The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report"), and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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. 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, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a biopharmaceutical company focused on the discovery and development of innovative medicines for the treatment of serious diseases in which signaling by protein growth factors plays a fundamental role. Our novel understanding of the molecular mechanisms of growth factor activation enabled us to develop a proprietary platform for the discovery and development of monoclonal antibodies that locally and selectively target the precursor, or latent, forms of growth factors. By targeting the signaling proteins at the cellular level and acting in the disease microenvironment, we believe we may avoid the historical dose-limiting safety challenges associated with inhibiting growth factors for therapeutic effect. We believe our focus on biologically validated growth factors may facilitate a more efficient development path. We have a productive scientific platform and are building our portfolio of novel product candidates with the aim of transforming the lives of patients suffering from a wide range of serious diseases, including neuromuscular disorders, cancer, and fibrosis. We have discovered and progressed the development of:
Apitegromab, an inhibitor of the activation of latent myostatin, for the
? treatment of spinal muscular atrophy ("SMA"). We also believe apitegromab could
have potential in the treatment of other myostatin-related disorders.
SRK-181, an inhibitor of the activation of latent transforming growth factor
? beta-1 ("TGF?1"), for the treatment of cancers that are resistant to
anti-PD-(L)1 antibody therapies.
Potent and selective inhibitors of the activation of transforming growth factor
beta ("TGF?") for the treatment of fibrotic diseases. We are advancing multiple
? antibody profiles toward product candidate selection including antibodies that
selectively inhibit the activation of latent TGF?1 in the context of fibrotic
extracellular matrix and that avoid perturbing TGF?1 presented by cells of the
immune system.
? Additional discovery and early preclinical programs related to the selective
modulation of growth factor signaling, including BMP6 and other growth factors.
Our first product candidate, apitegromab, is a highly selective, fully human, monoclonal antibody with a unique mechanism of action that results in inhibition of the activation of the growth factor, myostatin, in skeletal muscle. Apitegromab is being developed as a potential first muscle-directed therapy for the treatment of SMA. We are conducting SAPPHIRE, a pivotal Phase 3 clinical trial to evaluate the efficacy and safety of apitegromab in patients with 19
Table of Contents
non-ambulatory Type 2 and Type 3 SMA (which is estimated to represent the
majority of the current prevalent SMA patient population in the
InJune 2022 , at theCure SMA Research & Clinical Care Meeting , we presented 24-month efficacy and safety extension data of apitegromab from TOPAZ. The data supports sustained and continued improvement with apitegromab for non-ambulatory patients with Types 2 and 3 SMA receiving an SMN therapy. TOPAZ evaluated apitegromab across a broad age range (2-21 years) of patients with Types 2 and 3 SMA. All 35 non-ambulatory patients (Cohorts 2 and 3) and 12 of 23 ambulatory patients (Cohort 1) were receiving nusinersen maintenance therapy. The primary efficacy endpoint for the non-ambulatory population was mean change from baseline in Hammersmith Functional Motor Scale Expanded ("HFMSE"). Additional endpoints included mean change from baseline in Revised Upper Limb Module ("RULM"), an assessment specifically designed for upper limb function in patients with SMA. The HFMSE is a validated measure for the assessment of gross motor function in SMA, while the RULM is validated to evaluate upper limb motor performance by evaluating tasks which correspond to the ability to perform various everyday activities with their hands and arms. For this 24-month evaluation, an observed case analysis was conducted, which pooled all the non-ambulatory patients (Cohorts 2 and 3) and was based upon the available data for given timepoints. This analysis population included patients receiving either low dose (2 mg/kg) or high dose (20 mg/kg) apitegromab (inclusive of patients in Cohort 3who switched from 2 mg/kg to 20 mg/kg in Year 2) and did not exclude any patientswho had missed apitegromab doses due to study site access restrictions from COVID-19. Non-ambulatory patients (age range of 2 to 21 years old) with valid HFMSE assessments had sizable, sustained gains in HFMSE scores at 24 months from baseline (prior to first dose of apitegromab), while RULM scores continued to increase at 24 months. The mean change from baseline results for non-ambulatory patients showed: [[Image Removed: Graphic]]
* Three patients in the non-ambulatory group underwent scoliosis surgery in year 2, which has been reported to negatively impact HFMSE scores for a considerable period afterwards. This analysis excluded post-surgery data of these patients.
