SPRINGWORKS THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the section titled "Selected financial data" and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K, or Annual Report. Unless the context otherwise requires, all references to "we," "us," "our," or the "Company" refer toSpringWorks Therapeutics, Inc. , together with its subsidiaries. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. 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 developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Annual Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Annual Report, including under Item 1A. "Risk Factors" and under "Special Note Regarding Forward-Looking Statements". In addition, even if our results of 107 -------------------------------------------------------------------------------- Table of Contents operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Annual Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSecurities and Exchange Commission , orSEC , 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 clinical-stage biopharmaceutical company applying a precision medicine approach to acquiring, developing and commercializing life-changing medicines for underserved patient populations suffering from devastating rare diseases and cancer. We have a differentiated portfolio of small molecule targeted oncology product candidates and are advancing two potentially registrational clinical trials in rare tumor types, as well as several other programs addressing highly prevalent, genetically defined cancers. Our strategic approach and operational excellence across research, translational science, and clinical development have enabled us to rapidly advance our two lead product candidates into late-stage clinical trials while simultaneously entering into multiple shared-value partnerships with industry leaders to expand our portfolio. From this foundation, we are continuing to build a differentiated global biopharmaceutical company intensely focused on understanding patients and their diseases in order to develop transformative targeted medicines.
As described in Part I, Item 1. "Business," we currently have three product candidates in clinical development. Refer to Part I, Item 1. "Business" for a summary of our clinical programs.
InFebruary 2021 , we entered into a Sales Agreement withCowen and Company, LLC , pursuant to which we may issue and sell shares of our common stock having aggregate offering proceeds of up to$200.0 million (the Shares) from time to time through Cowen as our sales agent. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, Cowen may sell the Shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. We may sell the Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the Sales Agreement, but we have no obligation to sell any Shares under the Sales Agreement. We or Cowen may suspend or terminate the offering of Shares upon notice to the other party and subject to other conditions. As ofDecember 31, 2021 , we had not made any sales of Shares under the Sales Agreement. OnOctober 13, 2020 , we completed a follow-on public offering of our common stock. In connection with the offering, we issued and sold 5,637,254 shares of our common stock at a price to the public of$51.00 per share. The net proceeds from the offering were$269.5 million after deducting underwriting discounts and commissions of$17.2 million and offering expenses of approximately$0.8 million . OnSeptember 12, 2019 , we completed the initial public offering, or IPO, of our common stock. In connection with the IPO, we issued and sold 10,350,000 shares of our common stock at a price to the public of$18.00 per share. The net proceeds from the IPO were$169.7 million after deducting underwriting discounts and commissions of$13.0 million and offering expenses of approximately$3.5 million . At the closing of the IPO, 196,076,779 shares of outstanding convertible preferred stock were automatically converted into 29,794,359 shares of common stock at a conversion rate of one-for-6.5810. Following the IPO, there were no shares of preferred stock outstanding. We were originally formed asSpringWorks Therapeutics, LLC , aDelaware limited liability company inAugust 2017 . Concurrent with our formation, we acquired exclusive worldwide licenses to nirogacestat and mirdametinib from Pfizer Inc., or Pfizer. From our inception toMarch 29, 2019 , we conducted our business throughSpringWorks Therapeutics, LLC and were treated as a partnership for income tax purposes. Pursuant to the terms of a corporate reorganization that was completed onMarch 29, 2019 , all of the equity interests inSpringWorks Therapeutics, LLC were exchanged for the same number and class of newly issued securities ofSpringWorks Therapeutics, Inc. , and, as a result,SpringWorks Therapeutics, LLC became a wholly owned subsidiary ofSpringWorks Therapeutics, Inc. Following the Reorganization, we now conduct our business asSpringWorks Therapeutics, Inc.
Since our inception in
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organizing and staffing our company, building commercialization capabilities, business planning, raising capital and providing general and administrative support for these activities.
