SANA BIOTECHNOLOGY, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included as part of our 2020 Annual Report on Form 10-K as filed with theSEC onMarch 24, 2021 (2020 Form 10-K). This discussion and analysis and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth in the section titled "Risk Factors." See also the section titled "Special Note Regarding Forward-Looking Statements."
Overview
We were founded on the belief that engineered cells will be one of the most
important transformations in medicine over the next several decades. The burden
of diseases that can be addressed at their root cause through engineered cells
is significant. We view engineered cells as having the potential to be as
therapeutically disruptive as biologics to clinical practice. Our long-term
aspirations are to be able to control or modify any gene in the body, to replace
any cell that is damaged or missing, and to markedly improve access to cellular
and gene-based medicines. We have brought together an experienced group of
scientists, engineers, and company builders and combined them with the necessary
technologies to move this vision forward. We are developing in vivo and ex vivo
cell engineering platforms to revolutionize treatment across a broad array of
therapeutic areas with unmet treatment needs, including oncology, diabetes,
central nervous system disorders, cardiovascular diseases, and genetic
disorders, among others. While our current product candidates are all in
preclinical development, our goal is to file multiple investigational new drug
applications (INDs) both in 2022 and 2023.
The process of repairing and controlling genes in the body, referred to as gene
therapy or in vivo cell engineering, requires in vivo delivery of a therapeutic
payload and modification of the genome. Of these, we believe delivery of a
therapeutic payload represents the greatest unmet need and is thus at the core
of our strategic focus, with our ultimate goal being the delivery of any payload
to any cell in a specific and repeatable way. Our initial effort is on
cell-specific delivery and increasing the diversity and size of payloads. Using
our fusogen technology, we have shown in preclinical studies that we can
specifically target numerous cell surface receptors that, when combined with
delivery vehicles to form fusosomes, allow cell-specific delivery across
multiple different cell types. We have initially chosen to focus this technology
on delivering payloads to T cells, hepatocytes, and hematopoietic stem cells.
Frequently in disease, cells are damaged or missing entirely, and an effective
therapy needs to replace the entire cell, an approach referred to as cell
therapy or ex vivo cell engineering. A successful therapeutic requires an
ability to manufacture cells at scale that engraft, function, and have the
necessary persistence in the body. Of these, long-term persistence related to
overcoming immunologic rejection of another person's cells has been the most
challenging, which has led many to focus on autologous, or a patient's own,
cells as the therapeutic source. However, autologous therapies require a complex
process of harvesting cells from the patients, manipulating them outside the
body, and returning them to the patient. Products utilizing this approach have
had to manage significant challenges such as scalability, product variability,
product quality, cost, patient accessibility, and a limited number of cell types
being amenable to this approach. Given these limitations, rather than utilizing
autologous cells to overcome immune rejection, we have invested in creating
hypoimmune cells that can "hide" from the patient's immune system. We are
striving to make therapies utilizing pluripotent stem cells with our hypoimmune
genetic modifications as the starting material, which we then differentiate into
a specific cell type, such as a pancreatic beta cell, before treating the
patient. Additionally, for cell types for which effective differentiation
protocols from a stem cell have not yet been developed, such as T cells, instead
of starting from a pluripotent stem cell, we can utilize an allogeneic cell,
differentiated cells sourced from a donor, as the starting material to which we
then apply our hypoimmune genetic modifications.
22
--------------------------------------------------------------------------------
We believe the time is right to develop engineered cell therapies across a broad
range of therapeutic areas. Substantial progress in the understanding of
genetics, gene editing, gene control, protein engineering, stem cell biology,
immunology, process analytics, and computational biology have converged to
create an opportunity to markedly increase the breadth and depth of the
potential impact of genetic and cellular medicines. We are focused on creating
transformative in vivo and ex vivo engineered cell therapies across a range of
therapeutic areas. We are in the early stages of development across a broad
pipeline of product candidates, all of which are currently in the preclinical
stage of development and are summarized below:
[[Image Removed]]
We continue to make scientific progress on developing our cell engineering
platforms and advancing our product candidates through preclinical development
and towards potential IND submissions. Given the depth and breadth of our
portfolio, we expect to assess and prioritize our programs on an ongoing basis
based on various factors, including internal and external opportunities and
constraints, which may result in our decision to advance certain programs ahead
or instead of others. As certain of our product candidates advance towards
potential IND submissions, we are conducting GLP toxicity studies and
establishing necessary scale-up for our manufacturing processes.
