You should read the following discussion and analysis of our financial condition and results of operations together with our accompanying financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theU.S. Securities and Exchange Commission , orSEC . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. For convenience of presentation some of the numbers have been rounded in the text below.
Overview
We are a commercial-stage biopharmaceutical company focused on the development and commercialization of novel, antibody-based therapeutic products for the treatment of cancer. We are leveraging our proprietary antibody platforms and deep expertise in the field of antibodies to develop a broad portfolio of innovative medicines. Our only approved drug DANYELZA® (naxitamab-gqgk) was approved by theUnited States Food and Drug Administration , or FDA, inNovember 2020 for the treatment, in combination with Granulocyte-Macrophage Colony-Stimulating Factor, or GM-CSF, of pediatric patients one year of age and older and adult patients with relapsed or refractory, or R/R, high-risk neuroblastoma, or NB, in the bone or bone marrow who have demonstrated a partial response, minor response, or stable disease to prior therapy. We are commercializing DANYELZA inthe United States and began shipping the product inFebruary 2021 . DANYELZA is also currently being investigated in three Phase 2 clinical studies for the treatment of patients with first-line NB, third-line NB, and in relapsed osteosarcoma. In addition, we have an ongoing Phase 2 trial at 24
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We submitted a Biologics License Application, or BLA, to the FDA for radiolabeled 131I-omburtamab for central nervous system, or CNS, leptomeningeal metastases, or LM, from NB inAugust 2020 , and received a Refusal to File letter from the FDA inOctober 2020 . The reason for theFDA's decision to issue the Refusal to File letter was that upon preliminary review, the FDA determined that certain parts of the Chemistry, Manufacturing and Control, or CMC Module and the Clinical Module of the BLA required further detail. We have been working closely with the FDA to resolve all issues, and had a number of Type B meetings with the agency, including a pre-BLA meeting inJanuary 2022 . We completed the resubmission of the BLA for omburtamab inMarch 2022 . However, we can provide no assurance that omburtamab will ultimately receive FDA approval.
Additionally, we are conducting clinical studies with omburtamab in diffuse intrinsic pontine glioma, or DIPG, and desmoplastic small round cell tumor, or DSRCT. We also have two omburtamab follow-on product candidates.
We are advancing a new generation of antibody constructs based on the SADA technology, where we use our proprietary radioimmunotherapy SADA platform to create SADA contructs. Bispecific antibody fragments bind to the tumor before a radioactive payload is injected in a two-step approach. We also refer to the SADA technology as Liquid RadiationTM. We have designated GD2-SADA for potential use in GD2 positive solid tumors as our first SADA constructs and have filed an IND for GD2-SADA inDecember 2021 . We believe the SADA technology could potentially improve the efficacy of radiolabeled therapeutics in tumors that have not historically demonstrated meaningful responses to radiolabeled agents. Based on the Y-BiClone platform, we have a new generation of T cell engaging bispecific antibodies, or BsAbs, that may destroy tumor cells by recruitment of host T cells. Our Y-BiClone format contains two binding arms for the tumor target and two binding arms for T cells. This format was designed to have the smallest binding affinity necessary to recruit T cells. We are advancing a CD33 BsAb for the treatment of hematological cancers expressing CD33, a transmembrane receptor expressed on cells of myeloid lineage, for which we have filed an IND and expect clinical trials to be initiated by the middle of 2022. We believe our BsAbs have the potential to result in improved tumor binding, longer serum half-life and significantly greater T cell mediated killing of tumor cells without the need for continuous infusion. Our Phase 2 trial with nivatrotamab, a GD2 BsAb product candidate, for Small CellLung Cancer , or SCLC, and our Phase 1/2 trial for the treatment of refractory GD2 positive adult and pediatric solid tumors will be winded down during the second quarter of 2022 in order to allow for reallocation of resources to our SADA constructs. Our mission is to become the world leader in developing better and safer antibody-based pediatric oncology products addressing clear unmet medical needs and, as such, have a transformational impact on the lives of patients. We intend to continue to advance and expand our product pipeline into certain adult cancer indications either independently or in collaboration with potential partners. Since our inception onApril 30, 2015 , we have devoted substantially all of our resources to organizing and staffing our company, business planning, identifying potential product candidates, conducting pre-clinical studies of our product candidates and clinical trials of our lead product candidates, commercializing our approved product, raising capital, and acquiring and developing our technology platform among other matters. We have not generated substantial revenues from sales of DANYELZA which is currently our only approved product. To date, we have financed our operations primarily through private placements of our securities, proceeds from our IPO and proceeds from our two subsequent public offerings, revenues generated from DANYELZA and license revenues, and the proceeds from our sale of the PRV obtained upon FDA approval of DANYELZA. OnFebruary 22, 2021 , we completed our most recent public offering of our common stock pursuant to which we issued and sold 2,804,878 shares of our common stock at a price to the public of$41.00 per share, which included the exercise in full of the underwriters' option to purchase additional shares. We received aggregate gross proceeds from this offering of$115.0 million , with aggregate net proceeds of approximately$107.7 million after deducting underwriting discounts and commissions and offering expenses. 25
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In conjunction with the approval by the FDA of DANYELZA inNovember 2020 we received a Priority Review Voucher, or PRV, which we subsequently sold to United Therapeutics Corporation for a purchase price of$105 million . We were obligated to pay, and paid 40% of the net proceeds from the sale of the PRV to MSK as required under the terms of the MSK License. We intend to use the remaining proceeds to fund further research and development and other operational programs. The transaction closed inJanuary 2021 upon the resolution of the substantive closing conditions, and the gain was recognized within "Other Income, Net" on the Consolidated Statements of Net Income / (Loss) and Comprehensive Income / (Loss) for the three months endedMarch 31, 2021 . Upon the potential FDA approval of omburtamab, we expect to receive another PRV, and upon the sale we would be obligated to pay 33% of the net proceeds from such sale to MSK. As ofMarch 31, 2022 , we had an accumulated deficit of$368.5 million . Our net loss was$28.1 million for the three months endedMarch 31, 2022 and our net income was$33.4 million for the three months endedMarch 31, 2021 . We have incurred significant net operating losses in every year since our inception and expect to continue to incur net operating losses and significant expenses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year as we:
•continue to advance our lead product candidates through the regulatory approval
process both in the
•continue to advance our other product candidates through pre clinical and clinical development;
•continue to identify additional research programs and additional product candidates, as well as additional indications for existing product candidates;
•initiate pre clinical studies and clinical trials for any additional product candidates we identify;
•develop, maintain, expand and protect our intellectual property portfolio; and
•hire additional research, sales force, commercialization, clinical and scientific personnel.
