PROTARA THERAPEUTICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition
and results of operations together with the unaudited condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. Overview We are aNew York City based clinical-stage biopharmaceutical company committed to identifying and advancing transformative therapies for the treatment of cancer and rare diseases with significant unmet needs. We prioritize creativity, diverse perspectives, integrity and tenacity to expedite our goal of bringing life-changing therapies to people with limited treatment options. Our portfolio includes two development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator, OK-432, which was originally granted marketing approval by theJapanese Ministry of Health and Welfare as an immunopotentiating cancer therapeutic agent. This cell therapy is currently approved inJapan for LMs and multiple oncologic indications. It has never been approved outsideJapan andTaiwan and we have secured worldwide rights to the asset excludingJapan andTaiwan and have begun to explore its use in rare disease and oncology indications. We are developing TARA-002 in non-muscle invasive bladder cancer, or NMIBC, and in LMs. TARA-002's lead oncology program is in NMIBC, which is cancer found in the tissue that lines the inner surface of the bladder that has not spread into the bladder muscle. Bladder cancer is the sixth most common cancer inthe United States , with NMIBC representing approximately 80% of bladder cancer diagnoses. Approximately 65,000 patients are diagnosed with NMIBC inthe United States each year. Very few new therapeutics have been approved for NMIBC since the 1990s and the current standard of care for NMIBC includes intravesical Bacillus Calmette-Guerin, or BCG. The mechanism of TARA-002 is similar to BCG. Both TARA-002 and BCG are intravesically administered and elicit a Th1 type immune response and locally activated generally similar array of cytokines and immune cells. OnOctober 12, 2021 , we announced that the Office of Tissues and Advanced Therapies Division, or the OTAT Division, of theFDA's Center for Biologics Evaluation and Research , or CBER, cleared our Investigational New Drug, or IND, application for TARA-002 in NMIBC, including confirmatory, Good Manufacturing Practice, or GMP, -scale comparability data for TARA-002 in relation to OK-432. We plan to commence a Phase 1 dose-finding, open-label clinical trial by year-end to evaluate TARA-002 in treatment-naïve and treatment-experienced NMIBC patients with high-grade carcinoma in situ and high-grade papillary tumors (Ta). In the initial dose escalation phase of the trial, patients will receive six weekly intravesical doses of TARA-002. The primary objective of the trial is to evaluate the safety, tolerability and preliminary signs of anti-tumor activity of TARA-002, with the goal of establishing a maximum tolerated dose and recommended dose for a future Phase 2 clinical trial. Our most advanced clinical program for TARA-002 is for LMs, which are rare, non-malignant cysts of the lymphatic vascular system that primarily form in the head and neck region of children before the age of two. InJuly 2020 , the FDA granted Rare Pediatric Disease designation for TARA-002 for the treatment of LMs. OK-432, the originator compound to TARA-002, has been the standard of care in LMs inJapan for over 20 years. In addition to the clinical experience inJapan , we have secured the rights to a dataset from one of the largest ever conducted Phase 2 trials in LMs, in which OK-432 was administered via a compassionate use program led by theUniversity of Iowa to over 500 pediatric and adult patients. The IND for TARA-002 for LMs was originally opened under the Vaccines andRelated Products Division of the FDA , or Vaccines Division. We have recently submitted to the Vaccines Division an updated IND with the completed confirmatory, GMP-scale comparability data for TARA-002 in relation to OK-432. We plan to engage the FDA on the design, and subsequently initiate a clinical trial in pediatric LM patients. 19 TARA-002 was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil® inJapan andTaiwan by Chugai Pharmaceutical Co., Ltd., or Chugai Pharmaceutical). Following a pre-IND interaction with the OTAT Division, it was agreed that we have successfully demonstrated initial manufacturing comparability between TARA-002 and OK-432. The confirmatory, GMP-scale comparability data were reviewed by the OTAT Division as part of the clearance of the IND for TARA-002 in NMIBC. The third development program in our portfolio is intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy initially in development for patients receiving parenteral nutrition, or PN, who have intestinal failure associated liver disease, or IFALD. IV Choline Chloride has been granted Orphan Drug Designation by the FDA for this indication and has also been granted Fast Track Designation for the treatment of IFALD. Following a positive end of Phase 2 meeting with the FDA, we received feedback on the design of the studies necessary to complete the registration package for IV Choline Chloride for the treatment of IFALD, including a Phase 1 pharmacokinetic trial and a Phase 3 clinical trial. Prior to initiating these clinical trials, we are undertaking a prevalence study to enhance understanding of the PN patient population and we plan to use this information to determine the next steps for the development program. OnSeptember 13, 2021 , we reported results of the retrospective part of the prevalence study, which supported the significant unmet medical need in patients dependent on PN who have IFALD. We are currently undertaking the prospective part of the study, which is a multi-center, cross-sectional observational study that will assess the prevalence of choline deficiency, as well as cholestasis and steatosis, in approximately 300 patients dependent on PN.