Our ex vivo and in vivo technology represents an aggregation of years of
innovation and technology from multiple academic institutions and companies,
including our fusogen technology acquired from Cobalt Biomedicines Inc.
(Cobalt), our ex vivo cell engineering programs focused on replacing damaged
cells in the heart and certain brain disorders acquired from Cytocardia Inc. and
Oscine Corp. , respectively, hypoimmune technology licensed from the President
and Fellows of Harvard College (Harvard) and The Regents of the University of
California , and genome editing technology licensed from Beam Therapeutics Inc.
(Beam), amongst others. For details regarding these acquisitions and license and
collaboration agreements, see Note 3, Acquisitions and Note 5, License and
collaboration agreements, to our consolidated financial statements included in
the 2020 Form 10-K, as well as the subsection titled "Business- Key Intellectual
Property Agreements" in Part I, Item 1, of our 2020 Form 10-K. For details
regarding our option and license agreement with Beam, see Note 17, Subsequent
events, to our unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report.
We were incorporated in July 2018 , and our operations to date have included
developing our in vivo and ex vivo cell engineering platforms, identifying and
developing potential product candidates, executing preclinical studies,
establishing manufacturing capabilities, acquiring technology, organizing and
staffing the company, business planning, establishing our intellectual property
portfolio, raising capital, and providing general and administrative support for
these operations. All of our programs are currently in the development stage,
and we do not have any products approved for sale. Since our inception, we have
incurred net losses each year. Our net losses for the nine months ended
September 30, 2021 and 2020 were $245.2 million and $172.1 million ,
respectively. As of September 30, 2021 , we had an accumulated deficit of $674.6
million . Our net losses resulted primarily from our research and development
programs, and, to a lesser extent, general and administrative costs associated
with our operations. In addition, as of September 30, 2021 , the accumulated
deficit of $674.6 million includes non-cash charges of $131.8 million and $80.7
million related to the revaluation of the success payment liabilities and
contingent consideration, respectively.
23
--------------------------------------------------------------------------------
In February 2021 , we completed our initial public offering (IPO) and issued 27.0
million shares of our common stock, including 3.5 million shares pursuant to the
full exercise of the underwriters' option to purchase additional shares, at a
price of $25.0 per share and received net proceeds of $626.4 million . Prior to
the IPO, we funded our operations from the issuance and sale of our convertible
preferred stock, raising an aggregate of $705.5 million in gross proceeds. As of
September 30, 2021 , we had cash, cash equivalents, and marketable securities of
$866.1 million . Based on our current operating plan, we believe that our
existing cash, cash equivalents, and marketable securities will be sufficient to
meet our working capital and capital expenditure needs for approximately the
next 36 months.
We anticipate that our expenses and operating losses will increase substantially
over the foreseeable future. The expected increase in expenses will be driven in
large part by our ongoing activities, if and as we continue to advance our in
vivo and ex vivo cell engineering platforms; continue preclinical development of
our current and future product candidates and initiate additional preclinical
studies; commence clinical studies of our current and future product candidates;
establish our manufacturing capability, including developing our contract
development and manufacturing relationships and building our internal
manufacturing facility; acquire and license technologies aligned with our in
vivo and ex vivo cell engineering platforms; seek regulatory approval of our
current and future product candidates; expand our operational, financial, and
management systems; increase personnel, including personnel to support our
preclinical and clinical development, manufacturing, and commercialization
efforts; continue to develop, grow, perfect, and defend our intellectual
property portfolio; and incur additional legal, accounting, or other expenses in
operating our business, including the additional costs associated with operating
as a public company.