Dose response continued to be observed across the 24 months of apitegromab administration based upon HFMSE scores and pharmacodynamic data (target engagement as measured by serum latent myostatin concentrations), with signs that that there may be further HFMSE increases as non-ambulatory patients originally receiving the low dose switched to the high dose treatment.
Data at 24-months for ambulatory patients with Type 3 SMA (Cohort 1) suggest stability of Revised Hammersmith Scale ("RHS") scores in patients receiving 20 mg/kg of apitegromab and nusinersen. The mean RHS change from baseline at 24-months was -0.7 points (95% CI: -3.1, 1.7) for the apitegromab and nusinersen subgroup (n=10) and -2.8 points (95% CI: -8.4, 2.8) for the apitegromab monotherapy subgroup (n=11). A subset of individuals in Cohort 1 (n=21) had RHS improvements, as reflected by 42.9% (9/21) and 23.8% (5/21) of patients having ?1-point and ?3-point RHS increases from baseline at 24 months respectively. 20 Table of Contents
Of the 55 patients
Consistent with the 12-month safety data, no serious safety risks were identified as part of the analysis of the cumulative 24-month data. The incidence and severity of adverse events were consistent with the underlying patient population and background therapy. The five most common treatment-emergent adverse events ("TEAEs") were headache, pyrexia, upper respiratory tract infection, cough, and nasopharyngitis. No deaths or serious adverse reactions have been observed with apitegromab. A total of 14 serious TEAEs were reported over the 24-month treatment period, all assessed by the respective trial investigator as unrelated to apitegromab.
Tertiary endpoint data from the TOPAZ trial was presented at the 27th
International Annual Congress of the
TheU.S. Food and Drug Administration ("FDA") granted Fast Track designation, Rare Pediatric Disease designation and Orphan Drug Designation to apitegromab for the treatment of SMA inMay 2021 ,August 2020 andMarch 2018 , respectively. TheEuropean Medicines Agency ("EMA") granted PRIority MEdicines ("PRIME") designation inMarch 2021 and theEuropean Commission ("EC") granted Orphan Medicinal Product designation inDecember 2018 to apitegromab for the treatment of SMA. We have identified multiple other diseases for which the selective inhibition of the activation of myostatin may offer therapeutic benefit, including additional patient populations in SMA (such as Type 1 SMA and ambulatory SMA) and indications outside of SMA. Our second product candidate, SRK-181, is being developed for the treatment of cancers that are resistant to checkpoint inhibitor ("CPI") therapies, such as anti-PD-1 or anti-PD-L1 antibody therapies. SRK-181 is a highly selective inhibitor of the activation of latent TGF?1 that is being investigated in our Phase 1 DRAGON proof-of-concept clinical trial in patients with locally advanced or metastatic solid tumors that exhibit primary resistance to anti-PD-(L)1 antibodies. This two-part clinical trial consists of a dose escalation portion (Part A) and a dose expansion portion evaluating SRK-181 in combination with an approved anti-PD-(L)1 antibody therapy (Part B). Part B commenced in 2021 and includes the following active cohorts: urothelial carcinoma, cutaneous melanoma, non-small cell lung cancer, and clear cell renal cell carcinoma. Initial clinical data from Part A were presented inNovember 2021 at theSociety for Immunotherapy of Cancer ("SITC") 36th Annual Meeting and additional clinical data were presented at the 2022 SITC Annual Meeting inNovember 2022 . Utilizing our proprietary platform, we have multiple early stage and preclinical programs directed against targets that are known to be important in serious diseases, including neuromuscular disorders, cancer and fibrosis. We are discovering and generating selective and differentiated monoclonal antibodies against difficult targets by 1) applying our structural insights and antibody discovery expertise, 2) prioritizing human biology, and 3) embedding translational thinking early in the research and development process. Since inception, we have incurred significant operating losses. Our net losses were$95.2 million for the nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$471.4 million . We expect to continue to incur significant expenses and operating losses for the foreseeable future in performing our ongoing activities, as we:
continue development activities for apitegromab, including the conduct of the
? extension phase of our Phase 2 TOPAZ clinical trial, our Phase 3 SAPPHIRE
clinical trial in SMA, our open-label extension study of apitegromab and the
