PHASEBIO PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto as of and for the periods endedDecember 31, 2021 and 2020 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 24, 2022 (the "Annual Report on Form 10-K"). Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," and "our" refer toPhaseBio Pharmaceuticals, Inc.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "projects," "target," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with theSEC . The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies for cardiovascular diseases. Our lead product candidate, bentracimab (also known as PB2452), is a novel reversal agent for the antiplatelet drug ticagrelor. Bentracimab has been generally well tolerated in our completed trials, with no drug-related serious adverse events, or SAEs. In our completed Phase 2a and Phase 2b clinical trials of bentracimab, we observed immediate and complete reversal of ticagrelor's antiplatelet activity within five minutes following initiation of infusion and sustained reversal for over 20 hours. We are currently conducting our pivotal Phase 3 REVERSE-IT trial of bentracimab in patients who present with uncontrolled major or life-threatening bleeding or who require urgent surgery or invasive procedure. In a prespecified interim analysis of 150 enrolled patients (142 of whom enrolled required urgent surgery or an invasive procedure and eight of whom enrolled with uncontrolled major or life-threatening bleeding), bentracimab achieved the primary endpoint of the trial by immediately and sustainably reversing the antiplatelet effects of ticagrelor. We are developing bentracimab pursuant to a co-development agreement, or the SFJ Agreement, withSFJ Pharmaceuticals X, Ltd. , anSFJ Pharmaceuticals Group company, or SFJ. We are also developing our preclinical product candidate, PB6440, for treatment-resistant hypertension. Except for the rights that we granted toAlfasigma S.p.A ., orAlfasigma , for bentracimab, we retain worldwide commercial rights to all of our product candidates. Based on feedback from theUnited States Food and Drug Administration , or FDA, we intend to seek approval of bentracimab inthe United States through an accelerated approval process to treat patients who present with uncontrolled bleeding or require surgery. We are targeting to submit a Biologics License Application, or BLA, to the FDA for bentracimab in the fourth quarter of 2022, although this timing could be impacted by the continued scope and duration of the COVID-19 pandemic. During our Type B pre-BLA meeting, the FDA agreed that our plans to submit a BLA with data from 25 to 30 patients with uncontrolled bleeding, together with data from the fully completed surgical cohort, in the REVERSE-IT trial appeared reasonable to support both bleeding and surgical indications for bentracimab. To date, and subject to final adjudication, the REVERSE-IT trial has enrolled more than 35 patients taking ticagrelor who experienced uncontrolled bleeding events. The FDA confirmed its prior recommendation that we complete enrollment in the REVERSE-IT trial following accelerated approval and we plan to continue to enroll bleeding patients in the trial to complete that requirement. The FDA also previously recommended that we establish a post-approval registry study that will be active ahead of a product launch following potential accelerated approval. The FDA also noted that, if during the review process our BLA application was deemed adequate to support approval for only one of the two requested indications, the FDA would consider separating and allowing for possible accelerated approval of only one of the two indications. 21 -------------------------------------------------------------------------------- The FDA has indicated that whether the data from the surgery or uncontrolled bleeding patient populations is adequate to support both indications would be a review issue based on the data submitted. In addition, our IND for bentracimab was approved by theCenter for Drug Evaluation , or CDE, of theChina National Medical Products Administration , or NMPA, inAugust 2021 . We recently activated our first site and expect to begin enrolling patients inChina throughout 2022, although this timing could be impacted by the scope and duration of the COVID-19 pandemic. We initiated IND-enabling studies for PB6440 in 2021 and we plan to submit an IND in the first half of 2023. We are also targeting to begin a first-in-human trial in mid-2023, although our timelines could be impacted by the scope and duration of the COVID-19 pandemic. As we advance our clinical programs for bentracimab with site activations and patient enrollment, we remain in close contact with our clinical research organizations, clinical sites and suppliers to attempt to assess the impacts that COVID-19 and its variants may have on our clinical trials and current timelines and to consider whether we can implement appropriate mitigating measures to help lessen such impacts. At this time, however, we cannot fully forecast the scope of impacts that COVID-19 may have on our ability to initiate trial sites, enroll and assess patients, supply study drug and report trial results or our ability to develop PB6440. Since our inception in 2002, our operations have focused on developing our clinical and preclinical product candidates and our proprietary ELP technology, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials and preclinical studies. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since inception, we have financed our operations primarily through the sale of equity and debt securities, our term loans withSilicon Valley Bank , or SVB, andWestRiver Innovation Lending Fund VIII, L.P. , or WestRiver, funds we have received under the SFJ Agreement and funds we have received pursuant to theAlfasigma Sublicense. Since our inception, we have incurred significant operating losses. Our net loss was$27.8 million for the six months endedJune 30, 2022 . As ofJune 30, 2022 , we had an accumulated deficit of$419.6 million . We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:
•continue our ongoing clinical trials of bentracimab, as well as initiate and complete additional clinical trials, as needed;
•seek to expand our geographical reach through the SFJ Agreement and the Alfasigma Sublicense and the corresponding clinical development support fees and milestone payments that we will incur or may receive;
•pursue regulatory approvals for bentracimab as a reversal agent for the antiplatelet drug ticagrelor;
•develop PB6440 for treatment-resistant hypertension;
•seek to discover and develop additional clinical and preclinical product candidates;
•scale up our clinical and regulatory capabilities;
•establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval, including bentracimab;
•adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;
•maintain, expand and protect our intellectual property portfolio;
•hire additional clinical, manufacturing and scientific personnel;
•add operational, financial and management information systems and personnel, including personnel to support our product development and possible future commercialization efforts; and
•incur additional legal, accounting and other expenses in operating as a public company.