Our fourth program, vonapanitase, is a recombinant human elastase. We are reviewing the research, preclinical, and clinical data of vonapanitase and have not yet determined whether to pursue further development of this product candidate in the future.
We have devoted substantial efforts to the development of these programs and do not have any approved products and have not generated any revenue from product sales. TARA-002 is in later stage development for LMs and has not yet been approved for use for treatment of LMs, NMIBC or any other indications. We do not expect to generate revenues in the near-term, if ever. To finance our current strategic plans, including the conduct of ongoing and future clinical trials and further research and development costs, we will need to raise additional capital. Since inception, we have incurred significant operating losses. As ofSeptember 30, 2021 , we had an accumulated deficit of approximately$83.8 million . We expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company inthe United States . As a clinical-stage company, our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year. We believe that our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.
As of
COVID-19
The ultimate impact of the current COVID-19 pandemic or a similar health
epidemic is highly uncertain and subject to change. We have experienced delays,
but may experience additional future delays that impact our business, our
research and development activities, healthcare systems and the global economy
as a whole. We will continue to monitor the COVID-19 situation closely should
the effects have a material impact on our operations, liquidity and capital
resources.
In response to public health directives and orders, we have implemented
work-from-home policies for our employees and temporarily modified our
operations to comply with applicable safety recommendations. Similar health
directives and orders are affecting third parties with whom we do business,
including the third parties that we have contracted with to conduct studies for
TARA-002. The effects of the orders and our related adjustments in our business
are likely to negatively impact productivity, disrupt our business and delay our
timelines, the magnitude of which will depend, in part, on the length and
severity of the restrictions and other limitations on our ability to conduct our
business in the ordinary course.
Severe and/or long-term disruptions in our operations as a result of COVID-19,
including in response to related public health directives and orders will
negatively impact our business, operating results and financial condition.
Specifically, we anticipate that the stress of COVID-19 on healthcare systems
around the globe will negatively impact our ability to conduct clinical trials
in the near-term due primarily to the lack of resources at clinical trial sites
and the resulting inability to enroll patients in the trials. We also anticipate
that the global impact of COVID-19 will negatively impact our ability to conduct
non-clinical studies due primarily to laboratory closures and limited
availability of personnel. In addition, while the potential economic impact
brought by, and the duration of, COVID-19 may be difficult to assess or predict,
it has significantly disrupted global financial markets, and may limit our
ability to access capital, which could in the future negatively affect our
liquidity. A recession or market correction resulting from the spread of
COVID-19 could materially affect our business and the value of our common stock.
