CARISMA THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a late-stage clinical company advancing targeted fusion protein
therapeutics ("TFPTs") for the treatment of patients with cancer. We genetically
fuse the targeting antibody fragment and the cytotoxic protein payload into a
single molecule which is produced through our proprietary one-step, microbial
manufacturing process. We target tumor cell surface antigens with limited
expression on normal cells. Binding of the target antigen by the TFPT allows for
rapid internalization into the targeted cancer cell. We have designed our
targeted proteins to overcome the fundamental efficacy and safety challenges
inherent in existing antibody-drug conjugates ("ADCs") where a payload is
chemically attached to a targeting antibody.
Our most advanced product candidate, Vicineum, also known as VB4-845, is a
locally-administered targeted fusion protein composed of an anti-epithelial cell
adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of
Pseudomonas exotoxin A for the treatment of non-muscle invasive CIS of the
bladder in patients previously treated with adequate or less than adequate BCG.
In December 2020 , we submitted our completed BLA for Vicineum for the treatment
of BCG-unresponsive NMIBC to the FDA, which was accepted for filing by the FDA
in February 2021 . The FDA granted Priority Review for the BLA and set a target
PDUFA date for a decision on the BLA of August 18, 2021 . On August 13, 2021 , we
received a CRL from the FDA indicating that the FDA had determined that it could
not approve the BLA for Vicineum in its present form and provided
recommendations specific to additional clinical/statistical data and analyses in
addition to CMC issues pertaining to a recent pre-approval inspection and
product quality. On August 20, 2021 , we withdrew our MAA to the EMA for Vysyneum
for the treatment of BCG-unresponsive NMIBC in order to pause our plans to
pursue regulatory approval of Vysyneum in the European Union until there is more
clarity from the FDA on next steps for Vicineum in the United States . Vysyneum
is the proprietary brand name that was conditionally approved by the EMA for
oportuzumab monatox in the European Union . In
69
--------------------------------------------------------------------------------
October 2021 , the EMA issued its Withdrawal Assessment Report relating to our
MAA for Vysyneum, as is consistent with the EMA's standard practice when an MAA
is withdrawn. The EMA Withdrawal Assessment Report reflects the initial
assessment and corresponding questions from the EMA and identifies major
objections in the areas of quality, good clinical practice, efficacy and safety.
Due to the high concordance between FDA and European Commission approvals, we
believe that the probability of success of future approval in the European Union
for Vysyneum increases if FDA approval for Vicineum has already been obtained.
On October 29, 2021 , we participated in a Type A Meeting with the FDA to discuss
questions related to CMC raised in the CRL (the "CMC Type A Meeting"). During
the CMC Type A Meeting, we and the FDA reviewed issues related to CMC to be
further discussed during the review of a BLA for Vicineum upon potential
resubmission. We believe we have a clear understanding of what additional
information regarding CMC is required for a potential resubmission of a BLA.
Additionally, although not an issue raised in the CRL, the FDA confirmed at the
CMC Type A Meeting that Vicineum manufactured using the proposed commercial
process is comparable to Vicineum used in prior clinical trials. The FDA also
confirmed that we can utilize Vicineum manufactured during process validation
for any future clinical trials needed to address issues raised in the CRL, and
that these potential trials can proceed while addressing CMC issues.
On
•A randomized clinical trial assessing the safety and efficacy of Vicineum compared to investigators' choice of intravesical chemotherapy;
•Trial may include both patients who have received adequate BCG1 and patients who have received less than adequate BCG;
•The FDA encouraged us to submit the final results from the Phase 3 Vista Trial for Vicineum with a BLA resubmission.
1As per the 2018 FDA guidance on NMIBC, adequate BCG is defined as at least one of the following: (i) at least five of six doses of an initial induction course plus at least two of three doses of maintenance therapy or (ii) at least five of six doses of an initial induction course plus at least two of six doses of a second induction course. OnJanuary 7, 2022 , the FDA granted our request for a Type C Meeting to discuss the study protocol for an additional Phase 3 clinical trial that we plan to conduct for potential resubmission of a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. The Type C Meeting has been scheduled forMarch 28, 2022 . One of the items we expect to be discussed in the Type C Meeting is the patient population for the additional Phase 3 clinical trial, which may be different than the patient population studied in previous clinical trials for Vicineum for the treatment of NMIBC in two primary ways. First, the additional Phase 3 clinical trial may include patients with only non-muscle invasive carcinoma in situ (CIS) of the bladder, and may not include patients with only papillary disease of the bladder. This change would lead to a smaller overall patient population than previously studied, as some of our past clinical trials of Vicineum in NMIBC have included patients with CIS or high-grade papillary disease of the bladder. Second, the additional Phase 3 clinical trial may include patients who have received less than adequate BCG in addition to those who have received adequate BCG, per theFDA's guidance. Receipt of less than adequate BCG could be due to (i) failure of, or intolerance to, a BCG therapy prior to reaching theFDA's definition of adequate BCG or (ii) supply shortages of BCG, among other reasons. This change would lead to a larger patient population than previously studied, as past clinical trials of Vicineum in NMIBC only included patients who had previously been treated with adequate BCG.
Potential changes related to the additional Phase 3 clinical trial for Vicineum
will be discussed at the upcoming Type C Meeting with the FDA scheduled for
The single-arm, multi-center, open-label Phase 3 clinical trial ("VISTA Trial")
completed enrollment in April 2018 with a total of 133 patients across three
cohorts based on histology and time to disease recurrence after adequate BCG
treatment:
•Cohort 1 (n=86): Patients with CIS with or without papillary disease that was
determined to be refractory or recurred within six months of their last course
of adequate BCG;
•Cohort 2 (n=7): Patients with CIS with or without papillary disease that recurred after six months, but less than 11 months, after their last course of adequate BCG; and
•Cohort 3 (n=40): Patients with high-risk (Ta or T1) papillary disease without CIS that recurred within six months of their last course of adequate BCG.
70
--------------------------------------------------------------------------------
The primary endpoints of the VISTA Trial were CRR at 3 months in patients with
CIS (with or without papillary disease) whose disease is BCG-unresponsive and
duration of response ("DoR") for BCG-unresponsive CIS patients who experience a
complete response ("CR").
As of the
Cohort 1 (n=86) Evaluable Population (n=82) Complete Response Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=82 39% (28%-50%)
6-months n=82 26% (17%-36%)
9-months n=82 20% (12%-30%)
12-months n=82 17% (10%-27%)
*Response-evaluable population includes any mITT patient who completed the induction phase.
Cohort 2 (n=7) Evaluable Population (n=7) Complete Response Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=7 57% (18%-90%)
6-months n=7 57% (18%-90%)
9-months n=7 43% (10%-82%)
12-months n=7 14% (0%-58%)
*Response-evaluable population includes any mITT patient who completed the induction phase.