FINANCIAL OVERVIEW
Components of Results of Operations
Revenue
22
--------------------------------------------------------------------------------Sublicense Revenue
Sublicense revenue relates to the revenue we recognized in relation to the Alfasigma Sublicense, which contains multiple components including (i) sublicenses; (ii) research and development activities; and (iii) the manufacturing and supply of certain materials. Payments pursuant to this arrangement include a non-refundable, upfront payment, milestone payments upon the achievement of significant regulatory and development events, sales of product at certain agreed-upon amounts, sales milestones and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under the sublicense agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations and (v) recognition of revenue as we satisfy each performance obligation.
Operating Expenses
Research and Development Expense
Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
•expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our clinical trials and preclinical studies;
•manufacturing and supply scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial supply and potential commercial supply, including manufacturing validation batches;
•clinical development support fees that we incur related to the SFJ Agreement;
•outsourced professional scientific development services;
•employee-related expenses, which include salaries, benefits and stock-based compensation;
•expenses relating to regulatory activities; and
•laboratory materials and supplies used to support our research activities.
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. We expect our research and development expense to continue to be a significant and increasing cost over the next several years as we increase personnel costs, including stock-based compensation, conduct our later-stage clinical trials for bentracimab, develop PB6440, conduct other preclinical studies and clinical trials, prepare regulatory filings and, if we receive regulatory approval for one or more product candidates, prepare for commercialization efforts. After a strategic review, we decided to stop development of pemziviptadil for the treatment of pulmonary arterial hypertension, or PAH, in order to reprioritize resources and capital towards pre-commercialization activities for bentracimab and the advancement of other pipeline programs, including PB6440 for resistant hypertension. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates, or when, if ever, material net cash inflows may commence from those candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including: •delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials or in our ability to negotiate agreements with clinical trial sites or contract research organizations;
•our ability to secure adequate supply of product candidates for our trials;
•the number of clinical sites included in the trials;
•the length of time required to enroll suitable patients;
•the number of patients that ultimately participate in the trials;
•the number of doses patients receive;
•any side effects associated with our product candidates;
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--------------------------------------------------------------------------------•the impacts of the COVID-19 pandemic on our ability to initiate trial sites, enroll and assess patients, supply study drug and report trial results;
•the duration of patient follow-up; and
•the results of our clinical trials.
Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, 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. Product commercialization will take several years and millions of dollars in development costs.
General and Administrative Expense
General and administrative expense consists principally of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expense includes professional fees for legal, accounting and tax-related services and insurance costs. We expect that general and administrative expenses will increase over the next several years to support our continued research and development activities of our current and future product candidates, manufacturing activities, potential commercialization of bentracimab and the increased costs operating as a public company. We believe that these increases likely will include increased costs for director and officer liability insurance, costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations, disclosure and similar requirements applicable to public reporting companies.
Other Income (Expense)
Gain/(Loss) From Remeasurement of Development Derivative Liability
Gain/(loss) from remeasurement of development derivative liability reflects the revaluation at each reporting date of our development derivative liability based on the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms under the SFJ Agreement, which is determined to be fair value. The liability is remeasured at the end of each quarter as a Level 3 derivative, with the change in fair value recorded in the condensed statements of operations.
Interest Income
Interest income consists of interest income from funds held in our cash and cash equivalent accounts.
Interest Expense
Interest expense consists of interest expense on our term loan with SVB and WestRiver.
