MOLECULAR TEMPLATES, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 19, 2021 . Certain matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "may," "will," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q and under "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. You should read the following discussion and analysis of financial condition and results of operations together with Part I, Item 1, "Financial Statements," which includes our financial statements and related notes, elsewhere in this Quarterly Report on Form 10-Q. In preparing this Management's Discussion and Analysis of Financial Condition and Results of Operations, we presume that readers have access to and have read the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K.
Overview
Molecular Templates is a clinical-stage biopharmaceutical company focused on the discovery and development of targeted biologic therapeutics. Our proprietary drug platform technology, known as engineered toxin bodies, or ETBs, leverages the resident biology of a genetically engineered form of Shiga-like Toxin A subunit, or SLTA to create novel therapies with potent and differentiated mechanisms of action for cancer and other serious diseases.
Business
ETBs use a genetically engineered version of the SLTA. In its wild-type form,
Shiga-like Toxin or "SLT" is thought to induce its own entry into a cell when
proximal to the cell surface membrane, self-route to the cytosol, and
enzymatically and irreversibly shut down protein synthesis via ribosome
inactivation. SLTA is normally coupled to its cognate Shiga-like Toxin B
subunit, or SLTB, to target the CD77 cell surface marker, a non-internalizing
glycosphingolipid. In our scaffold, a genetically engineered SLTA with no
cognate SLTB component is genetically fused to antibody domains or fragments
specific to a target, resulting in a biologic therapeutic that can identify the
particular target and specifically kill the cell. The antibody domains may be
substituted with other antibody domains having different specificities to allow
for the rapid development of new drugs to selected targets in cancer and other
serious diseases.
ETBs combine the specificity of an antibody with SLTA's potent mechanism of cell
destruction. Based on the disease setting, we have created ETBs that have
reduced immunogenicity and are capable of delivering additional payloads into a
target cell. Immunogenicity is the ability of a foreign substance to provoke an
immune response in a host. ETBs have relatively predictable pharmacokinetic, or
PK, and absorption, distribution, metabolism and excretion, or ADME, profiles
and can be rapidly screened for desired activity in robust cell-based and
animal-model assays. Because SLTA can induce internalization against non- and
poorly-internalizing receptors, the universe of targets for ETBs should be
substantially larger than that seen with antibody drug conjugates, or ADCs,
which are not likely to be effective if the target does not readily internalize
the ADC payload.
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-------------------------------------------------------------------------------- ETBs have a differentiated mechanism of cell kill in cancer therapeutics (the inhibition of protein synthesis via ribosome destruction), and we have preclinical and clinical data demonstrating the utility of these molecules in chemotherapy-refractory cancers. ETBs have shown good tolerability in multiple animal models as well as a generally favorable tolerability profile in our clinical studies to date. We believe the target specificity of ETBs, their ability to self-internalize, their potent and differentiated mechanism of cell kill and their tolerability profile provide opportunities for the clinical development of these agents to address multiple cancer types. Our initial approach to drug development in oncology involves the selection of lead compounds to validated targets in cancer. We have developed ETBs for various targets, including CD38, HER2, and PD-L1. HER2 is clinically validated as a target for the treatment of solid tumors including breast and gastric cancer. CD38 has been validated as a meaningful clinical target in the treatment of multiple myeloma. PD-L1 is central to immune checkpoint pathways and is a target expressed in a variety of solid tumor cancers. We filed an IND for MT-5111, our ETB targeting HER2, inMarch 2019 and the IND was accepted inApril 2019 . We began dosing study subjects in a Phase I study of MT-5111 for the treatment of HER2-positive cancers in the fourth quarter of 2019. The ongoing Phase I study has two parts: Part 1 is dose escalation and Part 2 is dose expansion, which will begin when a maximum tolerated dose (MTD) or Recommended Phase II Dose (RP2D) is established in Part 1. We provided an update on this study inDecember 2020 . All of the following information on the Phase I study for MT-5111 was as of that update. 16 subjects, with a median of 4 prior lines of therapy and a median of 2 prior HER2-targeting regimens, have been treated with MT-5111; subjects with breast cancer received a median of 6 prior lines of therapy, 4 of which contained HER2- targeting agents (metastatic breast cancer n=6, metastatic biliary tract carcinoma n=6, metastatic pancreatic cancer n=2, and one each of metastatic colon adenocarcinoma and metastatic gastroesophageal junction adenocarcinoma). Five cohorts (0.5, 1.0, 2.0, 3.0, and 4.5 ?g/kg/week) have been successfully completed and the sixth cohort (6.75 ?g/kg) has been initiated. Pharmacokinetic (PK) data confirm the predicted human PK based on non-human primate studies. PK modeling has suggested that doses equal to or greater than 5.0 ?g/kg are likely needed for efficacy. Thus far, no dose limiting toxicities (DLTs) have been observed in any cohort and MT-5111 appears to be well tolerated, with no cardiotoxicity observed to date (cardiotoxicity is a known potential toxicity for HER2 targeted therapies). To date, we have observed no cases of CLS (any grade) in human subjectswho have been dosed with MT-5111. As of ourDecember 2020 update, no cardiac AEs or abnormalities in cardiac biomarkers have been noted thus far. The most commonly reported AEs that may be causally related among the 4 dosing cohorts to date and for which source-verified data were available include the following: fatigue (n=3), AST increased (n=2) at 0.5 ?g/kg and 1 ?g/kg, and chills (n=2). These most commonly reported AEs were all of grade 1 or 2 severity. No cases of capillary leak syndrome (any grade) were observed. One subject with metastatic breast cancer in cohort 2 (1 µg/kg) remained on treatment for 10 cycles with stable disease; although she had unmeasurable disease by RECIST criteria, she