REVOLUTION MEDICINES, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this report, our actual results could differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage precision oncology company focused on developing targeted therapies to inhibit frontier targets in RAS-addicted cancers. We possess sophisticated structure-based drug discovery capabilities built upon deep chemical biology and cancer pharmacology know-how and innovative, proprietary technologies that enable the creation of small molecules tailored to unconventional binding sites. Our understanding of genetic drivers and adaptive resistance mechanisms in cancer, coupled with robust drug discovery and medicinal chemistry capabilities, has guided us to establish a deep pipeline targeting critical signaling nodes within these pathways. This cohesive approach underpins our clinical strategy of exploring mechanism-based dosing paradigms and in-pathway combinations to optimize treatment for cancer patients. Our research and development pipeline comprises RAS(ON) inhibitors that bind directly to RAS variants, which we refer to as RAS(ON) Inhibitors, and RAS companion inhibitors that target key nodes in the RAS pathway or associated pathways, which we refer to as RAS Companion Inhibitors. Our RAS Companion Inhibitors (e.g.,SHP2 , mTORC1 and SOS1 inhibitors) are designed primarily for combination treatment strategies involving both our RAS(ON) Inhibitors and other pathway inhibitors. Our most advanced product candidate is the RAS Companion Inhibitor RMC-4630, which is a potent and selective inhibitor ofSHP2 , a central node in the RAS signaling pathway. In collaboration with Sanofi, we are evaluating RMC-4630 in a multi-cohort Phase 1/2 clinical program. This RMC-4630 Phase 1/2 program currently consists of four active clinical trials, one of which includes two arms studying different combinations:
(1) RMC-4630-01, a Phase 1 study of RMC-4630 as monotherapy;
(2) RMC-4630-02, a Phase 1b/2 study which includes an arm studying RMC-4630 in combination with the MEK inhibitor cobimetinib (Cotellic®) and an arm studying RMC-4630 in combination with the EGFR inhibitor osimertinib (Tagrisso®);
(3) an Amgen-sponsored Phase 1b study of RMC-4630 in combination with Amgen's KRASG12C(OFF) inhibitor, AMG 510 or sotorasib; and
(4) a Sanofi-sponsored Phase 1 study of RMC-4630 in combination with the PD-1 inhibitor pembrolizumab (Keytruda®).
We have selected a recommended Phase 2 dose and schedule for RMC-4630 monotherapy, and plan to evaluate the compound at this dose and schedule in an expansion cohort of patients with gynecologic tumors harboring NF1LOF mutations in addition to a small safety/tolerability cohort representing a broader set of histotypes and RAS pathway genotypes. We have also selected a recommended Phase 2 dose and schedule for the RMC-4630 and cobimetinib combination, and plan to further evaluate this combination at this dose and schedule in expansion cohorts of patients with colorectal cancer harboring KRASG12V or KRASG12D mutations and others drawing from a broader set of histotypes and RAS pathway genotypes. Additionally, we have RAS Companion Inhibitor preclinical programs targeting two other key nodes in the RAS and mTOR signaling pathways: mTORC1 and SOS1. RMC-5552 is designed as a selective inhibitor of hyperactivated mTORC1 signaling in tumors. We plan to evaluate RMC-5552 as monotherapy, as well as in combination with RAS inhibitors for patients with cancers harboring RAS/mTOR signaling co-mutations. RMC-5552 is in IND-enabling development and we are on track to be IND-ready with this development candidate by the end of 2020. Our program targeting SOS1, a protein that plays a key role in converting RAS(OFF) to RAS(ON) in cells, is currently in lead optimization stage. Our proprietary tri-complex technology platform enables a highly differentiated approach to inhibiting the active, GTP-bound form of RAS, or RAS(ON). We are developing a portfolio of compounds that we believe are the first and only RAS(ON) inhibitors to use this mechanism of action. We now have inhibitors targeting five RAS(ON) variants in lead optimization: KRASG12C/NRASG12C(ON), KRASG13C(ON), KRASG12D(ON) and KRASG12V(ON). We remain on track to nominate our first development candidate from this platform in 2020. We have incurred net losses in each year since inception in 2014. Our net losses were$27.2 million and$74.0 million for the three and nine months endedSeptember 30, 2020 , respectively, as compared to$12.8 million and$33.1 million for the three and nine 22
-------------------------------------------------------------------------------- months endedSeptember 30, 2019 . As ofSeptember 30, 2020 , we had an accumulated deficit of$231.3 million . Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. We expect our expenses will increase in connection with our ongoing activities, as we:
• continue our platform research and drug discovery efforts to identify
product candidates;
• advance product candidates through preclinical programs and clinical trials;
• manufacture supplies for our preclinical studies and clinical trials; • pursue regulatory approval of product candidates;
• operate as a public company following the completion of our initial public
offering, or IPO, in
• maintain, protect and expand our portfolio of intellectual property
rights, including patents, trade secrets and know-how; and
• hire additional personnel to support our development programs and
corporate operations and secure additional facilities to support our
operations.