To date, we have derived all of our revenue from the nonrefundable upfront payment we received under the asset purchase and license agreement withJazz Pharmaceuticals Ireland Limited , or Jazz inOctober 2020 . We do not have any products approved for commercial sale or sources of recurring revenue. We had cash, cash equivalents and available-for-sale marketable securities of$432.7 million and$561.8 million as ofDecember 31, 2021 andDecember 31, 2020 , respectively. Since inception, we have funded our operations primarily with net proceeds of$102.3 million from the sale of our Series A convertible preferred units prior to the Reorganization,$124.6 million in net proceeds from the sale of our Series B convertible preferred stock following the Reorganization, net proceeds of$169.7 from our IPO inSeptember 2019 and net proceeds of$269.5 million from our follow-on financing inOctober 2020 . We believe that our cash, cash equivalents and marketable securities will enable us to fund our operational expenses and capital expenditure requirements through at least 12 months after the date this Annual Report is filed. Since inception, we have incurred significant operating losses. Our net losses were$173.9 million ,$45.6 million , and$58.3 million for the years endedDecember 31, 2021 ,December 31, 2020 , andDecember 31, 2019 , respectively. We had an accumulated deficit of$292.5 million and$118.6 million as ofDecember 31, 2021 andDecember 31, 2020 , respectively. We expect to continue to incur significant expenses and operating losses for the foreseeable future. In addition, we anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: •advance our product candidates through clinical development, including our ongoing potentially registrational Phase 3 clinical trial for nirogacestat and ongoing potentially registrational Phase 2b clinical trial for mirdametinib;
•advance our other preclinical and clinical development programs, including our combination therapies, into and through clinical development;
•seek regulatory approvals for any product candidates that successfully complete clinical trials;
•increase the amount of research and development activities to identify, acquire and develop product candidates;
•hire additional clinical, quality control, medical, scientific and other technical personnel;
•expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing, business development and commercialization efforts and our operations as a public company;
•maintain, expand and protect our intellectual property portfolio;
•complete commercial-scale outsourced manufacturing activities;
•establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties; and
•invest in or in-license other technologies or product candidates.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for nirogacestat or mirdametinib, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution activities, either alone or in collaboration with others.
Our license and collaboration agreements
Pfizer license agreements
InAugust 2017 , we entered into a license agreement, or the Nirogacestat License Agreement, with Pfizer pursuant to which we acquired exclusive worldwide rights to nirogacestat. We subsequently amended the Nirogacestat License Agreement in July of 2019 with regard to certain provisions relating to intellectual property. Pursuant to the Nirogacestat License Agreement, as amended, we are required to pay Pfizer payments of up to an aggregate of$232.5 million upon achievement of certain commercial milestone events. We will pay Pfizer tiered royalties on sales of nirogacestat at percentages ranging from the mid- 109
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single digits to the low 20s, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition.
InAugust 2017 , we entered into a license agreement, or the Mirdametinib License Agreement, with Pfizer (collectively with the Nirogacestat License Agreement referred to as the "Pfizer License Agreements") pursuant to which we acquired exclusive worldwide rights to mirdametinib. We subsequently amended the Mirdametinib License Agreement in August of 2019 with regard to certain provisions relating to intellectual property. Pursuant to the Mirdametinib License Agreement, as amended, we are required to pay Pfizer up to an aggregate of$229.8 million upon achievement of certain commercial milestone events. We will pay Pfizer tiered royalties on sales of mirdametinib at percentages ranging from the mid-single digits to the low 20s, which may be subject to deductions for expiration of valid claims, amounts due under third-party licenses and generic competition. In connection with entering into the Pfizer License Agreements, we issued an aggregate of 6,437,500 Junior Series A convertible preferred units to Pfizer, which units were converted into 6,437,500 shares of our Junior Series A convertible preferred stock pursuant to the Reorganization. At the closing of the IPO, the Junior Series A shares were automatically converted into shares of common stock at a conversion rate of 6.5810-for-one (or 978,194 common shares). As ofDecember 31, 2020 , we had not made any milestone or royalty payments under the Pfizer License Agreements.
TEAD license agreement
InMay 2021 , we entered into an exclusive worldwide license agreement with KU Leuven and VIB, pursuant to which we in-licensed a portfolio of novel small molecule inhibitors of the TEAD family of transcription factors, designed for the potential treatment of biomarker-defined solid tumors driven by aberrant Hippo pathway signaling. Under the terms of the agreement, we made an upfront payment of$11 million to KU Leuven and VIB. Pursuant to the terms of the agreement, KU Leuven and VIB are also eligible to receive up to$285 million in development, regulatory and commercial milestones, and tiered single-digit percentage royalties based on any future net sales of products developed based on the in-licensed technology.