We are also investing early in building world class capabilities in key areas of
manufacturing sciences and operations, including development of our in vivo and
ex vivo cell engineering platforms, product characterization, and process
analytics from the time candidates are in early research phases. Our investments
also include scaled research solutions, scaled infrastructure, and novel
technologies to improve efficiency, characterization, and scalability of
manufacturing, including establishing an internal manufacturing facility.
We anticipate that we will need to raise additional financing in the future to
fund our operations, including the commercialization of any approved product
candidates. Until such time, if ever, as we can generate significant product
revenue, we expect to finance our operations with our existing cash, cash
equivalents, and marketable securities, any future equity or debt financings,
and upfront, milestone, and royalty payments, if any, received under future
license or collaboration agreements. We may not be able to raise additional
capital on terms that are acceptable to us or at all. If we are unable to raise
additional capital when desired, our business, results of operations, and
financial condition would be adversely affected.
COVID-19 business update
The global COVID-19 pandemic continues to evolve rapidly, and we will continue to monitor it closely. The extent of the impact of the COVID-19 pandemic on our business, operations, and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration and spread of the pandemic and its impact on our ability to build out and operationalize our manufacturing facility, clinical trial enrollment, trial sites, contract research organizations (CROs), contract manufacturing organizations, suppliers of key materials and supplies, including raw materials, consumables, and other equipment necessary to manufacture our product candidates, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have experienced modest delays in our discovery and development activities as a result of the COVID-19 pandemic, primarily due to temporary and partial shutdowns at certain of our CROs and academic institutions that have since resumed operations, and due to theWashington, California , andMassachusetts stay-at-home orders where our operations are located. However, to the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our non-laboratory employees working remotely. We will continue to actively monitor the situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business.
Acquisitions
We have completed various acquisitions since inception. For details regarding our acquisitions, see Note 3, Acquisitions, to our consolidated financial statements included in our 2020 Form 10-K, as well as the subsection titled "Business-Key Intellectual Property Agreements" in Part I, Item 1 of our 2020 Form 10-K.
License and collaboration agreements
We have entered into license and collaboration arrangements with various third
parties. For details regarding these agreements, see Note 17, Subsequent events,
to our unaudited condensed consolidated financial statements included elsewhere
in this Quarterly Report, Note 5, License and collaboration agreements, to our
consolidated financial statements included in our 2020 Form 10-K, and the
subsection titled "Business- Key Intellectual Property Agreements" in Part I,
Item 1, of our 2020 Form 10-K.
24
--------------------------------------------------------------------------------Success payments and contingent consideration
Cobalt success payment and contingent consideration
Pursuant to the terms of the Cobalt acquisition agreement, we have an obligation to pay contingent consideration (Cobalt Contingent Consideration) of up to an aggregate of$500.0 million to certain former Cobalt stockholders upon our achievement of certain pre-specified development milestones (Cobalt Contingent Consideration), and a success payment (Cobalt Success Payment) of up to$500.0 million payable in cash or stock, at our discretion. The Cobalt Success Payment is payable, if at pre-determined valuation measurement dates, including our IPO and periodically thereafter, our market capitalization equals or exceeds$8.1 billion , and we are advancing a program based on the fusogen technology in a clinical trial pursuant to an IND, or have filed for, or received approval for, a biologics license application (BLA) or new drug application (NDA). As ofSeptember 30, 2021 , a Cobalt Success Payment had not been triggered. In addition to our IPO, a valuation measurement date would be triggered upon a change of control if at least one of our programs based on the fusogen technology is the subject of an active research program at the time of such change of control. If there is a change of control and our market capitalization is below$8.1 billion as