Collaboration Agreement with Sanofi
InJune 2018 , we entered into a collaborative research, development and commercialization agreement withAventis, Inc. (an affiliate of Sanofi), or the Sanofi Agreement, to research and developSHP2 inhibitors, including RMC-4630, for any indications. The Sanofi Agreement was assigned toGenzyme Corporation , a Sanofi affiliate, inDecember 2018 . For the purposes of this discussion, we refer toGenzyme Corporation as Sanofi. Pursuant to the Sanofi Agreement, we granted Sanofi a worldwide, exclusive, sublicensable (subject to our consent in certain circumstances) license under certain of our patents and know-how to research, develop, manufacture, use, sell, offer for sale, import and otherwise commercializeSHP2 inhibitors, including RMC-4630, for any and all uses, subject to our exercise of rights and performance of obligations under the Sanofi Agreement. The intellectual property exclusively licensed to Sanofi includes our interest under any of our solely-owned or jointly-owned inventions arising out of activities undertaken pursuant to the development ofSHP2 inhibitor product candidates under the Sanofi Agreement. Under the Sanofi Agreement, we have primary responsibility for early clinical development of RMC-4630 pursuant to an initial development plan. A joint research and development committee is responsible for preparing development plans for otherSHP2 inhibitors approved by this committee for development, if any. Sanofi is responsible to reimburse us all internal and external costs and expenses to perform our activities under the development plans. We are responsible for the manufacture ofSHP2 inhibitors for Phase 1 and non-registrational Phase 2 clinical trials at Sanofi's cost, while Sanofi is responsible for manufacturingSHP2 inhibitors for all other clinical trials and commercial supply. Sanofi has the sole right and responsibility to perform all regulatory activities under the Sanofi Agreement, except with respect to certain trials conducted by us or otherwise conducted under our IND, including our current clinical trials evaluating RMC-4630. Once we have completed all clinical trials for a product candidate that are assigned to us under a development plan, all regulatory approvals for such product candidate are automatically assigned to Sanofi. We are also primarily responsible for performing preclinical research onSHP2 inhibitors, pursuant to an initial research plan from 2018-2020. The research plans beyond 2020 will be determined by the joint research and development committee, over which Sanofi has final decision-making power subject to certain exceptions. Sanofi is responsible to reimburse us all internal and external costs and expenses incurred to perform activities under the research plans, with the exception of internal and external research costs and expenses under the research plans for 2019 and 2020, for which Sanofi will reimburse us 80%. We are responsible for 20% of all internal and external research costs incurred under the research plans for 2019 and 2020, in which our share of these costs is estimated to be approximately$2 million in total, representing less than three percent of the anticipated overall budget for theSHP2 program in 2019 and 2020. Unless otherwise delegated to us by the joint commercialization committee, Sanofi also has the sole right and responsibility for all aspects of the commercialization ofSHP2 inhibitors in the world for any and all uses, at its expense, subject to our right to elect to co-promoteSHP2 inhibitors inthe United States . Sanofi is obligated to use commercially reasonable efforts to seek marketing approval for at least oneSHP2 inhibitor product candidate in certain major market countries. Sanofi agrees to provide us, and we agree to provide Sanofi, with research, development and commercialization updates through the joint committees. During the term of the Sanofi Agreement, we may not, alone or with any affiliate or third party, conduct certain research activities with respect to, or develop or commercialize, any product that contains aSHP2 inhibitor outside of the Sanofi Agreement. Pursuant to the Sanofi Agreement, we received an upfront payment of$50 million from Sanofi inJuly 2018 . Upon the achievement of specified development and regulatory milestones, Sanofi will be obligated to pay us up to$520 million in the 23
