NUVALENT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as filed with theSEC onMarch 29, 2022 (2021 Form 10-K). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Item 1.A. Risk Factors" section of this Quarterly Report and our other filings with theSEC , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical stage biopharmaceutical company focused on creating precisely targeted therapies for patients with cancer. We leverage our team's deep expertise in chemistry and structure-based drug design to develop innovative small molecules that are designed with the aim to overcome the limitations of existing therapies for "clinically proven" kinase targets, or those kinase targets for which others have developed established, approved therapies that are used in the clinical setting. By addressing the limitations of existing therapies, we believe our programs have the potential to drive deeper, more durable responses with minimal adverse events. We believe these potential benefits will support opportunities for clinical utility earlier in the treatment paradigm. We focus our discovery and development efforts on small molecule inhibitors of kinases, a class of cellular targets that can play a central role in cancer growth and proliferation. In particular, we focus on clinically proven kinase targets. Currently available kinase inhibitors face multiple limitations, which can include (i) kinase resistance, or the emergence of new mutations in the kinase target that can enable resistance to existing therapies, (ii) kinase selectivity, or the potential for existing therapies to inhibit other structurally similar kinase targets and lead to off-target adverse events, and (iii) limited brain penetrance, or the ability for the therapy to treat disease that has spread or metastasized to the brain. By prioritizing target selectivity, we believe our drug candidates have the potential to overcome resistance, avoid dose-limiting off-target adverse events, address brain metastases, and drive more durable responses. We are advancing a robust pipeline of product candidates with parallel lead programs in cancers driven by genomic alterations in ROS proto-oncogene 1 (ROS1) and ALK (i.e., ROS1-positive and ALK-positive, respectively), a new program in cancers driven by genomic alterations in human epidermal growth factor receptor 2 (HER2), along with multiple discovery-stage research programs. We hold worldwide development and commercialization rights to our product candidates.
NVL-520
Our first lead product candidate, NVL-520, is a novel ROS1-selective inhibitor designed with the aim to address the clinical challenges of emergent treatment resistance, central nervous system (CNS)-related adverse events, and brain metastases that may limit the use of currently available ROS1 tyrosine kinase inhibitors (TKIs). Preclinical data has shown that NVL-520 was brain-penetrant, inhibited wild-type ROS1 fusions, remained active in the presence of mutations conferring resistance to approved and investigational ROS1 inhibitors, and displayed strong selectivity for both wild-type ROS1 and its resistance variants as compared to the structurally related tropomyosin receptor kinase B (TRKB), thereby indicating the potential to minimize the off-target TRKB-related CNS adverse events. We are currently enrolling patients in the ongoing Phase 1 portion of our ARROS-1 clinical trial, a first-in-human Phase 1/2, multicenter, open-label, dose-escalation and expansion study evaluating NVL-520 as an oral monotherapy in patients with advanced ROS1-positive non-small cell lung cancer (NSCLC) and other solid tumors. ARROS-1 is comprised of two study phases, beginning with a Phase 1 dose-escalation portion to evaluate the safety, tolerability and recommended Phase 2 dose (RP2D) of NVL-520 in patients with advanced ROS1-positive NSCLC or other solid tumors who have received at least one prior ROS1 TKI or any prior therapy, respectively. Other Phase 1 objectives include characterizing the pharmacokinetic profile and evaluating preliminary anti-tumor activity of NVL-520. Once the RP2D is determined, the study may transition directly into a Phase 2 portion designed to evaluate the RP2D in patients with advanced ROS1-positive NSCLC and other solid tumors and to support potential registration of NVL-520 in both ROS1-positive patients with NSCLC who are TKI-naïve and who have been previously treated with ROS1 kinase inhibitors.
We recently announced preliminary data from the Phase 1 dose-escalation portion of the ARROS-1 clinical trial.