had three sub-centimeter hepatic lesions that disappeared at the end of cycle 8 before she discontinued at cycle 10. This subject had received three prior HER-2 targeting regimens which initially included pertuzumab plus trastuzumab followed by trastuzumab and TDM1 as monotherapies. To date, 17 subjects have discontinued for disease progression and one subject is too early to evaluate. Cohort 6 (6.75 ?g/kg/dose) is open for enrollment with cohort 7 (10 ?g/kg) expected to open in the second quarter of 2021. The HER2- positive breast cancer expansion cohort is planned to begin in the third quarter of 2021 at a dose of 10 ?g/kg (anticipated to be a therapeutic dose level), pending adequate safety data. Dose escalation will continue to determine the recommended Phase II dose while the breast cancer expansion cohort collects efficacy and safety data. We are encouraged by the safety profile to date in these heavily pretreated subjects and believe the study has reached clinically active dose levels. We expect to present interim clinical results from the dose escalation portion of the Phase I study as ofDecember 2020 in the second quarter of 2021. MTEM expects to provide an update on additional data from both the dose escalation portion of the study and the HER2-positive breast cancer expansion cohort in the fourth quarter of 2021.Millennium Pharmaceuticals, Inc. , a wholly owned subsidiary of Takeda Pharmaceutical Company Ltd. ("Takeda") filed an IND for TAK-169, our jointly discovered ETB targeting CD38, inMay 2019 and the IND was accepted inJune 2019 . Phase I dosing for TAK-169 began in the first quarter of 2020, had been paused inMarch 2020 due to the COVID-19 pandemic and was re-initiated in the fourth quarter of 2020. InApril 2021 , we received notice from Takeda that Takeda had decided to terminate the Development Collaboration and Exclusive License Agreement by and between the Company and Takeda, datedSeptember 18, 2018 , as amended (the "Collaboration Agreement") to co-develop one or more products incorporating or comprised of one or more SLT-A fusion proteins targeting CD38 for the treatment of patients with diseases such as multiple myeloma. The termination of the Collaboration Agreement will be effective 90 days following the notice of termination. Following receipt of the termination notice from Takeda, we notified Takeda of our intent to assume full rights to TAK-169, by entering into an agreement for such rights pursuant to the termination provisions of the Collaboration Agreement. TAK-169 is in an ongoing Phase 1 study with dose escalation planned through six dose cohorts, in which the first subject was dosed inFebruary 2020 . To date, Takeda has enrolled and treated four subjects in the Phase 1 study. There have been no life-threatening toxicities, and no signs of capillary leak syndrome (CLS). The maximum tolerated dose (MTD) has not been reached, patient screening continues, and dose escalation is ongoing. One dose limiting toxicity (grade 2 myocarditis) was assessed in one subject. A mild elevation in Troponin I was noted in this subject after the third dose of TAK-169. No EKG or echocardiographic abnormalities and no clinical symptoms were noted. A stable elevation in high-sensitivity troponin was seen although no comparison 24 -------------------------------------------------------------------------------- to baseline was available as baseline levels were not required per protocol at the time. An independent radiologist and cardiologist reviewed a cardiac MRI of this subject and concluded that there was weak to intermediate evidence of myocarditis, as assessed by a local cardiologist. The subject's asymptomatic myocarditis was considered resolved in approximately one week. The subject had multiple pre-existing cardiac risk factors. No other cardiac adverse events were observed in any other subject. Pharmacokinetic and pharmacodynamic data of this first cohort have been in-line with predicted outcomes. We filed an IND for MT-6402, our ETB targeting PD-L1, inDecember 2020 and the IND was accepted inJanuary 2021 . A Phase 1 study of MT-6402 in PD-1/PD-L1 antibody relapsed/refractory patients is expected to be initiated in the second quarter of 2021. We anticipate initiating a Phase 1 with our ETB targeting CTLA-4 in 2022. Several other of our wholly owned ETB candidates are in preclinical development against targets including CD20, SLAMF-7, CD45, and TROP2. InApril 2021 , we announced that we had decided to discontinue development of MT-3724 to focus our resources on the development of next-generation ETBs. As previously disclosed, MT-3724 was placed on partial clinical hold by theU.S. Food and Drug Administration (FDA) following a treatment-related fatality in one subjectwho experienced Grade 5 CLS in the Phase 2 MT-3724 monotherapy study. Markedly high pharmacokinetic assay readings were observed in this and other subjects treated with a specific lot of MT-3724 material. Apart from this one subject, no life-threatening CLS events were observed in any subject treated with MT-3724 at any dose tested and no instances of CLS of Grade 2 or higher were observed with monotherapy treatment at doses of 50 mcg/kg or lower from any other lot of MT-3724 material. The FDA placed MT-3724 on a full clinical hold in lateMarch 2021 and requested additional information and the development of a new quantitative assay specific to MT-3724, which would take significant time and investment away from our other priorities. At such time, we had already discontinued dosing in all MT-3724 studies, as previously disclosed. Based on the foregoing, we decided to discontinue development of MT-3724 to focus our resources on the development of next-generation ETBs. Our trials and plans for our other ETB product candidates, including MT-5111, TAK-169, and MT-6402, which utilize next-generation ETB technology, are not affected by the discontinuation of MT-3724. Next-generation ETB scaffolds have been designed to reduce or eliminate the propensity for innate immunity, including CLS. To date, we have observed no cases of CLS (any grade) in human subjectswho have been dosed with MT-5111 or TAK-169. We do not yet have clinical data with MT-6402 as dosing in the Phase I study of MT-6402 is expected to be initiated in the second quarter of 2021. We have built up multiple core competencies around the creation and development of ETBs. We developed the ETB technology in-house and continue to make iterative improvements in the scaffold and identify new uses of the technology. We also developed the proprietary process for manufacturing ETBs under Current Good Manufacturing Process, or cGMP regulatory standards and continue to make improvements to its manufacturing processes.