-------------------------------------------------------------------------------- aggregate, including up to$235 million upon the achievement of specified development milestones and up to$285 million upon achievement of certain marketing approval milestones. Inthe United States , we will share equally with Sanofi the profits and losses applicable to commercialization ofSHP2 inhibitor products, pursuant to a profit/loss share agreement that the parties will negotiate based on key terms agreed in the Sanofi Agreement. On a product-by-product basis, Sanofi will also be required to pay us tiered royalties on annual net sales of each product outsidethe United States ranging from high single digit to mid-teen percentages. The royalty payments are subject to reduction under specified conditions set forth in the Sanofi Agreement. Subject to certain exceptions, the royalties are payable on a product-by-product and country-by-country basis until the latest of the expiration of all valid claims covering such product in such country contained in the patents licensed to Sanofi under the Sanofi Agreement and the expiration of regulatory exclusivity for such product in such country.
Sanofi has the sole and exclusive right to file, prosecute and maintain any
patents licensed to it pursuant to the Sanofi Agreement, as well as to enforce
infringement of or defend claims against such patents that relate to
Unless terminated earlier, the Sanofi Agreement will continue in effect until the later of the expiration of all of Sanofi's milestone and royalty payment obligations and the expiration of the profit/loss share agreement. Upon expiration of the Sanofi Agreement, the licenses granted to Sanofi thereunder shall become fully paid-up, royalty-free, perpetual and irrevocable. Sanofi may terminate the Sanofi Agreement in its entirety or on a country-by-country or product-by-product basis for any reason or for significant safety concerns, upon prior notice to us within certain specified time periods. Sanofi may terminate the Sanofi Agreement in its entirety upon our change of control, with prior notice. Either party may terminate the Sanofi Agreement if an undisputed material breach by the other party is not cured within a defined period of time, or immediately upon notice for insolvency-related events of the other party. We may terminate the Sanofi Agreement after a certain number of years if Sanofi develops a competing program without commencing a registrational clinical trial for aSHP2 inhibitor product candidate, and subject to certain other conditions. We may also terminate the Sanofi Agreement at any time, if Sanofi ceases certain critical activities forSHP2 inhibitor product candidates for more than a specified period of time, provided that such cessations of critical activity were not a result of certain specified factors, and subject to certain other conditions. Upon any termination of the Sanofi Agreement with respect to any product or country, all licenses to Sanofi with respect to such product or country shall automatically terminate and all rights generally revert back to us. If the Sanofi Agreement is terminated, in its entirety or with respect to a product, other than by us for Sanofi's material breach or insolvency, we may be required to pay Sanofi royalties on worldwide net sales of reverted products up to mid-single digit percentages based on the development and regulatory status of such reverted products, in each case subject to reductions in accordance with the terms of the Sanofi Agreement.
