Ended March 31,
2021 2020
(in thousands)
Cash used in operating activities $ (11,518) $ (8,587)
Cash provided by (used in) financing activities (210) 14
Effect of exchange rate changes on cash and cash equivalents 32 (7)
Net decrease in cash and cash equivalents $
(11,696)
Operating activities. Net cash used in operating activities for the three months endedMarch 31, 2022 was primarily related to our net loss from the operation of our business of$10.4 million and net changes in working capital, including a decrease in accounts payable and accrued expenses of$2.4 million , a decrease in lease liabilities of$0.1 million and foreign currency gains of$0.2 million . These changes were partially offset by a decrease of$0.3 million in prepaid expenses and other assets, noncash stock based compensation expense of$1.2 million and change in a right-of-use asset of$0.1 million . Net cash used in operating activities for the three months endedMarch 31, 2021 was primarily related to our net loss from the operation of our business of$9.1 million and net changes in working capital, including a decrease of$0.4 million in deferred revenue, an increase of$0.1 million in prepaid expenses and other assets, a decrease in lease liabilities of$0.1 million and a$0.2 million decrease related to a noncash change in restricted stock liability. These changes were partially offset by an increase in accounts payable and accrued expenses of$0.4 million , noncash stock based compensation expense of$0.8 million and amortization on right-of-use assets of$0.1 million .
Investing Activities. There were no investing activities during the three months
ended
Financing Activities. Net cash used in financing activities for the three months endedMarch 31, 2022 consisted of payments of deferred offering costs of$0.2 million . Net cash provided by financing activities for the three months endedMarch 31, 2021 consisted of proceeds from the exercise of common stock warrants. 29 Table of Contents
© Edgar Online, source