20
Financial Overview
Research and Development
Research and development expenses consist primarily of costs incurred for the
development of TARA-002 and IV Choline Chloride, which include employee-related
expenses, including salaries, benefits, travel and stock-based compensation
expense, expenses incurred under agreements with clinical research
organizations, or CROs, contract development and manufacturing organizations, or
CDMOs, the cost of acquiring, developing and manufacturing clinical trial
materials, clinical and non-clinical related costs, costs associated with
regulatory operations and facilities, depreciation and other expenses, which
include expenses for rent and maintenance of facilities and other supplies.General and Administrative
General and administrative expenses consist principally of employee-related expenses, including salaries, benefits, travel and stock-based compensation expense, in executive and other administrative functions. Other general and administrative expenses also include professional fees for legal, patent review, consulting and accounting services, facility related costs, as well as expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with our Nasdaq listing andSEC requirements, director and officer liability insurance premiums and investor relations costs associated with being a public company. Interest Income, Net
Interest income, net, consists of interest income earned on our cash, cash equivalents, restricted cash, and marketable debt securities, net of interest expense related to our short-term debt.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America , or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to clinical trial accruals, stock-based compensation expense, and reported amounts of revenues and expenses during the reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions. Our critical accounting policies are accounting for research and development expenses and stock-based compensation. It is important that the discussion of our operating results that follow be read in conjunction with these critical accounting policies which have been disclosed in our Annual Report on Form
10-K filed onMarch 11, 2021 . 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, Period-to-Period
2021 2020 Change
Operating expenses:
Research and development $ 4,093 $ 2,796 $ 1,297
General and administrative 6,737 5,266 1,471
Total operating expenses 10,830 8,062 2,768
Operating loss (10,830 ) (8,062 ) (2,768 )
Other income, net:
Interest income, net (53 ) (92 ) 39
Total other income, net (53 ) (92 ) 39
Net Loss $ (10,777 ) $ (7,970 ) $ (2,807 )
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Research and Development Expenses. During the three months endedSeptember 30, 2021 , our research and development expenses were approximately$4.1 million which represented an increase of approximately$1.3 million as compared to the three months endedSeptember 30, 2020 . This increase was primarily due to an increase of$0.8 million of non-clinical, clinical and regulatory expenses associated with TARA-002, an increase in stock-based compensation of$0.2 million , and an increase of$0.2 million in compensation, benefits and other employee-related expenses. General and Administrative Expenses. During the three months endedSeptember 30, 2021 , our general and administrative expenses were approximately$6.7 million which represented an increase of approximately$1.5 million as compared to the three months endedSeptember 30, 2020 . The increase is principally due to an increase of$0.6 million in compensation, benefits and other employee-related expenses, an increase of$0.5 million in expenses for development of commercial capabilities, and an increase of$0.3 million in expenses associated with the opening of our new corporate office inNew York, NY . Interest Income, Net. During the three months endedSeptember 30, 2021 , interest income, net was approximately$0.05 million which represented a decrease of approximately$0.04 million as compared to the three months ended September
30, 2020.
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30, Period-to-Period
2021 2020 Change
Operating expenses:
Research and development $ 17,020 $ 8,330 $ 8,690
General and administrative 20,182 17,157 3,025
Total operating expenses 37,202 25,487 11,715
Operating loss (37,202 ) (25,487 ) (11,715 )
Other income, net:
Interest income, net (178 ) (317 ) 139
Total other income, net (178 ) (317 ) 139
Net Loss $ (37,024 ) $ (25,170 ) $ (11,854 )
Research and Development Expenses. During the nine months ended September 30,
2021 , our research and development expenses were approximately $17.0 million
which represented an increase of approximately $8.7 million as compared to the
nine months ended September 30, 2020 . This increase was primarily due to an
increase of $5.1 million for manufacturing activities associated with TARA-002,
an increase of $2.5 million of non-clinical, clinical and regulatory expenses
associated with TARA-002, and an increase of $1.2 million in compensation,
benefits and other employee-related expenses.
General and Administrative Expenses. During the nine months ended September 30,
2021 , our general and administrative expenses were approximately $20.2 million
which represented an increase of approximately $3.0 million as compared to the
nine months ended September 30, 2020 . The increase is primarily due to an
increase of $1.8 million in compensation, benefits and other employee-related
expenses, an increase of $1.0 million in expenses for development of commercial
capabilities, an increase of $0.5 million in expenses associated with the
opening of our new corporate office in New York, NY , and an increase of $0.5
million in stock-based compensation. This was partially off-set by a decrease of
$0.6 million in legal fees, as we incurred significant one-time expenses in the
first quarter of 2020 upon the closing of the reverse merger.