Through
Acquisition of
InOctober 2018 , we acquired all outstanding shares ofWarp Drive Bio, Inc. , or Warp Drive. In connection with the acquisition, we issued 6,797,915 shares of our Series B preferred stock and$0.9 million in other consideration, for total consideration valued at$69.0 million . The operating results associated with Warp Drive programs are reflected in our consolidated financial statements beginning on the closing date of the transaction. In connection with the Warp Drive acquisition, we recorded$55.8 million of in-process research and development, or IPR&D, and$13.6 million of developed technology related to the tri-complex and genome mining platforms. Warp Drive's RAS programs were accounted for as an IPR&D asset. The IPR&D asset is considered to be an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Warp Drive's tri-complex development platform was accounted for as developed technology and is being amortized over seven years. In addition, we recorded$14.6 million in goodwill associated with the Warp Drive acquisition, which largely relates to the establishment of a deferred tax liability for the non-deductible IPR&D intangible assets acquired.Goodwill will not be amortized.Goodwill and IPR&D will be tested at least annually for impairment. No impairment has been recognized as ofSeptember 30, 2020 .
Financial Operations Overview
Collaboration Revenue
Collaboration revenue, related party, consists of revenue under the Sanofi Agreement for ourSHP2 program. We entered into the Sanofi Agreement inJune 2018 and Sanofi subsequently became a related party inOctober 2018 as it was a stockholder of Warp Drive to which we issued equity in connection with the acquisition. We received a$50.0 million upfront payment from Sanofi inJuly 2018 , receive reimbursement for research and development services, and are entitled to future potential development and regulatory milestones. 24 --------------------------------------------------------------------------------
Research and Development Expenses
We substantially rely on third parties to conduct our preclinical studies, clinical trials and manufacturing. We estimate research and development expenses based on estimates of services performed, and rely on third party contractors and vendors to provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates. Research and development expenses consist primarily of costs incurred for the development of our product candidates and costs associated with identifying compounds through our discovery platform, which include:
• expenses incurred under agreements with third-party contract
organizations, investigative clinical trial sites that conduct research
and development activities on our behalf, and consultants;
• costs related to production of clinical materials, including fees paid to
contract manufacturers;
• laboratory and vendor expenses related to the execution of discovery
programs, preclinical and clinical trials;
• employee-related expenses, which include salaries, benefits and
stock-based compensation; and
• facilities and other expenses, which include allocated expenses for rent
and maintenance of facilities, depreciation and amortization expense,
information technology and other supplies.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and recorded as prepaid assets. The prepaid amounts are then expensed as the related goods are delivered or as services are performed.
Under the Sanofi Agreement, all of our RMC-4630 research and development
expenses incurred from
We expect our research and development expenses to increase for the foreseeable future as we continue to invest in discovering and developing product candidates and advancing product candidates into later stages of development, which may include conducting larger clinical trials. The process of conducting the necessary research and development and clinical trials to seek regulatory approval for product candidates is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or clinical trials or if and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, consultants and professional services expenses, including legal, audit, accounting and human resources services, insurance, allocated facilities and information technology costs, and other general operating expenses not otherwise classified as research and development expenses. Personnel-related costs consist of salaries, benefits and stock-based compensation. Facilities costs consist of rent, utilities and maintenance of facilities. We expect our general and administrative expenses to increase for the foreseeable future due to anticipated increases in headcount and as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSecurities and Exchange Commission , the Nasdaq Global Select Market, additional insurance expenses, investor relations activities and other administrative and professional services.
Interest Income
Interest income primarily consists of interest earned on our cash equivalents and marketable securities.
Interest and Other Expense
Interest and other expense primarily consists of interest related to our capital lease and interest on other outstanding obligations.