We have conducted multiple cGMP manufacturing runs with our compounds and believe this process is robust and could support commercial production with gross margins that are similar to those seen with antibodies.
Impact of COVID-19
InMarch 2020 , the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by theWorld Health Organization . It has impacted, and is continuing to impact, all aspects of society, including the operation of the healthcare system and other business and economic activity worldwide. The COVID-19 pandemic, and other similar outbreaks of contagious diseases, may adversely impact our business, financial condition, and results of operations. For example, we and the third-party clinical trial sites or investigators involved in our current and future clinical trials may experience significant interruptions or delays as a result of this pandemic, and these could impact the conduct of our clinical trials and our ability to complete them in a timely manner or at all, which in turn could delay and/or negatively impact the regulatory review and approval of our drug or biologic candidates. We are carefully and continually evaluating the potential individual patient risk associated with continuing to enroll in our existing clinical studies during the ongoing COVID-19 pandemic, in accordance with FDA and foreign regulatory authorities' recommendations for clinical trials. Our Phase 1 studies for MT-5111 and TAK-169 are open and able to treat enrolled subjects and screen new subjects. Additionally, we expect to initiate the Phase 1 study of MT-6402 in the second quarter of 2021. The decision to continue our ongoing studies throughout the COVID-19 pandemic was predicated on the treating investigator determining that the potential benefit to the patient of investigational therapy outweighs the potential risk of contracting COVID-19 as the subjects enrolled in our trials had relapsed or refractory incurable malignancies with few or no standard-of-care therapeutic options and limited life expectancy. Overall, COVID-19 led to a significant slowdown in the pace of site initiations and patient enrollment into our clinical trials. The degree of disruption was, and continues to be, variable by geography and individual clinical site, with some sites closed to new enrollment, some screening and enrolling only subjects with an urgent need for treatment, and some attempting to operate as usual. The COVID-19 pandemic resulted in a significant slowdown in the pace of site initiations and patient enrollment across the TAK-169 program, which had a temporary pause in the activation of new study sites and new patient enrollment (along with most of Takeda's other early-stage studies) due to COVID-19 and was reinitiated in the fourth quarter of 2020. To date, screening and 25 -------------------------------------------------------------------------------- enrollment for the MT-5111 Phase I study, which remained open throughout the pandemic, has been less adversely affected than the TAK-169 studies were during 2020. To date, we have been able to continue to work at our cGMP manufacturing facility and laboratories without significant interruption from COVID-19. As a result, manufacturing of product supply for clinical trials and research activities to support advancement of our preclinical pipeline (including partnered programs) have not been adversely affected by COVID-19 to date. The extent to which the COVID-19 pandemic may impact our business, financial condition and results of operations will depend on the manner in which this pandemic continues to evolve and future developments in response thereto, which are highly uncertain and cannot be predicted with confidence and which may include, among other things, the ultimate severity and duration of this pandemic? governmental, business or other actions that have been, or will be, taken in response to this pandemic, including restrictions on travel and mobility, business closures and imposition of social distancing measures? impacts of the pandemic on the vendors or distribution channels in our or our partners' supply chain and ability to continue to manufacture our investigational products? impacts of the pandemic on the conduct of our clinical trials, including with respect to enrollment rates, availability of investigators and clinical trial sites or monitoring of data? and impacts of the pandemic on the regulatory agencies with which we interact in the development, review, approval and commercialization of our therapeutic products.
Collaboration Agreements
OnSeptember 18, 2018 , we entered into a development collaboration and exclusive license agreement (the "Takeda Development and License Agreement") with Takeda for the development and commercialization of products incorporating or comprised of one or more CD38 SLT-A fusion proteins ("Licensed Products") for the treatment of patients with diseases such as multiple myeloma. Pursuant to theTakeda Development and License Agreement, we initially co-developed with Takeda one or more of the Licensed Products up to and including Phase Ia clinical trials, with us having an option to continue to co-develop the Licensed Products following Phase Ia clinical trials. Pursuant to the terms of theTakeda Development and License Agreement, Takeda was to be responsible for all regulatory activities and commercialization of the Licensed Products. We granted Takeda specified intellectual property licenses to enable Takeda to perform its obligations and exercise its rights under theTakeda Development and License Agreement, including exclusive license grants to enable Takeda to conduct development, manufacturing, and commercialization activities pursuant to the terms of theTakeda Development and License Agreement.The Takeda Development and License Agreement had a total transaction price of$29.8 million , which consisted of (1) the$30.0 million upfront payment, (2) a$10.0 million development milestone payment which was achieved in the first quarter of 2020, (3) minus$10.2 million which was the expected co-share payments payable to Takeda duringEarly-Stage Development .
