SUTRO BIOPHARMA, INC. You should read the following discussion of our financial condition and results of operations in conjunction with our condensed financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 . In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below. These forward-looking statements may include, but are not limited to, statements related to our expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, our future results of operations and financial position, business strategy, market size, potential growth opportunities, preclinical and clinical development activities, efficacy and safety profile of our product candidates, use of net proceeds from our public offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "predict," "target," "intend," "could," "would," "should," "project," "plan," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a clinical stage drug discovery, development and manufacturing company
focused on deploying our proprietary integrated cell-free protein synthesis
platform, XpressCF®, and our site specific conjugation platform, XpressCF+®, to
create a broad variety of optimally designed, next-generation protein
therapeutics, initially for cancer. We aim to design therapeutics using the most
relevant and potent modalities, including cytokine-based therapeutics,
immuno-oncology, or I/O agents, antibody-drug conjugates, or ADCs,
immunostimulatory ADCs, or iADCs, and bispecific antibodies that are directed
primarily against clinically validated targets where the current standard of
care is suboptimal. We believe our platform allows us to accelerate the
discovery and development of potential first-in-class and best-in-class
molecules by enabling the rapid and systematic evaluation of protein
structure-activity relationships to create optimized homogeneous product
candidates. Our mission is to transform the lives of patients by using our
XpressCF® and XpressCF+® platforms to create medicines with improved therapeutic
profiles for areas of unmet need.
Once identified, production of protein drug candidates can be rapidly and
predictably scaled in our current Good Manufacturing Practices compliant
manufacturing facility. We have the ability to manufacture our cell-free extract
that supports our production of proteins on a large scale using a
semi-continuous fermentation process. Our two most advanced product candidates
are wholly owned: STRO-002, an ADC directed against folate receptor-alpha, or
FolR?, for patients with FolR?-expressing cancers, such as ovarian and
endometrial cancers, and STRO-001, an ADC directed against CD74, for patients
with B-cell malignancies, such as multiple myeloma and non-Hodgkin lymphoma, or
NHL.
STRO-002 was designed and optimized for an improved therapeutic index by placing
a precise number of linker-warheads at four specific locations within the
antibody using our proprietary XpressCF+® platform. Our first Phase 1 trial for
STRO-002 is an open-label study evaluating STRO-002 as a monotherapy for
patients with ovarian and endometrial cancers. This trial is being conducted in
two-parts, dose escalation and dose expansion. The primary objectives of the
STRO-002 clinical trial are to determine the safety and tolerability profile, to
define the recommended Phase 2 dose level and interval and to evaluate
preliminary anti-tumor activity. Our secondary objectives are to characterize
the human pharmacokinetics and additional safety, tolerability and efficacy
measures.
We are developing STRO-001, an optimally designed ADC directed against the
cancer target CD74, for multiple myeloma and NHL. STRO-001 was designed and
optimized for maximal therapeutic index by placing linker-warheads at specific
locations within the antibody using our proprietary XpressCF+® platform. The
Phase 1 trial for STRO-001 is an open-label study that is evaluating STRO-001 as
a monotherapy for patients with multiple myeloma and NHL. The trial is being
conducted in two parts: dose escalation and dose expansion. The primary
objectives of the trial are to determine the safety and tolerability profile of
STRO-001, determine the recommended Phase 2 dose and interval and evaluate
preliminary anti-tumor activity. The secondary objectives are to characterize
the human pharmacokinetics of STRO-001 and additional safety, tolerability and
efficacy measures.