EGFR license agreement
InOctober 2021 , we entered into an exclusive worldwide license agreement with Dana-Farber and a sponsored research agreement with Stanford Medicine for a portfolio of novel small molecule inhibitors of Epidermal Growth Factor Receptor, or EGFR, designed for the treatment of EGFR-mutant cancers. Under the terms of the license agreement with Dana-Farber, the Company made an upfront payment to Dana-Farber and Dana-Farber will be eligible to receive development and commercial milestones and royalties based on any future net sales generated based on the in-licensed technology. Concurrent with this license agreement, we entered a multi-year sponsored research agreement with Stanford Medicine to fund continued research and development in a laboratory at Stanford Medicine as well as collaborating laboratories at Dana-Farber. This sponsored research agreement is intended to support lead optimization and translational biology efforts as the EGFR inhibitor portfolio advances towards development candidate nomination. Pursuant to the sponsored research agreement withStanford , the Company has been granted the option to negotiate for licenses to further intellectual property which might arise from performance of the sponsored research.
BeiGene clinical collaboration agreement
InAugust 2018 , we entered into a clinical collaboration agreement with BeiGene, Ltd., or BeiGene, to evaluate the safety, tolerability and preliminary efficacy of combining lifirafenib and mirdametinib, in a Phase 1b clinical trial for patients with advanced or refractory solid tumors. Each party will be solely responsible for its costs associated with manufacturing and supply of its compound for the clinical trial. We and BeiGene will share equally the other costs associated with the clinical trial.
GSK clinical trial collaboration and supply agreement
InJune 2019 , we entered into a clinical trial collaboration and supply agreement with GlaxoSmithKline, or GSK, to evaluate nirogacestat in combination with belantamab mafodotin in patients with relapsed or refractory multiple myeloma, in an adaptive Phase 1b clinical trial. InOctober 2021 , we announced the initiation of an expanded Phase 2 cohort from the first combination dose level that evaluated 0.95 mg/kg dose of BLENREP every three weeks plus nirogacestat based on encouraging preliminary data observed in the Phase 1 portion. We also announced the addition of two new sub-studies that will explore BLENREP plus nirogacestat in combination with pomalidomide and dexamethasone and in combination with lenalidomide plus dexamethasone. GSK is responsible for the conduct and expenses of the trial, which is governed by a joint development committee with equal representation from each party. 110
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Allogene clinical trial collaboration and supply agreement
InJanuary 2020 , we entered into a clinical trial collaboration and supply agreement with Allogene Therapeutics, Inc., or Allogene, to evaluate nirogacestat in combination with ALLO-715, Allogene's investigational allogeneic B-cell maturation antigen, or BCMA, targeted chimeric antigen receptor, or CAR, T cell product, in patients with relapsed or refractory multiple myeloma. Allogene is responsible for administering the Phase 1 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial, other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights. The collaboration is managed by a joint development committee with equal representation by us and Allogene.
Janssen clinical collaboration agreement
InSeptember 2020 , we entered into a clinical collaboration and supply agreement withJanssen Biotech, Inc. , or Janssen, to evaluate our investigational gamma secretase inhibitor, or GSI, nirogacestat, in combination with Janssen's bispecific antibody targeting BCMA, and CD3, teclistamab, in patients with relapsed or refractory multiple myeloma. Janssen is responsible for administering the Phase 1 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial, other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights. The collaboration is managed by a joint oversight committee of equal representation by us and Janssen.
Precision BioSciences clinical collaboration agreement
InSeptember 2020 , we entered into a clinical trial collaboration agreement with Precision BioSciences, Inc., or Precision Biosciences, to evaluate nirogacestat in combination with PBCAR269A, an investigational allogeneic CAR-T cell therapy candidate targeting BCMA, in patients with relapsed or refractory multiple myeloma. Precision Biosciences is responsible for administering the Phase 1/2a clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial, other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights. The collaboration is managed by a joint steering committee of equal representation by us and Precision Biosciences.
Pfizer clinical collaboration agreement
InOctober 2020 , we entered into a clinical trial collaboration and supply agreement with Pfizer, to evaluate nirogacestat in combination with Pfizer's bispecific antibody targeting BCMA and CD3, elranatamab, in patients with relapsed or refractory multiple myeloma. Pfizer is responsible for administering the Phase 1b/2 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial, other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights. The collaboration is managed by a joint development committee of equal representation by us and Pfizer.