associated drug supply;
? continue research and development activities for SRK-181, including the conduct
of our Phase 1 DRAGON proof of concept clinical trial;
? continue to discover, validate and develop additional product candidates
through the use of our proprietary platform;
? maintain, expand and protect our intellectual property portfolio;
? hire additional research, development and business personnel; and
21 Table of Contents
? continue to build the infrastructure to support our operations as a public
company.
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If we successfully complete clinical development and obtain regulatory approval for apitegromab, SRK-181 or any of our future product candidates, we may generate revenue in the future from product sales. In addition, if we obtain regulatory approval for apitegromab, SRK-181 or any of our future product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution activities.
Restructuring
InMay 2022 , we announced a reduction in workforce in connection with the restructuring of our business to prioritize and focus on our clinical stage assets. The restructuring resulted in a reduction of our workforce by 39 positions, or approximately 25%, and occurred during the second quarter of 2022. As a result, we recorded restructuring costs of$1.9 million in the second quarter of 2022, related to severance benefits for the affected employees, including salary continuation, coverage of medical insurance premiums and outplacement services. We also incurred$0.1 million of non-cash expense related to equity modifications associated with the extension of the post-termination option exercise period for the vested portion of the affected employees' outstanding stock options, as well as modifications of certain restricted stock units. All the employees affected by the restructuring plan were notified and provided with their severance benefits offers in the second quarter of 2022, although severance benefits payments associated with the restructuring plan will continue through the end of 2022. Each affected employee's eligibility for the severance benefits was contingent upon such employee's execution (without revocation, as applicable) of a separation agreement, which included a general release of claims against us and affiliated persons and entities.
COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus, or COVID-19, as a pandemic (the "COVID-19 pandemic"). The ultimate extent of the impact of the COVID-19 pandemic or any other epidemic, pandemic, outbreak, or public health crisis on our business, financial condition and results of operations will depend on future developments, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or public health crisis and actions taken to contain or prevent the further spread, including the development of new variants of COVID-19 and development and deployment of vaccines to effectively treat COVID-19 and any new variants. The COVID-19 pandemic has negatively impacted our business, and at various times during the COVID-19 pandemic, we have experienced disruptions or restrictions on our preclinical studies, our ability to access and monitor certain clinical trial sites, restrictions on clinical trial participants' ability to access our clinical trial sites and delays in enrollment. Some clinical trial participants have missed or experienced delays in receiving doses of study drug and completing their clinical trial assessments. While our laboratory operations have resumed to near-normal capacity, we may continue to experience challenges in procuring materials and supplies, as well as research services from our vendors in a consistently timely manner due to COVID-19 related supply chain issues. Some of our third-party manufacturers have diverted resources or manufacturing capacity to accommodate the development or manufacture of COVID-19 vaccines. Although this has not yet had an impact on our ability to produce sufficient quantities of apitegromab or SRK-181 for our clinical trials, we continue to work closely with our third-party manufacturers to mitigate potential impacts to our clinical supply chain. In addition, delays in the development of COVID-19 vaccines or the deployment of vaccines which are approved or otherwise authorized for emergency use, a recurrence or "subsequent waves" of COVID-19 cases, the emergence of subvariants, or the discovery of vaccine-resistant COVID-19 variants could cause other widespread or more severe impacts. We continue to monitor developments as we adjust to the disruptions and uncertainties relating to the COVID-19 pandemic.