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In March 2019 , STRO-002 began enrolling patients in a Phase 1 trial focused on
ovarian and endometrial cancers. The dose escalation portion of the STRO-002
Phase 1 trial has been completed and the dose expansion portion of the trial is
ongoing to assess the efficacy, safety and tolerability of STRO-002 at dose
levels of 4.3 and 5.2 mg/kg. In May 2021 , we reported data from the
dose-escalation cohort. Based on such reported data, STRO-002 exhibited a
manageable safety profile and promising preliminary efficacy data. In January
2022 , we released initial results of the dose expansion portion of the STRO-002
Phase 1 trial. These data suggested that STRO-002 exhibited a manageable safety
profile together with promising preliminary efficacy data in the tested patient
population. In August 2021 , we were granted Fast Track designation for STRO-002
by the FDA for the treatment of patients with platinum-resistant epithelial
ovarian, fallopian tube, or primary peritoneal cancer who have received one to
three prior lines of systemic therapy. In December 2021 , we entered into a
licensing agreement with Tasly Biopharmaceuticals Co., Ltd , or Tasly , to grant
Tasly an exclusive license to develop and commercialize STRO-002 in China , Hong
Kong , Macau and Taiwan , referred to as Greater China , or the Tasly License
Agreement, which agreement was amended in April 2022 .
Our second candidate, STRO-001, is currently enrolling patients in a Phase 1
trial, with updated data reported in December 2020 . Based on such reported data,
STRO-001 has been generally well-tolerated and, unlike certain other ADCs, no
ocular toxicity signals have been observed, with no patients receiving
prophylactic corticosteroid eye drops. Dose escalation in the STRO-001 Phase 1
trial is continuing, and the maximum tolerated dose has not yet been reached. In
October 2018 , we were granted Orphan Drug Designation by the FDA for STRO-001
for the treatment of multiple myeloma. In October 2021 , we granted BioNova
Pharmaceuticals Limited , or BioNova, an option to exclusively license the right
to develop and commercialize STRO-001 in Greater China , or the BioNova Option
Agreement.
Based on our proprietary XpressCF® and XpressCF+® platforms, we have also
entered into multi-target, product-focused collaborations with leaders in the
field of oncology, including a cytokine derivatives collaboration with Merck
Sharp & Dohme Corp. , a subsidiary of Merck & Co., Inc., Kenilworth, NJ , or
Merck; a B Cell Maturation Antigen, or BCMA, ADC collaboration with Celgene
Corporation, or Celgene, a wholly owned subsidiary of Bristol Myers Squibb
Company, New York, NY , or BMS; a MUC1-EGFR ADC collaboration with Merck KGaA,
Darmstadt Germany (operating in the United States and Canada under the name "EMD
Serono"); and a license agreement to develop and commercialize STRO-002 in
Greater China with Tasly . Our XpressCF® and XpressCF+® platforms have also
supported a spin-out company, Vaxcyte Inc., or Vaxcyte, focused on discovery and
development of vaccines for the treatment and prophylaxis of infectious disease.
Since the commencement of our operations, we have devoted substantially all of
our resources to performing research and development and manufacturing
activities in support of our own product development efforts and those of our
collaborators, raising capital to support and expand such activities and
providing general and administrative support for these operations. We have
funded our operations to date primarily from upfront, milestone and other
payments under our collaboration agreements with BMS, Merck and EMD Serono , the
issuance and sale of redeemable convertible preferred stock, our initial public
offering, or IPO, follow-on public offerings of common stock and debt proceeds.
We do not have any products approved for commercial sale and have not generated
any revenue from commercial product sales. We had a loss from operations of
$39.1 million and a net loss of $39.1 million for the three months ended March
31, 2022 , which net loss included the non-operating, unrealized gain of $0.6
million related to our holdings of Vaxcyte common stock. We had a loss from
operations of $19.0 million and net loss of $30.4 million , due principally to an
unrealized loss of $10.7 million related to our holdings of Vaxcyte common
stock, for the three months ended March 31, 2021 . Substantially all of our
losses have resulted from expenses incurred in connection with our research and
development programs and from general and administrative costs associated with
our operations. We cannot assure you that we will have net income or that we
will generate positive cash flow from operating activities in the future. As of
March 31, 2022 , we had an accumulated deficit of $372.5 million . We do not
expect to generate any revenue from commercial product sales unless and until we
successfully complete development and obtain regulatory approval for one or more
of our product candidates, which we expect will take a number of years. If we
obtain regulatory approval for any of our product candidates, we expect to incur
significant commercialization expenses related to product sales, marketing,
manufacturing and distribution. We expect our operating expenses to
significantly increase as we continue to develop, and seek regulatory approvals
for, our product candidates, engage in other research and development
activities, expand our pipeline of product candidates, continue to develop our
manufacturing facility and capabilities, maintain and expand our intellectual
property portfolio, seek regulatory and marketing approval for any product
candidates that we may develop, acquire or in-license other assets or
technologies, ultimately establish a sales, marketing and distribution
infrastructure to commercialize any products for which we may obtain marketing
approval, and operate as a public company. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending on the timing
of our clinical trials, our expenditures on other research and development
activities and the timing of achievement and receipt of upfront, milestones and
other collaboration agreement payments.