The preliminary dose-escalation data were based on an enrollment cut-off date ofSeptember 1, 2022 , and a data cut-off date ofSeptember 13, 2022 . Thirty-five patients were enrolled, of which 34 patients had confirmed ROS1-positive NSCLC and 51% (18/35) had a history of CNS metastases. 14
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The patient population was heavily pre-treated:
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77% (27/35) had received three or more prior lines of anti-cancer therapy;
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71% (25/35) had two or more prior ROS1 TKIs and one or more lines of chemotherapy; and
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80% (28/35) had received a ROS1 TKI other than crizotinib or entrectinib, including lorlatinib (57%, 20/35) or repotrectinib (34%, 12/35).
Patients were treated with NVL-520 across five evaluated dose levels ranging from 25 mg once daily (QD) to 125 mg QD, and preliminary safety and pharmacokinetics of NVL-520 were evaluated as of the data cut-off date. Key findings as of the data cut-off date include:
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NVL-520 demonstrated exposure above all target efficacy thresholds (ROS1 wild type and ROS1 G2032R in both the periphery and in the CNS).
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Favorable pharmacokinetics and low intra-cohort patient pharmacokinetic variability were observed, with exposure increasing with increasing dose level and half-life supportive of once daily dosing.
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No dose-limiting toxicities, treatment-related serious adverse events, treatment-related dizziness, or adverse events leading to dose reduction or discontinuation were observed as of the data cut-off date in the 35 patients enrolled.
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Most treatment-related adverse events (TRAEs) were low-grade and manageable, with the most frequent TRAE being grade 1 fatigue reported in 11% (4/35) of patients.
As of the data cut-off date, 21 patients with NSCLC were response-evaluable by investigator assessment with duration of treatment ranging from one to more than eight months (median 3.6 months). Objective responses (RECIST 1.1) were observed across all dose levels evaluated, including in:
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Heavily pre-treated patients: Partial Responses (PRs) were observed in 48% (10/21) of all response-evaluable patients, with 76% (16/21) continuing on treatment. Responses were observed in 53% (9/17) of patients who received two or more prior TKIs and one or more prior lines of chemotherapy, in 50% (9/18) of patients previously treated with lorlatinib or repotrectinib, and across all dose levels evaluated.
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Patients with ROS1 G2032R resistance mutation: Of nine patients with known ROS1 G2032R resistance mutation, responses were observed in 78% (7/9), including in two of three patients previously treated with repotrectinib, and tumor shrinkage was observed in 100% (9/9). Notably, complete clearance of G2032R allele was observed in all seven patients with G2032R detected on central ctDNA analysis.
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Patients with CNS metastases: Intracranial PRs were observed in 100% (3/3) patients with measurable (>10 mm) CNS metastases. Responses were observed in 73% (8/11) of patients with a history of CNS metastases, and no CNS progression was observed in any of the 35 treated patients.
As of the data cut-off date, 76% (16/21) of response-evaluable patients continued on NVL-520 treatment. Enrollment in the Phase 1 portion of the trial is ongoing.
NVL-655
Our second lead product candidate, NVL-655, is a brain-penetrant ALK-selective
inhibitor designed with the aim to address the clinical challenges of emergent
treatment resistance, CNS-related adverse events, and brain metastases that may
limit the use of first-, second-, and third-generation ALK inhibitors.
Preclinical data has shown that NVL-655 was brain-penetrant, inhibited wild-type
ALK fusions, remained active in the presence of mutations conferring resistance
to approved and investigational ALK inhibitors, and displayed strong selectivity
for both wild-type ALK and its resistance variants as compared to the
structurally related TRKB, thereby indicating the potential to minimize
off-target TRKB-related CNS adverse events.
We also announced new preclinical data for NVL-655 further characterizing its
preclinical profile in TKI-resistant models of ALK-positive cancers harboring
single and compound ALK resistance mutations. Notably, NVL-655 induced
regression in an in vivo model derived from a patient with ALK fusion-positive
NSCLC harboring G1202R/L1196M compound mutation after disease progression on
sequential crizotinib, alectinib and lorlatinib treatment.