Financial Operations Overview
Revenue
No revenues have been recorded from the sale of any commercial product. Revenue generation activities have been limited to collaborations, containing research services and the issuance of a license. The Gilead Collaboration Agreement was executed onDecember 19, 2018 (the "Effective Date") and we began recognizing associated revenue in 22 Table of Contents 2019. Under the Gilead Collaboration Agreement, Gilead had exclusive options to license worldwide rights to product candidates that emerged from three of the Company's TGF? programs (each a "Gilead Program"). Each option could have been exercised by Gilead at any time from the Effective Date through a date that was 90 days following the expiration of the Research Collaboration Term for a given Gilead Program (no later thanMarch 19, 2022 ), or until termination of the Gilead Program, whichever was earlier (the "Option Exercise Period"). OnJanuary 6, 2022 , Gilead agreed to terminate its option exercise period for all programs. Revenue associated with the research and development and license performance obligations relating to the Gilead Programs was recognized as revenue using an input method as the research and development services were provided over the research term, which was during the periodJanuary 2019 throughDecember 2021 . The input method was based on the costs that were incurred on each Gilead Program and the costs that were expected to be incurred in the future to satisfy the performance obligation. The transfer of control occurred over time. In management's judgment, this input method was the best measure of progress towards satisfying the performance obligations. We evaluated the measure of progress each reporting period and, if necessary, adjusted the measure of performance and related revenue recognition. The estimate of remaining costs was highly subjective, as the research was novel, therefore efforts to be successful may have been significantly different than the estimated costs made at each balance sheet date. The amounts of revenue allocated to the three material rights provided by the options was to be deferred on the Company's consolidated balance sheet until either exercise or termination of the respective options. InJanuary 2022 , Gilead agreed that its option exercise period for all programs had been terminated. The remaining$33.2 million of deferred revenue associated with the materials rights provided by the options was recognized as revenue inJanuary 2022 . As a result, byJanuary 31, 2022 , all revenue related to the Gilead Collaboration Agreement had been recognized.
Operating Expenses
Research and Development
Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical studies, manufacturing, and clinical trials under our research programs, which include:
? employee-related expenses, including salaries, benefits and equity-based
compensation expense for our research and development personnel;
? expenses incurred under agreements with third parties that conduct research and
development and preclinical activities on our behalf;
expenses incurred under agreements related to our clinical trials, including
? the costs for investigative sites and contract research organizations ("CROs"),
that conduct our clinical trials;
? manufacturing process-development, manufacturing of clinical supplies and
technology-transfer expenses;
? consulting and professional fees related to research and development
activities;
? costs of purchasing laboratory supplies and non-capital equipment used in our
internal research and development activities;
? costs related to compliance with clinical regulatory requirements; and
? facility costs and other allocated expenses, which include expenses for rent
and maintenance of facilities, insurance, depreciation and other supplies.
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable advance payments for research and development goods and services to be received in the future from third parties are deferred and capitalized. The capitalized amounts are expensed as the related services are performed. A significant portion of our research and development costs have been external costs, which we track on a program-by-program basis after a clinical product candidate has been identified. However, we do not allocate our internal research and development expenses, consisting primarily of employee related costs, depreciation and other indirect costs, on a program-by-program basis as they are deployed across multiple projects. 23
Table of Contents
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, as well as the associated clinical trial material requirements. We expect research and development costs for our product candidates to increase for the foreseeable future as the development programs progress. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. The successful development of apitegromab, SRK-181 and any future product candidates is uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of apitegromab, SRK-181 and any future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
? the scope, progress, outcome and costs of our preclinical development
activities, clinical trials and other research and development activities;
? establishing an appropriate safety profile;
? successful enrollment in and completion of clinical trials;
? whether our product candidates show safety and efficacy in our clinical trials;
? receipt of marketing approvals from applicable regulatory authorities, if any;
? establishing commercial manufacturing capabilities or making arrangements with
third-party manufacturers;
? obtaining and maintaining patent and trade secret protection and regulatory
exclusivity for our product candidates;
? significant and changing government regulation;
? commercializing the product candidates, if and when approved, whether alone or
in collaboration with others; and
? continued acceptable safety profile of the products following any regulatory
approval.
