PARDES BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with the unaudited condensed financial
statements and the notes thereto included elsewhere in this Quarterly Report on
Form 10-Q for the quarter ended
Overview
We are a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics to improve the lives of patients suffering from life-threatening disease, starting with our lead product candidate, PBI-0451, which is in clinical development and intended to treat and prevent coronaviral (CoV) infections. COVID-19 is caused by infection with the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and has emerged as the most significant pandemic threat to the world in many decades. We have built a discovery platform designed to target reactive nucleophiles, such as those in cysteine proteases. By leveraging our understanding of structure-based drug design, reversible covalent chemistry and viral biology, we have discovered and are developing novel product candidates with low nanomolar potency against SARS-CoV-2 and broad activity against all known pathogenic human coronaviruses. Our lead product candidate, PBI-0451, inhibits the main coronaviral cysteine protease (Mpro), a viral protein essential for replication of all known coronaviruses, including SARS-CoV-2. In preclinical studies, PBI-0451 has demonstrated activity against all coronaviral proteases tested, as well as inhibition of replication of multiple coronaviruses, including SARS-CoV-2. Moreover, in preclinical studies, PBI-0451 demonstrated the potential for oral bioavailability across multiple preclinical species, and more recently, oral bioavailability in healthy volunteers in our first-in-human Phase 1 clinical trial. We believe the anti-viral potency seen against SARS-CoV-2 in preclinical in vitro studies and demonstrated oral bioavailability in humans supports its potential to be an oral direct acting antiviral ("DAA") for use against SARS-CoV-2 infections. We plan to develop PBI-0451 for both oral treatment and prophylaxis of SARS-CoV-2 infection. Given the highly conserved nature of the Mpro target, which is shared among all known coronaviruses, including emerging variants of concern, we believe PBI-0451 will likely retain its potency and activity against current and emerging SARS-CoV-2 variants.
On
We accounted for the Business Combination as a reverse recapitalization which is
the equivalent of Old Pardes issuing stock for the net assets of FSDC II, with
FSDC II treated as the acquired company for accounting purposes. The net assets
of FSDC II were stated at historical cost with no goodwill or other intangible
assets recorded. Reported results from operations included herein prior to the
Business Combination are those of Old Pardes. The shares and corresponding
capital amounts and loss per share related to Old Pardes' outstanding redeemable
convertible preferred stock and common stock prior to the Business Combination
have been retroactively restated to reflect the Conversion Ratio established in
the Merger Agreement. For additional information please refer to Note 4,
Business Combination, to the consolidated financial statements included in Part
II, Item 8 of our Form 10-K for the fiscal year ended
Since inception in 2020, we have devoted substantially all our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates, preparing and filing related patent applications and conducting research and development activities for our product candidates. We do not have any products approved for sale and we have not generated any revenue from product sales. We may never be able to develop or commercialize a marketable product.
In
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Liquidity Overview
As of
Through
We have incurred operating losses since our inception. As of
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continue preclinical studies and initiate new clinical trials for PBI-0451, our lead product candidate being tested for the treatment of COVID-19;
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advance the development of our pipeline of other product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory authorization or approval;
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expand our infrastructure and facilities to accommodate our growing employee base;
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increase manufacturing requirements for our clinical development activities, emergency use authorization and commercial preparedness; and
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add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.
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 in prior years.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time, if ever, as we can generate significant revenue from product sales, we expect to finance our operations through a combination of private and public equity offerings, debt financings or other capital sources, which may include collaborations with other companies, government funding, or other strategic transactions. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our 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 or other strategic transactions 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. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to 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, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
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COVID-19 Pandemic
In
Components of Our Results of Operations
Revenue
We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products in the near future, if ever. If our development efforts are successful and we commercialize our products, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts, and the development of our potential product candidates. We expense research and development costs as incurred, which include:
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expenses incurred to conduct the necessary preclinical studies, nonclinical studies and clinical trials required to obtain regulatory approval;
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expenses incurred under agreements with contract research organizations ("CROs") that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations ("CMOs") that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
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other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative site and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; and
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costs related to compliance with regulatory requirements.
We recognize research and development expenses as incurred. Any advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. We estimate and accrue for the value of goods and services received from CROs, CMOs and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks. This process involves reviewing open contracts and purchase orders, communicating with our personnel and service providers to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs.