In
InApril 2021 , we received notice from Takeda that Takeda decided to terminate theTakeda Development and License Agreement. The termination of theTakeda Development and License Agreement will be effective 90 days following the notice of termination. Following receipt of the termination notice from Takeda, we notified Takeda of our intent to assume full rights to TAK-169, a second-generation ETB targeting CD38, by entering into an agreement for such rights pursuant to the termination provisions of theTakeda Development and License Agreement.
Takeda Multi-Target Agreement
InJune 2017 , we entered into a Multi-Target Collaboration and License Agreement with Takeda ("Takeda Multi-Target Agreement") in which we agreed to collaborate with Takeda to identify and generate ETBs, against two targets designated by Takeda. Takeda designated certain targets of interest as the focus of the research. Each party granted to the other nonexclusive rights in its intellectual property for purposes of the conduct of the research, and we agreed to work exclusively with Takeda with respect to the designated targets. Under the Takeda Multi-Target Agreement, Takeda has an option during an option period to obtain an exclusive license under our intellectual property to develop, manufacture, commercialize and otherwise exploit ETBs against the designated targets. The option period for each target ends three months after the completion of the evaluation of such designated target. We received an upfront fee of$1.0 million and an additional$2.0 million following the designation of each of the two targets inDecember 2017 . As ofMarch 31, 2021 , we have received$5.0 million from Takeda pursuant to the Takeda Multi-Target Agreement. We may also receive an additional$30.0 million in aggregate through the exercise of the option to license ETBs. Additionally, we might also be entitled to receive clinical development milestone payments of up to approximately$397.0 million , for achievement of 26
-------------------------------------------------------------------------------- development milestones and regulatory approval of collaboration products under the Takeda Multi-Target Agreement. We might also be entitled to receive commercial milestone payments of up to$150.0 million , for achievement of pre-specified sales milestones related to net sales of all collaboration products under the Takeda Multi-Target Agreement. We are also entitled to tiered royalty payments of a mid-single to low-double digit percentage of net sales of any licensed ETBs, subject to certain reductions. Finally, we are entitled to receive up to$10.0 million in certain contingency fees. The Takeda Multi-Target Agreement will expire on the expiration of the option period (within three months after the completion of the evaluation of each designated target) for the designated targets if Takeda does not exercise its options, or, following exercise of the option, on the later of the expiration of patent rights claiming the licensed ETB or ten years from first commercial sale of a licensed ETB. The Takeda Multi-Target Agreement might be sooner terminated by Takeda for convenience or upon a change of control in our ownership, or by either party for an uncured material breach of the agreement.
Vertex Pharmaceuticals
OnNovember 18, 2019 , we entered into a Master Collaboration Agreement ("Vertex Collaboration Agreement") with Vertex Pharmaceuticals Incorporated ("Vertex"), in which we and Vertex agreed to enter into a strategic research collaboration to leverage our ETB technology platform to discover and develop novel targeted biologic therapies for applications outside of oncology. Pursuant to the Vertex Collaboration Agreement, Vertex paid us an upfront payment of$38.0 million , consisting of$23.0 million in cash and a$15.0 million equity investment pursuant to a Share Purchase Agreement (the "SPA"), described further below. In addition to the upfront payments, we might also receive an additional$22.0 million through the exercise of the options to license ETB products or to add an additional target. We shall provide, and Vertex will reimburse us for, certain mutually agreed manufacturing technology transfer activities. We might, for each target under the Vertex Collaboration Agreement, receive up to an additional$180.0 million in milestone payments upon the achievement of certain development and regulatory milestone events and up to an additional$70.0 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive, subject to certain reductions, tiered mid-single digit royalties as percentages of calendar year net sales, if any, on any licensed product. We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise by Vertex of its option for a development candidate, Vertex will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate. In connection with the Vertex Collaboration Agreement, we and Vertex entered into the SPA pursuant to which Vertex purchased 1,666,666 shares of our common stock, par value$0.001 per share, at a price per share of$9.00 . The issuance of these shares was pursuant to a private placement exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder. For more information concerning our collaboration agreements, refer to Note 3, "Research and Development Agreements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q. Bristol Myers Squibb Company OnFebruary 10, 2021 , we entered into a Collaboration Agreement ("BMS Collaboration Agreement") with Bristol Myers Squibb Company ("Bristol Myers Squibb"), in which we and Bristol Myers Squibb agreed to enter into a strategic research collaboration to leverage our ETB technology platform to discover and develop novel products containing ETBs directed to multiple targets. Pursuant to the BMS Collaboration Agreement, Bristol Myers Squibb paid us an upfront payment of$70.0 million . We may receive near term and development and regulatory milestone payments of up to an additional$874.5 million and will be eligible to receive up to an additional$450.0 million in milestone payments upon the achievement of certain sales milestone events. We will also be entitled to receive, subject to certain reductions, tiered royalties ranging from mid-single digits up to mid-teens as percentages of calendar year net sales, if any, on any licensed product. We will be responsible for conducting the research activities through the designation, if any, of one or more development candidates. Upon the exercise of its option for a development candidate, Bristol Myers Squibb will be responsible for all development, manufacturing, regulatory and commercialization activities with respect to that development candidate, subject to the terms and conditions of the BMS Collaboration Agreement. For more information concerning this collaboration agreement, refer to Note 3, "Research and Development Agreements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q. 27