A change in the outcome of any of these variables with respect to the development of apitegromab, SRK-181 or any of our future product candidates could significantly change the costs and timing associated with the development of that product candidate.
General and Administrative General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and equity-based compensation expenses for personnel in executive, finance, business development, investor relations, legal, information technology and human resources functions. Other significant general and administrative expenses include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, consulting services, and corporate expenses. Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on our cash, cash equivalents and marketable securities, partially offset by interest expense incurred on our credit facility, including amortization of debt discount and debt issuance costs. 24 Table of Contents 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, Change 2022 2021 $ % Revenue $ - $ 5,464$ (5,464) (100.0) % Operating expenses: Research and development 33,392 31,265 2,127 6.8 % General and administrative 10,470 11,276 (806) (7.1) % Total operating expenses 43,862 42,541 1,321 3.1 % Loss from operations (43,862) (37,077) (6,785) 18.3 % Other income (expense), net 565
(430) 995 (231.4) Net loss$ (43,297) $ (37,507) $ (5,790) 15.4 % Revenue Revenue was$0 and$5.5 million for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, a decrease of$5.5 million or 100.0%. The revenue for the three months endedSeptember 30, 2021 was related to the Gilead Collaboration Agreement executed inDecember 2018 . Revenue associated with the research and development and license performance obligations relating to the Gilead Programs was recognized as the research and development services were provided using a cost input method and was fully recognized as ofDecember 31, 2021 . InJanuary 2022 , upon Gilead's termination of its option exercise period for all programs, revenue of$33.2 million attributable to the material rights provided by the options was recognized, after which all revenue related to the Gilead Collaboration Agreement had been fully recognized.
Operating Expenses
Research and Development
Research and development expense was$33.4 million and$31.3 million for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, an increase of$2.1 million or 6.8%. The following table summarizes our research and development expense for the three months endedSeptember 30, 2022 and 2021 (in thousands, except percentages): Three Months Ended September 30, Change 2022 2021 $ % External costs by program Apitegromab $ 13,624 $ 9,749$ 3,875 39.7 % SRK-181 4,166 8,211 (4,045) (49.3) % Other early development candidates and unallocated costs 1,730 1,403 327 23.3 % Total external costs 19,520 19,363 157 0.8 % Internal costs:
Employee compensation and benefits 10,098
7,950 2,148 27.0 % Facility and other 3,774 3,952 (178) (4.5) % Total internal costs 13,872 11,902 1,970 16.6 %
Total research and development expense $ 33,392 $
31,265
The increase in research and development expense was primarily attributable to the following:
? An increase in our external research and development costs of
which primarily consisted of: 25 Table of Contents
o clinical trial costs, particularly the conduct of our Phase 3 SAPPHIRE clinical
trial, and clinical drug supply manufacturing;
o purchase of pembrolizumab (to be used in conjunction with SRK-181 in Part B of
the Phase 1 DRAGON clinical trial) in the prior year comparative period, and
lower costs associated with our clinical drug supply manufacturing; and
o
costs.
? primarily driven by an increase in non-cash equity-based compensation expense,
a component of employee compensation and benefits costs.