License, Co-Development and Other Agreements
MedImmune Limited License Agreement
InNovember 2017 , we entered into an exclusive license agreement, or the MedImmune License, withMedImmune Limited , or MedImmune, a wholly owned subsidiary of AstraZeneca plc. Pursuant to the MedImmune License, MedImmune granted us an exclusive, worldwide license under certain patent rights owned or controlled by MedImmune to develop and commercialize any products covered by the MedImmune License, or the MedImmune Licensed Products, for the treatment, palliation, diagnosis or prevention of any human disorder or condition. Under the MedImmune License, we paid MedImmune an upfront fee of$0.1 million . We are also required to pay MedImmune: quarterly fees relating to technical services provided by MedImmune; up to$18.0 million in clinical and regulatory milestone fees,$3.0 million of which had been incurred as ofJune 30, 2022 ; up to$50.0 million in commercial milestone fees; and mid-single digit to low-teen royalty percentages on net sales of MedImmune Licensed Products, subject to reduction in specified circumstances. In addition, the MedImmune License offers an 24 --------------------------------------------------------------------------------
option for third-party product storage costs. From the inception of the
MedImmune License through
Co-Development Agreement with
InJanuary 2020 , we entered into an agreement withSFJ Pharmaceuticals , or the SFJ Agreement, pursuant to which SFJ provides us funding to support the global development of bentracimab as a reversal agent for the antiplatelet drug ticagrelor in patients with uncontrolled major or life-threatening bleeding or requiring urgent surgery or an invasive procedure. InMarch 2020 , we obtained the consent ofSilicon Valley Bank , or SVB, to grant SFJ a security interest in all of the assets owned or controlled by us that are necessary for the manufacture, use or sale of bentracimab. Under the SFJ Agreement, SFJ has agreed to pay us up to$120.0 million to support the clinical development of bentracimab. In addition to the$90.0 million of initial funding, we have elected to receive an additional$30.0 million of funding having met specific, pre-defined clinical development milestones for bentracimab. From the inception of the SFJ Agreement throughJune 30, 2022 , SFJ has provided funding and paid for amounts on our behalf in the aggregate amount of$99.0 million under the SFJ Agreement. We also expect that SFJ will fund or reimburse an additional$21.0 million of clinical trial costs and other expenses. During the term of the SFJ Agreement, we have primary responsibility for clinical development and regulatory activities for bentracimab inthe United States and theEuropean Union , while SFJ has primary responsibility for clinical development and regulatory activities for bentracimab inChina andJapan and will provide clinical trials operational support in theEuropean Union . Under the terms of the SFJ Agreement, following the FDA approval of a BLA for bentracimab, we will pay SFJ an initial payment of$5.0 million and an additional$325.0 million in the aggregate in seven additional annual payments. If the EMA or the national regulatory authority in certain European countries approve the equivalent of a BLA, known as a Marketing Authorization Application, or MAA, for bentracimab, we will pay SFJ an initial payment of$5.0 million and an additional$205.0 million in the aggregate in seven additional annual payments. If either the PMDA ofJapan or the China NMPA approves a marketing application for bentracimab, we will pay SFJ an initial payment of$1.0 million and then an additional$59.0 million in the aggregate in eight additional annual payments. Within 120 days following approval of a BLA or MAA for bentracimab in one of the jurisdictions described above, we have the right, at our option, to make a one-time cash payment to SFJ to buy out all or a portion of the future unpaid approval payments for such jurisdiction (i.e., theU.S. Approval Payments, EU Approval Payments orJapan /China Approval Payments, as applicable) for a price reflecting a mid-single-digit discount rate. Within 120 days following a change of control of our company, we or our successor have the right, at its option, to make a one-time cash payment to SFJ to buy out all or a portion of the future unpaid approval payments in any of the jurisdictions in which a BLA or MAA for bentracimab was approved prior to the change of control for a price reflecting a mid-single-digit discount rate, provided that SFJ has not previously assigned the right to receive such payments to a third party (in which event we or our successor shall not have such right). If following termination of the SFJ Agreement we continue to develop bentracimab and obtain BLA or MAA approval inthe United States , theEuropean Union ,Japan orChina , we will make the applicable approval payments for such jurisdiction to SFJ as if the SFJ Agreement had not been terminated, less any payments made upon termination, except that if we terminate the SFJ Agreement for SFJ's failure to make any payment to us when due, or SFJ terminates the SFJ Agreement due to a material adverse event, as defined in the SFJ Agreement, then our obligation to make such approval payments would be reduced by 50%.
Duke License Agreement
InOctober 2006 , we entered into an exclusive license agreement withDuke University , or Duke, which was most recently amended inApril 2019 , or the Duke License. Pursuant to the Duke License, Duke granted us an exclusive, worldwide license under certain patent rights owned or controlled by Duke, and a non-exclusive, worldwide license under certain know-how of Duke, to develop and commercialize any products covered by the Duke License, or Duke licensed products, relating to ELPs. Under the Duke License, we paid Duke an upfront fee of$37,000 , additional fees in connection with amendments to the Duke License of$0.2 million and other additional licensing fees of$0.2 million . In consideration for license rights granted to us, we initially issued Duke 24,493 shares of our common stock. Until we reached a certain stipulated equity milestone, which we reached inOctober 2007 , we were obligated to issue additional shares of common stock to Duke from time to time so that its aggregate ownership represented 7.5% of our issued and outstanding capital stock. We are also required to pay Duke: up to$2.2 million in regulatory and clinical milestone fees; up to$0.4 million in commercial milestone fees; low single-digit royalty percentages on net sales of Duke licensed products, with minimum aggregate royalty payments of$0.2 million payable following our achievement of certain commercial milestones; and up to the greater of$0.3 million or a low double-digit percentage of the fees we receive from a third party in consideration of forming a strategic alliance with respect to certain patent rights covered under the Duke License. We also must pay Duke the first$1.0 million of non-royalty payments we receive from a sublicensee, and thereafter a low double-digit percentage of any additional non-royalty payments we receive, subject to certain conditions. 25 -------------------------------------------------------------------------------- From the inception of the Duke License throughJune 30, 2022 , we have incurred royalty costs of$0.3 million under the Duke License. We are also required to apply for, prosecute and maintain allU.S. and foreign patent rights under the Duke License.