Benefit from Income Taxes
Benefit from income taxes relates to net changes in the deferred tax liability associated with our Warp Drive acquisition resulting from changes in the effective state tax rate and changes in our valuation allowance.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three and Nine Months Ended
Three Months Ended Nine Months Ended September
September 30, 30,
Increase/ Increase/
2020 2019 (decrease) 2020 2019 (decrease)
(in thousands) (in thousands)
Revenue:
Collaboration revenue, related party
155 $ 34,232 $ 37,953 $ (3,721 )
Total revenue 12,661 12,506 155 34,232 37,953 (3,721 )
Operating expenses:
Research and development 34,871 22,962 11,909 95,246 64,265 30,981
General and administrative 5,341 3,103 2,238 15,603 8,244 7,359
Total operating expenses 40,212 26,065 14,147 110,849 72,509 38,340
Loss from operations (27,551 ) (13,559 ) (13,992 ) (76,617 ) (34,556 ) (42,061 ) Other income (expense), net: Interest income
347 766 (419 ) 1,986 1,571 415
Interest and other expense (17 ) (25 ) 8 (57 ) (83 ) 26
Total other income (expense), net 330 741 (411 ) 1,929 1,488 441
Loss before income taxes (27,221 ) (12,818 ) (14,403 ) (74,688 ) (33,068 ) (41,620 )
Benefit from income taxes - - - 733 - 733
Net loss $ (27,221 ) $ (12,818 ) $ (14,403 ) $ (73,955 ) $ (33,068 ) $ (40,887 )
Collaboration Revenue
Collaboration revenue, related party consists of revenue under the Sanofi
Agreement. Collaboration revenue, related party increased by $0.2 million , or
1%, during the three months ended September 30, 2020 compared to the same period
in 2019. The increase in collaboration revenue, related party during the three
months ended September 30, 2020 was primarily due to higher research and
development costs incurred by us for our SHP2 program under the Sanofi Agreement
resulting from higher clinical trial costs, which were partially offset by lower
manufacturing costs.
Collaboration revenue, related party decreased by $3.7 million , or 10%, during
the nine months ended September 30, 2020 compared to the same period in 2019.
The decrease in collaboration revenue, related party during the nine months
ended September 30, 2020 was primarily due to lower research and development
costs incurred by us for our SHP2 program under the Sanofi Agreement resulting
from lower manufacturing costs, which were partially offset by higher clinical
trial costs. During the nine months ended September 30, 2019 , we incurred
upfront manufacturing costs related to the supply of RMC-4630 for our clinical
trials.
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Research and Development Expenses
Research and development expenses increased by$11.9 million , or 52%, during the three months endedSeptember 30, 2020 compared to the same period in 2019. The increase in research and development expenses during the three months endedSeptember 30, 2020 was primarily due to a$8.7 million increase in third party costs for our preclinical research portfolio, primarily driven by higher chemistry contract research organization, material sourcing and manufacturing costs for our pre-clinical activities; a$1.3 million increase in salaries and other employee-related expenses due to increased headcount to support our research and development programs; and a$1.0 million increase in stock-based compensation. Research and development expenses increased by$31.0 million , or 48%, during the nine months endedSeptember 30, 2020 compared to the same period in 2019. The increase in research and development expenses during the nine months endedSeptember 30, 2020 was primarily due to a$28.8 million increase in third party costs for our preclinical research portfolio, primarily driven by higher chemistry contract research organization, material sourcing and manufacturing costs for our pre-clinical activities; a$3.3 million increase in salaries and other employee-related expenses due to increased headcount to support our research and development programs; a$2.5 million increase in stock-based compensation; offset by a decrease of$3.3 million in third-party expenses for ourSHP2 program resulting from lower manufacturing costs as we incurred upfront manufacturing costs related to the supply of RMC-4630 for our clinical trials during the nine months endedSeptember 30, 2019 .
