WEREWOLF THERAPEUTICS, INC. The following discussion and analysis is meant to provide material information
relevant to an assessment of the financial condition and results of operations
of our company, including an evaluation of the amounts and uncertainties of cash
flows from operations and from outside resources, so as to allow investors to
better view our company from management's perspective. The following discussion
and analysis of our financial condition and results of operations should be read
together with our condensed consolidated financial statements and related notes
appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report,
and our Annual Report on Form 10-K for the year ended
Overview
We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body's immune system for the treatment of cancer. We are leveraging our proprietary PREDATOR platform to design conditionally activated molecules that stimulate both adaptive and innate immunity with the goal of addressing the limitations of conventional proinflammatory immune therapies. Our molecules, which we refer to as INDUKINE molecules, are intended to activate selectively in the tumor microenvironment. Our most advanced product candidates, WTX-124 and WTX-330, are systemically delivered, conditionally activated Interleukin-2 and Interleukin-12, respectively, INDUKINE molecules for the treatment of multiple tumor types. We remain on track as we advance towards clinical development for WTX-124 and WTX-330.
In
We were incorporated and commenced operations in 2017. Since inception, we have
devoted substantially all of our time and efforts to performing research and
development activities, raising capital and recruiting management and technical
staff to support these operations. To date, we have financed our operations
primarily with proceeds from the sales of our convertible promissory notes and
equity securities. From
Due to our significant research and development expenditures, we have
accumulated substantial net losses since our inception. As of
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.
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Impact of COVID-19 on Our Business
The worldwide COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 pandemic closely. To date, we have not experienced a material financial statement impact or material business disruptions, including with our vendors, or impairments of any of our assets as a result of the pandemic. However, we cannot, at this time, predict the specific extent, duration or full impact that the COVID-19 pandemic will have on our financial statements and operations, including our ongoing and planned preclinical activities and future clinical trials. The extent of the impact of the COVID-19 pandemic, including the emergence of new variants or subvariants of the virus, on our business, operations and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration and spread of the pandemic and its impact on our contract research organizations, or CROs, third-party manufacturers, and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.
Furthermore, the COVID-19 pandemic could affect our employees or the employees of research sites and service providers on which we rely, including CROs, as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing site and office. These and other events resulting from the COVID-19 pandemic could disrupt, delay, or otherwise adversely impact our business. Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic is contained in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report.
Financial Operations Overview
Revenue
Through
For the foreseeable future, we expect substantially all of our revenue will be generated from our Collaboration Agreement and any other collaborations or agreements that we may enter into.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•expenses incurred under agreements with third parties that conduct research and preclinical activities on our behalf;
•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and future clinical trial materials; and
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses.
We typically use our employee and infrastructure resources across our development programs. We track external development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.
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Our external development costs for the three months endedMarch 31, 2022 and 2021 were as follows: Three Months Ended March 31, 2022 2021 WTX-124$ 2,231 $ 604 WTX-330 2,133 1,400 WTX-613 1,002 508 Pre-development candidates 477 152
Total external development costs
Research and development activities are central to our business model. We expect
that our research and development expenses will continue to increase
substantially for the foreseeable future as we initiate clinical trials of
WTX-124 and WTX-330 and continue to discover and develop additional product
candidates. As a result of our entry into the Collaboration Agreement,
commencing in
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. The actual probability of success for our product candidates will depend on a variety of factors, including:
•the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;
•establishing an appropriate safety profile;
•successful enrollment in and completion of clinical trials;
•whether our product candidates show safety and efficacy in our clinical trials;
•receipt of marketing approvals from applicable regulatory authorities;
•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
•continued acceptable safety profile of the products following any regulatory approval.
A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates and 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 activities.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; 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 expect that our general and administrative expenses will increase in the
future as we increase our personnel headcount to support our continued research
and development activities, manufacturing activities and expansion of our
operations in connection with our anticipated commencement of clinical trials.