Alfasigma Sublicense Agreement
InJune 2021 , we entered into the Alfasigma Sublicense, withAlfasigma , under which we granted toAlfasigma exclusive rights to develop, use, sell, have sold, offer for sale and import any product composed of or containing bentracimab, or Licensed Products, in the Sublicense Territory. Under the terms of theAlfasigma Sublicense, inJuly 2021 , we received a$20.0 million upfront payment fromAlfasigma and we will be eligible to receive up to$35.0 million upon the achievement of certain pre-revenue regulatory milestones, up to$190.0 million upon the achievement of certain commercial milestones and tiered royalty payments on net sales, with percentages starting in the low double digits and escalating to the mid-twenties. With respect to the up to$35.0 million of regulatory milestone payments: (i)$10.0 million is payable following acceptance by the EMA of the filing of the first drug approval application for a Licensed Product; (ii)$12.5 million is payable following achievement of conditional regulatory approval from the EMA; and (iii) the remaining$12.5 million is payable following achievement of unconditional regulatory approval from the EMA allowing for prescribing of a Licensed Product for the reversal of the antiplatelet effects of ticagrelor in both (a) patients with uncontrolled major or life-threatening bleeding and (b) patients requiring urgent surgery or an invasive procedure. Under the Alfasigma Sublicense, we are responsible for developing the Licensed Products and securing regulatory approval with the EMA and the MHRA, including in accordance with the SFJ Agreement, after which any marketing authorizations will be assigned toAlfasigma .Alfasigma is obligated to obtain and maintain any regulatory approvals necessary to market and sell the Licensed Products (including pricing approvals and post-marketing commitments) and is also responsible for securing regulatory approval in countries outside ofEurope and theUnited Kingdom . We have also agreed to provide Licensed Products toAlfasigma at the lower of cost or a price not to exceed certain agreed amounts. We recognized$0.2 million and$10.3 million in revenue under theAlfasigma Sublicense for the three months endedJune 30, 2022 and 2021, respectively, and$0.3 million and$10.3 million for the six months endedJune 30, 2022 and 2021, respectively. Wacker License Agreement InApril 2019 , we entered into a license agreement, or the Wacker License Agreement, withWacker Biotech GmbH , or Wacker, pursuant to which Wacker granted us an exclusive license under certain of Wacker's intellectual property rights to use Wacker's proprietary E. coli strain for the manufacture of bentracimab worldwide outside of specified Asian countries and to commercialize bentracimab, if approved, manufactured by us or on our behalf using Wacker's proprietary E. coli strain throughout the world. We have the right to grant sublicenses under the license, subject to certain conditions as specified in the Wacker License Agreement. Under the terms of the agreement, we are required to pay a fixed, nominal per-unit royalty, which is subject to adjustment, and an annual license fee in a fixed Euro amount in the low to mid six digits. The agreement will be in force for an indefinite period of time, and upon the expiration of our royalty obligations, the license will be considered fully paid and will convert to a non-exclusive license. Either party may terminate the Wacker License Agreement for breach if such breach is not cured within a specified number of days. We completed a technology transfer of our current manufacturing process for bentracimab from Wacker toBioVectra Inc. , orBioVectra , another cGMP manufacturer, and have engagedBioVectra to manufacture drug substance for our ongoing clinical trials and to manufacture commercial supply of bentracimab following regulatory approval, if obtained. From the inception of the Wacker License Agreement throughJune 30, 2022 , we have incurred$1.1 million in costs.
Viamet Asset Purchase Agreement
InJanuary 2020 , we entered into a purchase agreement, or the PB6440 Agreement, withViamet Pharmaceuticals Holdings, LLC and its wholly-owned subsidiary,Selenity Therapeutics (Bermuda), Ltd. , or the Sellers, pursuant to which we acquired all of the assets and intellectual property rights related to the Sellers' proprietary CYP11B2 inhibitor compound, formerly known as SE-6440 or VT-6440, and certain other CYP11B2 inhibitor compounds that are covered by the patent rights acquired by us under the PB6440 Agreement, or together, the Compounds. Under the terms of the PB6440 Agreement, we paid the Sellers an upfront fee of$0.1 million upon the closing of the transaction, and we are required to pay the Sellers up to$5.1 million upon the achievement of certain development and intellectual property milestones with respect to certain product candidates that contain a Compound, up to$142.5 million upon the achievement of certain commercial milestones with respect to any approved product that contains a Compound and low- to mid-single digit royalty percentages on the net sales of approved products that contain a Compound, subject to customary reductions and offsets in specified circumstances. From the inception of the PB6440 Agreement throughJune 30, 2022 , we have incurred$0.1 million in costs under the PB6440 Agreement. 26 --------------------------------------------------------------------------------
BioVectra Supply Agreement
In