We are currently enrolling patients in the ongoing Phase 1 portion of our
ALKOVE-1 clinical trial, a first-in-human Phase 1/2, multicenter, open-label,
dose-escalation and expansion study evaluating NVL-655 as an oral monotherapy in
patients with advanced
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ALK-positive NSCLC and other solid tumors. InJune 2022 , we announced that the first patient was dosed with NVL-655 in the ALKOVE-1 trial. ALKOVE-1 is comprised of two study phases, beginning with a Phase 1 dose-escalation portion to evaluate the safety, tolerability and RP2D of NVL-655 in patients with advanced ALK-positive NSCLC or other solid tumors who have received at least one prior ALK TKI or at least one prior systemic anticancer therapy, respectively. Other Phase 1 objectives include characterizing the pharmacokinetic profile and evaluating preliminary anti-tumor activity of NVL-655. Once the RP2D is determined, the study may transition directly into a Phase 2 portion designed to evaluate the preliminary activity of NVL-655 in various cohorts of ALK-positive NSCLC patients and patients with other solid tumors, with the potential to expand cohort sizes further into potentially registrational cohorts in collaboration with the FDA.
NVL-330
InSeptember 2022 , we announced the nomination of our newest product candidate, NVL-330, a brain-penetrant HER2-selective inhibitor designed with the aim to address the combined medical need of treating tumors driven by HER2ex20, avoiding treatment-limiting adverse events due to off-target inhibition of wild-type EGFR, and treating brain metastases. HER2ex20 are oncogenic driver mutations in an estimated 1-3% of NSCLC, yet there are limited therapeutic options targeting these mutations. In addition, we announced preliminary preclinical data demonstrating that NVL-330 potently inhibited HER2ex20 in cell-based assays and was highly selective for HER2ex20 over the structurally related wild-type EGFR. This selectivity is a critical aspect of NVL-330's design given that inhibition of wild-type EGFR is associated with dose-limiting side effects including skin rash and gastrointestinal toxicity. Furthermore, the demonstrated preclinical brain penetrance and intracranial activity of NVL-330 suggests the potential for treating or preventing brain metastases. Brain metastases are present at diagnosis in an estimated 19% of HER2 mutant-positive NSCLC patients, and more patients will develop them during treatment. Other Candidates In addition to our lead programs and our new HER2ex20 development program, we have prioritized a number of additional small molecule research programs following an assessment of medical need, including an ALK IXDN program designed with the aim to address emerging compound resistance mutations. Research for these programs is ongoing. We do not expect to nominate any further drug candidates for these programs in 2022. Since commencing significant operations in 2018, we have focused substantially all of our efforts and financial resources on research and development activities for our programs, including NVL-520, NVL-655 and NVL-330, establishing and maintaining our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated revenue from product sales or any other source. OnAugust 2, 2021 , we completed an initial public offering (IPO) of our common stock pursuant to which we issued and sold 10,612,500 shares of Class A common stock and 600,000 shares of Class B common stock, including the exercise in full by the underwriters of their option to purchase 1,462,500 additional shares of Class A common stock, at a public offering price of$17.00 per share. We received net proceeds of approximately$174.3 million after deducting underwriting discounts and commissions and offering costs. Prior to the IPO, we funded our operations primarily with proceeds from the sales of convertible preferred stock, the issuance of convertible notes (which converted to convertible preferred stock in 2018) and debt financing from stockholders (which was settled in convertible preferred stock inFebruary 2021 ). OnNovember 3, 2022 , we issued and sold 7,895,522 shares of Class A common stock, including the exercise in full by the underwriters of their option to purchase additional shares of Class A common stock, in a follow-on public offering at a public offering price of$33.50 per share, resulting in proceeds of$248.6 million after underwriting discounts and commission but before deducting offering costs. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our product candidates. We reported net losses of$55.7 million for the nine months endedSeptember 30, 2022 , and$46.3 million for the year endedDecember 31, 2021 . As ofSeptember 30, 2022 , we had an accumulated deficit of$134.0 million . We expect to incur significant expenses at an increasing rate and increasing operating losses for the foreseeable future. We expect our expenses and capital requirements will increase substantially in connection with ongoing activities, particularly if and as we:
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continue to advance our parallel lead programs, NVL-520 and NVL-655, in clinical development;
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continue to advance our newly nominated program, NVL-330, in preclinical development;
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advance the development of our discovery programs, including our ALK IXDN program;
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expand our pipeline of product candidates through our own product discovery and development efforts;
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seek to discover and develop additional product candidates;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
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implement operational, financial and management systems;
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attract, hire and retain additional clinical, scientific, management and administrative personnel;
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maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how;