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Grant Agreements CPRIT Grant Contract InSeptember 2018 , we entered into a Cancer ResearchGrant Contract (the "CD38 CPRIT Agreement") with theCancer Prevention and Research Institute of Texas ("CPRIT"), which was extended inMay 2021 , in connection with a grant of approximately$15.2 million awarded by CPRIT to us inNovember 2016 to fund research of a cancer therapy involving an ETB that is targeting CD38 (the "Award"). Pursuant to the CD38 CPRIT Agreement, we might also use such funds to develop a replacement CD38 targeting ETB, with or without a partner. The Award is contingent upon funds being available during the term of the CD38 CPRIT Agreement and subject to CPRIT's ability to perform its obligations under the CD38 CPRIT Agreement as well as our progress towards achievement of specified milestones, among other contractual requirements.
In 2011, we were awarded a
Subject to the terms of the CD38 CPRIT Agreement, full ownership of any CPRIT funded technology and CPRIT funded intellectual property rights developed pursuant to the CD38 CPRIT Agreement will be retained by us, our Collaborators (as defined in the CD38 CPRIT Agreement) and, to the extent applicable, any participating third party (the "Project Results"). With respect to any Project Results, we agreed to grant to CPRIT a nonexclusive, irrevocable, royalty-free, perpetual, worldwide license, solely for academic, research and other non-commercial purposes, under the Project Results and to exploit any necessary additional intellectual property rights, subject to certain exclusions. We will pay to CPRIT, during the term of the CD38 CPRIT Agreement, certain payments equal to a percentage of revenue ranging from the low- to mid-single digits. These payments will continue up to and until CPRIT receives an aggregate amount of 400% of the sum of all monies paid to us by CPRIT under the CD38 CPRIT Agreement. If we are required to obtain a license from a third party to sell any such product, the revenue sharing percentages might be reduced. In addition, once we pay CPRIT 400% of the monies the Company has received under the CD38 CPRIT Agreement, we will continue to pay CPRIT a revenue-sharing percentage of 0.5%. The CD38 CPRIT Agreement will terminate, with certain obligations extending beyond termination, on the earlier of (a)November 30, 2021 or (b) the occurrence of any of the following events: (i) by mutual written consent of the parties, (ii) by CPRIT for an Event of Default (as defined in the CD38 CPRIT Agreement) by us, (iii) by CPRIT if allocated funds should become legally unavailable during the term of the CD38 CPRIT Agreement and CPRIT is unable to obtain additional funds or (iv) by us for convenience. CPRIT might approve a no cost extension for the CD38 CPRIT Agreement for a period not to exceed six months after the termination date if additional time is required to ensure adequate completion of the approved project, subject to the terms and conditions of the CD38 CPRIT Agreement. For more information about our grant agreements, please see Note 3, "Research and Development Agreements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q.
Financial Operations Overview
Revenue
To date, we have not generated any revenue from product sales to customers. We do not expect to receive any revenue from any ETB candidates that we or our collaboration partners develop, including MT-5111, TAK-169, MT-6402 and other pre-clinical ETB candidates, until we obtain regulatory approval and commercialize such biologics. Our revenue consists principally of collaboration revenue and grant revenue.
Research and Development revenue primarily relates to our collaboration agreements with Takeda, Vertex and Bristol Myers Squibb which are accounted for using the percentage-of-completion cost-to-cost method.
Grant revenue relates to our CPRIT grant for a CD38 ETB (TAK-169). CPRIT grant funds for TAK-169 are provided to us in arrears as cost reimbursement where revenue is recognized as allowable costs are incurred. Revenue recognized in excess of amounts collected are recorded as unbilled revenue. For more information about our revenue recognition policy, please see Note 1, "Organization and Summary of Significant Accounting Policies" to our audited consolidated financial statements for the year endedDecember 31, 2020 , included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC March 19, 2021 . 28
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Research and Development Expenses
Research and development expenses consist principally of:
• salaries for research and development staff and related expenses,
including stock-based compensation expenses;
• costs for current good manufacturing practices, or cGMP, manufacturing of
drug substances and drug products by contract manufacturers;
• fees and other costs paid to clinical trials sites and clinical research
organizations, ("CROs"), in connection with the performance of clinical
trials and preclinical testing;
• costs for consultants and contract research;
• costs of laboratory supplies and small equipment, including maintenance; and
• depreciation of long-lived assets.