of the date of the change of control, the amount of the potential Cobalt Success Payment will decrease, and the amount of potential Cobalt Contingent Consideration will increase. See Note 3, Acquisitions to our condensed consolidated financial statements included elsewhere in this report for details on the different market capitalizations and impact to the amount of the potential Cobalt Success Payment and potential Cobalt Contingent Consideration if there is a change of control. As ofSeptember 30, 2021 andDecember 31, 2020 , the estimated fair value of the Cobalt Success Payment liability was$111.6 million and$64.7 million , respectively, and was recorded in long-term liabilities in the condensed consolidated balance sheets. In connection with the change in the estimated fair value of the Cobalt Success Payment, we recognized expenses of$21.8 million and$1.3 million for the three months endedSeptember 30, 2021 and 2020, respectively, and expenses of$46.9 million and$35.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. As ofSeptember 30, 2021 , the estimated fair value of the Cobalt Contingent Consideration was$132.0 million , of which$43.5 million was recorded in short-term liabilities and$88.5 million was recorded in long-term liabilities in the condensed consolidated balance sheet. As ofDecember 31, 2020 , the estimated fair value of the Cobalt Contingent Consideration of$121.9 million was recorded in long-term liabilities in the condensed consolidated balance sheet. In connection with the change in the estimated fair value of the Cobalt Contingent Consideration, we recognized a gain of$8.5 million and expense of$2.3 million for the three months endedSeptember 30, 2021 and 2020, respectively, and expenses of$10.1 million and$16.7 million for the nine months endedSeptember 30, 2021 and 2020, respectively. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates-Success payments" and "-Critical accounting policies and significant judgments and estimates-Contingent consideration" in our 2020 Form 10-K for more information on the accounting treatment of the Cobalt Success Payment and Cobalt Contingent Consideration.
Harvard success payments
Pursuant to the terms of the Harvard agreement, we may be required to make success payments up to an aggregate of$175.0 million , payable in cash, based on increases in the per share fair market value of our common stock (Harvard Success Payments). The potential Harvard Success Payments are based on multiples of increased value ranging from 5x to 40x based on a comparison of the per share fair market value of our common stock relative to the original issuance price of$4.00 per share at pre-determined valuation measurement dates. The Harvard Success Payments can be achieved over a maximum of 12 years from the effective date of the agreement. See Note 5, License and collaboration agreements to our unaudited condensed consolidated financial statements included elsewhere in this report for more details on the various per share common stock values that trigger a Harvard Success Payment. We anticipate the first valuation measurement date to occur inFebruary 2022 , the one-year anniversary of our IPO, with valuation dates occurring periodically after this date. Additional valuation measurement dates are triggered by events which include a merger, an asset sale, the sale of the majority of the shares held by Series A convertible preferred stockholders, and the last day of the term of the success payments. If a higher success payment tier is met at the same time a lower tier is met, both tiers will be owed. Any previous success payments made under the Harvard Agreement are credited against the success payment owed as of any valuation measurement date so that Harvard does not receive multiple success payments in connection with the same threshold. As ofSeptember 30, 2021 andDecember 31, 2020 , the estimated fair value of the Harvard Success Payment liability was$22.6 million and$11.8 million , respectively. As ofSeptember 30, 2021 andDecember 31, 2020 ,$5.0 million and$0 , respectively, were recorded in short-term liabilities, and$17.6 million and$11.8 million , respectively, were recorded in long-term liabilities in the condensed consolidated balance sheet. In connection with the change in the estimated fair value of the Harvard Success Payment 25 -------------------------------------------------------------------------------- liability, we recognized expenses of$3.4 million and$0.8 million for the three months endedSeptember 30, 2021 and 2020, respectively, and expenses of$10.8 million and$5.5 million for the nine months endedSeptember 30, 2021 and 2020, respectively.
See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates-Success payments" in our 2020 Form 10-K for more information on the accounting treatment of the Harvard Success Payments.