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--------------------------------------------------------------------------------Impacts of the COVID-19 Pandemic
The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impacts on our clinical studies, employee or industry events, and effects on our collaboration partners, suppliers, service providers and manufacturers, all of which are uncertain and cannot be predicted. The COVID-19 pandemic and its adverse effects have become more prevalent in the locations where we, our CROs, suppliers or third-party business partners conduct business. We are experiencing the impact of the COVID-19 pandemic on our business through increased cost and delays in the availability of materials routinely used in biologic therapeutic development and manufacturing, which has the potential to cause delays in our research, development and/or manufacturing activities, but overall patient enrollment and treatment remains on track. Additionally, the COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. We may experience more pronounced and significant disruptions in our operations, liquidity, supply chain, facilities, and clinical trials in the future as well. With respect to our clinical trials, we have experienced minor delays in enrollment and occasional delays in data entry by trial sites, but overall enrollment and treatment remains on track. We may in the future experience more significant delays in enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis that could materially adversely impact our business, results of operations, revenue earned from our collaboration partners, and overall financial performance in future periods. Specifically, we may experience impact from changes in how we and companies worldwide conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, the speed and breadth of mass vaccinations for COVID-19 and the efficacy of such vaccines, delays in site activations and enrollment of clinical trials, prioritization of hospital resources toward pandemic effort, delays in review by the FDA and comparable foreign regulatory agencies, limitations on employee resources that would otherwise be focused on the conduct of our research, preclinical studies, clinical trials and manufacturing operations, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions, and disruptions in our supply chain for our product candidates. Additionally, increased reliance on remote work by our employees as a result of the COVID-19 pandemic poses incremental increased cybersecurity risks as our employees' home networks are inherently less secure than our corporate networks. As of the filing date of this Form 10-Q, the extent to which the COVID-19 pandemic may impact our financial condition, results of operations or guidance is uncertain. The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. See the section titled "Risk Factors" for further discussion of the possible impact of the ongoing COVID-19 pandemic on our business. Financial Operations Overview Revenue We do not have any products approved for commercial sale and have not generated any revenue from commercial product sales. Our total revenue to date has been generated principally from our collaboration and license agreements with BMS, Merck, andEMD Serono , and to a lesser extent, from manufacturing, supply and services and materials we provide to the above collaborators and to Vaxcyte. We derive revenue from collaboration arrangements, under which we may grant licenses to our collaboration partners to further develop and commercialize our proprietary product candidates. We may also perform research and development activities under the collaboration agreements. Consideration under these contracts generally includes a nonrefundable upfront payment, development, regulatory and commercial milestones and other contingent payments, and royalties based on net sales of approved products. Additionally, the collaborations may provide options for the customer to acquire from us materials and reagents, clinical product supply or additional research and development services under separate agreements. We assess which activities in the collaboration agreements are considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the collaboration agreements. At the inception of each agreement, we determine the arrangement transaction price, which includes variable consideration, based on the assessment of the probability of achievement of future milestones and contingent payments and other potential consideration. We recognize revenue over time by measuring our progress towards the complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer. For arrangements that include multiple performance obligations, we allocate the transaction price to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. In instances where SSP is not directly observable, we develop assumptions that require judgment to determine the SSP for 27 --------------------------------------------------------------------------------
each performance obligation identified in the contract. These key assumptions may include full-time equivalent, or FTE personnel effort, estimated costs, discount rates and probabilities of clinical development and regulatory success.