At any one time, we may be working on multiple programs. We do not allocate employee costs and overhead costs associated to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery as well as for managing our preclinical, nonclinical, manufacturing and clinical development activities. To date, substantially all of the research and development costs incurred have been in connection with the development of our lead product candidate, PBI-0451.
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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we commence planned clinical trials for PBI-0451, as well as conduct preclinical and clinical development, including submitting regulatory filings, for our other product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of the following:
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the scope, progress, outcome and costs of our preclinical and nonclinical development activities, clinical trials and other research and development activities;
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establishing an appropriate safety and efficacy profile with clinically enabling trials;
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successful patient enrollment in and the initiation and completion of clinical trials;
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the timing, receipt and terms of any marketing approvals from applicable
regulatory authorities including the FDA and non-
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the extent of any required post-marketing approval commitments to applicable regulatory authorities;
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establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
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development and timely delivery of clinical-grade and commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
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significant and changing government regulation;
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launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
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maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.
Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical, nonclinical and clinical development could mean a significant change in the costs and timing associated with the development of these 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 planned 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 employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology, and administrative functions. General and administrative expenses also include insurance costs and professional fees for legal, patent, consulting, investor and public relations, pre-commercial planning, accounting and audit services. Our general and administrative costs are expensed as incurred.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates. We also anticipate that we will incur significantly 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. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as relates to the sales and marketing of that product candidate.
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Income Taxes
We have incurred net losses in every period since our inception and have not
recorded any
Results of Operations
Comparison of the three months ended
The following table sets forth our results of operations for the periods
presented (in thousands):
Three Months Ended March 31,
2022 2021 Change
Operating expenses:
Research and development $ 13,199 $ 3,445 $ 9,754
General and administrative 8,226 1,081 7,145
Total operating expenses 21,425 4,526 16,899
Other (expense) income, net (15 ) 3 (18 )
Net loss $ (21,440 ) $ (4,523 ) $ (16,917 ) Research and Development Expenses
The following table summarizes the components of research and development expenses for the periods presented (in thousands):
Three Months Ended March 31,
2022 2021 Change
External costs:
PBI-0451 $ 10,499 $ 2,790 $ 7,709
Discovery programs 165 - $ 165
Total external costs 10,664 2,790 7,874
Internal costs:
Salaries and benefits 1,820 491 1,329
Stock-based compensation 463 14 449
Other unallocated costs 252 150 102
Total internal costs 2,535 655 1,880
Total research and development expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Liquidity and Capital Resources
Sources of Liquidity and Capital
Since inception, we have not generated any revenue from any product sales or any
other sources and have incurred operating losses and negative cash flows from
our operations. 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
several years, if ever. Through
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As of
CRO and CMO Agreements
We have entered into agreements in the normal course of business with certain vendors for the provision of goods and services, which includes manufacturing services with CMOs and development services with CROs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement.
We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Three Months Ended March 31,
2022 2021
Net cash used in operating activities $ (20,362 ) $ (3,748 )
Net cash (used in) provided by financing activities (397 ) 44,241
Net (decrease) increase in cash and cash equivalents
Operating Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
During the three months ended
Funding Requirements
Our primary use of cash is to fund operating expenses, primarily related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly if and as we advance into Phase 2/3 clinical trials for PBI-0451. We also 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. The timing and amount of our operating expenditures will depend largely on our ability to:
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advance preclinical development of our early-stage programs and initiate clinical trials of our product candidates;
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manufacture, or have manufactured on our behalf, our preclinical, nonclinical and clinical drug material and develop processes for late stage and commercial manufacturing;
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seek regulatory authorizations and/or approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing, medical affairs, managed care, and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
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hire additional clinical, quality control and scientific personnel;
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expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
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manage the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
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manage the costs of operating as a public company.
Working Capital
Because of the numerous risks and uncertainties associated with research, development and commercialization of 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:
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the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and nonclinical studies and clinical trials;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;
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the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
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the costs of manufacturing commercial-grade product and necessary inventory to support a potential future commercial launch;
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the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
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the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, expanding and enforcing our intellectual property rights and defending intellectual property-related claims;
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our ability to establish and maintain collaborations on favorable terms, if at all; and
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the extent to which we acquire or in-license other product candidates and technologies.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our condensed financial statements in conformity with
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements not yet adopted that may potentially impact our financial position and results of operations is also disclosed in Note 2, Summary of Significant Accounting Policies to our unaudited condensed financial statements appearing in this Quarterly Report on Form 10-Q.
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