Components of operating results
Operating expenses
Research and development
To date, research and development expenses have related primarily to discovery and development of our platform technology and product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received. Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development expenses. The timing and amount of costs to acquire and license technologies in the future cannot be estimated with reliability and may fluctuate from quarter to quarter and year to year. We deploy our employee and infrastructure resources across multiple research and development programs for developing our in vivo and ex vivo cell engineering platforms, identifying and developing product candidates, and establishing manufacturing capabilities. Due to our early stage of development, number of ongoing projects, and our ability to use resources across several projects, the vast majority of our research and development costs are not recorded on a program-specific basis. These include costs for personnel, laboratory, and other indirect facility and operating costs. Research and development activities account for a significant portion of our operating expenses. We anticipate that our research and development expenses will increase over the foreseeable future as we expand our research and development efforts including expanding the capabilities of our cell engineering platforms, identifying product candidates, completing preclinical studies and commencing clinical trials, establishing internal and external manufacturing capabilities, seeking regulatory approval of our product candidates, and incurring costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines. A change in the outcome of any of these factors could result in a significant change in the costs and timing associated with the development of our product candidates.
Research and development related success payments and contingent consideration
Research and development related success payments and contingent consideration include the change in the estimated fair value of our Cobalt and Harvard Success Payment liabilities and Cobalt Contingent Consideration. Research and development expense (gain) related to our success payment liabilities and contingent consideration is unpredictable and may vary significantly from quarter to quarter and year to year due to changes in the assumptions used in the calculations. General and administrative General and administrative expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation for our employees in finance, human resources, legal, information technology, executive, and other administrative functions, legal and consulting fees, insurance fees, and facility costs not otherwise included in research and development expenses. Legal fees include those related to corporate and patent matters. We anticipate that our general and administrative expenses will increase over the foreseeable future to support our continued research and development activities, grow our business, and support future possible business development opportunities. We also anticipate continuing to incur expenses related to audit and legal services associated with operating as a public company, maintaining compliance with the rules and regulations of theSecurities and Exchange Commission (SEC) and standards applicable to companies listed on a national securities exchange, investor relations activities, and other administrative and professional services. 26
--------------------------------------------------------------------------------
Interest income, net
Interest income, net consists of interest earned on our cash, cash equivalents, and marketable securities.
Results of operations
Comparison of the three and nine months ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Three Months Ended
September 30, Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
Operating expenses:
Research and development $ 53,245 $ 40,056 $ 13,189 $ 140,121 $ 96,453 $ 43,668
Research and development related
success payments and contingent
consideration 16,753 4,489 12,264 67,778 57,309 10,469
General and administrative 13,433 7,099 6,334 37,731 19,063 18,668
Total operating expenses 83,431 51,644 31,787 245,630 172,825 72,805
Loss from operations (83,431 ) (51,644 ) (31,787 ) (245,630 ) (172,825 ) (72,805 )
Interest income, net 158 148 10 409 622 (213 )
Other income, net 10 44 (34 ) 24 68 (44 )
Net loss $ (83,263 ) $ (51,452 ) $ (31,811 ) $ (245,197 ) $ (172,135 ) $ (73,062 ) Research and development expenses
The following table summarizes the components of our research and development expenses for the periods presented:
Three Months Ended September 30,
2021 2020 Change
(in thousands)
Personnel $ 20,477 $ 12,054 $ 8,423
Research and laboratory 17,938 10,632 7,306
Facility and other allocated costs 13,694 8,019 5,675
Acquisition and licensing of technology 213 8,956 (8,743 )
Other 923 395 528
Total research and development expense $ 53,245 $ 40,056 $ 13,189
Research and development expense was $53.2 million and $40.0 million for the
three months ended September 30, 2021 and 2020, respectively. The increase of
$13.2 million was primarily due to:
• increased personnel-related expenses of
stock-based compensation of
to an increase in headcount to expand our research and development
capabilities;
• an increase of
laboratory supplies, preclinical studies, third-party manufacturing costs,
and other external research expenses; and
• an increase of
rent, depreciation, and allocated overhead costs.
