MEI PHARMA, INC. The following discussion and analysis should be read in conjunction with "Item 8. Financial Statements and Supplementary Data" included below in this Annual Report. Operating results are not necessarily indicative of results that may occur in future periods.
This discussion and analysis contains forward-looking statements that involve a number of risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in the forward-looking statements as a result of many factors including, but not limited to, those set forth under "Cautionary Statement About Forward-Looking Statements" and "Risk Factors" in Item 1A. included above in this Annual Report. All forward-looking statements included in this Annual Report are based on the information available to us as of the time we file this Annual Report, and except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.
Overview
We are a late-stage pharmaceutical company committed to the development and
commercialization of novel cancer therapies intended to improve outcomes for
patients.
Clinical Development Programs
We build our pipeline by licensing promising cancer agents and creating value in programs through development, commercialization and strategic partnerships, as appropriate. Our objective is to leverage the mechanisms and properties of our pipeline drug candidates to optimize the balance between efficacy and tolerability to meet the needs of patients with cancer. Our drug candidate pipeline includes:
•
Zandelisib (f/k/a ME-401), an oral phosphatidylinositol 3-kinase ("PI3K") delta
inhibitor;
•
Voruciclib, an oral cyclin-dependent kinase ("CDK") 9 ("CDK9") inhibitor; and
•
ME-344, a mitochondrial inhibitor targeting the oxidative phosphorylation
("OXPHOS") complex.
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For a more complete discussion of our business, see the section of this Annual Report "Item 1. Business" above.
Recent Developments
Nasdaq Bid Price Letter
On
In accordance with Nasdaq listing rules, we were provided an initial period of
180 calendar days, or until
If we do not regain compliance with Nasdaq listing rules by
We have not regained compliance with Nasdaq listing rules as of the date of this Annual Report.
Equity Transactions
Underwritten Registered Offering
During the year ended
Shelf Registration Statement
We have a shelf registration statement that permits us to sell, from time to
time, up to
At-The-Market Equity Offering
On
Warrants
As of
Critical Accounting Policies and Management Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
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requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. Actual results could differ from those estimates. We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition Revenues from Customers
We recognize revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606") when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. For enforceable contracts with our customers, we first identify the distinct performance obligations - or accounting units - within the contract. Performance obligations are commitments in a contract to transfer a distinct good or service to the customer.
Payments received under commercial arrangements, such as licensing technology rights, may include non-refundable fees at the inception of the arrangements, cost reimbursements, milestone payments for specific achievements designated in the agreements, and royalties on the sale of products. At the inception of arrangements that include variable consideration, we use judgment to estimate the amount of variable consideration to include in the transaction price using the most likely method. If it is probable that a significant revenue reversal will not occur, the estimated amount is included in the transaction price. Milestone payments that are not within our or the licensee's control, such as regulatory approvals, are not included in the transaction price until those approvals are received. At the end of each reporting period, we re-evaluate estimated variable consideration included in the transaction price and any related constraint and, as necessary, we adjust our estimate of the overall transaction price.
We develop estimates of the stand-alone selling price for each distinct performance obligation. Variable consideration that relates specifically to our efforts to satisfy specific performance obligations is allocated entirely to those performance obligations. Other components of the transaction price are allocated based on the relative stand-alone selling price, over which management has applied significant judgment. We develop assumptions that require judgment to determine the stand-alone selling price for license-related performance obligations, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical, regulatory and commercial success. We estimate stand-alone selling price for research and development performance obligations by forecasting the expected costs of satisfying a performance obligation plus an appropriate margin.
In the case of a license that is a distinct performance obligation, we recognize revenue allocated to the license from non-refundable, up-front fees at the point in time when the license is transferred to the licensee and the licensee can use and benefit from the license. For licenses that are bundled with other distinct or combined obligations, we use judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. If the performance obligation is satisfied over time, we evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. Revenue is recorded proportionally as costs are incurred. We generally use the cost-to-cost measure of progress because it best depicts the transfer of control to the customer which occurs as we incur costs. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation (an "input method" under Topic 606). We use judgment to estimate the total cost expected to complete the research and development performance obligations, which include subcontractors' costs, labor, materials, other direct costs and an allocation of indirect costs. We evaluate these cost estimates and the progress each reporting period and, as necessary, we adjust the measure of progress and related revenue recognition.
Revenues from Collaborators
At contract inception, we assess whether the collaboration arrangements are within the scope of ASC Topic 808, Collaborative Arrangements ("Topic 808") to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed based on the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple units of account, we first determine which units of account within the arrangement are within the scope of Topic 808 and which elements are within the scope of Topic 606. For units of account within collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, by analogy to authoritative accounting literature. For units of account within collaboration arrangements that are accounted for pursuant to Topic 606, we recognize revenue as discussed above. Consideration received that does not meet the requirements to satisfy Topic 606 revenue recognition criteria is recorded as deferred revenue on the Balance Sheets, classified as either current or long-term deferred revenue based on our best estimate of when such amounts will be recognized.
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Research and Development Costs
Research and development costs are expensed as incurred and include costs paid to third party contractors to perform research, conduct clinical trials and develop and manufacture drug materials. Clinical trial costs, including costs associated with third party contractors, are a significant component of research and development expenses. We expense research and development costs based on work performed. In determining the amount to expense, management relies on estimates of total costs based on contract components completed, the enrollment of subjects, the completion of trials, and other events. Costs incurred related to the purchase or licensing of in-process research and development for early-stage products or products that are not commercially viable and ready for use, or have no alternative future use, are charged to expense in the period incurred.