Total research and development expenses are expected to increase primarily driven by development costs associated with our clinical stage programs as we continue to advance our product candidates, including apitegromab through our Phase 3 SAPPHIRE clinical trial and the extension phase of our Phase 2 TOPAZ clinical trial in SMA, and SRK-181, through our Phase 1 DRAGON clinical trial. We expect these increases to be substantially offset by lower costs for our early-stage research programs due to the portfolio updates and workforce reduction.
General and Administrative
General and administrative expense was$10.5 million and$11.3 million for the three months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, a decrease of$0.8 million or 7.1%. The decrease in general and administrative expense was primarily attributable to a decrease in employee compensation and benefits, primarily due to the severance costs recognized during the three months endedSeptember 30, 2021 .
Other Income (Expense), Net
The change in other income (expense), net was primarily attributable to an
increase in interest income earned due to higher average interest rates and
higher balances in our cash, cash equivalents and marketable securities,
partially offset by an increase in interest expense related to the Loan and
Security Agreement, due to higher interest rates and a higher principal balance
as Tranche 2 was received in
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30, Change 2022 2021 $ % Revenue $ 33,193 $ 14,767$ 18,426 124.8 % Operating expenses:
Research and development 94,831 79,417 15,414 19.4 % General and administrative 32,304 29,907 2,397 8.0 % Total operating expenses 127,135 109,324 17,811 16.3 % Loss from operations (93,942) (94,557) 615 (0.7) % Other income (expense), net (1,305)
(1,328) 23 (1.7) % Net loss$ (95,247) $ (95,885) $ 638 (0.7) % Revenue Revenue was$33.2 million and$14.8 million for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, an increase of$18.4 million or 124.8%. The revenue for both periods was related to the Gilead Collaboration Agreement executed inDecember 2018 . Revenue recognized during the nine months endedSeptember 30, 2022 was attributable to the material rights provided by the options, which was recognized inJanuary 2022 upon Gilead's termination of its option exercise period for all programs. Revenue recognized during the nine
months ended 26 Table of Contents
Operating Expenses
Research and Development
Research and development expense was$94.8 million and$79.4 million for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, an increase of$15.4 million or 19.4%. The following table summarizes our research and development expense for the nine months endedSeptember 30, 2022 and 2021 (in thousands, except percentages): Nine Months Ended September 30, Change 2022 2021 $ % External costs by program: Apitegromab$ 34,484 $ 25,369 $ 9,115 35.9 % SRK-181 9,333 12,306 (2,973) (24.2) % Other early programs and unallocated costs 5,224 5,796 (572) (9.9) % Total external costs 49,041 43,471 5,570 12.8 % Internal costs: Employee compensation and benefits 33,420
23,589 9,831 41.7 % Facility and other 12,370 12,357 13 0.1 % Total internal costs 45,790 35,946 9,844 27.4 %
Total research and development expense$ 94,831 $
79,417
The increase in research and development expense was primarily attributable to the following:
? An increase in our external research and development costs of
which primarily consisted of:
o clinical trial costs, particularly the conduct of our Phase 3 SAPPHIRE clinical
trial;
o purchase of pembrolizumab (to be used in conjunction with SRK-181 in Part B of
the Phase 1 DRAGON clinical trial) in the prior year comparative period; and
o costs, which is mostly related to prior year expense associated with the
purchase of our customized antibody display library from Specifica.
primarily driven by an increase in employee compensation and benefits costs,
? including severance expense associated with the
non-cash equity-based compensation expense, including for modifications of
certain equity awards.
Total research and development expenses are expected to increase primarily driven by development costs associated with our clinical stage programs as we continue to advance our product candidates, including apitegromab through our Phase 3 SAPPHIRE clinical trial and the extension phase of our Phase 2 TOPAZ clinical trial in SMA, and SRK-181, through our Phase 1 DRAGON clinical trial. We expect these increases to be substantially offset by lower costs for our early-stage research programs due to the portfolio updates and workforce reduction.