Pooled Cohorts 1 and 2 (n=93) Evaluable Population (n=89) Complete Response
Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=89 40% (30%-51%)
6-months n=89 28% (19%-39%)
9-months n=89 21% (13%-31%)
12-months n=89 17% (10%-26%)
*Response-evaluable population includes any mITT patient who completed the induction phase.
Phase 3 Pooled Complete Response Rate vs. Phase 2 Pooled Complete Response Rate:
Time Point Phase 3 Pooled CRR (95% Confidence Phase 2 Pooled CRR (95% Confidence
Interval) Interval)
3-months 40% (30%-51%) 40% (26%-56%)
6-months 28% (19%-39%) 27% (15%-42%)
9-months 21% (13%-31%) 18% (8%-32%)
12-months 17% (10%-26%) 16% (7%-30%)
Cohort 3 (n=40) Evaluable Population (n=38) Recurrence-Free Rate†:
Time Point Evaluable Patients* Recurrence-Free Rate
(95% Confidence Interval)
3-months n=38 71% (54%-85%)
6-months n=38 58% (41%-74%)
9-months n=38 45% (29%-62%)
12-months n=38 42% (26%-59%)
71--------------------------------------------------------------------------------
†Recurrence-free rate is defined as the percentage of patients that are
recurrence-free at the given assessment time point.*Response-evaluable population includes any mITT patient who completed the
induction phase.
Duration of Response: The median DoR for patients in Cohort 1 and Cohort 2
combined (n=93) is 287 days (95% CI, 154-NE), using the Kaplan-Meier method.
Additional ad hoc analysis of pooled data for all patients with CIS (Cohorts 1
and 2, n=93) shows that among patients who achieved a complete response at 3
months, 52% remained disease-free for a total of 12 months or longer after
starting treatment, using the Kaplan-Meier method. DoR is defined as the time
from first occurrence of complete response to documentation of treatment failure
or death.
We have conducted additional analyses for secondary endpoints. These additional data include the following:
•Time to Cystectomy: Across all 133 patients treated with Vicineum in the VISTA
Trial, greater than 75% of all patients are estimated to remain cystectomy-free
at 3 years, using the Kaplan-Meier method. Additional ad hoc analysis shows that
approximately 88% of responders are estimated to remain cystectomy-free at 3
years. Time to cystectomy is defined as the time from the date of first dose of
study treatment to surgical bladder removal. The first 2018 FDA guidance on
treatment of BCG-unresponsive NMIBC patients states that the goal of therapy in
such patients is to avoid cystectomy. Therefore, time to cystectomy is a key
secondary endpoint in the VISTA Trial.
•Time to Disease Recurrence: High-grade papillary (Ta or T1) NMIBC is associated
with high rates of progression and recurrence. The median time to disease
recurrence for patients in Cohort 3 (n=40) is 402 days (95% CI, 170-NE), using
the Kaplan-Meier method. Time to disease recurrence is defined as the time from
the date of the first dose of study treatment to the first occurrence of
treatment failure or death on or prior to treatment discontinuation.
•Progression-Free Survival ("PFS"): 90% of all 133 patients treated with
Vicineum in the VISTA Trial are estimated to remain progression-free for 2 years
or greater, using the Kaplan-Meier method. PFS is defined as the time from the
date of first dose of study treatment to the first occurrence of disease
progression (e.g., T2 or more advanced disease) or death on or prior to
treatment discontinuation.
•Event-Free Survival: 29% of all 133 patients treated with Vicineum in the VISTA
Trial are estimated to remain event-free at 12 months, using the Kaplan-Meier
method. Event-free survival is defined as the time from the date of first dose
of study treatment to the first occurrence of disease recurrence, progression or
death on or prior to treatment discontinuation.
•Overall Survival ("OS"): 96% of all 133 patients treated with Vicineum in the
VISTA Trial are estimated to have an overall survival of 2 years or greater,
using the Kaplan-Meier method. OS is defined as the time from the date of first
dose of study treatment to death from any cause.
Data is as of the May 29, 2019 data cut from the Phase III VISTA trial. The
clinical data shown are based on the data submitted in the BLA on December 18,
2020 . Final numbers are pending. On August 13, 2021 , the FDA issued a CRL for
the BLA that included requests for additional clinical and statistical data.
Safety Results
As of theMay 29, 2019 data cutoff date, in patients across all cohorts (n=133) of our Phase 3 VISTA Trial of Vicineum for the treatment of BCG-unresponsive NMIBC, 88% experienced at least one adverse event, with 95% of adverse events being Grade 1 or 2. The most commonly reported treatment-related adverse events were dysuria (14%), hematuria (13%) and urinary tract infection (12%) - all of which are consistent with the profile of bladder cancer patients and the use of catheterization for treatment delivery. These adverse events were determined by the clinical investigators to be manageable and reversible, and only four patients (3%) discontinued treatment due to an adverse event. Serious adverse events, regardless of treatment attribution, were reported in 14% of patients. There were four treatment-related serious adverse events reported in three patients including acute kidney injury (Grade 3), pyrexia (Grade 2), cholestatic hepatitis (Grade 4) and renal failure (Grade 5 or death). There were no age-related increases in adverse events observed in the VISTA Trial.
Manufacturing
In
In
72
--------------------------------------------------------------------------------
In
InDecember 2020 , we received and analyzed all of the analytical comparability test results from the drug substance and drug product PPQ batches. For analytical comparability, we conducted testing across four categories: release testing, biophysical characterization, forced degradation studies, and stability studies. This approach is in alignment with requirements of the FDA, the EMA and theInternational Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use . The test results for Vicineum produced by Fujifilm andBaxter were found to be highly comparable to supply of Vicineum at ourWinnipeg facility. InJune 2021 , we entered into a Global Supply Agreement with Qilu pursuant to which Qilu will be part of the manufacturing network for, if approved, global commercial supply of Vicineum drug substance and drug product. OnOctober 29, 2021 , at the CMC Type A Meeting, the FDA confirmed that Vicineum manufactured using the proposed commercial process is comparable to Vicineum used in prior clinical trials and confirmed that we can utilize Vicineum manufactured during process validation for any future clinical trials needed to address issues raised in the CRL regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC, and that any of these future trials can proceed while addressing CMC issues raised in the CRL. InJanuary 2022 , we signed a Scope of Work ("SOW #11") with Fujifilm under the Fujifilm MSA for the manufacturing of commercial batches of Vicineum in 2022 and 2023.