Please see further discussion on the revenue recognition treatment of performance obligations under Critical Accounting Policies and Estimates.
Operating Expenses
Research and Development
Research and development expenses represent costs incurred in performing
research, development and manufacturing activities in support of our own product
development efforts and those of our collaborators, and include salaries,
employee benefits, stock-based compensation, laboratory supplies, outsourced
research and development expenses, professional services and allocated
facilities-related costs. We expense both internal and external research and
development costs as they are incurred. Non-refundable advance payments for
services that will be used or rendered for future research and development
activities are recorded as prepaid expenses and recognized as expenses as the
related services are performed.
We expect our research and development expenses to increase in the future as we
advance our product candidates into and through preclinical studies and clinical
trials, pursue regulatory approval of our product candidates, expand our
pipeline of product candidates and continue to develop our manufacturing
facility and capabilities. The process of conducting the necessary preclinical
and clinical research to obtain regulatory approval is costly and time
consuming. The actual probability of success for our product candidates may be
affected by a variety of factors including: the safety and efficacy of our
product candidates, early clinical data, investment in our clinical programs,
the ability of collaborators to successfully develop our licensed product
candidates, competition, manufacturing capability and commercial viability. We
may never succeed in achieving regulatory approval for any of our product
candidates. As a result of the uncertainties discussed above, 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 our product candidates.
The following table summarizes our research and development expenses incurred
during the periods indicated. The internal costs include personnel, facility
costs and research and scientific related activities associated with our
pipeline. The external program costs reflect external costs attributable to our
clinical development candidates and preclinical candidates selected for further
development. Such expenses include third-party costs for preclinical and
clinical studies and research, development and manufacturing services, and other
consulting costs.
Three Months Ended
March 31,
2022 2021
(in thousands)
Internal costs:
Research and drug discovery $ 8,160 $ 5,960
Process and product development 3,688 3,370
Manufacturing 8,649 7,816
Clinical development 2,234 900
Total internal costs 22,731 18,046
External Program Costs:
Research and drug discovery 482 324
Toxicology and translational science 273 410
Process and product development 181 162
Manufacturing 3,668 1,724
Clinical development 2,655 1,896
Total external program costs 7,259 4,516
Total research and development expenses
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--------------------------------------------------------------------------------General and Administrative
Our general and administrative expenses consist primarily of personnel costs, expenses for outside professional services, including legal, human resources, audit, accounting and tax services and allocated facilities-related costs. Personnel costs include salaries, employee benefits and stock-based compensation. We expect to incur additional expenses operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and listing standards applicable to companies listed on the Nasdaq Global Market, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect to increase the size of our administrative function and our general and administrative expenses to support the anticipated growth of our business, and as we continue to advance our product candidates into and through the clinic.
Interest Income
Interest income consists primarily of interest earned on our invested funds.
Unrealized Gain (Loss) on
Unrealized gain (loss) on equity securities consists of the remeasurement of our investment in Vaxcyte common stock.
Interest and Other Expense, Net
Interest expense includes interest incurred on our debt and amortization of debt issuance costs including accretion of final payment. Additionally, we identified a financing component under the Merck 2018 Agreement and recorded interest expense incurred in 2021 associated with the upfront payment. Other income (expense) includes changes in values attributable to the arrangement with our Call Option Plan whereby we granted certain employees options to purchase shares of Vaxcyte common stock.