General and Administrative
General and administrative expense was$32.3 million and$29.9 million for the nine months endedSeptember 30, 2022 andSeptember 30, 2021 , respectively, an increase of$2.4 million or 8.0%. The increase in general and administrative 27 Table of Contents
expense was primarily attributable to an increase of
Other Income (Expense), Net
The change in other income (expense), net was primarily attributable to an
increase in interest income earned due to higher average interest rates and
higher balances in our cash, cash equivalents and marketable securities,
partially offset by an increase in interest expense related to the Loan and
Security Agreement, due to higher interest rates and a higher principal balance
as Tranche 2 was received in
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any product revenue and have incurred significant operating losses and negative cash flows from our operations. We have funded our operations to date primarily with proceeds from the sale of our convertible preferred stock and units in private placements before our IPO, and sale of our common stock through our IPO, to Gilead in an exempt private placement, through multiple secondary public offerings and through an at-the-market ("ATM") sale, as well as payments from our research collaborations and the Loan and Security Agreement entered into inOctober 2020 and amended inNovember 2022 (see Note 9). The following table provides information regarding our total cash, cash equivalents and marketable securities atSeptember 30, 2022 andDecember 31, 2021 (in thousands): September 30, December 31, 2022 2021 Cash and cash equivalents$ 133,075 $ 212,835 Marketable securities 210,580 40,159
Total cash, cash equivalents and marketable securities
During the nine months endedSeptember 30, 2022 , our cash, cash equivalents and marketable securities balance increased by$90.7 million . The change was primarily the result of net proceeds from an equity offering completed inJune 2022 , partially offset by cash used to operate our business, including payments related to, among other things, research and development and general and administrative expenses as we continued to invest in our primary product candidates and supported our internal research and development efforts, capital purchases, and interest payments on our debt. InJune 2022 , we entered into a securities purchase agreement relating to the issuance and sale of an aggregate of 16,326,530 shares of our common stock, pre-funded warrants to purchase up to 25,510,205 shares of our common stock and associated common warrants to purchase up to 10,459,181 shares of our common stock. The offering price per share and associated common warrant was$4.90 and the offering price per pre-funded warrant and associated common warrant is$4.8999 , which equals the per share public offering price for the common shares less the$0.0001 exercise price for each such pre-funded warrant and associated common warrant. Each common warrant has an exercise price per share of$7.35 (150% of the offering price per share of the common stock). Gross proceeds from the transaction were$205.0 million . Upon the offering closing, we received$195.3 million in net proceeds, after deducting placement agent fees and expenses and offering expenses. InOctober 2021 , we sold 500,000 shares of our common stock through an ATM sale, pursuant to the Open Market Sale AgreementSM withJefferies, LLC , and received$13.1 million in net proceeds, after underwriting fees. InOctober 2020 , we entered into an underwriting agreement relating to the issuance and sale of an aggregate of 3,717,948 shares of our common stock at$39.00 per share and pre-funded warrants to purchase 2,179,487 shares of our common stock. The price of each pre-funded warrant was$38.9999 , which equals the per share public offering price for the common shares less the$0.0001 exercise price for each such pre-funded warrant. Gross proceeds of the transaction 28 Table of Contents
were
InOctober 2020 , we entered into the Loan and Security Agreement with Oxford and SVB, which was amended inNovember 2022 , of which$25.0 million from Tranche 1 was received inOctober 2020 and$25.0 million from Tranche 2 was received inDecember 2021 (Note 9). In June andJuly 2019 , we sold 3,450,000 shares of our common stock through an underwritten public offering. As a result of the offering, we received aggregate net proceeds, after underwriting discounts and commissions and other offering expenses, of$48.3 million . InDecember 2018 , we entered into the Gilead Collaboration Agreement pursuant to which we conducted research and pre-clinical development activities relating to the diagnosis, treatment, cure, mitigation or prevention of diseases, disorders or conditions, other than in the field of oncology in accordance with a pre-determined research plan. Pursuant to the Gilead Collaboration Agreement, Gilead made non-refundable payments of$80.0 million , including an upfront payment and an equity investment. InDecember 2019 , we achieved a$25.0 million preclinical milestone for the successful demonstration of efficacy in preclinical in vivo proof-of-concept studies, and subsequently received the associated payment inJanuary 2020 .