General and Administrative Expenses
General and administrative expenses increased by$2.2 million , or 72%, during the three months endedSeptember 30, 2020 compared to the same period in 2019. The increase in general and administrative expenses during the three months endedSeptember 30, 2020 was primarily due to an increase of$0.8 million in insurance costs as a result of becoming a public company; an increase of$0.8 million in stock-based compensation expense; and an increase of$0.3 million in salaries and other employee-related expenses due to increased headcount. General and administrative expenses increased by$7.4 million , or 89%, during the nine months endedSeptember 30, 2020 compared to the same period in 2019. The increase in general and administrative expenses during the nine months endedSeptember 30, 2020 was primarily due to an increase of$2.0 million in insurance costs as a result of becoming a public company; an increase of$2.0 million in stock-based compensation expense; an increase of$1.2 million in salaries and other employee-related expenses due to increased headcount; and an increase of$0.8 million in legal and accounting expenses.
Interest Income
Interest income decreased by$0.4 million during the three months endedSeptember 30, 2020 compared to the same period in 2019 due to lower interest rates and increased by$0.4 million during the nine months endedSeptember 30, 2020 compared to the same periods in 2019 primarily due to interest income earned from higher average investment balances resulting from the net proceeds from our Series C preferred stock financing in 2019, IPO inFebruary 2020 and follow-on public offering inJuly 2020 .
Interest and Other Expense
Interest and other expense was less than
Benefit from Income Taxes
Benefit from income taxes was zero and$0.7 million for the three months and nine months endedSeptember 30, 2020 and relates to a reduction in the effective state tax rate and the resulting impact on the deferred tax liabilities from the Warp Drive acquisition. There was no benefit from income taxes for the three months and nine months endedSeptember 30, 2019 . OnMarch 27, 2020 ,the United States enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a result of the Coronavirus pandemic, which contains among other things, numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment. The company has evaluated the current legislation and at this time, does not anticipate the CARES Act to have a material impact on its financial statements. 27
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Liquidity and Capital Resources
In
InJuly 2020 , we issued and sold 6,900,000 shares of our common stock in an underwritten public offering at a price of$26.00 per share (including the exercise in full by the underwriters of their option to purchase an additional 900,000 shares of our common stock) for net proceeds of$167.8 million , after deducting underwriting discounts and commissions of$10.8 million and offering expenses of$0.8 million . Our operations have been financed primarily by our public offerings of common stock, net proceeds of$230.6 million from the issuance of our preferred stock and$117.3 million received under the Sanofi Agreement for upfront payments and for research and development cost reimbursement.
As of
As ofSeptember 30, 2020 , we had an accumulated deficit of$231.3 million . Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our product candidates and our pre-clinical research portfolio, and to a lesser extent, general and administrative expenditures. We expect our expenses to continue to increase in connection with our ongoing activities, particularly as we continue to advance our product candidates and pre-clinical research portfolio. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our planned operations for at least 12 months following the date of this report.
The timing and amount of our future funding requirements depend on many factors, including:
• the scope, progress, results and costs of researching and developing our
product candidates and programs, and of conducting preclinical studies and
clinical trials;
• the timing of, and the costs involved in, obtaining marketing approvals
for product candidates we develop if clinical trials are successful;
• the success of our collaboration with Sanofi, including the continued
reimbursement by Sanofi of substantially all of our research costs and all
of our development costs for the
• whether we achieve certain clinical and regulatory milestones under the
Sanofi Agreement, each of which would trigger additional payments to us;
• the cost of commercialization activities for RMC-4630, to the extent not
borne by Sanofi, and any other future product candidates we develop,
whether alone or in collaboration, including marketing, sales and
distribution costs if RMC-4630 or any other product candidate we develop
is approved for sale;
• the cost of manufacturing our current and future product candidates for
clinical trials in preparation for marketing approval and in preparation
for commercialization;
• our ability to establish and maintain strategic licenses or other
arrangements and the financial terms of such agreements;
• the costs involved in preparing, filing, prosecuting, maintaining,
expanding, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation;
• the timing, receipt and amount of sales of, profit share or royalties on,
our future products, if any;
• the emergence of competing cancer therapies or other adverse market
developments; and
• any plans to acquire or in-license other programs or technologies.