Comparison of the Three Months Ended
Three Months Ended
March 31,
Change
2022 2021 Change (%)
(in thousands)
Revenues $ 5,897 $ 14,660 $ (8,763 ) (60 )%
Operating expenses
Research and development 29,990 22,562 7,428 33 %
General and administrative 15,039 11,107 3,932 35 %
Total operating expenses 45,029 33,669 11,360 34 %
Loss from operations (39,132 ) (19,009 ) (20,123 ) 106 %
Interest income 116 197 (81 ) (41 )%
Unrealized gain (loss) on equity securities 563 (10,689 ) 11,252 (105 )%
Interest and other expense, net (657 ) (858 ) 201 (23 )%
Net loss $ (39,110 ) $ (30,359 ) $ (8,751 ) 29 %
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Revenue
We have recognized revenue as follows during the periods indicated:
Three Months Ended
March 31,
Change
2022 2021 Change (%)
(in thousands)
Bristol Myers Squibb Company ("BMS")
926 75 %Merck Sharp & Dohme Corporation ("Merck") 1,064 11,883 (10,819 ) (91 )% Merck KGaA, Darmstadt,Germany (operating inthe United States andCanada under the name "EMD Serono") 1,897 220 1,677 762 % Vaxcyte 771 1,318 (547 ) (42 )% Total revenue$ 5,897 $ 14,660 $ (8,763 ) (60 )% Total revenue decreased by$8.8 million , or 60%, during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This was due primarily to a$10.8 million decrease from Merck, related to a$3.3 million decrease from the 2021 completion of the performance obligations associated with the first and second target programs under the 2018 Merck Agreement, full recognition of$6.0 million of revenue associated with the contingent third target program upon the termination of the related performance obligation during the first quarter of 2021, a$1.0 million decrease in research and development activities, and a$1.4 million decrease in manufacturing activities supporting materials supply, partially offset by recognition of$0.3 million of revenue related to the remainingJoint Steering Committee performance obligation under the 2018 Merck Agreement and recognition of$0.6 million of revenue related to the remaining performance obligation from the$2.5 million payment received under the 2021 Amendment. Revenue from Vaxcyte under our supply agreement decreased by$0.5 million , partially offset by an increase fromEMD Serono and BMS of$1.7 million and$0.9 million , respectively, related to contract research and manufacturing activities supporting materials supply.
Research and Development Expense
Research and development expense increased by$7.4 million , or 33%, during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase was due primarily to increases of$3.3 million in personnel-related expenses due to higher headcount,$2.6 million in consulting and outside services, and$1.6 million in laboratory supplies and preclinical research and clinical development expenses, partially offset by a$0.1 million decrease in facilities-related expenses.
General and Administrative Expense
General and administrative expense increased by$3.9 million , or 35%, during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase was due primarily to increases of$2.3 million in personnel-related expenses due to higher headcount,$1.3 million in external services,$0.2 million in facilities-related expenses, and$0.1 million in equipment and office-related expenses.
Interest Income
Interest income decreased by$0.1 million during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , due primarily to a decrease in the balance of investments.
Unrealized Gain (Loss) on
Unrealized gain on equity securities was$0.6 million during the three months endedMarch 31, 2022 as compared to an unrealized loss of$10.7 million for the three months endedMarch 31, 2021 . The unrealized gain (loss) on equity securities in each period was entirely due to the remeasurement of the fair value of our investment in Vaxcyte common stock.
Interest and Other Expense, Net
Interest and other expense, net, decreased by
30
--------------------------------------------------------------------------------Liquidity and Capital Resources
Sources of Liquidity
To date, we have incurred significant net losses, and negative cash flows from operations. Our operations have been funded primarily by payments received from our collaborators, and net proceeds from equity sales and debt. As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$192.1 million , equity securities of$37.7 million , outstanding debt of$25.3 million and an accumulated deficit of$372.5 million .
2021 Contingent Payment from Merck
In the second quarter of 2021, we earned and received a$15.0 million contingent payment from Merck for the initiation of an IND enabling toxicology study for the first program in its collaboration to develop novel cytokine derivative therapeutics for cancer and autoimmune disorders.