The increases were offset by a decrease in upfront license fees of
27
--------------------------------------------------------------------------------The following table summarizes the components of our research and development expenses for the periods presented:
Nine Months Ended September 30,
2021 2020 Change
(in thousands)
Personnel $ 55,230 $ 33,288 $ 21,942
Research and laboratory 46,036 28,453 17,583
Facility and other allocated costs 34,800 21,519 13,281
Acquisition and licensing of technology 1,845 11,352 (9,507 )
Other 2,210 1,841 369
Total research and development expense $ 140,121 $
96,453
Research and development expense was$140.1 million and$96.4 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase of$43.7 million was primarily due to:
• increased personnel-related expenses of
stock-based compensation of
to an increase in headcount to expand our research and development
capabilities;
• an increase of
preclinical studies, laboratory supplies, third-party manufacturing costs,
and other external research expenses; and
• an increase of
rent, depreciation, and allocated overhead costs.
The increases were offset by a decrease in upfront license fees of$9.5 million , primarily due to the upfront expense of$8.5 million recorded in the nine months endedSeptember 30, 2020 related to the acquisition ofOscine Corp.
Research and development related success payments and contingent consideration
The following table summarizes the expenses (gains) associated with research and
development related success payments and contingent consideration for the
periods presented:
Three Months Ended September 30,
2021 2020 Change
(in thousands)
Success payments $ 25,229 $ 2,156 $ 23,073
Contingent consideration (8,476 ) 2,333 (10,809 )
Total research and development related success
payments and contingent consideration $ 16,753 $
4,489
For the three months endedSeptember 30, 2021 and 2020, we recognized net non-cash expenses of$16.8 million and$4.5 million , respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration. The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was$25.2 million for the three months endedSeptember 30, 2021 compared to$2.2 million for the same period in 2020. The change in the estimated fair value of the success payment liabilities was due to increases in our market capitalization and common stock price during the relative periods. We recorded a gain in the three months endedSeptember 30, 2021 of$8.5 million for the change in the estimated fair value of our Cobalt Contingent Consideration and an expense of$2.3 million for the same period in 2020. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to an increase in the discount rate used in the calculation and scientific progress toward the achievement of milestones during the relative periods. 28 -------------------------------------------------------------------------------- The following table summarizes the expenses associated with research and development related success payments and contingent consideration for the for the periods presented: Nine Months Ended September 30, 2021 2020 Change (in thousands) Success payments$ 57,698 $ 40,637 $ 17,061 Contingent consideration 10,080 16,672 (6,592 ) Total research and development related success payments and contingent consideration$ 67,778 $
57,309
For the nine months endedSeptember 30, 2021 and 2020, we recognized non-cash expenses of$67.8 million and$57.3 million , respectively, for the changes in the estimated fair value of research and development related success payments and contingent consideration. The expense related to the change in the estimated fair value of our Cobalt Success Payment and Harvard Success Payment liabilities in aggregate was$57.7 million for the nine months endedSeptember 30, 2021 compared to$40.6 million for the same period in 2020. The change in the estimated fair value of the success payment liabilities was due to increases in our market capitalization and common stock price during the relative periods. The expense related to the change in the estimated fair value of our Cobalt Contingent Consideration was$10.1 million for the nine months endedSeptember 30, 2021 compared to$16.7 million for the same period in 2020. The change in the estimated fair value of the Cobalt Contingent Consideration was primarily due to scientific progress toward the achievement of milestones during the relative periods.