Our research and development expenses may vary substantially from period to period based on the timing of our research and development activities, including the initiation and enrollment of subjects in clinical trials and manufacture of drug or biologic materials for clinical trials. We expect research and development expenses to increase as we advance the clinical development of MT-5111, TAK-169 and/or MT-6402 and further advance the research and development of our pre-clinical ETB candidates, and other earlier stage drugs or biologics. The successful development of our ETB candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from any of our ETB candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
• the scope, rate of progress and expense of our research and development
activities;
• clinical trials and early-stage results;
• the terms and timing of regulatory approvals; and
• the ability to market, commercialize and achieve market acceptance for
MT-5111, TAK-169, MT-6402 or any other ETB candidate that we or our
collaboration partners may develop in the future.
Any of these variables with respect to the development of MT-5111, TAK-169, or any other ETB candidate that we may develop could result in a significant change in the costs and timing associated with the development. For example, if the FDA theEuropean Medicines Agency ("EMA") or other regulatory authority were to require us to conduct pre-clinical and clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs.
General and Administrative Expenses
Our general and administrative expenses consist principally of:
• salaries for employees other than research and development staff,
including stock-based compensation expenses;
• professional fees for auditors and other consulting expenses related to
general and administrative activities;
• professional fees for legal services related to the protection and
maintenance of our intellectual property and regulatory compliance;
• cost of facilities, communication and office expenses;
• information technology services; and
• depreciation of long-lived assets.
We expect that our general and administrative costs will increase in the future
as our business expands and we increase our headcount to support the expected
growth in our operating activities. Additionally, we expect these expenses will
also increase in the future as we incur additional costs associated with
operating as a public company. These increases will likely include additional
legal fees, accounting and audit fees, management board and supervisory board
liability insurance premiums and costs related to investor relations. In
addition, we expect to grant stock-based compensation awards to key management
personnel and other employees.
Other Income (Expense)
Other income (expense) mainly includes interest income earned on our cash and
marketable securities balances held, and interest expense on our outstanding
borrowings.
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Results of Operations Revenues
The table below summarizes our revenues as follows (in thousands):
Three Months Ended
March 31,
2021 2020 Change ($) Change (%)
Research and development revenue,
related party $ 237 $ 333 $ (96 ) -29 %
Research and development revenue, other 2,983 1,467
1,516 103 % Grant revenue - 2,341 (2,341 ) -100 % Total revenue$ 3,220 $ 4,141 $ (921 ) -22 %
Research and Development Revenue - from related party
The decrease in research and development revenue - from related parties for the three months endedMarch 31, 2021 was primarily due to research and development revenues that were recognized from the services provided under theTakeda Development and License Agreement (TAK-169) which was entered into inSeptember 2018 . For more information about our collaboration agreements, please see Note 3 "Research and Development Agreements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q.
Research and Development Revenue - other
The increase in research and development revenue - other is a result of recognizing revenue associated with our Vertex Collaboration Agreement and BMS Collaboration Agreement. For more information about our collaboration agreements, please see Note 3 "Research and Development Agreements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q.
Grant Revenue
The decrease in grant revenue for the three months ended
Operating Expenses
The table below summarizes our operating expenses as follows (in thousands):
Three Months Ended
March 31,
2021 2020 Change ($)
Change (%)
Research and development expenses
4 %
General and administrative expenses 8,181 5,647 2,534 45 %
Total operating expenses $ 29,549 $ 26,278 $ 3,271 12 %
Research and Development Expenses
The table below summarizes our research and development expenses as follows (in
thousands):
Three Months Ended
March 31,
2021 2020 Change ($) Change (%)
Program costs $ 7,312 $ 10,192 $ (2,880 ) -28 %
Employee compensation 11,146 6,678 4,468 67 %
Laboratory costs 1,036 968 68 7 %Other research and development costs 1,874 2,793
(919 ) -33 %
Total research and development expenses
737 4 %
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Research and development ("R&D") expenses increased
Program costs decreased$2.9 million during the three months endedMarch 31, 2021 compared to theMarch 31, 2020 . The programs driving the decrease were$3.1 million for MT-3724,$1.4 million for TAK-169,$0.9 million for MT-6402 and$0.5 other program costs. This was offset by increases of$1.3 million for CTLA-4,$1.3 million for NG CD-20 and$0.4 million for Vertex. Headcount increased in R&D 41% fromMarch 31, 2020 toMarch 31, 2021 in support of the ramp up of cGMP manufacturing facilities, collaboration research and additional support staff. This staffing increase resulted in an increase in employee compensation costs of$4.5 million for the three months endedMarch 31, 2021 compared to theMarch 31, 2020 , respectively.
Other R&D costs decreased
General and Administrative Expenses
General and administrative expenses increased
Nonoperating activities
The table below summarizes our nonoperating activities as follows (in
thousands):
Three Months Ended
March 31,
2021 2020 Change ($) Change (%)
Interest and other income, net $ 52 $ 472 $ (420 ) -89 %
Interest expense (501 ) (348 ) (153 ) 44 %
Total nonoperating activities $ (449 ) $ 124 $ (573 ) -462 %
Interest and Other Income and Interest Expense
The decrease in interest and other income for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 , was primarily due to lower interest related to our marketable securities.