We intend to use Vicineum produced by Fujifilm and
Outside of
OnJuly 30, 2020 , we and our wholly-owned subsidiary,Viventia Bio, Inc. , entered into an exclusive license agreement withQilu Pharmaceutical, Co., Ltd. ("Qilu") pursuant to which we granted Qilu an exclusive, sublicensable, royalty-bearing license, under certain intellectual property owned or exclusively licensed by us, to develop, manufacture and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC and other types of cancer inChina ,Hong Kong ,Macau andTaiwan ("Greater China"). We also granted Qilu a non-exclusive, sublicensable, royalty-bearing sublicense, under certain other intellectual property licensed by us to develop, manufacture and commercialize Vicineum inGreater China . We retain (i) development and commercialization rights in the rest of the world excludingGreater China , theMiddle East andNorth Africa region ("MENA") andTurkey and (ii) manufacturing rights with respect to Vicineum in the rest of the world excludingGreater China . During 2020, we received a total of$10 million in net proceeds associated with the Qilu License Agreement. We are also entitled to receive up to an additional$23 million upon the achievement of certain technology transfer, development and regulatory milestones, as well as a 12% royalty based upon annual net sales of Vicineum inGreater China . The royalties are payable upon the first commercial sale of Vicineum in a region and continuing until the latest of (i) twelve years after the first commercial sale of Vicineum in such region, (ii) the expiration of the last valid patent claim covering or claiming the composition of matter, method of treatment, or method of manufacture of Vicineum in such region, and (iii) the expiration of regulatory or data exclusivity for Vicineum in such region. The royalty rate is subject to reduction under certain circumstances, including when there is no valid claim of a licensed patent that covers Vicineum in a particular region or no data or regulatory exclusivity of Vicineum in a particular region. The Investigational New Drug application ("IND") for Vicineum submitted by Qilu to theCenter for Drug Evaluation of theChina National Medical Products Administration was accepted for review inJanuary 2021 and approved inMarch 2021 , resulting in a$3 million milestone payment from Qilu, the first milestone payment out of the$23 million in potential milestone payments. We recorded$2.8 million (net of VAT) as license revenue during the three-month period endedMarch 31, 2021 . InJune 2021 , the Qilu License Agreement was recognized byShandong Province ,Bureau of Science and Technology as "Technology Transfer". An agreement that is designated as a Technology Transfer shall be entitled to a tax incentive of value-added tax ("VAT") recovery. As such, we recorded$0.9 million of revenue during the three months endedJune 30, 2021 , for additional purchase price resulting from Qilu's obligation to pay Sesen an amount equal to its recovery of VAT. We will not be subject to VAT on future potential milestone payments to Qilu. OnJuly 20, 2021 we and Qilu announced the enrollment of the first patient inChina in a Phase 3 clinical trial to assess the efficacy and safety of Vicineum in patients with BCG-unresponsive NMIBC. The open-label, single-arm, multi-center bridging trial will evaluate the efficacy and safety of Vicineum in approximately 53 patients with carcinoma in situ (CIS) with or without papillary disease, high-grade Ta papillary disease or T1 papillary disease of any grade. Patients will be required to have failed previous treatment with BCG for inclusion in the trial. The primary endpoints are the complete response rate (for CIS patients) 73 -------------------------------------------------------------------------------- and the recurrence-free rate (for papillary patients) at six months, with the complete response rate and the recurrence-free rate at three months, safety and tolerability as the secondary endpoints. Based on the Qilu License Agreement, the trial is being run at the sole cost of Qilu.
MENA
OnNovember 30, 2020 , we and our wholly owned subsidiary,Viventia Bio, Inc. , entered into an exclusive license agreement withHikma Pharmaceuticals LLC , to develop and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC in MENA region (20 countries inMiddle East andNorth Africa ) (the "MENA License Agreement"). In consideration for the rights granted by us,Hikma agreed to pay to us an upfront payment, sales related milestones payments, and royalties on net sales in the MENA region for the term of the Hikma License Agreement.
OnAugust 5, 2021 , we entered into an exclusive license agreement with E?P EczacIba?I ?laç Pazarlama A.?., ("EIP") pursuant to which we granted EIP an exclusive license to register and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC inTurkey andNorthern Cyprus . Under the terms of the licensing agreement, we are entitled to receive an upfront payment of$1.5 million . We are in the process of amending the license agreement to defer payment of the upfront payment to coincide with the potential FDA approval of Vicineum. We are also eligible to receive additional regulatory and commercial milestone payments of$2.0 million and are entitled to receive a 30% royalty on net sales inTurkey andNorthern Cyprus .
Internal Review
InSeptember 2021 we disclosed that our Board of Directors (the "Board") initiated an independent internal review conducted by outside counsel with the assistance of subject matter experts focusing on the conduct of, and data generated from, the clinical trials of Vicineum for the treatment of BCG-unresponsive NMIBC, and the overall safety of Vicineum (the "Review"). The Review took place over the course of five months, involved full cooperation from our management team, a review of more than 600,000 documents, and 39 interviews of current and former employees and consultants. It is now complete. As a result of the Review, the Board continues to fully support our current management team and believes no changes or amendments relating to our prior disclosures to theSecurities and Exchange Commission ("SEC") or the FDA relating to Vicineum, the Phase 3 VISTA trial for Vicineum for the treatment of BCG-unresponsive NMIBC, or the BLA for Vicineum are warranted. We intend to work cooperatively with the FDA in preparing for an additional Phase 3 clinical trial for Vicineum.
Components of Our Results of Operations
License Revenue
License revenue consists of revenue recognized pursuant to our commercialization
partnership agreements, including the Qilu License Agreement, which is assessed
under ASC Topic 606, Revenue ("ASC 606"). In the future, we may generate revenue
from a combination of up-front payments, milestone payments and royalties in
connection with our commercialization partnership agreements, including the Qilu
License Agreement.
Research and Development
Research and development expenses consist primarily of costs incurred for the
development of Vicineum for the treatment of non-muscle invasive CIS of the
bladder in patients previously treated with adequate or less than adequate BCG,
which include:
•employee-related expenses, including salaries, benefits, travel and share-based compensation expense;
•expenses incurred under agreements with contract research organizations
("CROs") and investigative sites that conduct our clinical trials, including the
additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle
invasive CIS of the bladder in patients previously treated with adequate or less
than adequate BCG;
•expenses associated with developing manufacturing capabilities;
•expenses associated with transferring manufacturing capabilities to contract manufacturing organizations ("CMOs") for commercial-scale production;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies;
•expenses associated with regulatory activities; and
•expenses associated with license milestone fees.
We expense research and development costs as incurred. We recognize external
development costs based on an evaluation of the progress to completion of
specific tasks using information and data provided to us by our vendors and our
clinical sites.
74
--------------------------------------------------------------------------------
The successful development and commercialization of Vicineum for the treatment
of non-muscle invasive CIS of the bladder in patients previously treated with
adequate or less than adequate BCG is highly uncertain. This is due to the
numerous risks and uncertainties associated with product development and
commercialization, including the uncertainty of:
•the scope, progress, outcome and costs of our clinical trials, including the additional Phase 3 clinical trial, and other research and development activities;
•the efficacy and potential advantages of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG compared to alternative treatments, including any standard of care;
•the market acceptance of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•the cost and timing of the implementation of commercial-scale manufacturing of Vicineum;
•obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
•significant and changing government regulation;
•the impact of the COVID-19 pandemic; and
•the timing, receipt and terms of any marketing approvals.