General and administrative Expenses
General and administrative expenses were$13.4 million and$37.7 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to$7.1 million and$19.1 million for the three and nine months endedSeptember 30, 2020 , respectively. The increase of$6.3 million for the three months endedSeptember 30, 2021 was primarily due to increased personnel-related expenses of$3.5 million , including non-cash stock-based compensation of$1.7 million , primarily attributable to an increase in headcount to build our infrastructure, increased legal fees to support our patent portfolio and licensing arrangements of$1.3 million , and increased insurance of$1.0 million associated with being a public company. The increase of$18.6 million for the nine months endedSeptember 30, 2021 was primarily due to increased personnel-related expenses of$8.7 million , including non-cash stock-based compensation of$4.7 million , primarily attributable to an increase in headcount to build our infrastructure, increased legal fees to support our patent portfolio and licensing arrangements of$3.7 million , increased insurance of$3.0 million associated with being a public company, increased consulting fees of$1.0 million , and facility costs, including rent, of$0.9 million . Interest income, net Interest income, net was$0.2 million and$0.4 million for the three and nine months endedSeptember 30, 2021 , respectively, compared to$0.2 million and$0.6 million for the three and nine months endedSeptember 30, 2020 , respectively.
Liquidity, capital resources, and capital requirements
Sources of liquidity
As ofSeptember 30, 2021 , we had$866.1 million in cash, cash equivalents, and marketable securities. To date we have raised an aggregate of approximately$1.3 billion in net proceeds through our IPO and private placements of our convertible preferred stock. Since our inception, we have not generated any revenue from product sales or any other sources, and we have incurred significant operating losses. We have not yet commercialized any products, and we do not expect to generate revenue from sales of any product candidates for a number of years, if ever.
Future funding requirements
We expect to incur additional losses in the foreseeable future as we conduct and
expand our research and development efforts, including conducting preclinical
studies and clinical trials, developing new product candidates, establishing
internal and external manufacturing capabilities, and funding our operations
generally.
29
-------------------------------------------------------------------------------- Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to meet our working capital and capital expenditure needs for approximately the next 36 months. However, we anticipate that we will need to raise additional financing in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.
Our future capital requirements will depend on many factors, including:
• the scope, timing, progress, costs, and results of discovery, preclinical
development, and clinical trials for our current and future product
candidates;
• the number of clinical trials required for regulatory approval of our
current and future product candidates;
• the costs, timing, and outcome of regulatory review of any of our current
and future product candidates;
• the cost associated with building our manufacturing capabilities, as well
as costs associated with the manufacturing of clinical and commercial
supplies of our current and future product candidates;
• the costs and timing of future commercialization activities, including
manufacturing, marketing, sales, and distribution, for any of our product
candidates for which we receive marketing approval;
• the costs and timing of preparing, filing, and prosecuting patentapplications, maintaining and enforcing our intellectual property rights,
and defending any intellectual property-related claims, including any
claims by third parties that we are infringing upon their intellectual
property rights;
• our ability to maintain existing, and establish new, strategiccollaborations, licensing, or other arrangements and the financial terms
of any such agreements, including the timing and amount of any future
milestone, royalty, or other payments due under any such agreement;
• the revenue, if any, received from commercial sales of our product
candidates for which we receive marketing approval;
• expenses to attract, hire, and retain skilled personnel;
• the costs of operating as a public company;
• our ability to establish a commercially viable pricing structure and
obtain approval for coverage and adequate reimbursement from third-party
and government payers;
• our ability to address any potential interruptions or delays resulting
from factors related to the COVID-19 pandemic;
• the effect of competing technological and market developments; and
• the extent to which we acquire or invest in businesses, products, and
technologies.
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, or other capital obtained in connection with strategic collaborations or licensing or other arrangements. In the event that additional financing is required, we may not be able to raise it on terms that are acceptable to us or at all. If we raise additional funds through the issuance of equity or convertible debt securities, it may result in dilution to our existing stockholders. Debt financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations. If we raise funds through strategic collaborations or licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be adversely affected. 30 --------------------------------------------------------------------------------
Cash flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (140,955 ) $ (100,423 )
Investing activities (172,137 ) (265,604 )
Financing activities 628,632 435,584
Net increase in cash, cash equivalents, and
restricted cash $ 315,540 $ 69,557
Operating activities
During the nine months ended September 30, 2021 , net cash used in operating
activities was $141.0 million , consisting primarily of our net loss of $245.2
million , partially offset by the change in our net operating assets and
liabilities of $11.3 million and non-cash charges of $92.9 million . The non-cash
charges of $92.9 million consisted of $57.7 million for revaluation of our
success payment liabilities, $10.1 million for revaluation of contingent
consideration, non-cash stock-based compensation expense of $15.0 million ,
depreciation expense of $7.7 million , and other non-cash charges of $2.4
million .