Under the terms of the BioVectra Agreement,BioVectra has committed to maintaining capacity to manufacture an agreed number of batches of product each year for commercial distribution, and we have committed to purchase a specified minimum number of batches of product per year, or the Minimum Annual Commitment, although we are free to contract with third parties for the manufacture of bentracimab. We will pay a supply price per batch of bentracimab to be determined after the manufacturing process for bentracimab is validated in accordance with the BioVectra Agreement, plus the cost of certain consumables, raw materials, and third-party testing. Pursuant to the Minimum Annual Commitments, we are obligated to purchase a minimum of (i) approximately$14.0 million of batches of bentracimab in years 2022 through 2023, (ii) approximately$37.0 million of batches of bentracimab in 2024, and (iii) approximately$48.0 million of batches of bentracimab in each of years 2025 through 2031. In the event we do not purchase the applicable Minimum Annual Commitment in a given year, we will be obligated to make a payment toBioVectra in an amount equal to the then-applicable supply price per batch multiplied by the difference between the Minimum Annual Commitment for such year and the number of batches of bentracimab we actually purchased in such year, or the Minimum Shortfall Payment, except in the event thatBioVectra was unable to deliver the number of batches ordered by us in such year. In the event of certain serious or extended failures byBioVectra to supply product in the quantities ordered by us in a given year, our Minimum Annual Commitment for such year (and potentially one or more subsequent years) will be subject to reduction, and our obligation to make a Minimum Shortfall Payment for such year (and potentially one or more subsequent years) will be waived. We will have the right to reduce the Minimum Annual Commitments for the year 2026 and subsequent years by up to a specified maximum percentage per year. Further, if we are only able to obtain regulatory approval for products incorporating bentracimab in only one of theU.S. orEurope ,BioVectra and we have agreed to discuss in good faith an amendment to the BioVectra Agreement to reflect decreased requirements for product and impacts to the supply price to reflect lower volume commitments. We incurred$7.4 million in costs under the BioVectra Agreement in each of the three and six months endedJune 30, 2022 . We did not incur any costs under the BioVectra Agreement in the three and six months endedJune 30, 2021 . 27 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations (in thousands):
Three Months Ended June 30,
2022 2021 Change
Revenue:
Sublicense revenue $ 208 $ 10,338 $ (10,130)
Total revenue 208 10,338 (10,130)
Operating expenses:
Research and development 20,939 27,366 (6,427)
General and administrative 4,581 4,025 556
Total operating expenses 25,520 31,391 (5,871)
Loss from operations (25,312) (21,053) (4,259)
Other income/(expense):
Gain/(loss) from remeasurement of development derivative
liability 8,719 (5,777) 14,496
Interest income 17 5 12
Interest expense (116) (254) 138
Foreign exchange gain 27 - 27
Total other income/(expense) 8,647 (6,026) 14,673
Net loss before income taxes (16,665) (27,079) $ 10,414
Provision for income taxes - 1,600 $ (1,600)
Net loss $ (16,665) $ (28,679) $ 12,014
Sublicense Revenue
Sublicense revenue was $0.2 million for the three months ended June 30, 2022 ,
compared to $10.3 million for the three months ended June 30, 2021 . The decrease
was attributable to the revenue we recognized from the initial payment pursuant
to the Alfasigma Sublicense in July 2021 .
Research and Development Expense
Research and development expense was$20.9 million for the three months endedJune 30, 2022 , compared to$27.4 million for the three months endedJune 30, 2021 . The decrease of$6.4 million was primarily attributable to drug manufacturing activity in 2021, study site startup costs for the Phase 2b trial related to bentracimab in 2021, and the voluntary ending of the Phase 2b trial of pemziviptadil in the fourth quarter of 2021, partially offset by an increase in costs related to development of PB6440, and personnel costs and other costs associated with our general research and development efforts.
The following table summarizes our research and development expenses by functional area (in thousands):
Three Months
Ended
2022 2021 Change
Preclinical and clinical development $ 17,145 $ 24,079 $ (6,934)
Compensation and related benefits 2,053 1,843 210
Stock-based compensation 215 219 (4)
Facilities expense 413 399 14
Other 1,113 826 287
Total research and development expenses $ 20,939
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The following table summarizes our research and development expenses by product
candidate (in thousands):
Three Months Ended June 30,
2022 2021 Change
External research and development expense by program: Bentracimab
$ 14,772 $ 21,564 $ (6,792) Pemziviptadil 365 2,218 (1,853) Unallocated research and development expense: Compensation and stock-based compensation 2,268 2,062 206 Other research and development 3,534 1,522 2,012 Total research and development expenses$ 20,939
We have ceased development of pemziviptadil and are reprioritizing resources and capital towards pre-commercialization activities of bentracimab and the advancement of other pipeline programs, including PB6440 for resistant hypertension.
General and Administrative Expense
General and administrative expense was$4.6 million for the three months endedJune 30, 2022 , compared to$4.0 million for the three months endedJune 30, 2021 . The increase of$0.6 million was primarily attributable to increases in consulting costs and personnel expenses due to additional headcount as compared to the three months endedJune 30, 2021 .
Gain/(Loss) From Remeasurement of Development Derivative Liability
Gain from remeasurement of development derivative liability was$8.7 million for the three months endedJune 30, 2022 , compared to loss of$5.8 million for the three months endedJune 30, 2021 . This liability was initially recorded at the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms of the SFJ Agreement, which was determined to have been fair value. The derivative liability is subsequently remeasured at the end of each quarter as a Level 3 derivative. The change is primarily related to the change in the risk-free interest rate offset by payments received from SFJ.
Interest Income
Interest income was$17,000 for the three months endedJune 30, 2022 , compared to$5,000 for the three months endedJune 30, 2021 . The increase of$12,000 was attributable to higher interest rates during partially offset by lower balances of cash and cash equivalents. Interest Expense Interest expense was$0.1 million for the three months endedJune 30, 2022 , compared to$0.3 million for the three months endedJune 30, 2021 . The decrease of$0.2 million was primarily attributable to lower outstanding borrowings on the 2019 Loan during the three months endedJune 30, 2022 . See "Note 6. Debt" to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for information concerning the 2019 Loan.