We expect to need to obtain substantial additional funding in the future for our
research and development activities and continuing operations. Sanofi reimburses
us for almost all of our research and all of our development expenses associated
with our SHP2 program, however Sanofi has the right to terminate the Sanofi
Agreement for any reason, upon prior notice to us within certain specified time
periods and upon any such termination by Sanofi with respect to any product or
country, all licenses to Sanofi with respect to such product or country shall
automatically terminate and all rights generally revert back to us. If we need
to raise additional capital to fund our operations, funding may not be available
to us on acceptable terms, or at all. If we are unable to obtain adequate
financing when needed, we may have to delay, reduce the scope of or suspend one
or more of our clinical trials, research and
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development programs or commercialization efforts. We may seek to raise any
necessary additional capital through a combination of public or private equity
offerings, debt financings and collaborations or licensing arrangements. If we
do raise additional capital through public or private equity offerings, the
ownership interest of our existing stockholders will be diluted, and the terms
of these securities may include liquidation or other preferences that adversely
affect our stockholders' rights. If we raise additional capital through debt
financing, we may be subject to covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends, and if the debt is convertible into our
common stock, the ownership interest of our stockholders may be diluted. If we
are unable to raise capital, we may need to delay, reduce or terminate planned
activities to reduce costs. Doing so will likely harm our ability to execute our
business plans.
Cash Flows
The following table summarizes our consolidated cash flows for the periods
indicated:
Nine Months Ended September 30,
2020 2019
(in thousands)
Net cash provided by (used in) provided by:
Operating activities $ (75,030 ) $ (37,964 )
Investing activities (297,179 ) (109,990 )
Financing activities 421,291 100,192Net change in cash and cash equivalents $ 49,082 $
(47,762 )
Cash Used in Operating Activities
During the nine months endedSeptember 30, 2020 , cash used in operating activities of$75.0 million was attributable to a net loss of$74.0 million and a net change of$12.6 million in our operating assets and liabilities, partially offset by a net change of$11.5 million in non-cash charges. The non-cash charges primarily consisted of stock-based compensation expense of$6.3 million , depreciation and amortization of$2.7 million , and amortization of operating lease right-of-use asset of$2.1 million . The change in operating assets and liabilities was primarily due to a$9.0 million decrease in deferred revenue associated with the Sanofi Agreement and$2.1 million increase in prepaid expenses and other current assets primarily resulting from the timing of prepayments made for research and development activities and insurance. During the nine months endedSeptember 30, 2019 , cash used in operating activities of$38.0 million was attributable to a net loss of$33.1 million and a net change of$9.5 million in our operating assets and liabilities, partially offset by a net change of$4.6 million in non-cash charges. The non-cash charges consisted of depreciation and amortization of$2.5 million , stock-based compensation expense of$1.8 million , and a loss on disposal of held for sale of$0.6 million , offset by accretion of marketable securities of$0.3 million . The change in operating assets and liabilities was primarily due to a$10.1 million decrease in deferred revenue associated with the Sanofi Agreement, a$1.9 million increase in prepaid expenses and other current assets resulting from the timing of prepayments made for research and development activities, a$1.6 million increase in receivables from a related party resulting from the Sanofi Agreement, a$1.3 million increase in other noncurrent assets, offset by a$5.7 million increase in accounts payable and accrued liabilities primarily resulting from increases in spend for research and development.
Cash Used in Investing Activities
During the nine months endedSeptember 30, 2020 , cash used in investing activities of$297.2 million , was primarily comprised of purchases of marketable securities of$499.3 million and purchases of property and equipment of$1.8 million , partially offset by cash provided by maturities of marketable securities of$200.8 million and sale of marketable securities of$3.0 million . During the nine months endedSeptember 30, 2019 cash used in investing activities of$110.0 million was primarily comprised of purchases of marketable securities of$143.7 million and purchases of property and equipment of$2.1 million , offset by maturities of marketable securities of$29.6 million and proceeds from sale of held-for-sale assets of$6.0 million .