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acquire or in-license other product candidates and technologies; and
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operate as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, we expect to continue to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the disruptions to, and volatility in, the credit and financial markets in theU.S. and worldwide, including inflation and interest rate fluctuations, as well as concerns related to the COVID-19 pandemic and geopolitical events, including civil or political unrest (such as the ongoing military conflict betweenUkraine andRussia ). Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. We believe that our cash, cash equivalents and marketable securities, including the proceeds from our follow-on public offering inNovember 2022 , will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2025. Our cash, cash equivalents and marketable securities will not be sufficient to fund any of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the development and commercialization of our product candidates. See "-Liquidity and Capital Resources." The global COVID-19 pandemic and other significant geopolitical factors, including the ongoing military conflict betweenRussia andUkraine , continue to rapidly evolve. The extent of the impact of these events on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including their impact on our development activities, clinical trial enrollment, future trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as their impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of these events is highly uncertain and subject to change. We will continue to monitor these situations and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic and other 17
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significant geopolitical factors may affect our business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, and on our ability to initiate and conduct clinical trials in the timelines we expect, remains uncertain.
Components of Our Results of Operations
Operating expenses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:
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personnel-related costs, including salaries, benefits and stock-based compensation expense, for employees engaged in research and development functions;
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expenses incurred in connection with our research programs, including under agreements with third parties, such as consultants, contractors and CROs; and
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the cost of developing and scaling our manufacturing process and manufacturing drug substance and drug product for use in our research and preclinical and clinical studies, including under agreements with third parties, such as consultants, contractors and contract manufacturing organizations (CMOs).
We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and, as such, are not separately classified. We expect that our research and development expenses will increase substantially as we continue to advance NVL-520 and NVL-655 in clinical development, advance NVL-330 in preclinical development, and expand our discovery, research and preclinical activities in the near term and in the future. Although we are currently enrolling patients in the Phase 1 portions of our ARROS-1 and ALKOVE-1 clinical trials, at this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
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the timing and progress of development activities relating to NVL-520, NVL-655, NVL-330 and any future product candidates from our ALK IXDN and other discovery programs, including any additional costs that may result from delays in enrollment or other factors;
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the number and scope of preclinical and clinical programs we decide to pursue;
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our ability to maintain our current research and development programs and to establish new ones;
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establishing an appropriate safety profile with IND-enabling toxicology studies;
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successful patient enrollment in, and the initiation and completion of, clinical trials;
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the number of trials required for regulatory approval;
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the countries in which the trials are conducted;
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the length of time required to enroll eligible subjects and initial clinical trials;
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the number of subjects that participate in the trials and per subject trial costs;
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potential additional safety monitoring requested by regulatory authorities;
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the duration of subject participation in the trials and follow-up;
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the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to applicable regulatory authorities;
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the receipt of approvals from applicable regulatory authorities;
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the timing, receipt and terms of any marketing approvals and post-marketing approval commitments from applicable regulatory authorities;
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the extent to which we establish collaborations, strategic partnerships or other strategic arrangements with third parties, if any, and the performance of any such third party;
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establishing commercial manufacturing capabilities or making arrangements with CMOs;
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development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; and
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights.
