METACRINE, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q, or Quarterly Report, and the audited financial statements
and related notes and 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
Overview
We are a clinical-stage biopharmaceutical company currently focused on developing differentiated therapies for patients with gastrointestinal, or GI, diseases. Our most advanced program, MET642, targets the farnesoid X receptor, or FXR, which is central to modulating GI and liver diseases.
Prior to
We have engaged
We believe FXR plays a key role in the treatment of IBD, including UC. FXR is highly expressed by intestinal epithelial cells and plays a key role in healthy intestinal function by maintaining the epithelial barrier, reducing bacterial translocation into the intestinal wall and regulating the innate immune response. FXR-based therapies in IBD address multiple aspects of IBD pathogenesis without the immunosuppression inherent to other advanced-line therapies.
IBD is a significant global health issue and is thought to occur due to a
maladaptive immune response to gut microbes. UC and Crohn's disease are the two
primary types of IBD. Patients with IBD can suffer from abdominal pain and
bloody diarrhea and also be at increased risk of colorectal cancer. The global
incidence of IBD is increasing and as of 2015, it was estimated that there were
3.1 million people in
We believe an oral, once-daily therapy with FXR agonists could be an attractive treatment option for UC patients that may prefer oral administration instead of injectable biologics that are cumbersome to administer chronically. In preclinical animal studies with our current and previous FXR agonist product candidates, we have observed statistically significant improvements in colon histology and at levels similar to that of a mouse antibody which targets IL-12/23. The IL-12/23 pathway is the target of current approved biologic therapies.
We have delayed clinical development efforts related to our planned Phase 2a
proof-of-concept clinical trial of MET642 in UC until the completion of our
review of strategic alternatives. The planned UC trial is currently designed as
a 12-week randomized, double blind, placebo controlled, multi-center clinical
trial evaluating the efficacy and safety of two dose levels of MET642, compared
to placebo, over 12 weeks of treatment. Eligible patients will be randomized in
a 1:1:1 ratio to receive MET642 (3 mg), MET642 (6 mg) or placebo. Each trial
drug will be given once daily by oral administration. The trial is designed to
enroll up to 165 patients in
There may be changes to the design of the planned UC trial depending upon the outcome of our review and as part of the strategic alternatives being considered. These changes could result in further delays, significant increases to the cost of the planned UC trial, or the discontinuation of the planned UC trial.
To date, we have devoted substantially all of our resources to organizing and staffing our company, business, planning, raising capital, researching, discovering and developing our pipeline in FXR and other drug targets and general and administrative support for these operations. We do not have any products approved for sale and have not generated any product sales. We have funded our
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operations primarily through the private placement of convertible preferred
stock, the issuance of long-term debt, and the sale of common stock from our
initial public offering, or IPO, and our at-the-market equity offering program,
or ATM offering program. Through
We have incurred net losses since our inception. Our net losses were
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of MET642 or any future product candidate, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, additional borrowings under the K2 Loan Agreement, strategic transactions, collaborations, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Financial Operations Overview
Revenues
To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever.
Research and Development Expenses
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
• salaries, payroll taxes, employee benefits and stock-based compensation
charges for those individuals involved in research and development efforts;
• external research and development expenses incurred under agreements with
contract research organizations, or CROs, investigative sites and
consultants to conduct our preclinical, toxicology and clinical studies;
• costs related to manufacturing our product candidates for clinical trials
and preclinical studies, including fees paid to third-party manufacturers;
• laboratory supplies;
• costs related to compliance with regulatory requirements; and
• facilities, depreciation and other allocated expenses, which include direct
and allocated expenses for rent, maintenance of facilities, insurance,
equipment and other supplies.
The following table summarizes our research and development expenses allocated
by program for the three months ended
Three Months Ended
March 31,
2022 2021
Third-party research and development expenses:
FXR program $ 4,744 $ 7,491
Other research programs 187 468
Total third-party research and development expenses 4,931 7,959 Unallocated expenses
1,749 2,898
Total research and development expenses $ 6,680 $ 10,857 Unallocated expenses consist primarily of our internal personnel related costs, facility costs, and lab supplies.
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Our Restructuring Plan, which we implemented in
Our development costs may vary significantly based on factors such as:
• per patient trial costs;
• the number and scope of preclinical studies;
• the number of trials required for approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the phase of development of the product candidate;
• the efficacy and safety profile of the product candidate; and
• the extent to which we collaborate with biopharmaceutical companies for the
development and potential commercialization of the product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance, and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, and insurance. We anticipate that our general and administrative expenses will increase in the future to support our development and other commercial activities if MET642 or any future product candidate receives marketing approval.
Restructuring Charges
Restructuring charges consist primarily of (i) one-time payments relating to severance obligations and other customary employee benefits and the acceleration of the vesting of certain equity awards in connection with the staff reduction and (ii) third-party costs associated with the discontinuation of our HSD program. Refer to Note 9 in our unaudited condensed consolidated financial statements for further discussion.
Gain from Lease Termination and Asset Sale
Gain from lease termination and asset sale relates to the termination of the
facility lease for our former corporate headquarters and the sale of personal
property to
Total Other Income (Expense)
Total other income (expense) consists primarily of interest income from our cash, cash equivalents, and short-term investments and interest expense under our K2 Loan Agreement.