Vaxcyte, Inc. Equity Ownership
As of
Term Loan
For a description of our Loan and Security Agreement with
Leases
InJune 2021 , we entered into a third amendment (the "Third Amendment") to our manufacturing facility lease, datedMay 18, 2011 , as amended, by and betweenAlemany Plaza LLC , located atSan Carlos, California (the "San Carlos Lease"), as an extension to the term of the San Carlos Lease for a period of five years (the "Lease Extension Period"). Pursuant to the Third Amendment, theSan Carlos Lease will expire onJuly 31, 2026 , and it includes an option to renew the SanCarlos Lease for an additional five years. The aggregate estimated base rent payments due over the Lease Extension Period is approximately$4.2 million , subject to certain terms contained in the San Carlos Lease. InJune 2021 , we entered into a first amendment (the "First Amendment") to our manufacturing facility lease, datedMay 4, 2015 , as amended, by and between 870Industrial Road LLC , located atSan Carlos, California (the "Industrial Lease"), as an extension to the term of the Industrial Lease for a period of five years (the "Industrial Lease Extension Period"). Pursuant to the first Amendment, the Industrial Lease will expire onJune 30, 2026 , and it includes an option to renew the Industrial Lease for an additional five years. The aggregate estimated base rent payments due over the Industrial Lease Extension Period is approximately$4.3 million , subject to certain terms contained in the Industrial Lease. InSeptember 2020 , we entered into a sublease agreement, or the Sublease, with Five Prime Therapeutics, Inc., or the Sublessor, for approximately 115,466 square feet, in a building located inSouth San Francisco, California , or the Premises. We use the Premises as our new corporate headquarters and to conduct (or expand) research and development activities. We commenced making monthly payments for the first 85,755 square feet of the Premises, or Initial Premises, inJuly 2021 , with occupancy of such space commencing inAugust 2021 . We were provided early access to the Initial Premises in the fourth quarter of 2020 to conduct certain planning and tenant improvement work. The Sublease is subordinate to the lease agreement, effectiveDecember 12, 2016 , between theSublessor and HCP Oyster Point III LLC , or the Landlord. The commencement date for the remaining 29,711 square feet of the Premises, or the Expansion Premises, is expected to be 24 months following the commencement date on the Initial Premises. However, we have the right to accelerate the commencement date on the Expansion Premises to an earlier date upon six months' prior written notice to the Sublessor. The Sublease for both the Initial Premises and Expansion Premises will expire onDecember 31, 2027 . With a commencement date on the Initial Premises ofJuly 1, 2021 , the aggregate estimated base rent payments due over the term of the Sublease are approximately$39.1 million , including the approximately$5.2 million in potential financial benefit to us of base rent abatement to be provided by the Sublessor, subject to certain terms contained in the Sublease. The Sublease contains customary provisions requiring us to pay our pro rata share of utilities and a portion of the operating expenses and certain taxes, assessments and fees of the Premises and provisions allowing the Sublessor to terminate the Sublease upon the termination of the lease with the Landlord or if we fail to remedy a breach of certain of its obligations within specified time periods. Additionally, we posted a security deposit of$0.9 million , which is reflected as restricted cash in non-current assets on our balance sheet as ofMarch 31, 2022 andDecember 31, 2021 . 31 --------------------------------------------------------------------------------
Funding Requirements
Based upon our current operating plan, we believe that our existing capital resources will enable us to fund our operating expenses and capital expenditure requirements through at least the next twelve months after the date of this filing. 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. We will continue to require additional financing to advance our current product candidates into and through clinical development, to develop, acquire or in-license other potential product candidates, pay our obligations and to fund operations for the foreseeable future. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, marketing and distribution arrangements, or other sources of financing. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, and may cause us to delay, reduce the scope of or suspend one or more of our pre-clinical and clinical studies, research and development programs or commercialization efforts, and may necessitate us to delay, reduce or terminate planned activities in order to reduce costs. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. To the extent we raise additional capital through new collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Cash Flows
The following table summarizes our cash flows during the periods indicated:
Three Months Ended