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations and accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Other income (expense)
Change in fair value of preferred stock tranche rights
Pursuant to the terms of our Series A Preferred Stock Purchase Agreement, we provided investors with the right and obligation to participate in subsequent closings of Series A convertible preferred stock upon the achievement of certain strategic milestones or as determined by the Series A investors (the Series A Tranche Rights). These Series A Tranche Rights met the definition of a freestanding financial instrument as the Series A Tranche Rights were legally detachable and separately exercisable from the Series A convertible preferred stock. The Series A Tranche Rights were initially classified as a liability on our consolidated balance sheet that we remeasured to fair value at each reporting date, and we recognized changes in fair value of the Series A Tranche Rights as a component of other income (expense) in our consolidated statements of operations and comprehensive loss. All Series A Tranche Rights were settled byMarch 31, 2021 . Other income (expense), net
Other income (expense), net, consists of interest income, interest expense and other income (expense) unrelated to our core operations.
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Table of Contents 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 September 30,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development $ 14,625 $ 9,055 $ 5,570
General and administrative 5,763 3,372 2,391
Total operating expenses 20,388 12,427 7,961
Loss from operations (20,388 ) (12,427 ) (7,961 )
Other income (expense):
Other income, net 672 1 671
Total other income, net 672 1 671
Net loss $ (19,716 ) $ (12,426 ) $ (7,290 ) Research and development expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended September 30,
2022 2021 Change
(in thousands)
Direct research and development expenses by
program:
NVL-520 $ 5,255 $ 3,019 $ 2,236
NVL-655 1,913 1,086 827
Discovery programs 2,743 2,098 645
Unallocated research and development
expenses:
Personnel-related (including stock-based
compensation) 4,412 2,801 1,611
Other 302 51 251
Total research and development expenses $ 14,625 $
9,055
Research and development expenses were$14.6 million for the three months endedSeptember 30, 2022 , compared to$9.1 million for the three months endedSeptember 30, 2021 . The increase in direct research and development expenses related to NVL-520 of$2.2 million was primarily due to increased clinical and manufacturing costs as we progressed NVL-520 into the Phase 1 portion of our ARROS-1 clinical trial. The increase in direct research and development expenses related to NVL-655 of$0.8 million was primarily due to an increase in clinical and manufacturing costs as we progressed NVL-655 into the Phase 1 portion of our ALKOVE-1 clinical trial. The increase in direct research and development expenses related to our discovery programs of$0.6 million was primarily due to progress of our discovery programs. The increase in personnel-related expenses of$1.6 million was primarily due to an increase in headcount. Personnel-related expenses for the three months endedSeptember 30, 2022 and 2021, included stock-based compensation expense of$1.0 million and$0.5 million , respectively.
General and administrative expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended September 30,
2022 2021 Change
(in thousands)
Personnel-related (including stock-based
compensation) $ 3,155 $ 1,955 $ 1,200
Professional and consultant fees 1,173 599 574
Other 1,435 818 617
Total general and administrative expenses $ 5,763 $
3,372 $ 2,391
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General and administrative expenses for the three months endedSeptember 30, 2022 , were$5.8 million compared to$3.4 million for the three months endedSeptember 30, 2021 . The increase in personnel-related expenses of$1.2 million was primarily due to an increase in headcount. Personnel-related expenses for the three months endedSeptember 30, 2022 and 2021, included stock-based compensation expense of$1.6 million and$0.9 million , respectively. The increase in professional and consultant fees of$0.6 million was primarily due to increased accounting fees. The increase in other of$0.6 million was due to increased insurance and other costs associated with operating as a public company and to support our growing organization.