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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,
(In thousands) 2022 2021 Change
Operating expenses:
Research and development $ 6,680 $ 10,857 $ (4,177 )
General and administrative 5,482 3,696 1,786
Restructuring charges 858 - 858
Gain from lease termination and asset sale (508 ) - (508 )
Total operating expenses 12,512 14,553 (2,041 )
Loss from operations (12,512 ) (14,553 ) 2,041
Other income (expense):
Interest income 23 36 (13 )
Interest expense (414 ) (244 ) (170 )
Other income (expense) 23 (7 ) 30
Total other income (expense) (368 ) (215 ) (153 )
Net loss $ (12,880 ) $ (14,768 ) $ 1,888 Research and Development Expenses. Research and development expenses were
General and Administrative Expenses. General and administrative expenses were
Restructuring Charges. Restructuring charges were
Gain from Lease Termination and Asset Sale. Gain from lease termination and
asset sale was
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
Three Months Ended
March 31,
2022 2021
Net cash provided by (used in):
Operating activities $ (13,699 ) $ (12,170 )
Investing activities (2,176 ) 6,611
Financing activities - 623
Net decrease in cash and cash equivalents
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Operating Activities
Net cash used in operating activities was
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities of
Net cash provided by investing activities of
Financing Activities
There was no cash provided by financing activities for the three months ended
Net cash provided by financing activities of
Loan Agreement
In
Term loans under the K2 Loan Agreement bear interest at a floating annual rate
equal to the greater of (i) the prime rate used by lender plus 4.5% and
(ii) 7.75%. The monthly payments on the 2021 Refinancing Term Loans are
interest-only until
Our obligations under the K2 Loan Agreement are secured by a security interest
in substantially all of our assets, other than our intellectual property. The K2
Loan Agreement includes customary affirmative and negative covenants and also
includes standard events of default, including an event of default based on the
occurrence of a material adverse event, and a default under any agreement with a
third party resulting in a right of such third party to accelerate the maturity
of any debt in excess of
Sales Agreement
On
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ended
Material Cash Requirements
Our material cash requirements from known contractual obligations have not changed materially since our Annual Report.
On
We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our material cash requirements through at least the next twelve months based on our current operating plans. We expect to finance our long-term cash requirements and obligations through a combination of existing cash and cash equivalents and equity offerings and debt financings, as well as business combinations, collaborations and other similar strategic alternatives. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong or change, and we could expend our capital resources sooner than we expect.
Our future cash requirements will depend on many factors, including:
• the scope, rate of progress and costs of our drug discovery, preclinical
development activities, laboratory testing and clinical trials for MET642 or
any future product candidate;
• the number and scope of clinical programs we decide to pursue;
• the extent to which we collaborate with biopharmaceutical companies for the
development and potential commercialization of MET642 or any future product
candidates;
• the scope and costs of manufacturing for MET642 or any future product
candidate and commercial manufacturing activities;
• the cost, timing and outcome of regulatory review of MET642 or any future
product candidate;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• the terms and timing of establishing and maintaining collaborations,
licenses and other similar arrangements;
• the terms and timing of any strategic transaction we may enter into;
• our efforts to enhance operational systems and our ability to attract, hire
and retain qualified personnel, including personnel to support the
development of MET642 or any future product candidate;
• the costs associated with being a public company;
• the timing of any milestone and royalty payments to The Salk, or other
future licensors;
• the extent to which we acquire or in-license other product candidates and
technologies; and
• the cost associated with commercializing MET642 or any future product
candidate, if they receive marketing approval.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our operations through a combination of equity offerings, debt financings, strategic transactions, collaborations, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional sufficient capital when needed, we may be required to:
• delay, reduce or eliminate our development programs or other operations;
• enter into strategic transactions or grant rights to develop and market
product candidates that we would otherwise prefer to develop and market
ourselves, or on terms that are less favorable than might otherwise be
available;
• dispose of technology assets, or relinquish or license on unfavorable terms,
our rights to technologies or any future product candidates that we
otherwise would seek to develop or commercialize ourselves;
• pursue the sale of our company to a third party at a price that may result
in a loss on investment for our stockholders; or
• file for bankruptcy or cease operations altogether.
Any of these events could have a material adverse effect on our business, operating results and prospects.
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Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with
While our significant accounting policies are described in more detail in Note 1 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report, we believe the following accounting policies and estimates to be most critical to the preparation of our unaudited condensed consolidated financial statements.
Accrued Expenses
We make estimates of our accrued research and development expenses for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.
We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair
value of equity awards recognized over the requisite service period of the
awards (usually the vesting period) on a straight-line basis. We estimate the
fair value of all stock option grants using the Black-Scholes option pricing
model and recognize forfeitures as they occur. Estimating the fair value of
equity awards as of the grant date using valuation models, such as the
Black-Scholes option pricing model, is affected by assumptions regarding a
number of variables, including the fair value of the underlying common stock on
the date of grant, the risk-free interest rate, the expected stock price
volatility, the expected term of stock options, and the expected dividend yield.
Changes in the assumptions can materially affect the fair value and ultimately
how much stock-based compensation expense is recognized. These inputs are
subjective and generally require significant analysis and judgment to develop.
See Note 7 to our unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report for information concerning certain of the
specific assumptions we used in applying the Black-Scholes option pricing model
to determine the estimated fair value of our stock options granted the three
months ended
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