March 31,
2022 2021
(in thousands)
Net cash used in operating activities $ (35,255 ) $ (30,430 )
Net cash provided by (used in) investing activities 32,982 (121,730 )
Net cash provided by financing activities 760 1,826
Net decrease in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities
Cash used in operating activities for the three months endedMarch 31, 2022 was$35.3 million . Our net loss of$39.1 million included non-cash charges of$7.0 million for stock-based compensation,$1.3 million for depreciation and amortization,$0.7 million for noncash lease expenses,$0.6 million of unrealized gain on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock,$0.5 million for the amortization of premium on our marketable securities and$0.1 million in other non-cash charges. Cash used in operating activities also reflected a net change in operating assets and liabilities of$5.2 million , due to a decrease of$6.0 million in accrued compensation expense primarily due to bonuses paid in connection with certain company goal achievements, a decrease of$0.8 million in accounts receivable from our collaborators, a decrease of$0.2 million in prepaid expenses and other assets, and a decrease of$1.4 million in accounts payable and other liabilities due to timing of payments, partially offset by an increase of$0.8 million in our deferred revenue balance from an advance payment for an obligation from one of our supply agreements offset by revenue recognized under our collaboration agreements, and an increase of$0.5 million in our operating lease liability. Cash used in operating activities for the three months endedMarch 31, 2021 was$30.4 million . Our net loss of$30.4 million included$10.7 million of unrealized loss on equity securities as a result of the remeasurement of the estimated fair value of our investment in Vaxcyte common stock, non-cash charges of$4.0 million for stock-based compensation,$1.3 million for depreciation and amortization,$1.2 million for noncash lease expenses and$0.5 million for the amortization of 32 -------------------------------------------------------------------------------- premium on our marketable securities. Cash used in operating activities also reflected a net change in operating assets and liabilities of$17.7 million , due to an increase of$1.7 million in accounts receivable from our collaborators, an increase of$3.4 million in prepaid expenses and other assets, and an increase of$0.2 million in our operating lease liability, partially offset by a decrease of$7.8 million in our deferred revenue balance from revenue recognized under our collaboration agreements, a decrease of$4.3 million in accrued compensation expense primarily due to bonuses paid in connection with certain company goal achievements, and a decrease of$0.7 million in accounts payable and other liabilities due to timing of payments.
Cash Flows from Investing Activities
Cash provided by investing activities of
Cash used in investing activities of$121.7 million for the three months endedMarch 31, 2021 was primarily related to purchases of marketable securities of$164.6 million and purchases of$2.4 million principally for leasehold improvements to the premises under the Sublease, offset partially by maturities and sales of marketable securities of$45.3 million .
Cash Flows from Financing Activities
Cash provided by financing activities of$0.8 million for the three months endedMarch 31, 2022 was primarily related to$0.2 million of proceeds received from the exercise of common stock options and$1.0 million of net proceeds received from participants in our employee equity plans, partially offset by a$0.4 million tax payment related to the net shares settlement of vested restricted stock units. Cash provided by financing activities of$1.8 million for the three months endedMarch 31, 2021 was primarily related to$1.3 million of proceeds received from the exercise of common stock options and$0.9 million of net proceeds received from participants in our employee equity plans, partially offset by a$0.4 million tax payment related to the net shares settlement of vested restricted stock units.
Contractual Obligations and Other Commitments
In addition to the contractual obligations and commitments as noted above and elsewhere in this Quarterly Report on Form 10-Q with regards to the leases and term loans, we enter into agreements in the normal course of business, including with contract research organizations for clinical trials, contract manufacturing organizations for certain manufacturing services, and vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these 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 financial statements, as well as the reported revenue generated and 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.
There have been no material changes to our critical accounting policies and
estimates discussed in our Annual Report on Form 10-K for the year ended
Recent Accounting Pronouncements
See Note 2 to our financial statements included elsewhere in this report for more information.
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