Other income (expense)
Other income, net consisted primarily of interest income for the three months
ended
Comparison of the nine months ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development $ 40,876 $ 22,365 $ 18,511
General and administrative 15,933 6,074 9,859
Total operating expenses 56,809 28,439 28,370
Loss from operations (56,809 ) (28,439 ) (28,370 )
Other income (expense):
Change in fair value of preferred stock
tranche rights - (635 ) 635
Other income, net 1,078 25 1,053
Total other income (expense), net 1,078 (610 ) 1,688
Net loss $ (55,731 ) $ (29,049 ) $ (26,682 ) Research and development expenses
The following table summarizes our research and development expenses for the
nine months ended
Nine Months Ended September 30,
2022 2021 Change
(in thousands)
Direct research and development expenses by
program:
NVL-520 $ 14,334 $ 7,277 $ 7,057
NVL-655 5,936 4,258 1,678
Discovery programs 7,611 4,975 2,636
Unallocated research and development expenses:
Personnel-related (including stock-based
compensation) 12,005 5,359 6,646
Other 990 496 494
Total research and development expenses
22,365 $ 18,511
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Research and development expenses were$40.9 million for the nine months endedSeptember 30, 2022 , compared to$22.4 million for the nine months endedSeptember 30, 2021 . The increase in direct research and development expenses related to NVL-520 of$7.1 million was primarily due to increased manufacturing and clinical costs as we progressed NVL-520 into the Phase 1 portion of our ARROS-1 clinical trial. The increase in direct research and development expenses related to NVL-655 of$1.7 million was primarily due to increased clinical costs as we progressed NVL-655 into the Phase 1 portion of our ALKOVE-1 clinical trial. The increase in direct research and development expenses related to our discovery programs of$2.6 million was primarily due to progress of our discovery programs. The increase in personnel-related expenses of$6.6 million was primarily due to an increase in headcount. Personnel-related expenses for the nine months endedSeptember 30, 2022 and 2021, included stock-based compensation expense of$3.0 million and$0.8 million , respectively. The increase in other of$0.5 million is due to costs to support our growing research and development function.
General and administrative expenses
The following table summarizes our general and administrative expenses for the
nine months ended
Nine Months Ended September 30,
2022 2021 Change
(in thousands)
Personnel-related (including stock-based
compensation) $ 8,631 $ 3,038 $ 5,593
Professional and consultant fees 2,988 1,838 1,150
Other 4,314 1,198 3,116
Total general and administrative expenses $ 15,933 $
6,074
General and administrative expenses for the nine months endedSeptember 30, 2022 , were$15.9 million compared to$6.1 million for the nine months endedSeptember 30, 2021 . The increase in personnel-related expenses of$5.6 million was primarily due to an increase in headcount. Personnel-related expenses for the nine months endedSeptember 30, 2022 and 2021, included stock-based compensation expense of$4.3 million and$1.4 million , respectively. The increase in professional and consultant fees of$1.2 million was primarily due to increased accounting, audit and legal fees. The increase in other of$3.1 million was primarily due to increased insurance and other costs associated with operating as a public company and to support our growing organization.
Other income (expense)
Change in fair value of preferred stock tranche rights
The change in the fair value of the Series A Tranche Rights for the nine months endedSeptember 30, 2021 , was primarily due to the change in the fair value of our Series A convertible preferred stock during that period. All Series A Tranche Rights were settled byMarch 31, 2021 .