Cash Provided by Financing Activities
During the nine months endedSeptember 30, 2020 , cash provided by financing activities of$421.3 million was comprised$420.1 million in net proceeds from the issuance of common stock related to our IPO inFebruary 2020 and follow-on public offering inJuly 2020 and$1.2 million in proceeds from the issuance of common stock upon the exercise of stock options. 29 --------------------------------------------------------------------------------
During the nine months ended
Contractual Obligations and Commitments
The following table summarizes our commitments and contractual obligations as ofSeptember 30, 2020 : Payments Due by Period Less than More than Total 1 year 1-3 years 3-5 years 5 years (in thousands) Operating lease obligations$ 47,619 $ 4,256 $ 9,545 $ 8,505 $ 25,313 Finance lease obligations 64 64 - - -
Total contractual obligations
Our contractual obligations reflect our minimum payments due for office and
laboratory space leases in
Our primaryRedwood City lease commenced inJanuary 2015 and ends inDecember 2030 . InApril 2020 , we amended ourRedwood City lease to lease an additional 19,483 square feet of office, laboratory and research and development space located at300 Saginaw Drive ,Redwood City, California beginning onDecember 15, 2020 and endingDecember 31, 2030 . Under the amendment, our existing lease term for the premises located at700 Saginaw Drive ,Redwood City, California was extended untilDecember 31, 2030 . As part of the Warp Drive acquisition, we assumed Warp Drive's office and laboratory space lease inCambridge , which ends inFebruary 2023 . InMarch 2019 , we fully subleased theCambridge lease toCasma Therapeutics, Inc. , or Casma, on financial terms substantially the same as the original lease. The amounts reflected in the table above include the Company's lease payments for theCambridge lease, but do not reflect any offset for the sublease payments we are entitled to receive from Casma. The sublease by Casma and related sublease payments by Casma to us are fully guaranteed byThird Rock Ventures, LLC . We enter into agreements in the normal course of business with contract research organizations for clinical trials, contract manufacturing organizations to provide clinical trial materials and with vendors for preclinical studies and other services and products for operating purposes which are generally cancelable at any time by us upon 30 to 90 days prior written notice. These payments are not included in this table of contractual obligations.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K.
Indemnification Agreements We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.
Critical Accounting Policies, Significant Judgments and Use of Estimate
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our 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. 30
-------------------------------------------------------------------------------- For a discussion of our critical accounting estimates, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K for the year endedDecember 31, 2019 , as filed with theSEC onMarch 30, 2020 , or our 2019 Form 10-K. There have been no material changes to these critical accounting estimates since our 2019 Form 10-K.
Emerging Growth Company Status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are an emerging growth company. We early adopted ASC 606 as the JOBS Act does not preclude an EGC from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We have elected to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. We will remain an emerging growth company until the earlier of (1)December 31, 2025 , (2) the last day of the fiscal year in which we have total annual gross revenue of at least$1.07 billion (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed$700.0 million as of the priorJune 30th , or (4) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period. For a complete description of our significant accounting policies, see Note 2. "Summary of Significant Accounting Policies" in the "Notes to Unaudited Condensed Consolidated Financial Statements" contained in Part I, Item 1 of this report and Note 2. "Summary of Significant Accounting Policies" in the "Notes to Consolidated Financial Statements" contained in Part II, Item 8 of our 2019 Form 10-K. There have been no material changes to these critical accounting policies since our 2019 Form 10-K.
Recent Accounting Pronouncements
For a description of the expected impact of recently adopted accounted pronouncements, see Note 2. Summary of Significant Accounting Policies in the "Notes to Unaudited Condensed Consolidated Financial Statements" contained in Part I, Item 1 of this report.
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