Seagen clinical collaboration agreement
InJune 2021 , we entered into a clinical collaboration with Seagen to evaluate nirogacestat in combination with SEA-BCMA, Seagen's investigational monoclonal antibody targeting BCMA in patients with relapsed or refractory multiple myeloma. Pursuant to the terms of the agreement, other than the manufacturing of nirogacestat and certain expenses related to intellectual property rights, Seagen is responsible for the conduct and expenses of the collaboration, which is governed by a joint development committee with equal representation from each party.
AbbVie clinical collaboration agreement
InDecember 2021 , we entered into a clinical collaboration with AbbVie to evaluate nirogacestat in combination with ABBV-383, AbbVie's investigational CD3 bispecific antibody directed against BCMA, in patients with relapsed or refractory multiple myeloma. Pursuant to the terms of the agreement, other than the manufacturing of nirogacestat and certain expenses related to intellectual property rights, AbbVie is responsible for the conduct and expenses of the collaboration, which will be governed by a joint steering committee with equal representation from each party
Jazz Pharmaceuticals asset purchase and exclusive license agreement
InOctober 2020 , we and Jazz announced an asset purchase and exclusive license agreement, pursuant to which Jazz acquired our fatty acid amide hydrolase, or FAAH, inhibitor program including PF-04457845. Jazz made an upfront payment of$35 million to us with potential future payments of up to$375 million based upon the achievement of certain clinical development, 111
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regulatory, and commercial milestones. In addition, Jazz is obligated to pay us sales-based royalties on future net sales of PF-04457845.
See "Business-License and collaboration agreements" for more information on our license and collaboration agreements.
COVID-19 Impact
InDecember 2019 , a novel strain of coronavirus, severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, was identified inWuhan, China . OnMarch 11, 2020 , theWorld Health Organization designated the outbreak of COVID-19, the disease associated with SARS-CoV-2, as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter- in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Since the onset of the COVID-19 pandemic, we have undertaken a number of business continuity measures to mitigate potential disruption to our operations and in order to preserve the integrity of our research and development programs. To date, we have not experienced any material disruptions to the execution of the research and development activities that we currently have underway; however, as a result of the pandemic, or any impacts of emerging variant strains of the COVID-19 virus, we may experience disruptions that could impact our research and development timelines and outcomes. We will continue to evaluate the impact of the ongoing COVID-19 pandemic, along with the impact of emerging variants, on our business. While the extent to which COVID-19 impacts our future results will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), the impact of emerging variant strains of the COVID-19 virus and the rollout of COVID-19 vaccines, all of which remain uncertain and difficult to predict, it is possible that the global pandemic and its associated economic impacts could result in a material impact to our business, future financial condition, results of operations and cash flows.
Components of our results of operations
Revenue
To date, we have derived all of our revenue from the nonrefundable upfront payment we received under the Jazz asset purchase and license agreement inOctober 2020 . We have not generated any commercial revenue from the sale of products. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, we may generate revenue in the future from product sales. We do not have any sources of recurring revenue. We may enter into collaboration and license agreements from time to time that provide for certain payments due to us. Accordingly, we may generate revenue from such collaboration or license agreements in the future.
Research and development expenses
Our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include:
•employee-related expenses, which include salaries, benefits and stock-based compensation for our research and development personnel;
•fees paid to consultants for services directly related to our research and development programs;
•expenses incurred under agreements with third-party contract research organizations, or CROs, investigative clinical trial sites, academic institutions and consultants that conduct research and development activities on our behalf or in collaboration with us;
•costs associated with preclinical studies and clinical trials;
•costs associated with the manufacture of drug substance and finished drug product for preclinical testing and clinical trials;
•costs associated with technology and intellectual property licenses; and
•certain facilities and facility-related costs, which include expenses for rent and other facility-related costs and other supplies.
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A significant portion of our research and development expenses are external costs, which we track on a program-by-program basis. Other research and development expenses include internal research and development costs, such as compensation-related costs for our research and development employees, as well as depreciation and other indirect costs, which we do not track on a program-by-program basis. Expenditures for clinical development, including upfront licensing fees and milestone payments associated with our product candidates, are charged to research and development expense as incurred. These expenses consist of expenses incurred in performing development activities, including salaries and benefits, materials and supplies, preclinical expenses, clinical trial and related clinical manufacturing expenses, depreciation of equipment, contract services and other outside expenses. Costs for certain development activities, such as manufacturing and clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to us by our vendors on their actual activities completed or costs incurred. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in activities related to developing our product candidates and our preclinical programs, and as certain product candidates advance into later stages of development, including our ongoing potentially registrational Phase 3 clinical trial for nirogacestat, or the DeFi trial, and our ongoing potentially registrational Phase 2b clinical trial for mirdametinib, or the ReNeu trial. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, commercial, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates and expand operations to support the organization.