A change in the outcome of any of these variables with respect to the development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG could mean a significant change in the costs and timing associated with the development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate will be required for the completion of clinical development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, we could be required to expend significant additional financial resources and time on the completion of clinical development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We allocate direct research and development expenses, consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, costs related to manufacturing or purchasing clinical trial materials and technology transfer and license milestone fees, to specific product programs. We do not allocate employee and contractor-related costs, costs associated with our platform and facility expenses, including depreciation or other indirect costs, to specific product programs because these costs may be deployed across multiple product programs under research and development and, as such, are separately classified. The table below provides research and development expenses incurred for Vicineum for the treatment of BCG-unresponsive NMIBC and other expenses by category. We have deferred further development of Vicineum for the treatment of SCCHN and VB6-845d in order to focus our efforts and our resources on our ongoing development and, if approved, commercialization of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
We did not allocate research and development expenses to any other specific product program during the periods presented (in thousands):
Year ended December 31,
2021 2020 2019
Programs:
Vicineum for the treatment of BCG-unresponsive NMIBC
Total direct program expenses 15,110
22,234 16,023
Personnel and other expenses:
Employee and contractor-related expenses 8,977
5,775 6,513
Platform-related lab expenses 172 303 513 Facility expenses 524 442 442 Other expenses 529 437 1,172 Total personnel and other expenses 10,202
6,957 8,640
Total Research and Development$ 25,312 $
29,191
75
--------------------------------------------------------------------------------General and Administrative
General and administrative expenses consist primarily of salaries and related costs for personnel, including share-based compensation and benefits, in executive, operational, finance, business development and human resource functions. Other general and administrative expenses include facility-related costs, professional fees for legal, insurance, investment banking fees, patent, consulting and accounting services, pre-commercialUnited States market research and pre-launch market readiness for the potential commercial launch of Vicineum.
Restructuring Charge
OnAugust 30, 2021 , we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC (the "Restructuring Plan"). The Restructuring Plan included a reduction in our workforce by 18 positions (or approximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum. Restructuring costs related to the Restructuring Plan were recorded in operating expenses in our Consolidated Statements of Operations and Comprehensive Loss.
Intangibles Impairment Charge
Our intangible assets consist of indefinite-lived, acquired in-process research
and development ("IPR&D") worldwide product rights to Vicineum as a result of
the acquisition of Viventia in 2016. IPR&D assets acquired in a business
combination are considered indefinite-lived until the completion or abandonment
of the associated research and development efforts. We recognize an impairment
loss when and to the extent that the estimated fair value of an intangible asset
is less than its carrying value. In addition, on a quarterly basis, we perform a
qualitative review of our business operations to determine whether events or
changes in circumstances have occurred which could indicate that the carrying
value of our intangible assets was not recoverable. If an impairment indicator
is identified, an interim impairment assessment is performed. The fair value of
the acquired intangible assets for the US and EU rights of Vicineum is
determined using a risk-adjusted discounted cash flow approach, which includes
probability adjustments for projected revenues and operating expenses based on
the success rates assigned to each stage of development for each geographical
region as well as discount rates applied to the projected cash flows.
Change in Fair Value of Contingent Consideration
In connection with the Viventia Acquisition inSeptember 2016 , we recorded contingent consideration pertaining to the amounts potentially payable to Viventia's shareholders pursuant to the terms of the Share Purchase Agreement among us, Viventia and the other signatories thereto and are based on regulatory approval in certain markets and future revenue levels. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized in earnings (or loss) for the period.
Other Income, Net
Other income, net consists primarily of interest income earned on cash and cash equivalents and, to a lesser extent, any gains or losses on foreign exchange.
Provision for Income Taxes
Benefit for income taxes is driven by the intangible impairment charge, changing the value of deferred tax liabilities. Provision for income taxes consists of income taxes incurred to non-US jurisdictions pursuant to our OUS business development partnership agreements, including the Qilu License Agreement.
Our Results of Operations
Comparison of the Years ended
76
--------------------------------------------------------------------------------
Year ended December 31, Increase/(Decrease)
2021 2020 Dollars Percentage
(in thousands, except percentages)
Revenue:
License and related revenue $ 26,544 $ 11,236 $ 15,308 136 %
Total revenue 26,544 11,236 15,308 136 %
Operating expenses:
Research and development $ 25,312 $ 29,191 $ (3,879) (13) %
General and administrative 29,393 14,302 15,091 106 %
Restructuring charge 5,528 - 5,528 - %
Intangibles impairment charge 31,700 - 31,700 - %
Change in fair value of contingent consideration (56,840) (11,180) (45,660) 408 %
Total operating expenses 35,093 32,313 2,780 9 %
Loss from Operations (8,549) (21,077) 12,528 (59) %
Other (expense) income:
Other (expense) income, net (60) 125 (185) (148) %
Net Loss and Comprehensive Loss Before Taxes (8,609) (20,952) 12,343 (59) %
Benefit (provision) for income taxes 8,273 (1,445) 9,718 (673) %
Net Loss and Comprehensive Loss After Taxes $ (336) $ (22,397) $ 22,061 (98) %
License Revenue
Revenue for the year ended December 31, 2021 was $26.5 million , primarily due to
the $20 million milestone achieved pursuant to the Roche License Agreement upon
initiating a Phase II clinical trial, $5.0 million related to the Qilu License
Agreement (achievement of the IND milestone, clinical supply revenue, and
license revenue for additional purchase price due to the recovery of VAT), and
$1.5 million upfront milestone revenue achieved pursuant to the MENA License
Agreement. Revenue for the year ended December 31, 2020 was $11.2 million , which
was due to the recognition of revenue pursuant to the Qilu License Agreement.
Research and Development
Research and development expenses were$25.3 million for the year endedDecember 31, 2021 , compared to$29.2 million for the year endedDecember 31, 2020 . The decrease of$3.9 million was primarily due to lower costs associated with technology transfer and manufacturing ($7.4 million ). This was partially offset by increases in employee-related compensation driven by increased headcount as part of the commercial build and the retention program implemented after receipt of the CRL inAugust 2021 ($2.1 million ), regulatory and clinical consulting fees ($1.0 million ) and certain other R&D expense, none of which were individually material ($0.5 million ). We anticipate that R&D expenses will increase beginning in 2022 due to additional clinical trial activity costs related to our plans to conduct an additional Phase 3 clinical trial for Vicineum.