Foreign Exchange Gain
Foreign exchange gain was
Provision for Income Taxes
Provision for income taxes was zero for the three months endedJune 30, 2022 , compared to$1.6 million for the three months endedJune 30, 2021 . The decrease was attributable to international withholding tax on the initial payment fromAlfasigma made in 2021.
Comparison of the Six Months Ended
The following table summarizes our results of operations (in thousands):
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Six Months Ended June 30,
2022 2021 Change
Revenue:
Sublicense revenue $ 325 $ 10,338 $ (10,013)
Total revenue 325 10,338 (10,013)
Operating expenses:
Research and development 35,275 49,686 (14,411)
General and administrative 8,590 7,352 1,238
Total operating expenses 43,865 57,038 (13,173)
Loss from operations (43,540) (46,700) 3,160
Other income/(expense):
Gain/(loss) from remeasurement of development
derivative liability 15,952 (7,203) 23,155
Interest income 20 7 13
Interest expense (264) (539) 275
Foreign exchange gain/(loss) 26 (2) 28
Total other income/(expense) 15,734 (7,737) 23,471
Net loss before income taxes (27,806) (54,437) 26,631
Provision for income taxes - 1,600 (1,600)
Net loss $ (27,806) $ (56,037) $ 28,231
Sublicense Revenue
Sublicense revenue was $0.3 million for the six months ended June 30, 2022 ,
compared to $10.3 million for the six months ended June 30, 2021 . The decrease
was attributable to the revenue we recognized from the initial payment pursuant
to the Alfasigma Sublicense.
Research and Development Expense
Research and development expense was$35.3 million for the six months endedJune 30, 2022 , compared to$49.7 million for the six months endedJune 30, 2021 . The decrease of$14.4 million was primarily attributable to drug manufacturing activity in 2021, study site startup costs for the Phase 2b trial related to bentracimab in 2021, and the voluntary ending of the Phase 2b trial of pemziviptadil in the fourth quarter of 2021, partially offset by an increase in personnel costs and other costs associated with our general research and development efforts.
The following table summarizes our research and development expenses by functional area (in thousands):
Six Months Ended June 30,
2022 2021 Change
Preclinical and clinical development $ 27,748 $ 43,370 $ (15,622)
Compensation and related benefits 4,329 3,660 669
Stock-based compensation 369 414 (45)
Facilities expense 814 767 47
Other 2,015 1,475 540
Total research and development expenses $ 35,275 $
49,686
The following table summarizes our research and development expenses by product candidate (in thousands):
30
--------------------------------------------------------------------------------
Six Months
Ended
2022 2021 Change
External research and development expense by program: Bentracimab
$ 23,939 $ 38,401 $ (14,462) Pemziviptadil 1,429 4,419 (2,990) Unallocated research and development expense: Compensation and stock-based compensation 4,698 4,074 624 Other research and development 5,209 2,792 2,417 Total research and development expenses$ 35,275
General and Administrative Expense
General and administrative expense was$8.6 million for the six months endedJune 30, 2022 , compared to$7.4 million for the six months endedJune 30, 2021 . The increase of$1.2 million was primarily attributable to increases in consulting costs and personnel expense due to additional headcount.
Gain/(loss) From Remeasurement of Development Derivative Liability
Gain from remeasurement of derivative liability was$16.0 million for the six months endedJune 30, 2022 , compared to a loss of$7.2 million for the six months endedJune 30, 2021 . This liability was initially recorded at the present value of the estimated consideration to be received and the estimated consideration to be paid pursuant to the contractual terms of the SFJ Agreement, which was determined to have been fair value. The derivative liability is subsequently remeasured at the end of each quarter as a Level 3 derivative. The change is primarily related to the change in the risk-free interest rate offset by payments received from SFJ.
Interest Income
Interest income was$20,000 for the six months endedJune 30, 2022 , compared to$7,000 for the six months endedJune 30, 2021 . The increase of$13,000 was attributable to higher interest rates during partially offset by lower balances of cash and cash equivalents. Interest Expense Interest expense was$0.3 million for the six months endedJune 30, 2022 , compared to$0.5 million for the six months endedJune 30, 2021 . The decrease of$0.2 million was attributable to lower outstanding borrowings on the 2019 Loan during the six months endedJune 30, 2022 . See "Note 6. Debt" in "Notes to Condensed Financial Statements" located in "Part I - Financial Information, Item 1. Condensed Financial Statements" in this Quarterly Report on Form 10-Q for information concerning the 2019 Loan.