During the nine months ended September 30, 2020 , net cash used in operating
activities was $100.4 million , consisting of our net loss of $172.1 million ,
partially offset by non-cash charges of $68.2 million and the change in our net
operating assets and liabilities of $3.5 million . The non-cash charges of $68.2
million consisted of $40.6 million for revaluation of success payment
liabilities, $16.7 million for revaluation of contingent consideration,
depreciation expense of $4.2 million , non-cash stock-based compensation expense
of $3.0 million , and other non-cash charges of $3.7 million .
Investing activities
During the nine months endedSeptember 30, 2021 , cash used in investing activities was$172.1 million . This consisted primarily of sales and maturities, less purchases, of marketable securities of$147.4 million and purchases of property and equipment of$24.7 million . During the nine months endedSeptember 30, 2020 , cash used in investing activities was$265.6 million , consisting primarily of net purchases, sales, and maturities of marketable securities of$251.0 million and purchases of property and equipment of$14.6 million .
Financing activities
During the nine months endedSeptember 30, 2021 , cash provided by financing activities was$628.6 million , consisting primarily of net proceeds from our IPO of$626.4 million . During the nine months endedSeptember 30, 2020 , cash provided by financing activities was$435.6 million , consisting primarily of proceeds from the sale of our convertible preferred stock.
Contractual obligations and commitments
The following table summarizes our significant contractual obligations and
commitments as of
Payments Due by Period
More than 5
Less than 1 Year 1 to 3 Years 3 to 5 Years Years Total
(in thousands)
Operating lease
obligations $ 16,033 $ 34,850 $ 34,568$ 85,405 $ 170,856 31
-------------------------------------------------------------------------------- Other than as disclosed in the table above, the payment obligations under our license, collaboration, and acquisition agreements as ofSeptember 30, 2021 are contingent upon future events such as our achievement of pre-specified development, regulatory, and commercial milestones or royalties on net product sales. See the section titled "Business-Key Intellectual Property Agreements" in Part I, Item 1 of our 2020 Form 10-K for more information about these payment obligations. We are also obligated to make a success payment to Cobalt of up to$500.0 million , payable in cash or stock at our discretion, pursuant to the terms and conditions in the Cobalt acquisition agreement, and success payments to Harvard up to an aggregate of$175.0 million , payable in cash. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates-Success payments" in our 2020 Form 10-K for more information on the success payments. As ofSeptember 30, 2021 , the timing and likelihood of achieving the milestones and success payments and generating future product sales are uncertain and, therefore, any related payments are not included in the table above. We also enter into agreements in the normal course of business for sponsored research, preclinical studies, contract manufacturing, and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are not included in the table above.
Off-balance sheet arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements
as defined under the rules and regulations of the
JOBS Act accounting election
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We will cease to be an emerging growth company until the earliest of (1)December 31, 2026 , (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" as defined in Rule 12b-2 under the Exchange Act, which would occur if the fair market value of our common stock held by non-affiliates exceeded$700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use the extended transition period for any 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 if the standard allows early adoption.
Critical accounting policies and significant judgements and estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. 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. The critical accounting policies used in preparation of these condensed consolidated financial statements as ofSeptember 30, 2021 and for the three and nine months endedSeptember 30, 2021 and 2020 are consistent with those discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "-Critical accounting policies and significant judgments and estimates" in our 2020 Form 10-K. 32
--------------------------------------------------------------------------------
© Edgar Online, source