General and Administrative
General and administrative expenses were$29.4 million for the year endedDecember 31, 2021 , compared to$14.3 million for the year endedDecember 31, 2020 . The increase of$15.1 million was primarily due to increases in employee-related compensation ($5.0 million ), legal costs ($4.8 million ), and marketing and commercial expenses ($4.1 million ) driven by preparation for the commercial launch of Vicineum prior to the issuance of the CRL inAugust 2021 . Additionally, increases in accounting services ($0.4 million ), insurance expenses ($0.4 million ), IT expenses ($0.3 million ) and others ($0.1 million ) contributed to the increase. Restructuring Charge OnAugust 30, 2021 , we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC (the "Restructuring Plan"). The Restructuring Plan included a reduction in our workforce by 18 positions 77 --------------------------------------------------------------------------------
(or approximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum.
Restructuring expenses were$5.5 million for the year endedDecember 31, 2021 , compared to no restructuring expenses for the year endedDecember 31, 2020 . The increase was due to one-time costs associated with the Restructuring Plan implemented in response to the CRL for severance and other employee-related costs ($2.8 million ) and termination of certain contracts ($2.7 million ).
Intangibles Impairment Charge
We recorded an intangibles impairment charge of$31.7 million during the year endedDecember 31, 2021 . We did not record any impairment charges during the year endedDecember 31, 2020 . InAugust 2021 , we received a CRL from the FDA regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The impairment charge of$31.7 million for the year endedDecember 31, 2021 relates to the full impairment of our US in-process research and development asset due to expected delays in the start of commercialization and lower probabilities of success, combined with higher operating expenses expected to be incurred prior to commercialization, resulting in lower expected future cash flows estimated in the US market at this time.
Change in Fair Value of Contingent Consideration
The non-cash change in fair value of contingent consideration was income of$56.8 million for the year endedDecember 31, 2021 , compared to income of$11.2 million for the year endedDecember 31, 2020 . The decrease in the fair value of contingent consideration of$45.7 million from the year endedDecember 31, 2020 to the year endedDecember 31, 2021 , was driven by the receipt of a CRL from the FDA, regarding our BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. Due to the inherent uncertainty in the path forward for Vicineum at this time, we reassessed the underlying assumptions used to develop the revenue projections upon which the fair value of the contingent consideration is based. The most significant and impactful assumptions in our revenue projection models are timing of product launch and probabilities of clinical and regulatory success POS; we expect delays in the start of commercialization and estimate lower POS as a direct result of the CRL and our withdrawal of the MAA. We will need to conduct an additional clinical trial, which will lead to delays in the start of commercialization globally. We have assessed a range of commercialization timeline assumptions and applied a probability to each outcome based on management's best estimate. In addition, we now assume a lower POS in achieving certain clinical and regulatory milestones in the range of approximately 45% to 55% globally. We participated in Type A Meetings with the FDA onOctober 29, 2021 andDecember 8, 2021 to discuss questions related to CMC and clinical issues raised in the CRL. Both meetings helped us determine the appropriate path forward for Vicineum. Any changes in these assumptions and estimates or other information obtained, may have a significant impact on the remeasurement of the contingent consideration liability in the future The change in fair value of contingent consideration was income of$11.2 million for the year endedDecember 31, 2020 . This was primarily attributable to significantly higher discount rates as a result of financial market conditions as of the year endedDecember 31, 2020 , offset by changes to the competitive landscape.
Other (expense) income, net
Other expense, net was
Provision for Income Taxes
For the twelve months endedDecember 31, 2021 , we recorded a benefit from income taxes of$8.3 million . In the third quarter of 2021, we determined that the fair value of the Vicineum United States in-process research and development asset was zero, which resulted in an impairment charge of$31.7 million . In connection with this impairment charge, in the third quarter of 2021, we wrote-down the associated deferred tax liability by$8.6 million as a benefit. Please refer to Note 8, "Intangible Assets andGoodwill ," for further information regarding the impairment charge. For the twelve months endedDecember 31, 2020 , we recorded a provision for income taxes of$1.4 million . This provision consisted of income taxes paid to non-US jurisdictions pursuant to our commercialization partnership agreements.
Comparison of the Years ended
For a comparison of our results of operations for the years endedDecember 31, 2020 and 2019, see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theUnited States Securities and Exchange Commission ("SEC") onMarch 15, 2021 .
Liquidity and Capital Resources
Overview
78
--------------------------------------------------------------------------------
As of December 31, 2021 , we had cash and cash equivalents of $162.6 million , net
working capital of $194.0 million and an accumulated deficit of $316.3 million .
We incurred negative cash flows from operating activities of $68.9 million ,
$30.8 million and $37.5 million for the years ended December 31, 2021 , 2020 and
2019, respectively. We believe that our cash and cash equivalents of $162.6
million as of December 31, 2021 , are sufficient to fund our operating plan into
2024.
Since our inception, we have received no revenue from sales of our products, and
we anticipate that operating losses will continue for the foreseeable future as
we seek to address the issues raised in the CRL we received for our BLA for
Vicineum for the treatment of BCG-unresponsive NMIBC and the concerns identified
in the EMA Withdrawal Assessment Report, complete an additional Phase 3 clinical
trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder
in patients previously treated with adequate or less than adequate BCG, and seek
marketing approval from the FDA and the European Commission and, if approved,
commercialize Vicineum. We have financed our operations to date primarily
through private placements of our common stock, preferred stock, common stock
warrants and convertible bridge notes, venture debt borrowings, our IPO,
follow-on public offerings, sales effected in ATM offerings, our OUS business
development partnerships and license agreements and, to a lesser extent, from a
collaboration.
In November 2019 , we entered into an Open Market Sale Agreement (the "Sale
Agreement") with Jefferies LLC ("Jefferies"), under which we may issue and sell
shares of our common stock, par value $0.001 per share from time to time for an
aggregate sales price of up to $35 million through Jefferies (the "ATM
Offering"). In October 2020 and February 2021 , we entered into Amendments No. 1
and No. 2 to the Sale Agreement, respectively. Amendments No. 1 and No.2
modified the Sale Agreement to reflect that we may issue and sell shares of our
common stock from time to time for an aggregate sales price of up to an
additional $50.0 million and $34.5 million , respectively. In June 2021 , we
entered into Amendment No. 3 to the Sale Agreement, which modified the Sale
Agreement to remove the maximum dollar amount of shares of common stock that may
be sold pursuant to the Sale Agreement. In June and July 2021 , we filed
prospectus supplements with the SEC in connection with the offer and sale of up
to an aggregate of $200 million of our common stock pursuant to the Sale
Agreement. Sale of common stock under the Sale Agreement are made by any method
that is deemed to be an ATM offering as defined in Rule 415(a)(4) of the
Securities Act of 1933, including but not limited to sales made directly on or
through the Nasdaq Global Market or any other existing trading market for our
common stock. As of December 31, 2021 , we have $97.8 million in available ATM
capacity. We may sell shares of our common stock efficiently from time to time
but have no obligation to sell any of our common stock and may at any time
suspend offers under the Sale Agreement or terminate the Sale Agreement. Subject
to the terms and conditions of the Sale Agreement, Jefferies will use its
commercially reasonable efforts to sell common stock from time to time, as the
sales agent, based upon our instructions, which include a prohibition on sales
below a minimum price set by us from time to time. We have provided Jefferies
with customary indemnification rights, and Jefferies is entitled to a commission
at a fixed rate equal to 3.0% of the gross proceeds for each sale of common
stock under the Sale Agreement. We raised $175.0 million of net proceeds from
the sale of 56.9 million shares of common stock at a weighted-average price of
$3.17 per share during the year ended December 31, 2021 . We raised $38.0 million
of net proceeds from the sale of 33.4 million shares of common stock at a
weighted-average price of $1.17 per share during the year ended December 31,
2020 . Share issue costs, including sales agent commissions, related to the ATM
Offering totaled $5.4 million and $1.2 million for the year ended December 31,
2021 and December 31, 2020 , respectively.