The increase in interest expense for the three months ended
Liquidity and Capital Resources
Sources of Funds
We have devoted substantially all of our resources to developing our ETB candidates and platform technology, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing for general and administrative support for these operations. We plan to increase our research and development expenses for the foreseeable future as we continue to advance MT-5111, TAK-169, MT-6402 and our earlier-stage pre-clinical programs. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs and drug or biologic candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our drugs or biologics, if and when approved. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which drugs or biologics, if and when approved, may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect to incur substantial additional losses in the future as we expand our research and development cost-sharing activities with our collaboration partners, we believe such investment is strategically aligned with increasing the value of our technology. For the three months endedMarch 31, 2021 and 2020, we incurred net losses of$26.8 million and$22.0 million , respectively. AtMarch 31, 2021 , we had an accumulated deficit of$295.8 million . To date, we have financed our operations through public offerings of common and preferred stock, private placements of equity securities, a reverse merger, and upfront and milestone payments received from our collaboration agreements, as well as funding from governmental bodies and bank and bridge loans. 31 -------------------------------------------------------------------------------- InMay 2020 , we entered into a debt financing facility for up to$45.0 million with K2 HealthVentures, a healthcare-focused specialty finance company (the "K2 Loan and Security Agreement"). The K2 Loan and Security Agreement consists of three tranches, and we received the first tranche of$15.0 million upon closing, a portion of which was used to repay the remaining Perceptive Credit Facility. Two subsequent tranches totaling up to$30.0 million will become available at our option betweenMarch 1, 2021 andJune 30, 2021 , upon the achievement of certain clinical milestones with respect to the second tranche and, subject to lender consent and certain additional conditions prior toDecember 31, 2021 with respect to the third tranche. The principal accrues interest at an annual rate of equal to the greater of 8.45% or the sum of the Prime Rate plus 5.2% and commenced onJuly 1, 2020 . Payments are interest only untilJuly 1, 2022 , provided, however, that if no event of default has occurred and the second tranche has been fully funded payments will be interest only untilJuly 1, 2023 . Pursuant to the terms of the K2 Loan and Security Agreement, the Company provided notice toK2 HealthVentures LLC of its intent to draw the second tranche of$20.0 million , with such amount anticipated to be funded on or aboutMay 15, 2021 . InJuly 2020 , we raised gross proceeds of approximately$50.0 million through at-the-market sales ("ATM") of our common stock pursuant to our ATM facility. We sold approximately 3.6 million shares of our common stock at a purchase price of$12.00 per share and 0.5 million shares at a purchase price of$12.70 , in each case the market price at the time of sale. These sales constituted the full available dollar amount under our then-current ATM facility and, with such completion, this ATM facility has been terminated. InAugust 2020 , we filed a universal shelf registration statement on Form S-3 (Registration No. 333-242078) with theSEC , which was declared effective onAugust 17, 2020 . InAugust 2020 , we entered into a sales agreement (the "Sales Agreement') withCowen and Company, LLC ("Cowen"), pursuant to which we may offer and sell to or through Cowen acting as agent and/or principal shares of our common stock having an aggregate offering price of up to$100,000,000 . Under the Sales Agreement, Cowen may sell the shares by any method permitted by law and deemed to be an "at the market" offering as defined in Rule 415 of the Securities Act. To date, we have not sold any shares under the Sales Agreement. InFebruary 2021 , we completed a public offering of 6,000,000 shares of common stock at an offering price of$12.65 per share. We received net proceeds of approximately$71.1 million , after deducting underwriting discounts, commissions and estimated offering expenses payable by us. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our lead ETB candidates through clinical trials, progress our pipeline ETB candidates from discovery through pre-clinical development, and seek regulatory approval and pursue commercialization of our ETB candidates. In addition, if we obtain regulatory approval for any of our ETB candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional technology to augment or enable development of future ETB candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity and debt financings or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so. AtMarch 31, 2021 andDecember 31, 2020 , we had cash, cash equivalents and marketable securities of$207.4 million and$93.9 million , respectively and grants revenue receivable of$0.0 . We expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2023. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect.
Cash Flows
Comparison of Three Months Ended
The table below summarizes our cash flows for the three months endedMarch 31, 2021 and 2020. Three Months Ended March 31, 2021 2020 Change ($) Change (%) Net cash provided by/(used in) operating activities$ 42,214 $ (18,149 ) $ 60,363 333 %
Net cash used in investing activities (40,387 ) (32,951 ) (7,436 )
23 %
Net cash provided by financing
activities 71,741 93 71,648 77,041 %
Net increase (decrease) in cash, cash
equivalents and restricted cash
244 %
The increase in net cash used in operating activities for the three months endedMarch 31, 2021 was primarily due to an increase in deferred revenue primarily from BMS. 32
-------------------------------------------------------------------------------- The increase in net cash used in investing activities for the three months endedMarch 31, 2021 was primarily due to increased investment activity in marketable securities.
The increase in net cash provided by financing activities was primarily due to proceeds from issuance of common stock.