Foreign Exchange Gain/(Loss)
Foreign exchange gain was
Provision for Income Taxes
Provision for income taxes was zero for the six months endedJune 30, 2022 , compared to$1.6 million for the six months endedJune 30, 2021 . The decrease was attributable to international withholding tax on the initial payment fromAlfasigma made in 2021. 31 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash Requirements and Going Concern
Funding Requirements
As ofJune 30, 2022 , there were no material changes in our short-term and long-term cash requirements from those disclosed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K. To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We cannot guarantee when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. We plan to address our future liquidity needs through the pursuit of additional funding through a combination of equity or debt financings, or other third-party financing, marketing and distribution arrangements and other collaborations, strategic alliances and transactions and licensing arrangements. However, there is no assurance that these funding efforts will be successful. We have experienced net losses and negative cash flows from operations and, as ofJune 30, 2022 , had an accumulated deficit of$419.6 million . We expect to continue to incur net losses for at least the next several years. We expect that our existing cash and cash equivalents as ofJune 30, 2022 , and the$21.0 million of clinical trial costs and other expenses that we expect SFJ will fund or reimburse, will not be sufficient to fund our operating expenses and capital requirements for 12 months from the date of the issuance of the condensed financial statements included in this Quarterly Report on Form 10-Q. These factors raise substantial doubt about our ability to continue as a going concern. See "Risk Factors - The auditor's opinion on our audited financial statements for the fiscal year endedDecember 31, 2021 included in the Annual Report on Form 10-K contained an explanatory paragraph relating to our substantial doubt about our ability to continue as a going concern. Further, under the SFJ Agreement, SFJ may elect to have our business related to bentracimab transferred to SFJ if we do not remedy such going concern condition within the periods specified in the SFJ Agreement and our ability to share in any revenues from the commercialization of bentracimab will be materially and adversely affected. We may be forced to delay or reduce the scope of our development programs and/or limit or cease our operations if we are unable to obtain additional funding to support our current operating plan." We intend to devote our existing cash and cash equivalents to advance our clinical and preclinical development programs. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and potential commercialization of product candidates. See also "Note 1. Organization and Description of Business" to the financial statements appearing elsewhere in this Quarterly Report for information about our assessment.
Our short-term and long-term future capital requirements will depend on many factors, including:
•the progress and results of our ongoing and planned future clinical trials of bentracimab, PB6440 and our other preclinical programs;
•the timing and amount of payments we receive under the SFJ Agreement and the Alfasigma Sublicense;
•the costs, timing and outcome of regulatory review of our product candidates;
•the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
•the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
•our ability to establish collaborations to commercialize bentracimab or any of
our other product candidates outside of
•the scope, progress, results and costs of preclinical development, laboratory
testing and clinical trials for any future product candidates we may decide to
pursue;
32
--------------------------------------------------------------------------------•the extent to which we develop, in-license or acquire other product candidates and technologies;
•the number and development requirements of other product candidates that we may pursue; and
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many 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 product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of product candidates that we do not expect to be commercially available in the near term, if at all. We do not expect to generate substantial revenue from the sales of products, if approved, for at least the next several years. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing 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, the terms of these equity securities or this debt may restrict our ability to operate. Any future debt financing and equity financing, if available, may involve agreements that include covenants limiting and restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If we raise additional funds through government or private grants, collaborations, strategic alliances or transactions or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Further, our ability to raise additional capital may be adversely impacted by worsening global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic and geopolitical tensions. We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, 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.
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and have incurred net losses and negative cash flows from our operations. We have financed our operations primarily through public offerings of our common stock, private placements of convertible debt and convertible preferred stock, borrowings under our term loans and funds we have received under the SFJ Agreement and funds we have received pursuant to the Alfasigma Sublicense. In future periods we expect SFJ to provide up to an additional$21.0 million of funding pursuant to the SFJ Agreement based upon the achievement of specified milestones with respect to our clinical development of bentracimab. As ofJune 30, 2022 , we had cash and cash equivalents of$7.8 million . We plan to address our liquidity needs through the pursuit of additional funding through a combination of equity or debt financings, or government or other third-party financing, marketing and distribution agreements and other collaborations, strategic alliances or transactions and licensing agreements. There is no assurance that we will be able to obtain additional funding on acceptable terms or at all. If we are not able to secure adequate additional funding, we will be required to make reductions in certain spending to extend our current funds. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or we may have to delay, reduce the scope of, or eliminate some or all of our development programs or clinical trials. We may also have to delay development or commercialization of our products or license to third parties the rights to commercialize products or technology that we would otherwise seek to commercialize. Further, under the SFJ Agreement, if we fail to remedy our going concern condition within the periods specified in the agreement, SFJ may elect to have our business related to bentracimab transferred to SFJ. If our business related to bentracimab is transferred to SFJ, we will not share in any revenues from the commercialization of bentracimab until SFJ has received a 300% return on its investment in bentracimab, after which we will be entitled to a mid-single-digit royalty on net sales of bentracimab inthe United States and certain European countries, and after SFJ has received an aggregate 500% return on its investment in bentracimab, we will be entitled to a mid-single-digit royalty on net sales of bentracimab in the rest of the world. Any of these factors could harm our operating results and future prospects. InDecember 2019 , we filed a shelf registration statement on Form S-3, or the 2019 Shelf Registration Statement, which became effective inJanuary 2020 . The 2019 Shelf Registration Statement permits: (i) the offering, issuance and sale by us of up to a maximum aggregate offering price of$200.