Interest and other income
Interest and other income consists primarily of interest income. Interest income consists of interest earned on our cash, cash equivalents and available-for-sale marketable securities. Equity investment loss
The equity investment loss represents the Company's share of the losses from the MapKure investment, which is accounted for using the equity method of accounting.
Income taxes
Income taxes are accounted for using the asset-and-liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized as income in the period that includes the enactment date.
Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes.
We recognize deferred tax assets to the extent that we believe that these assets
are more likely than not to be realized. In making such a determination,
management considers all available positive and negative evidence, including
future reversals of existing taxable temporary differences, projected future
taxable income, tax-planning strategies and results of recent operations.
Valuation allowances are provided, if based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. If management determines that we would be able to realize
our deferred tax assets in
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the future in excess of our net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with Accounting Standards Codification, or ASC, Topic 740 on the basis of a two-step process in which (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions. These reserves are based on a determination of whether and how much of a tax benefit taken by us in its filings or positions is more likely than not to be realized following resolution of any potential contingencies related to the tax benefit. Potential interest related to the underpayment of income taxes will be classified as a component of income tax expense and any related penalties will be classified in income tax expenses in the statement of operations.
Subsequent to the Reorganization,SpringWorks Therapeutics, Inc. became the 100% owner ofSpringWorks Therapeutics, LLC , creating a new ultimate parent company, and a consolidated group for income tax reporting. The Reorganization and change in tax status of the reporting entity did not have an impact on the consolidated tax provision. As ofDecember 31, 2021 , we have federal, state and city net operating loss carryforwards of$257.8 million ,$151.1 million and$3.7 million , respectively, which are available to reduce future taxable income. Federal net operating loss carryforwards generated 2018 through 2021 of$253.5 , will be available to offset 80% of taxable income for an indefinite period of time, until fully utilized. Federal net operating loss carryforwards of$4.3 million reported in 2017, and the state and city net operating loss carryforwards expire at various dates through 2040. We also have federal tax credits of$16.7 million , which may be used to offset future tax liabilities. These tax credit carryforwards will expire at various dates beginning in 2038.
Results of operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Twelve Months Ended December 31,
(in thousands) 2021 2020 $ Change % Change
Licensing Revenue $ - $ 35,000 $ (35,000) (100) %
Operating Expenses:
Research and development 101,676 51,859 49,817 96 %
General and administrative 71,792 29,465 42,327 144 %
Total operating expenses 173,468 81,324 92,144 113 %
Loss from operations (173,468) (46,324) (127,144) 274 %
Other income:
Interest income, net 698 1,330 (632) (48) %
Other income (loss) (152) 25 (177) (708) %
Total other income 546 1,355 (809) (60) %
Equity investment loss (988) (605) (383) 63 %
Net loss $ (173,910) $ (45,574) $ (128,336) 282 %
Revenue
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We did not recognize any revenue for the year endedDecember 31, 2021 , and do not currently have any sources of recurring revenue. Revenue of$35.0 million for the year endedDecember 31, 2020 was attributable to the nonrefundable upfront payment from Jazz inOctober 2020 related to the asset purchase and exclusive license agreement between us and Jazz.
Research and development expenses
Research and development expense increased by
The increase in research and development expense was attributable to a$25.4 million increase in external costs related to licensing, drug manufacturing and trial costs, a$23.2 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel and an increase in non-cash share-based compensation expense, and a$1.2 million increase in facility-related, and other miscellaneous department expenses. The increase in external costs was driven by an increase of$14.4 million in external costs related to drug manufacturing and trial costs and the$11.0 million nonrefundable upfront payment to KU Leuven and VIB for the in-licensing of the TEAD inhibitor program.