We continue to monitor the effect of the outbreak of COVID-19. We are
proactively executing risk mitigation strategies to attenuate the impact of
COVID-19 on us, and at this time, we have not yet experienced any business
disruptions as a result of the pandemic. We are continually assessing the effect
of the COVID-19 pandemic on our operations, and we are monitoring the spread of
COVID-19 and the actions implemented to combat the virus throughout the world.
Funding Requirements
Our future success is dependent on our ability to develop and, if approved, commercialize our product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, and ultimately upon our ability to attain profitable operations. In order to commercialize our product candidates, including Vicineum, we need to complete clinical development and comply with comprehensive regulatory requirements. We are subject to a number of risks similar to other late-stage clinical companies, including, but not limited to, successful discovery and development of our product candidates, raising additional capital, development and commercialization by our competitors of new technological innovations, protection of proprietary technology and market acceptance of our products. The successful discovery, development and, if approved, commercialization of product candidates, including Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, requires substantial working capital, and we expect to seek additional funds through equity or debt financings or through additional OUS business development partnerships, collaborations, licensing transactions or other sources. We may be unable to obtain equity or debt financings or enter into additional OUS business development partnerships, collaborations, or licensing transactions at favorable terms, or at all, and, if necessary, we may be required to implement cost reduction strategies.
We will incur substantial expenses if and as we:
79
--------------------------------------------------------------------------------
•address the issues identified in the CRL we received from the FDA for our BLA
for Vicineum for the treatment of BCG-unresponsive NMIBC and the concerns
identified in the EMA Withdrawal Assessment Report, including the completion of
an additional Phase 3 clinical trial;
•seek marketing approvals for Vicineum for the treatment of non-muscle invasive
CIS of the bladder in patients previously treated with adequate or less than
adequate BCG;
•establish and implement sales, marketing and distribution capabilities and
scale up and validate external manufacturing capabilities (including completing
the manufacturing process and technology transfer to any third-party
manufacturers) to commercialize Vicineum for the treatment of non-muscle
invasive CIS of the bladder in patients previously treated with adequate or less
than adequate BCG, if approved;
•maintain, expand and protect our intellectual property portfolio;
•add equipment and physical infrastructure to support our research and development;
•hire additional clinical, regulatory, quality control, scientific and management personnel;
•expand our operational, financial and management systems and personnel;
•conduct research and pre-clinical and clinical development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and our other product candidates;
•seek to discover and develop additional product candidates; and
•in-license or acquire the rights to other products, product candidates or technologies.
Our future capital requirements will depend on many factors, including:
•the scope, initiation, progress, timing, costs and results of pre-clinical development and laboratory testing and clinical trials for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG and our other product candidates, including an additional Phase 3 clinical trial for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG;
•the ongoing COVID-19 pandemic and its impact on our business
•our ability to establish additional OUS business development partnerships, collaborations, or licensing arrangements on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
•the costs and timing of the implementation of commercial-scale manufacturing activities;
•the costs and timing of establishing and implementing sales, marketing and distribution capabilities for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved; •the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•our obligation to make milestone, royalty and other payments to third-party licensors under our licensing agreements;
•the extent to which we in-license or acquire rights to other products, product candidates or technologies;
•the outcome, timing and cost of regulatory review by the FDA, EMA, and comparable non-US regulatory authorities for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, including the potential for the FDA or comparable non-US regulatory authorities to require that we perform more studies than those that we currently expect to perform;
•our ability to achieve certain future regulatory, development and commercialization milestones under our out-license and commercialization OUS business development partnership agreements;
•the effect of competing technological and market developments; and
•the revenue, if any, received from commercial sales of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, if approved.
Until such time, if ever, as we can generate substantial product revenues from
commercial sales, we expect to finance our cash needs through a combination of
equity offerings, debt financings, government or other third-party funding,
strategic OUS business development partnerships, alliances, and licensing
arrangements. We do not have any committed external source of funds other than
the amounts payable under our out-license and OUS business development
partnership agreements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, the ownership interests of
existing stockholders will be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect the rights of
existing stockholders. Debt financing, if available, may involve agreements that
include liens or
80
--------------------------------------------------------------------------------
other restrictive covenants limiting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring
dividends. If we raise additional funds through government or other third-party
funding, strategic OUS business development partnerships, alliances or licensing
arrangements, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or grant
licenses on terms that may not be favorable to us. If we are unable to raise
additional funds 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 products or product candidates that we would
otherwise prefer to develop and market ourselves.
The COVID-19 pandemic has negatively impacted the global economy, disrupted
business operations and created significant volatility and disruption to
financial markets. Significant uncertainty remains as to the potential impact of
the COVID-19 pandemic on our operations, and on the global economy as a whole.
The extent and duration of the pandemic could continue to disrupt global markets
and may affect our ability to raise additional capital in the future.
Contractual and Other Obligations
For information related to our cash requirements from known contractual and other obligations, see the description of Contingent Consideration in Note 5 "Fair Value Measure and Financial Instruments," as well as the description of our leases in Note 7 "Property and Equipment", and the description of our license agreement and collaborations in Note 17, "License Agreements" of Part IV - Item 15. Exhibits and Financial Statements - Notes to Consolidated Financial Statements. Cash Flows
The following table sets forth a summary of our cash flows for the years ended
Year
ended
2021 2020 2019
Net Cash Used in Operating Activities $ (68,878) $ (30,837) $ (37,521)
Net Cash Used in Investing Activities (4) (8) (136)
Net Cash Provided by Financing Activities 176,129 38,113 35,356
Net Increase in Cash, Cash Equivalents and Restricted Cash
$ 107,247
Net cash used in operating activities was$68.9 million for the year endedDecember 31, 2021 and consisted primarily of a net loss of$0.3 million , which includes$26.5 million of revenue recognized pursuant to the Roche License Agreement upon Roche initiating a Phase II clinical trial, achievement of the IND milestone inChina pursuant to the Qilu License Agreement, clinical supply revenue resulting from the delivery of drug product to Qilu, our OUS partner forGreater China , and license revenue for additional purchase price due to the recovery of VAT by our OUS business development partner forGreater China , adjusted for non-cash items, including share-based compensation of$5.1 million , a decrease in the fair value of contingent consideration of$56.8 million , impairment charge of$31.7 million and a net decrease in operating assets and liabilities of$48.6 million .
