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 the second quarter of 2022, we received clearance from the
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.
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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.
Impact of COVID-19 on Our Business
The impact of the COVID-19 pandemic continues to be widespread, rapidly evolving and unpredictable. The extent, duration and full impact of the COVID-19 pandemic on our financial statements and operations, including our ongoing and planned preclinical activities and ongoing and future clinical trials, remains uncertain. Further information relating to the risks and uncertainties related to the COVID-19 pandemic is contained in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report.
Financial Operations Overview
Revenue
We have not generated any revenue to date from product sales and do not expect
to do so in the near future. For the nine months ended
In the future, we expect to continue to generate revenue from the Collaboration Agreement and may generate revenue from product sales or other collaboration agreements, strategic alliances and licensing arrangements. We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year based upon our pattern of performance under the Collaboration Agreement and as a result of the timing and amount of milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
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, preclinical and clinical 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 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.
Our external development costs for the three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
WTX-124 $ 1,644 $ 2,850 $ 6,913 $ 5,474
WTX-330 3,224 2,146 8,586 4,515
WTX-613 2,224 859 4,406 2,497
Pre-development candidates 435 410 1,907 781
Total external development costs
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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 and progress 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,
which commenced 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, including our ongoing Phase 1/1b clinical trial for WTX-124 and the initiation of our Phase 1 clinical trial for WTX-330, 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 the increasing size and complexity of our research, development and manufacturing activities.
Other Income
Other Income (Expense), Net
Other income (expense), net consists primarily of remeasurement gains or losses
attributable to changes in the fair value of the success payment liability
associated with our debt agreement with
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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
September 30,
2022 2021 $ Change
Revenue:
Collaboration revenue
431
Total operating expenses 17,509 13,795 3,714 Operating loss
(12,539) (13,795) 1,256
Other income:
Other income (expense), net 3 (17) 20
Interest income 593 54 539
Total other income 596 37 559
Net loss $ (11,943) $ (13,758) $ 1,815
Revenue
Revenue was
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended
September 30,
2022 2021 $ Change
Manufacturing $ 5,999 $ 3,789 $ 2,210
Personnel 3,652 2,679 973
Contract research organization 1,528 2,476 (948)
Facilities 662 210 452
Lab consumables 1,020 623 397
Other 209 10 199
Total research and development expenses
Research and development expenses for the three months ended
•$2.2 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and current and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613;
•$1.0 million of increased personnel costs, including
•$0.5 million of increased facilities expense primarily related to leasing of additional space to support additional headcount; and
•$0.4 million of increased lab consumables costs primarily related to expanded discovery efforts and headcount.
This increase was partially offset by
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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
September 30,
2022 2021 $ Change
Personnel $ 2,214 $ 1,775 $ 439
Facilities 324 403 (79)
Professional services 837 911 (74)
Other 1,064 919 145
Total general and administrative expenses
General and administrative expenses were
Results of Operations
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30,
2022 2021 $ Change
Revenue:
Collaboration revenue
(42,877) (32,203) (10,674)
Other income:
Other income (expense), net 268 (49) 317
Interest income 729 138 591
Total other income 997 89 908
Net loss $ (41,880) $ (32,114) $ (9,766)
Revenue
Revenue was
Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended
Nine Months Ended
September 30,
2022 2021 $ Change
Manufacturing $ 14,892 $ 8,814 $ 6,078
Personnel 10,853 5,956 4,897
Contract research organization 6,920 4,453 2,467
Facilities 2,108 626 1,482
Lab consumables 2,664 1,980 684
Other 465 40 425
Total research and development expenses
Research and development expenses for the nine months ended
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•$6.1 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and current and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613;
•$4.9 million of increased personnel costs, including
•$2.5 million of increased contract research organization expense incurred to support IND enabling studies and clinical start-up activities for WTX-124 and WTX-330;
•$1.5 million of increased facilities expense primarily related to leasing of additional space to support additional headcount; and
•$0.7 million of increased lab consumables costs primarily related to expanded discovery efforts and headcount.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
nine months ended
Nine Months Ended
September 30,
2022 2021 $ Change
Personnel $ 6,728 $ 4,416 $ 2,312
Facilities 1,049 1,010 39
Professional services 2,983 3,147 (164)
Other 3,333 1,761 1,572
Total general and administrative expenses
General and administrative expenses were
•$2.3 million of increased personnel costs, including
•$1.6 million of increased other costs, primarily driven by
Other Income (Expense), Net
Changes in the fair value of the success payment liability resulted in a gain of
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
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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 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
ATM Offering
On
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 clinical trials of WTX-124 and WTX-330 and 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 combination clinical trials that are not covered by such third parties or other sources;
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•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;
•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 nine
months ended
Nine Months Ended
September 30,
2022 2021
Net cash (used in) provided by:
Operating activities $ (28,726) $ (30,203)
Investing activities (3,093) (226)
Financing activities 14,650 109,389
Net (decrease) increase in cash, cash equivalents and restricted
cash $ (17,169) $ 78,960
Operating Activities
Net cash used in operating activities for the nine months ended
Investing Activities
Net cash used in investing activities for each of the nine months ended
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Financing Activities
Net cash provided by financing activities for the nine 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 and
clinical trials, 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. During the nine months ended
Term Loan Facility
See "Liquidity and Capital Resources - Sources of Liquidity - Term Loan
Facility" for a description of our Loan Agreement. As of
Lease Agreements
Total estimated base rent payments over the remaining term of the lease for
office and laboratory space that we entered into in
The short-term lease for office and laboratory space that we entered into in
The lease for office and laboratory space that we entered into 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
Revenue Recognition
We analyze our collaborations to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements ("ASC 808"). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election.
For those elements of the arrangement that are accounted for pursuant to ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract, determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. As part of the assessment, we must develop assumptions that require judgment to determine the
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standalone selling price for each performance obligation identified in the contract. We use key assumptions to determine the standalone selling price, which may include reimbursement rates for personnel costs, development timelines and probabilities of regulatory success. We do not assess whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of promised goods or services to the customer will be one year or less.
Arrangements that include upfront payments may require deferral of revenue recognition to a future period until obligations under these arrangements are fulfilled. The event-based milestone payments represent variable consideration, and we use the "most likely amount" method to estimate this variable consideration. Given the high degree of uncertainty around the occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. Revenue will be recognized from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.
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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