Our research and development expenses are summarized in the table below:
Twelve Months Ended December
31,
(in thousands) 2021 2020 $ Change
Personnel-related $ 39,102 $ 15,900 $ 23,202
Licensing, trial and drug manufacturing 57,181 31,766 25,415
Facility-related and other 5,393 4,193 1,200
Total research and development expenses $ 101,676 General and administrative expenses
General and administrative expenses were$71.8 million and$29.5 million for the years endedDecember 31, 2021 andDecember 31, 2020 , respectively, as follows: Twelve Months Ended December 31, (in thousands) 2021 2020 $ Change Personnel-related$ 44,861 $ 16,476 $ 28,385 Professional and consulting fees 20,923 10,437 10,486 Facility-related and other 6,008 2,552 3,456 Total general and administrative expenses$ 71,792
The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions, as we continued to expand our operations to support the organization, including commercialization capabilities, and an increase in non-cash share-based compensation expense. In addition, general and administrative expense included a$10.5 million increase in information technology costs and consulting and professional services, including legal, regulatory and compliance.
Other income
The decrease in other income was driven by a decrease in interest income, net, during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . This decrease was attributable to a significant decline in interest rates as a result of the economic impact of the COVID-19 pandemic, which drove a lower return on cash, cash equivalents and marketable securities for a portion of 2020, and continued for the full year endedDecember 31, 2021 . 115
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Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Twelve Months Ended December 31,
(in thousands) 2020 2019 $ Change % Change
Licensing Revenue $ 35,000 $ - $ 35,000 100 %
Operating Expenses:
Research and development $ 51,859 $ 42,545 $ 9,314 22 %
General and administrative 29,465 16,694 12,771 77 %
Total operating expenses 81,324 59,239 22,085 37 %
Loss from operations (46,324) (59,239) 12,915 (22) %
Other income:
Interest income, net 1,330 3,547 (2,217) (63) %
Other income (loss) 25 - 25 100 %
Total other income 1,355 3,547 (2,192) (62) %
Equity investment loss (605) (2,614) 2,009 (77) %
Net loss $ (45,574) $ (58,306) $ 12,732 (22) %
Revenue
Revenue of $35.0 million for the year ended December 31, 2020 was attributable
to the nonrefundable upfront payment from Jazz in October 2020 related to the
asset purchase and exclusive license agreement between us and Jazz.
Research and development expenses
Research and development expense increased by
The increase in research and development expense was attributable to a$6.1 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel and an increase in non-cash share-based compensation expense. In addition, research and development expense included a$2.4 million increase in external costs related to drug manufacturing and trial costs, and a$0.9 million increase in facility-related, and other miscellaneous department expenses.
Our research and development expenses are summarized in the table below:
Twelve Months Ended December
31,
(in thousands) 2020 2019 $ Change
Personnel-related $ 15,900 $ 9,814 $ 6,086
Trial and drug manufacturing 31,766 29,415 2,351
Facility-related and other 4,193 3,316 877
Total research and development expenses $ 51,859 General and administrative expenses
General and administrative expenses were
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Twelve Months Ended December
31,
(in thousands) 2020 2019 $ Change
Personnel-related $ 16,476 $ 8,745 $ 7,731
Professional and consulting fees 10,437 6,061 4,376
Facility-related and other 2,552 1,888 664
Total general and administrative expenses $ 29,465 The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions, as we continued to expand our operations to support the organization, and an increase in non-cash share-based compensation expense. In addition, general and administrative expense included a$4.4 million increase in consulting and professional services, including legal, regulatory and compliance.
Other income
The decrease in other income is driven by a decrease in interest income, net, during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . This decrease was attributable to a significant decline in interest rates as a result of the economic impact of the COVID-19 pandemic, which drove a lower return on cash, cash equivalents and marketable securities during the year endedDecember 31, 2020 .
Liquidity and capital resources
Sources of Liquidity
We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the foreseeable future. Our net loss was$173.9 million ,$45.6 million and$58.3 million for the years endedDecember 31, 2021 ,December 31, 2020 andDecember 31, 2019 , respectively. We had an accumulated deficit of$292.5 million and$118.6 million atDecember 31, 2021 andDecember 31, 2020 , respectively. Our marketable securities consist of high-quality, highly liquid available-for-sale debt securities including corporate debt securities,U.S. government securities and commercial paper. Funding requirements Our primary use of cash is to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses. We believe that our cash, cash equivalents and marketable securities balance as ofDecember 31, 2021 , will be sufficient to fund our operating expenses and capital expenditure requirements through at least twelve months after the date this Annual Report is filed. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Our future funding requirements will depend on many factors, including the following:
•the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates, including the DeFi trial and the ReNeu trial;
•the clinical development plans we establish for these product candidates;
•the number and characteristics of product candidates that we develop;
•the outcome, timing and cost of meeting regulatory requirements established by theU.S. Food and Drug Administration , or FDA,European Medicines Agency , or EMA, and other comparable foreign regulatory authorities; •the terms of our existing and any future license or collaboration agreements we may choose to enter into, including the amount of upfront, milestone and royalty obligations; 117
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•the other costs associated with in-licensing new technologies, such as any increased costs of research and development and personnel;
•the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
•the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
•the effect of competing technological and market developments;
•the cost and timing of completion of commercial-scale outsourced manufacturing activities;
•the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; and
•the degree of commercial success achieved following the successful completion of development and regulatory approval activities for a product candidate.