Net cash used in operating activities was
Net cash used in operating activities was
Net cash used in investing activities consisted of de minimis purchases and
sales or property and equipment during each of the years ended
Net Cash Provided by Financing activities
Net cash provided by financing activities was$176.1 million for the year endedDecember 31, 2021 and consisted of$175.0 million in net proceeds from the sale of common stock under the ATM Offering and$1.1 million in proceeds from the exercise of common stock warrants. 81 -------------------------------------------------------------------------------- Net cash provided by financing activities was$38.1 million for the year endedDecember 31, 2020 and consisted of$38.0 million net proceeds from the sale of common stock under the ATM Offering and$0.1 million in proceeds from the exercise of common stock warrants. Net cash provided by financing activities was$35.4 million for the year endedDecember 31, 2019 and consisted primarily of$27.8 million in net proceeds from ourJune 2019 Financing,$5.5 million from the exercise of outstanding warrants to purchase our common stock and$1.9 million in net proceeds from our ATM Offering.
Critical Accounting Policies and Use of Estimates
The preparation of our consolidated financial statements in accordance with GAAP and the rules and regulations of theSEC require the use of estimates and assumptions, based on complex judgments considered reasonable, and affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Our critical accounting policies are those policies which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Management has determined that our most critical accounting policies are those relating to the fair value of indefinite-lived intangible assets, goodwill; contingent consideration; revenue recognition; development and regulatory milestone payments and other costs; and research and development costs.
Fair Value of Indefinite-Lived Intangible Assets
Our intangible assets consist of indefinite-lived, acquired in-process research
and development ("IPR&D") worldwide product rights to Vicineum as a result of
the acquisition of Viventia in 2016. IPR&D assets acquired in a business
combination are considered indefinite-lived until the completion or abandonment
of the associated research and development efforts. Amortization over the
estimated useful life will commence at the time of Vicineum's commercial launch
in the respective markets, if approved. If regulatory approval to market
Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients
previously treated with adequate or less than adequate BCG is not obtained, we
will immediately expense the related capitalized cost.
Indefinite-lived intangible assets are quantitatively tested for impairment at
least annually during the fourth quarter of the fiscal year, or more often if
indicators of impairment are present. Impairment testing of indefinite-lived
intangible assets requires management to estimate the future discounted cash
flows of an asset using assumptions believed to be reasonable, but which are
unpredictable and inherently uncertain. Actual future cash flows may differ from
the estimates used in impairment testing. We recognize an impairment loss when
and to the extent that the estimated fair value of an intangible asset is less
than its carrying value. In addition, on a quarterly basis, we perform a
qualitative review of our business operations to determine whether events or
changes in circumstances have occurred which could indicate that the carrying
value of our intangible assets was not recoverable. If an impairment indicator
is identified, an interim impairment assessment is performed.
In August 2021 , we received a CRL from the FDA regarding our BLA for Vicineum
for the treatment of NMIBC, our lead product candidate. In the CRL, the FDA
determined that it could not approve the BLA for Vicineum in its present form
and provided recommendations specific to additional clinical/statistical data
and analyses in addition to CMC issues pertaining to a recent pre-approval
inspection and product quality. Given the inherent uncertainty in the
development plans for Vicineum as a result of the CRL and our withdrawal of the
MAA, an impairment analysis was conducted in the third quarter of 2021, which
concluded that the carrying value of our intangible asset of Vicineum United
States rights was fully impaired as of September 30, 2021 . The $31.7 million of
impairment charges are due to delays in the expected start of commercialization
and lower probabilities of success, combined with higher operating expenses
expected to be incurred prior to commercialization, resulting in lower expected
future cash flows estimated in the US market. At this time, we have assessed
that the carrying value of the Vicineum EU rights is not at significant risk of
impairment in the future within the current range of commercialization timelines
and POS assumptions. This is primarily due to the fact that we expect the
Vicineum sales outside of the US to be two to three times the expected sales
volume in the US, based on our reassessment of the total addressable global
market for high-risk NMIBC during the quarter ended June 30, 2019 , wherein we
determined that both the global market size and the estimated potential Vicineum
commercial sales within the global market were likely higher than the Company's
previous estimate. In addition, the EU asset is burdened with significantly less
expense than the US asset, as our strategic operating plan is to sublicense
Vicineum to business development partners in all regions outside the US,
including the EU, with it earning a potential combination of upfront, milestone,
and royalty payments, and the business development partner bearing the majority
of regulatory and commercialization costs.
In October and December 2021 , we participated in a CMC Type A Meeting and a
Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in
the CRL and to discuss design elements of an additional Phase 3 clinical trial
for Vicineum, which the FDA confirmed will be required for a potential
resubmission of a BLA. Following these Type A Meetings, we believe we have
greater clarity of the requirements for potential resubmission of a BLA. We have
a Type C Meeting scheduled with the FDA for March 28, 2022 , in which we expect
to discuss the study protocol for the additional Phase 3 clinical trial that we
plan to conduct for potential resubmission of our a BLA for Vicineum for the
treatment of non-muscle invasive CIS of the
82
--------------------------------------------------------------------------------
bladder in patients previously treated with adequate or less than adequate BCG.
We performed the annual impairment test, which incorporated the impact of the
CRL and the subsequent Type A Meetings in the fourth quarter of 2021 and
concluded that the carrying value of our intangible asset of Vicineum EU rights
was not impaired as of December 31, 2021 .