Share-Based Compensation
Share-based compensation expense stock options and restricted stock units, ("RSUs"), granted to employees and directors is recognized in the Statements of Operations based on estimated amounts. For stock options, we estimate the grant date fair value using a Black-Scholes valuation model, which requires the use of multiple subjective inputs including estimated future volatility, expected forfeitures and the expected term of the awards. We estimate the expected future volatility based on the stock's historical price volatility. The stock's future volatility may differ from the estimated volatility at the grant date. For RSUs, we estimate the grant date fair value using our closing stock price on the date of grant. We recognize the effect of forfeitures in share-based compensation expense when the forfeitures occur. We recognize the value of the awards over the awards' requisite service or performance periods. The requisite service period is generally the time over which our share-based awards vest.
Warrant Liability
Pursuant to the terms of the warrants, we could be required to settle our warrants in cash in the event of an acquisition of the Company and, as a result, the warrants are required to be measured at fair value and reported as a liability in the Balance Sheets. We recorded the fair value of the warrants upon issuance using the Black-Scholes valuation model, and are required to revalue the warrants at each reporting date with any changes in fair value recorded on our Statements of Operations. Inputs used to determine the estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date, the estimated term of the warrants, risk-free interest rates, expected dividends and the expected volatility of the underlying stock.
Leases
At the inception of a leasing arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances within the arrangement. A lease is identified where an arrangement conveys the right to control the use of identified property, plant, and equipment for a period of time in exchange for consideration. Leases which are identified within the scope of ASC 842 and which have a term greater than one year are recognized on our Balance Sheets as ROU assets and operating lease liabilities. Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected remaining lease term. The lease term includes any renewal options and termination options that we are reasonably certain to exercise. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, we use our incremental borrowing rate. The interest rate implicit in lease contracts to calculate the present value is typically not readily determinable. As such, significant management judgment is required to estimate the incremental borrowing rate.
Income Taxes
Our income tax expense consists of current and deferred income tax expense or
benefit. Current income tax expense or benefit is the amount of income taxes
expected to be payable or refundable for the current year. A deferred income tax
asset or liability is recognized for the future tax consequences attributable to
tax credits and loss carryforwards and to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. As of
Results of Operations
Comparison of Years Ended
Revenue: Revenue increased by
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Research and Development: The following table illustrates the components of our research and development expenses for the years presented (in thousands):
Years Ended June 30,
2022 2021
zandelisib $ 54,764 $ 46,052
voruciclib 5,475 2,939
ME-344 2,915 960
Other 22,487 19,447
Total research and development expenses
Research and development expenses consist primarily of clinical trial costs,
including payments to contract research organizations, pre-clinical study costs,
and costs to manufacture our drug candidates for non-clinical and clinical
studies. Other research and development expenses consist primarily of salaries
and personnel costs, share-based compensation, legal costs, and other costs not
allocated to specific drug programs. Costs related to zandelisib increased for
the year ended
General and Administrative: The increase in general and administrative expenses
of
Other Income, Net: Other income, net, increased by
Comparison of Years Ended
We have omitted discussion of the results of operations for the fiscal year
ended
New Accounting Pronouncements
See Note 1, "The Company and Summary of Significant Accounting Policies," to the Financial Statements included in Item 8 of this Annual Report.
Liquidity and Capital Resources
We have accumulated losses of
To date, we have obtained cash and funded our operations primarily through equity financings and license agreements. In order to continue the development of our drug candidates, at some point in the future we expect to pursue one or more capital transactions, whether through the sale of equity securities, debt financing, license agreements or entry into strategic partnerships. There can be no assurance that we will be able to continue to raise additional capital in the future.
Sources and Uses of Our Cash
Net cash used in operating activities for the year ended
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withholdings) for the year ended
Net cash provided by investing activities for the year ended
Net cash provided by financing activities for the year ended
Contractual Obligations
We have contracted with various consultants and third parties to assist us in pre-clinical research and development and clinical trials work for our leading drug compounds. The contracts are terminable at any time, but obligate us to reimburse the providers for any time or costs incurred through the date of termination. Additionally, we have employment agreements with certain of our current employees that provide for severance payments and accelerated vesting for share-based awards if their employment is terminated under specified circumstances.
In
Presage License Agreement
In
COVID-19
As a result of the ongoing COVID-19 pandemic, various public health orders and
guidance measures have been implemented across much of the
While we continue to enroll and dose patients in our clinical trials, our
clinical development program timelines may continue to be subject to potential
negative impacts from the ongoing pandemic in the
We may experience enrollment delays and suspensions, patient withdrawals, postponement of planned clinical or preclinical studies, redirection of site resources from studies, and study deviations or noncompliance. We may also need to maintain or implement study modifications, suspensions, or terminations, the introduction of additional remote study procedures and modified informed consent procedures, study site changes, direct delivery of investigational products to patient homes or alternative sites, which may require state licensing, and changes or delays in site monitoring. The foregoing may require that we consult with relevant review and ethics committees, IRBs and the FDA. The foregoing may also impact the integrity of our study data. The ongoing COVID-19 pandemic may further increase the need for clinical trial patient monitoring and regulatory reporting of adverse effects, and may delay regulatory authority meetings, inspections, assessments, or the regulatory review of marketing or investigational applications or submissions.
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The ongoing COVID-19 pandemic may also impact our ability to procure the necessary supply of our investigational drug products, as well as any ancillary supplies necessary for the conduct of our studies. Third party manufacturers may also need to implement measures and changes, or deviate from typical manufacturing requirements that may otherwise adversely impact our product candidates.
In light of the ongoing COVID-19 pandemic, the FDA issued a number of new
guidance documents. Specifically, as a result of the potential effect of the
ongoing COVID-19 pandemic on many clinical trial programs in the
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