Interest Income, Net. During the nine months ended September 30, 2021 , interest
income, net was approximately $0.2 million which represented a decrease of
approximately $0.1 million as compared to the nine months ended September 30,
2020 .
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Liquidity and Capital Resources
Overview As ofSeptember 30, 2021 andDecember 31, 2020 , the Company's cash, cash equivalents, and marketable debt securities were$138.4 million and$168.6 million , respectively. We have not generated revenues since our inception and have incurred net losses of approximately$10.8 million and$8.0 million for the three months endedSeptember 30, 2021 and 2020, respectively, and$37.0 million and$25.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. For the nine months endedSeptember 30, 2021 , cash flows used in operating activities were approximately$27.6 million , consisting primarily of a net loss of approximately$37.0 million which includes non-cash stock-based compensation charges of approximately$8.5 million . Since inception, we have met our liquidity requirements principally through the sale of our common stock and Series 1 Convertible Preferred Stock. We are in the business of developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical and other costs in our drug development efforts. We will need to raise additional capital in order to fully realize management's plans. We believe that our current financial resources, as of the date of the issuance of these condensed consolidated financial statements, are sufficient to satisfy our estimated liquidity needs for at least twelve months from the issuance of these condensed consolidated financial statements. As a result of economic conditions, general global economic uncertainty, political change, global pandemics, and other factors, we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic uncertainty or other factors, we may need to curtail planned development activities. Specifically, the COVID-19 pandemic has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. Cash Flows
The following table summarizes our sources and uses of cash for the nine months
ended
Nine Months Ended
September 30, Period-to-Period
2021 2020 Change
Net cash used in operating activities $ (27,595 ) $ (16,641 ) $ (10,954 )
Net cash (used in)/provided by investing
activities (100,083 ) 3,346 (103,429 )
Net cash (used in)/provided by financing
activities (228 ) 178,686 (178,914 )
Net (decrease)/increase in cash and cash
equivalents, and restricted cash $ (127,906 ) $ 165,391 $ (293,297 )
Comparison of the Nine Months Ended
Net cash used in operating activities was$27.6 million for the nine months endedSeptember 30, 2021 compared to$16.6 million for the nine months endedSeptember 30, 2020 . The increase of$11.0 million in cash used in operating activities was primarily driven by an increased net loss of$11.9 million , which was partially offset by a$3.0 million increase in non-cash items including stock-based compensation, right-of-use asset, and amortization of premium on bonds. There was a decrease in working capital of$2.1 million , primarily related to changes in prepaid expenses and other current assets, accounts payable, and accrued expenses resulted from the timing of payments to our service providers. Net cash used in investing activities was$100.1 million for the nine months endedSeptember 30, 2021 compared to net cash provided by investing activities of$3.3 million in the nine months endedSeptember 30, 2020 . The change of$103.4 million resulted primarily from the proceeds from maturity of marketable debt securities, available-for-sale of$2.6 million and proceeds from redemption of marketable debt securities, available-for-sale of$13.8 million . This was offset by the purchases of marketable debt securities, available-for-sale of$116.0 million during the nine months endedSeptember 30, 2021 . Net cash used in financing activities was$0.2 million for the nine months endedSeptember 30, 2021 compared to net cash provided by financing activities of$178.7 million for the nine months endedSeptember 30, 2020 . The net cash used in financing of$0.2 million for the nine months endedSeptember 30, 2021 was for the repurchase of shares in connection with the settlement of restricted stock units. The net cash provided by financing activities for the nine months endedSeptember 30, 2020 consisted primarily of the proceeds, net of offering costs, from both private placements of$39.6 million in connection with the reverse merger inJanuary 2020 and$139.9 million in connection with an underwritten public offering inSeptember 2020 . 23
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations of theSEC .
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