Operating and Capital Expenditure Requirements
We have not achieved profitability since our inception and had an accumulated
deficit of
We expect our expenses to increase substantially in connection with our ongoing development activities related to MT-5111, TAK-169 and MT-6402 collaboration with Vertex, collaboration with BMS, our pre-clinical programs, and expanding our operating capabilities. In addition, we expect to incur additional costs associated with operating as a public company. We anticipate that our expenses will increase substantially if and as we: • support the ongoing Phase I study of MT-5111; • continue to develop TAK-169 and support the ongoing Phase I study;
• support the PD-L1 program including the upcoming Phase I study for MT-6402;
• continue the research and development of our other ETB candidates, such as
other CD20 targeted molecules, including completing pre-clinical studies
and commencing clinical trials;
• research activities through the designation of the development
candidate(s) with Vertex;
• research activities through the designation of the development
candidate(s) with Bristol Myers Squibb;
• seek to enhance our technology platform using our antigen-seeding
technology approach to immuno-oncology;
• seek regulatory approvals for any ETB candidates that successfully
complete clinical trials;
• potentially establish a sales, marketing and distribution infrastructure
and scale up manufacturing capabilities to commercialize any drugs for
which we may obtain regulatory approval;
• add clinical, scientific, operational, financial and management
information systems and personnel, including personnel to support our
product development and potential future commercialization efforts and to
support our increased operations;
• experience any delays or encounter any issues resulting from any of the
above, including but not limited to failed studies, complex results,
safety issues or other regulatory challenges;
• service long-term debt; and
• complete the expansion of the Company's research and development spaces.
Payments on the Perceptive Credit Facility commencedApril 2018 and were interest only, paid quarterly for the first 24 months. Upon the second anniversary of the closing date of the Perceptive Credit Facility, principal payments of$0.2 million were due each calendar quarter. The Perceptive Credit Facility was paid off inMay 2020 , using proceeds from the K2 Loan and Security Agreement. See Note 8, "Borrowing Arrangements" to our unaudited consolidated financial statements for the three months endedMarch 31, 2021 , included in this Quarterly Report on Form 10-Q for additional information regarding the Perceptive Credit Facility and the K2 Loan and Security Agreement. Because of the numerous risks and uncertainties associated with the development of MT-5111, TAK-169 and MT-6402, collaborations with Vertex and Bristol Myers Squibb and our other pre-clinical programs, and because the extent to which we may enter into collaborations with third parties for development of these ETB candidates is unknown, we are unable to estimate the amount of increased capital outlays and operating expenses associated with completing the research and development of our ETB candidates. Our future capital requirements for MT-5111, TAK-169, MT-6402 or our other pre-clinical programs will depend on many factors, including:
• the progress, timing and completion of pre-clinical testing and clinical
trials for our current or any future ETB candidates;
• the number of potential new ETB candidates we identify and decide to develop;
• the costs involved in growing our organization to the size needed to allow
for the research, development and potential commercialization of our
current or any future ETB candidates;
• the costs involved in filing patent applications and maintaining and
enforcing patents or defending against claims or infringements raised by
third parties;
33
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• the time and costs involved in obtaining regulatory approval for our ETB
candidates and any delays we may encounter as a result of evolving
regulatory requirements or adverse results with respect to any of these
ETB candidates;
• any licensing or milestone fees we might have to pay during future
development of our current or any future ETB candidates;
• selling and marketing activities undertaken in connection with the
anticipated commercialization of our current or any future ETB candidates
and costs involved in the creation of an effective sales and marketing
organization; and
• the amount of revenues, if any, we may derive either directly or in the
form of royalty payments from future sales of our ETB candidates, if
approved.
Identifying potential ETB candidates and conducting pre-clinical testing and
clinical trials is a time-consuming, expensive and uncertain process that takes
years to complete, and we may never generate the necessary data or results
required to obtain marketing approval and achieve product sales. In addition,
our ETB candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of drugs or biologics
that we do not expect to be commercially available for many years, if ever.
Accordingly, we will need to obtain substantial additional funds to achieve our
business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at
all. To the extent that we raise additional capital through the sale of equity
or convertible debt securities, stockholders' ownership interest will be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect their rights as stockholders. Additional 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 and may require the issuance of warrants, which could potentially
dilute stockholders' ownership interest.
If we raise additional funds through collaborations, governmental grants,
strategic alliances or licensing arrangements with third parties, we may have to
relinquish valuable rights to our technologies, future revenue streams, research
programs or ETB candidates or grant licenses on terms that may not be favorable
to us. If we are unable to raise additional funds through equity or debt
financings when needed, we may be required to delay, limit, reduce or terminate
our product development programs or any future commercialization efforts or
grant rights to develop and market ETB candidates that we would otherwise prefer
to develop and market ourselves.
Critical Accounting Policies and Use of Estimates
Our 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 accounting principles generally accepted inthe United States of America for interim financial information. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses based on historical experience and on various assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For further information on our critical accounting policies, see the discussion of critical accounting policies in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which we filed with theSEC onMarch 19, 2021 .
Recently Adopted Accounting Pronouncements
For a discussion of recently adopted account pronouncements see the discussion in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , which we filed with theSEC onMarch 19, 2021 .
Recent Accounting Pronouncements Not Yet Adopted
For a discussion of recently issued accounting pronouncements and interpretations not yet adopted by us, see Note 1, "Organization and Summary of Significant Accounting Policies", to our unaudited condensed financial statements for theMarch 31, 2021 , included in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . 34
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