We also anticipate increased expenses associated with operating as a public
company, including costs for audit, legal, regulatory and tax-related services
related to compliance with the rules and regulations of the
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
March 31,
(in thousands) 2022 2021 $ Change
Operating expenses:
Research and development $ 10,945 $ 4,817 $ 6,128
General and administrative 4,421 2,635 1,786
Total operating expenses 15,366 7,452 7,914
Operating loss (15,366) (7,452) (7,914)
Other income:
Interest income, net 23 17 6
Total other income 23 17 6
Net loss $ (15,343) $ (7,435) $ (7,908) Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended
March 31,
(in thousands) 2022 2021 $ Change
Manufacturing $ 3,858 $ 1,988 $ 1,870
Personnel 3,304 1,446 1,858
Contract research organization 1,985 676 1,309
Facilities 806 137 669
Lab consumables 891 558 333
Other 101 12 89
Total research and development expenses
Research and development expenses for the three months ended
•$1.9 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613;
•$1.9 million of increased personnel costs, including
•$1.3 million of increased contract research organization expense, primarily driven by preclinical studies to support IND enabling studies for WTX-124 and WTX-330; and
•$0.7 million of increased facilities expense, primarily driven by our operating
lease for our future headquarters entered in
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General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended
March 31,
(in thousands) 2022 2021 $ Change
Personnel $ 2,257 $ 1,065 $ 1,192
Professional services 817 1,140 (323)
Facilities 315 289 26
Other 1,032 141 891
Total general and administrative expenses
General and administrative expenses were
•$1.2 million of increased personnel costs due to the requirements of operating
as a public company, which included
•$0.3 million of decreased professional service costs, primarily due to hiring to support the requirements of operating as a public company; and
•$0.9 million of increased other costs, primarily driven by
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations through
Jazz Collaboration
In
Term Loan Facility
In
The Term Loans bear interest on the outstanding daily balance at a floating
annual rate equal to greater of: (i) 0.5% above the prime rate then in effect or
(ii) 4.50%. If the prime rate changes throughout the term, the interest rate is
adjusted effective on the date of the prime rate change. All interest chargeable
under the Loan Agreement is computed on a 360-day year for the actual number of
days elapsed, with interest payable monthly. The Loan Agreement provides for
interest-only payments until the Amortization Date, at which time the aggregate
outstanding principal balance of the Term Loans is required to be repaid in
monthly installments on a 24-month repayment schedule. All unpaid principal and
accrued and unpaid interest with respect to the Term Loans is due and payable in
full on
We are obligated to pay PWB a fee in the event of certain corporate transactions
equal to either (i) the greater of (a)
Under the Loan Agreement, we are required to comply with certain negative covenants, which among other things, restrict us from incurring future debt or granting liens, effectuating a merger or consolidation with or into any other business organization, paying dividends or making
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certain other distributions, selling or otherwise transferring our assets, and
making investments in any entities or instruments, subject, in each case, to
certain exceptions specified in the Loan Agreement. The Loan Agreement also
contains standard affirmative covenants, including with respect to the issuance
of audited consolidated financial statements, insurance, and maintenance of good
standing and government compliance in our state of formation. On or before
Plan of Operation and Future Funding Requirements
We use our capital resources primarily to fund operating expenses, primarily research and development expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical development and move into clinical development of our product candidates. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Further, inflation generally affects us by increasing our cost of labor and certain services. We do not believe that inflation had a material effect on our financial statements included elsewhere in this Quarterly Report; however, our operations may be adversely affected by inflation in the future.
Due to our significant research and development expenditures, we have
accumulated substantial net losses in each period since inception. We have
incurred an accumulated deficit of
Based on our current research and development plans, we expect that our existing
cash and cash equivalents of
The timing and amount of our operating expenditures will depend largely on:
•the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to our planned clinical trials of WTX-124 and WTX-330; the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;
•the cost of manufacturing our product candidates WTX-124, WTX-330, and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;
•the costs of any third-party products used in our planned combination clinical trials that are not covered by such third parties or other sources;
•the potential additional expenses attributable to adjusting our development plans (including any supply related matters) as a result of the COVID-19 pandemic;
•the success of our collaboration with Jazz;
•the timing of, and the cost involved in, obtaining marketing approval for WTX-124 and WTX-330, or any future product candidates, and our ability to obtain marketing approval and generate revenue from any potential commercial sales of such product candidates;
•the cost of building a sales force in anticipation of product commercialization and the cost of commercialization activities for WTX-124, WTX-330, or any future product candidates if we receive marketing approval, including marketing, sales and distribution costs;
•the potential emergence of competing therapies and other adverse market developments;
•the amount and timing of any payments we may be required to make pursuant to our license agreement with Harpoon Therapeutics, Inc., or Harpoon, or other future license agreements or collaboration agreements;
•our ability to establish future collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
•the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
•any product liability or other lawsuits related to our product candidates;
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•the extent to which we in-license or acquire other products and technologies; and
•the costs of operating as a public company.
Our existing cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity may result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and 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 product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.
Cash Flows
The following table provides information regarding our cash flows for the three
months ended
Three Months Ended
March 31,
(in thousands) 2022 2021
Net cash (used in) provided by:
Operating activities $ (13,951) $ (7,326)
Investing activities (28) (13)
Financing activities 159 (538)
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
Net cash used in operating activities for the three months ended
Investing Activities
Net cash used in investing activities for each of the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
Contractual Obligations
Overview
In the normal course of business, we enter into agreements with CROs, contact manufacturers, vendors and other third parties for preclinical studies, manufacturing services and other services and products for operating purposes. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.
Term Loan Facility
See "Liquidity and Capital Resources - Sources of Liquidity - Term Loan
Facility" for a description of our Loan Agreement. As of
Clinical Trial Collaboration and Supply Agreement
In
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and Merck will supply us with pembrolizumab in exchange for jointly owning any inventions or discoveries relative to the combined use of WTX-124 and pembrolizumab. Each party is responsible for its own internal costs and expenses to support the trial.
Lease Agreements
In
In
In
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in
There were no material changes to our critical accounting policies and estimates as reported in the Annual Report on Form 10-K.
JOBS Act Accounting Election and Smaller Reporting Company Implications
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
Even after we no longer qualify as an emerging growth company, we may still
qualify as a "smaller reporting company," which would allow us to continue to
take advantage of reduced disclosure requirements, including not being required
to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act if we are a smaller reporting company with less than
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