We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, commercial activities and business development efforts. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, current ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, 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.
Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented:
Twelve Months Ended December 31,
(in thousands) 2021 2020 2019
Net cash used in operating activities $ (127,877) $ (32,191) $ (47,444)
Net cash provided by (used in) investing activities 83,592 (418,832) (4,260)
Net cash provided by financing activities 1,157 270,485 333,708
Net increase (decrease) in cash and cash equivalents
Cash flows used in operating activities
Net cash used in operating activities was
Net cash used in operating activities for the year endedDecember 31, 2021 , was primarily due to our net loss for the year of$173.9 million , adjusted by non-cash charges of$40.9 million and a net change of$5.1 million in our net operating assets and liabilities. The non-cash charges primarily consisted of$38.4 million for equity-based compensation expense,$1.0 million for non-cash operating lease expense amortization and$1.0 million for the equity investment loss associated with our investment in 118
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MapKure. The change in our net operating assets and liabilities was primarily due to a net increase of$12.0 million in accounts payable and accrued expenses, partially offset by a$5.3 million increase in prepaid expenses and other non-current assets, and a$1.4 million decrease in lease liability, driven by cash payments for operating leases. Net cash used in operating activities for the year endedDecember 31, 2020 , was primarily due to our net loss for the year of$45.6 million , adjusted by non-cash charges of$12.0 million and a net change of$1.3 million in our net operating assets and liabilities. The non-cash charges primarily consisted of$10.0 million for equity-based compensation expense,$1.0 million for non-cash operating lease expense amortization and$0.6 million for the equity investment loss associated with our investment in MapKure. The change in our net operating assets and liabilities was primarily due to a net increase of$4.6 million in accounts payable and accrued expenses, partially offset by a$2.0 million increase in prepaid expenses and other non-current assets, and a$1.4 million decrease in lease liability, driven by cash payments for operating leases. Net cash used in operating activities for the year endedDecember 31, 2019 , was primarily due to our net loss for the year of$58.3 million , adjusted by non-cash charges of$5.9 million and a net change of$4.9 million in our net operating assets and liabilities. The non-cash charges primarily consisted of$3.1 million for equity-based compensation expense and the equity investment loss associated with our investment in MapKure of$2.6 million . The change in our net operating assets and liabilities was primarily due to an increase of$8.3 million in accounts payable and accrued expenses, partially offset by a$3.0 million increase of prepaid expenses and other non-current assets.
Cash flows from investing activities
Net cash provided by investing activities was$83.6 million for the year endedDecember 31, 2021 , driven by net sales of available-for-sale marketable securities of$85.6 million . Net cash used in investing activities was$418.8 million for the year endedDecember 31, 2020 related to the purchase of available-for-sale debt securities of$442.7 million , ourJune 2020 investment in MapKure of$3.5 million and capital expenditures of$0.6 million , offset by the proceeds from the sale and maturity of available-for-sale debt securities of$28.0 million . Net cash used in investing activities was$4.3 million for the year endedDecember 31, 2019 , primarily related to the$3.6 million investment in MapKure and$0.7 million related to capital expenditures.
Cash flows provided by financing activities
Net cash provided by financing activities was$1.2 million for the year endedDecember 31, 2021 , as a result of proceeds from stock option exercises. Net cash provided by financing activities was$270.5 million for the year endedDecember 31, 2020 and consisted of proceeds from issuance of common stock, net of issuance costs of$269.6 million as well as stock option exercises of$0.9 million . Net cash provided by financing activities was$333.7 million for the year endedDecember 31, 2019 and$50.4 million for the year endedDecember 31, 2018 . Net cash provided by financing activities for the year endedDecember 31, 2019 consisted primarily of proceeds from Series A and B convertible preferred shares and the IPO.
Contractual obligations and other commitments
We enter into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.