Cash Flows
The following table provides information regarding our cash flows for the nine
months ended
Nine
Months Ended
2022 2021 Net cash used in operating activities$ (103,787) $ (94,334) Net cash (used in) provided by investing activities (171,775) 104,857 Net cash provided by financing activities 195,802 5,250
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(79,760) $ 15,773
Net cash used in operating activities was$103.8 million for the nine months endedSeptember 30, 2022 , and consisted of our net loss of$95.2 million , changes in our assets and liabilities of$37.5 million , partially offset by non-cash adjustments of$29.0 million . The changes in our assets and liabilities includes a$33.2 million change in deferred revenue related to the Gilead collaboration, which relates to the recognition of revenue associated with the material rights provided by the options. The non-cash adjustments are primarily from equity-based compensation.
Net cash used in operating activities was
Net cash used in investing activities was$171.8 million for the nine months endedSeptember 30, 2022 compared to net cash provided by investing activities of$104.9 million for the nine months endedSeptember 30, 2021 . Net cash used in and provided by investing activities for both periods was primarily associated with transactions involving our marketable securities.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
29
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months ended
Funding Requirements
We expect our expenses to continue to be substantial as we continue the research and development for, continue and initiate later stage clinical trials for, continue to develop and optimize our manufacturing processes for, and seek marketing approval for, our product candidates, including apitegromab and SRK-181, and any of our future product candidates. In addition, if we obtain marketing approval for apitegromab, SRK-181 or any of our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we expect to continue to incur costs associated with operating as a public company. We expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into 2025. However, we will require additional capital in order to complete clinical development and commercialization for each of our current programs. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
the costs and timing of developing our product candidates, apitegromab and
SRK-181, including our Phase 3 SAPPHIRE clinical trial for apitegromab in SMA,
? the extension phase of our Phase 2 TOPAZ clinical trial for apitegromab in SMA,
the open-label extension study for apitegromab and the Phase 1 DRAGON clinical
trial for SRK-181, and the costs and timing of conducting future preclinical
studies and clinical trials;
the costs of future manufacturing of apitegromab, SRK-181 and any other product
? candidates; including impacts from the COVID-19 pandemic and its impact at our
contract manufacturers;
the scope, progress, results and costs of discovery, preclinical development,
? laboratory testing and clinical trials for other potential product candidates
we may develop, if any;
? the costs of identifying and developing, or in-licensing or acquiring,
additional product candidates and technologies;
? the costs, timing and outcome of regulatory review of our product candidates;
? our ability to establish and maintain collaborations on favorable terms, if at
all;
the achievement of milestones or occurrence of other developments that trigger
? payments under any collaboration agreements, license agreements, or other
agreements we might have at such time;
? the costs of seeking marketing approvals for our product candidates that
successfully complete clinical trials, if any;
the costs and timing of future commercialization activities, including product
? sales, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval;
? the amount of revenue, if any, received from commercial sales of our product
candidates, should any of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, obtaining,
? maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
? the costs associated with our reduction in workforce and restructuring plan;
? our headcount growth and associated costs as we expand our business operations
and research and development activities;
? the costs of supporting our infrastructure and facilities, including equipment
and physical infrastructure to support our research and development; and
? the costs of operating as a public company.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results
30 Table of Contents required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, common stockholder ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Market volatility or other factors could also adversely impact our ability to access capital as and when needed. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Estimates
This management's discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting estimates from those described in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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 applicable
Recent Accounting Pronouncements
We have reviewed all recently issued standards and have determined that they will not have a material impact on our financial statements or do not otherwise apply to our operations.
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