Other income, net
Other income, net consisted primarily of interest income for the nine months
ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for the foreseeable future, if at all. ThroughSeptember 30, 2022 , we have funded our operations primarily with proceeds from the sales of convertible preferred stock, the issuance of convertible notes (which converted to convertible preferred stock in 2018), debt financing from stockholders and our IPO. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$240.1 million . OnAugust 10, 2022 , we entered into a Sales Agreement (the Sales Agreement) withCowen and Company, LLC (Cowen) under which we may issue and sell shares of our Class A common stock, from time to time, having an aggregate offering price of up to$150.0 million through Cowen as our Sales Agent (the ATM Facility). We will pay Cowen a commission of up to 3% of the gross proceeds of any shares of Class A common stock sold pursuant to the Sales Agreement. As ofSeptember 30, 2022 , we have not sold any shares of our Class A common stock pursuant to the Sales Agreement. OnOctober 31, 2022 , we entered into an Amendment No. 1 to the Sales Agreement with Cowen (the Sales Agreement Amendment). The Sales Agreement Amendment was effective immediately and reduced the maximum aggregate offering price of the Class A common stock that the Company may sell under the ATM Facility to$135.0 million . 22
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OnNovember 3, 2022 , we received proceeds of$248.6 million after underwriting discounts and commission but before deducting offering costs from our follow-on public offering. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2022 2021 (in thousands) Net cash used in operating activities$ (47,192 ) $ (27,045 ) Net cash provided by (used in) investing activities 54,736 (56,567 ) Net cash provided by financing activities 243
319,166
Net increase in cash and cash equivalents $ 7,787$ 235,554 Operating activities During the nine months endedSeptember 30, 2022 , operating activities used$47.2 million of cash, resulting from our net loss of$55.7 million , partially offset by net non-cash charges of$7.8 million and by net cash provided by changes in our operating assets and liabilities of$0.8 million . Net cash provided by changes in our operating assets and liabilities for the nine months endedSeptember 30, 2022 , consisted primarily of an increase in accounts payable and accrued expenses of$2.7 million , partially offset by an increase in other assets and prepaid expenses and other current assets of$1.1 million and$0.8 million , respectively. During the nine months endedSeptember 30, 2021 , operating activities used$27.0 million of cash, resulting from our net loss of$29.0 million and net cash used by changes in our operating assets and liabilities of$0.8 million , partially offset by net non-cash charges of$2.8 million . Net cash used by changes in our operating assets and liabilities for the nine months endedSeptember 30, 2021 consisted primarily of an increase in other assets of$2.8 million and an increase in prepaid expenses and other current assets of$0.4 million , partially offset by an increase in accounts payable and accrued expenses of$2.5 million .
Investing activities
During the nine months ended
During the nine months ended
Financing activities
During the nine months endedSeptember 30, 2022 , net cash provided by financing activities was$0.2 million , consisting of proceeds from the exercise of common stock options of$0.6 million , partially offset by payments of insurance costs financed by a third-party. During the nine months endedSeptember 30, 2021 , net cash provided by financing activities was$319.2 million , consisting of proceeds from our IPO, net of underwriting discounts and commissions of$177.3 million and proceeds from the issuance of our Series A and Series B convertible preferred stock of$144.7 million , partially offset by payment of IPO costs of$2.6 million .
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical and clinical activities and clinical trials for our product candidates in development. In addition, we expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
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the initiation, progress, timing, costs and results of preclinical studies and
clinical trials for our discovery programs and product candidates, including the
advancement of NVL-520, NVL-655 and NVL-330 throughout clinical development;
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the clinical development plans we establish for our product candidates, including NVL-520, NVL-655 and NVL-330;
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the number and characteristics of product candidates that we discover and develop through our product discovery and research efforts;
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the terms of any collaboration agreements we may choose to pursue;
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the outcome, timing and cost of meeting regulatory requirements established by the FDA, the EMA and other comparable foreign regulatory authorities;
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
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the effect of competing technological and market developments;
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the cost and timing of completion of commercial-scale outsourced manufacturing activities; and
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the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$240.1 million . OnNovember 3, 2022 , we received proceeds of$248.6 million after underwriting discounts and commission but before deducting offering costs. We expect that our cash, cash equivalents and marketable securities, including the proceeds from our follow-on public offering inNovember 2022 , will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2025. Our cash, cash equivalents and marketable securities will not be sufficient to fund any of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the development and commercialization of our product candidates. Our estimate as to how long we expect our cash, cash equivalents and marketable securities to fund our operations is based on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including those listed above. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our common stockholders will 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 preferred 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 acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing 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. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Other Commitments
During the three and nine months ended
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Critical Accounting Policies and Significant Judgments and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America . The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management.
There have been no material changes to our critical accounting policies and estimates from those disclosed in our consolidated financial statements and the related notes and other financial information included in our 2021 Form 10-K.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report.
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