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination; and (ii) the offering, issuance and sale by us of up to a maximum aggregate offering price of$60.0 million of our common stock that may be issued and sold under an "at-the-market" sales agreement, or ATM Program. The$60.0 million of common stock that may be issued and sold under the ATM Program is included in the$200.0 million of securities that may be issued and sold under the 2019 Shelf Registration Statement. 33 -------------------------------------------------------------------------------- InJanuary 2020 , we entered into the SFJ Agreement, pursuant to which SFJ agreed to provide funding to support the development of bentracimab as a reversal agent for the antiplatelet drug ticagrelor. Under the SFJ Agreement, SFJ has agreed to pay us up to$120.0 million to support the clinical development of bentracimab. In addition to the$90.0 million of initial funding, we have elected to receive an additional$30.0 million of funding having met specific, pre-defined clinical development milestones for bentracimab. From the inception of the SFJ Agreement throughJune 30, 2022 , SFJ has provided funding and paid for amounts on our behalf in the aggregate amount of$99.0 million . In addition, we expect that SFJ will fund or reimburse an additional$21.0 million of clinical trial costs and other expenses. InMarch 2021 , pursuant to the 2019 Shelf Registration Statement, we completed an underwritten public offering of our common stock, which resulted in the issuance and sale of an aggregate of 18,400,000 shares of common stock at a public offering price of$3.50 per share, generating net proceeds of$60.2 million , after deducting underwriting discounts and commissions and other offering costs. During the six months endedJune 30, 2022 , we issued 1,354,677 shares of common stock through the ATM Program for net proceeds of$1.9 million . As ofJune 30, 2022 , we have raised net proceeds of$4.9 million pursuant to the ATM Program from the sale of 1,916,525 shares of our common stock at a weighted-average price of$2.59 per share. We have$130.6 million of common stock remaining that can be sold under the 2019 Shelf Registration Statement, of which$55.0 million may be sold under the ATM Program. InJuly 2021 , pursuant to the Alfasigma Sublicense, we received an upfront payment of$20.0 million fromAlfasigma . We are eligible to receive up to$35.0 million upon the achievement of certain pre-revenue regulatory milestones, up to$190.0 million upon the achievement of certain commercial milestones and tiered royalty payments on net sales, with percentages starting in the low double digits and escalating to the mid-twenties.
Cash Flows
The following table summarizes our cash flows for the periods set forth below
(in thousands):
Six Months Ended June 30,
2022 2021
Net cash used in operating activities $ (33,295) $ (21,290)
Net cash used in investing activities (107) (385)
Net cash (used in) provided by financing activities (594) 58,009
Net (decrease) increase in cash and cash equivalents $ (33,996) $ 36,334
Operating Activities
Net cash used in operating activities was $33.3 million during the six months
ended June 30, 2022 . The use of cash was primarily related to our net loss of
$27.8 million and $6.0 million of non-cash expenses, partially offset by a $0.5
million change in our operating assets and liabilities. The non-cash expenses
consisted primarily of a $16.0 million gain from remeasurement of development
derivative liability that resulted from a change in the risk free interest rate
affecting the fair market value calculation, offset by $7.4 million of research
and development expenses paid for on our behalf by SFJ, $1.3 million in stock
based compensation, and $1.2 million in depreciation and amortization expense.
The change in our operating assets and liabilities was principally due to a
decrease in accounts payable of $6.4 million driven by the timing of
pre-commercial and commercial manufacturing of bentracimab in 2021, offset by a
decrease of $3.5 million in prepaid expenses and other assets, and a $3.7
million increase in accrued expenses. These changes were driven by the timing of
payments related to infrastructure improvements for the BioVectra facility, and
the timing of drug manufacturing and clinical trial activities for bentracimab.
Net cash used in operating activities was $21.3 million during the six months
ended June 30, 2021 . The use of cash primarily related to our net loss of
$56.0 million , partially offset by non-cash expenses and a $1.2 million change
in our operating assets and liabilities. The non-cash expenses consisted
primarily of $23.7 million in research and development expenses paid for on our
behalf by SFJ, $7.2 million from the loss from remeasurement of development
derivative liability, $1.4 million in stock-based compensation and $1.1 million
in depreciation and amortization. The change in our operating assets and
liabilities was principally due to an increase in our deferred sublicense
revenue of $9.7 million , a decrease of $8.9 million in prepaid expenses and
other assets and an increase of $1.7 million in accrued expenses and other
current liabilities primarily due to the timing of payments related to clinical
trial activities for bentracimab and pemziviptadil, partially offset by an
increase in the sublicense receivable of $18.4 million , and a decrease of $0.6
million in accounts payable.
34
--------------------------------------------------------------------------------Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash used in financing activities was$0.6 million during the six months endedJune 30, 2022 , due primarily to the repayment of long-term debt, offset by cash provided by the issuance of common stock. Net cash provided by financing activities was$58.0 million during the six months endedJune 30, 2021 , due primarily to the receipt of$60.4 million in net proceeds from our underwritten public offering that closed inMarch 2021 ,$0.2 million in proceeds from the exercise of stock options and$0.2 million in proceeds from shares purchased through the employee stock purchase plan, partially offset by$2.7 million in repayments of long-term debt. Critical Accounting Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance withUnited States generally accepted accounting policies, or GAAP. The preparation of these unaudited condensed financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the condensed balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions we have used in the determination of accrued research and development costs and those used for the inputs in our valuation of the development derivative liability. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There were no material changes to our critical accounting estimates as disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
See "Note 2. Significant Accounting Policies" to the financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.
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