We have not recorded any reserves for uncertain tax positions as of
Off-balance sheet arrangements
We do not currently have, any off-balance sheet arrangements, as defined under
applicable
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Critical accounting policies and estimates
This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 3 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue
We recognize revenue for consideration received related to the development and commercialization of medicines, which is conducted through various means, including in-house development by the Company, joint development or collaboration agreements with third parties, sale or out licensing of product rights, and others. The terms of these arrangements and agreements may contain multiple promised goods and services, which may include licenses, know-how, drug product, related agreements and other deliverables. Payments to us under these arrangements may include one or more of the following: upfront license fees; milestone payments; and royalties on future product sales.
Arrangements Within the Scope of ASC 606, Revenue from Contracts with Customers
We recognize revenue in accordance with ASC 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as collaboration arrangements and leases.
Pursuant to ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we determine we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligation(s). As part of the accounting for these arrangements, we may be required to make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Once a contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations.
We assess whether each promised good or service is distinct for the purpose of
identifying the performance obligations in the contract. This assessment
involves subjective determinations and may require management to make judgments
about the individual promised goods or services and whether such are separable
from the other aspects of the contractual relationship. Promised goods and
services are considered distinct provided that: (i) the customer can benefit
from the good or service either on its own or together with other resources that
are readily available to the customer (that is, the good or service is capable
of being distinct) and (ii) the entity's promise to transfer the good or service
to the customer is separately identifiable from other promises in the contract
(that is, the promise to transfer the good or service is distinct within the
context of the contract). In assessing whether a promised good or service is
distinct, we consider factors such as the research, manufacturing and
commercialization capabilities of the customer and the availability of the
associated expertise in the general marketplace. We also consider the intended
benefit of the contract in assessing whether a promised good or service is
separately identifiable from other promises in the contract. If a promised good
or service is not distinct, an entity is required to combine that good or
service with other promised goods or services until it identifies a bundle of
goods or services that is distinct.
If the consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled in exchange
for transferring the promised goods or services to a customer. We determine the
amount of variable consideration by using the expected value method or the most
likely amount method. We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the transaction
price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each
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subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method. Licenses of intellectual property: The terms of our license agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of our ongoing activities. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. Up-front Fees: If a license agreement is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the license is deemed to be the predominant item and if the combined performance obligation is satisfied over time or at a point in time. Milestone Payments: At the inception of each arrangement that includes milestone payments (variable consideration), we evaluate whether the 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 milestone value is included in the transaction price. Milestone payments such as developmental and regulatory approval milestones, are generally not considered probable of being achieved until the related activity has been achieved, due to the uncertain nature of the success of clinical trials and obtaining regulatory approvals, which make it unlikely that a significant revenue reversal could be deemed not probable, until such time that the related event has occurred. Royalties: For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied). Reimbursement, cost-sharing and profit-sharing payments: Under certain arrangements, we have been reimbursed for a portion of our research and development expenses or participates in the cost-sharing of such research and development expenses. Such reimbursements and cost-sharing arrangements have been reflected as a reduction of research and development expense in our consolidated statements of operations, as we do not consider performing research and development services for reimbursement to be a part of our ongoing major or central operations.
Accrued research and development costs
Research and Development expenditures are charged to research and development
expense as incurred. These expenses consist of expenses incurred in performing
development activities, including salaries and benefits, equity-based
compensation expense, preclinical expenses, clinical trial and related clinical
manufacturing expenses, contract services and other outside expenses. Expenses
incurred for certain research and development activities, including expenses
associated with particular activities performed by contract research
organizations, investigative sites in connection with clinical trials and
contract manufacturing organizations, are recognized based on an evaluation of
the progress or completion of specific tasks using either time-based measures or
data such as information provided to us by our vendors on actual costs incurred.
Payments for these activities are based on the terms of the individual
arrangements, which may differ from the pattern of expense recognition. Expenses
for research and development activities incurred that have yet to be invoiced by
the vendors that perform the related activities are reflected in the
consolidated financial statements as accrued research and development expenses.
Advance payments for goods or services to be received in the future for research
and development activities are deferred and capitalized. The capitalized amounts
are expensed as the related goods are delivered or the services are performed.
We do not expect our estimates to be materially different from amounts actually
incurred. For the periods presented, we have experienced no material differences
between our accrued expenses and actual expenses.
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Recent accounting pronouncements
See Note 3 to our consolidated financial statements "Summary of Significant Accounting Policies-Recently Issued Accounting Pronouncements" for more information.
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