Goodwill on our consolidated balance sheets is the result of our acquisition of Viventia inSeptember 2016 and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired under the acquisition method of accounting.Goodwill is not amortized; rather than recording periodic amortization, goodwill is quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Impairment testing of goodwill requires management to estimate the future discounted cash flows of a reporting unit using assumptions believed to be reasonable, but which are unpredictable and inherently uncertain. Actual future cash flows may differ from the estimates used in impairment testing. If the fair value of the equity of a reporting unit exceeds the reporting unit's carrying value, including goodwill, then goodwill is considered not to be impaired. We recognize a goodwill impairment when and to the extent that the fair value of the equity of a reporting unit is less than the reporting unit's carrying value, including goodwill. We have only one reporting unit. In addition, on a quarterly basis, we perform a qualitative review of our business operations to determine whether events or changes in circumstances have occurred which could have a material adverse effect on the estimated fair value of each reporting unit and thus indicate a potential impairment of the goodwill carrying value. If an impairment indicator is identified, an interim impairment assessment is performed. Given the inherent uncertainty in the development plans for Vicineum as a result of the CRL and our withdrawal of the MAA, an impairment analysis was conducted in the third quarter of 2021. While an impairment was recognized in one of our intangible assets, Vicineum US Rights, we concluded that the carrying value of our goodwill of$13.1 million was not impaired as ofSeptember 30, 2021 . In October andDecember 2021 , we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and to discuss design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed will be required for a potential resubmission of a BLA. Following these Type A Meetings, we believe we have greater clarity of the requirements for potential resubmission of a BLA. We have a Type C Meeting scheduled with the FDA forMarch 28, 2022 , in which we expect to discuss the study protocol for the additional Phase 3 clinical trial that we plan to conduct for potential resubmission of our a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We performed the annual goodwill impairment test, which incorporated the impact of the CRL and the subsequent Type A Meetings in the fourth quarter of 2021 and concluded that there was no goodwill impairment as ofDecember 31, 2021 . While our stock price has declined sinceDecember 31, 2021 , this is consistent with the general biotech sector overall, as world economic conditions continue to be impacted by the highly contagious Omicron variant. We believe that we have sufficient future cash flows from additional geographic regions outside the US to support the value of its goodwill. We project future cash flows based on various timeline assumptions and applies a probability to each outcome based on management's best estimate. In addition, probabilities of success in achieving certain clinical and regulatory success can also have a material effect on the estimated fair value of the equity of its reporting unit as of the impairment assessment date. We will continue to evaluate timelines for commercialization and probability of success of development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG.
Contingent Consideration
Contingent consideration on our consolidated balance sheets is the result of our acquisition of Viventia inSeptember 2016 and represents the discounted present value of future commercial launch milestones and net sales royalties due to the former shareholders of Viventia pursuant to the Share Purchase Agreement. For additional information on how contingent consideration has changed over the relevant period, see "Part IV - Item 15. Financial Statements - Notes to Consolidated Financial Statements - Note 1. Description of Business" of this Annual Report on Form 10-K. Contingent consideration is measured at its estimated fair value on a recurring basis at each reporting period, with fluctuations in value resulting in a non-cash charge to earnings (or loss) during the period. The estimated fair value measurement is based on significant unobservable inputs (Level 3 within the fair value hierarchy), including internally developed financial forecasts, probabilities of success and timing of certain milestone events and achievements, which are unpredictable and inherently uncertain. Actual future cash flows may differ from the assumptions used to estimate the fair value of contingent consideration. The valuation of contingent consideration requires the use of significant assumptions and judgments, which management believes are consistent with those that would be made by a market participant. Management reviews its assumptions and judgments on an ongoing basis as additional market and other data is obtained, and any future changes in the assumptions and judgments utilized by management may cause the estimated fair value of contingent consideration to fluctuate materially, resulting in earnings volatility. In October andDecember 2021 , we participated in a CMC Type A Meeting and a Clinical Type A Meeting, respectively, with the FDA to discuss issues raised in the CRL and to discuss design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed will be required for a potential resubmission of a BLA. Following these Type A Meetings, we believe we have greater clarity of the requirements for potential resubmission of a BLA. We have a Type C Meeting scheduled with the FDA forMarch 28, 2022 , in which we expect to discuss the study protocol for the additional Phase 3 clinical trial that 83 -------------------------------------------------------------------------------- we plan to conduct for potential resubmission of our a BLA for Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG. We reassessed the underlying assumptions used to develop the revenue projections upon which the fair value of its contingent consideration is based. The most significant and impactful assumptions in our revenue projection models are timing of product launch and probabilities of clinical and regulatory success (POS); we expect delays in the start of commercialization and estimate lower POS as a direct result of the CRL. We plan to conduct an additional clinical trial, which will lead to delays in the start of commercialization globally and any significant changes or delays could have a significant impact on the fair value of contingent consideration. We have assessed a range of commercialization timeline assumptions and applied a probability to each outcome based on management's best estimate. In addition, we now assume a lower POS in achieving certain clinical and regulatory milestones in the range of approximately 45% to 55% globally. Any changes in these assumptions and estimates, or other information obtained, may have a significant impact on the remeasurement of the contingent consideration liability in the future. The fair value of the Company's contingent consideration is determined based on the present value of projected future cash flows associated with sales-based milestones and earnouts on net sales and is heavily dependent on discount rates to estimate the fair value at each reporting period. Earnouts are determined using an earnout rate of 2% on all commercial net sales of Vicineum throughDecember 2033 . The discount rate applied to the 2% earnout is derived from the Company's estimated weighted-average cost of capital ("WACC"), which has fluctuated from 8.8% as ofDecember 31, 2020 , to 7.8% as ofMarch 31, 2021 , 6.8% as ofJune 30, 2021 , 8.6% as ofSeptember 30, 2021 , and 9.3% as ofDecember 31, 2021 . Milestone payments constitute debt-like obligations, and therefore a high-yield debt index rate is applied to the milestones in order to determine the estimated fair value. This index rate changed from 8.4% as ofDecember 31, 2020 , to 7.4% as ofMarch 31, 2021 , 6.6% as ofJune 30, 2021 , 7.5% as ofSeptember 30, 2021 , and 8.0% as ofDecember 31, 2021 .
Development and Regulatory Milestones and Other Payments
At the inception of an arrangement that includes development milestone payments, we evaluate whether the development milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated development milestone value is included in the transaction price. Development milestone payments that are not within our control or the licensee's control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. For payments pursuant to sales milestones and royalty payments, we will note recognize revenue until the subsequent sale of a licensed product occurs. For arrangements with one than one performance obligations, the milestones are generally allocated entirely to the license performance obligation, as (1) the terms of milestone and royalty payments relate specifically to the license and (2) allocating milestones and royalties to the license performance obligation is consistent with the overall allocation objective, because management's estimate of milestones and royalties approximates the standalone selling price of the license.
Research and Development Costs
Research and development activities are expensed in the period incurred. Research and development expenses consist of both internal and external costs associated with all basic research activities, clinical development activities and technical efforts required to develop a product candidate. Internal research and development consist primarily of personnel costs, including salaries, benefits and share-based compensation, facilities leases, research-related overhead, pre-approval regulatory and clinical trial costs, manufacturing and other contracted services, license fees and other external costs. In certain circumstances, we are required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are recorded as prepaid assets and expensed when the activity has been performed or when the goods have been received.
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in "Part IV - Item 15. Exhibits and Financial Statements - Notes to Consolidated Financial Statements - Note 4. Recent Accounting Pronouncements" in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K.
© Edgar Online, source