InAugust 2015 , we entered into a license agreement with MSK, or the MSK License, pursuant to which we have obtained exclusive rights to MSK's rights in our current antibody product candidates. Under the MSK License, we committed to funding scientific research at MSK as well as conducting certain clinical trial activities at MSK. As these product candidates progress through clinical development, regulatory approval and commercialization, certain milestone payments will come due to MSK either as a result of the milestones having been met or the passage of time even if the milestones have not been met. Also, we owe MSK customary royalties on commercial sales of our approved products. In addition, we have committed to obtain certain personnel and laboratory services at MSK under our Master Data Services Agreement, or MDSA, and two separate Core Facility Service Agreements, or CFSAs. Also, under our Investigator-Sponsored Master Clinical Trial Agreement, or MCTA, with MSK, we will provide drug product and funding for certain clinical trials at MSK. OnApril 15, 2020 , we entered into the SADA Technology License Agreement, or the SADA License Agreement, withMSK andMassachusetts Institute of Technology , orMIT , that grants us an exclusive, worldwide, sublicensable license to certain patent and intellectual property rights developed by MSK andMIT to develop, manufacture, and commercialize licensed products and to perform services for all therapeutic and diagnostic uses in the field of cancer diagnostics and cancer treatments using SADA-BiDE (2-step Self-Assembly and DisAssembly-Bispecific DOTA-Engaging antibody system) Pre-targeted Radioimmunotherapy Platform, or the SADA Technology, a concept we also refer to as Liquid RadiationTM. The patents and patent applications covered by the SADA License Agreement are directed, in part, to the SADA Technology, as well as a number of SADA constructs developed by MSK. Upon entering into the SADA License Agreement inApril 2020 and in exchange for the licenses, we paid MSK andMIT a cash upfront payment and issued an aggregate of 42,900 shares of our common stock to them. During the year endedDecember 31, 2021 , we made a cash payment in the amount of$1.0 million to
MSK andMIT under the agreement. 26 Table of Contents As required under the SADA License Agreement, inOctober 2020 , we entered into a Sponsored Research Agreement with MSK to fund at least$1,500,000 in scientific research at MSK over the following three years. Further, the SADA License Agreement requires us to pay to MSK andMIT mid to high single-digit royalties based on annual net sales of licensed products or the performance of licensed services by us and our affiliates and sublicensees. We are obligated to pay minimum annual royalties of$40,000 , which shall increase to$60,000 once a patent has been issued, over the royalty term, commencing on the tenth anniversary of the license agreement. These amounts are non refundable but are creditable against royalty payments otherwise due under the SADA License Agreement. As ofMarch 31, 2022 , we have determined that payment of the minimum royalties is not probable, and accordingly have not accrued for such royalties atMarch 31, 2022 . Under the SADA License Agreement, we are also obligated to pay MSK andMIT certain clinical, regulatory and sales based milestone payments. Certain of the clinical and regulatory milestone payments become due at the earlier of either the completion of the related milestone activity or the date indicated in the SADA License Agreement. Total clinical and regulatory milestones potentially due under the SADA License Agreement are$4,730,000 and$18,125,000 , respectively. Sales based milestones payments, totaling$23,750,000 , become due should the Company achieve certain amounts of sales. In addition, for each of the SADA constructs generated by MSK and sold on behalf of the Company by a sublicensee, the Company may make sales-based milestone payments in the total amount up to$60,000,000 based on the achievement of various cumulative net sales made by the sub-licensee. Finally, under the terms of the SADA License, MSK is entitled to receive 25% of any income generated from the sale of any PRV or the sale of other comparable incentives provided by any non-U.S. jurisdiction. As ofMarch 31, 2022 , we have accrued$605,000 of the clinical based milestones under the SADA License Agreement which we considered to be estimable and probable and we expect to pay this amount in the fourth quarter of 2022.
These MSK agreements are important to our business. For a more detailed discussion of the terms and conditions of certain of these agreements, see NOTE 9-LICENSE AGREEMENTS AND COMMITMENTS.
For DANYELZA, and for any other product candidates for which we obtain regulatory approval, if any, we expect to incur significant milestone costs, as well as commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may continue to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our current product candidates, or any additional product candidates. Because of the numerous risks and uncertainties associated with the development of our existing product candidates and any future product candidates, our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is uncertain, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, product candidates or grant licenses on terms that may not be favorable to us and could have a negative impact on our financial condition. Recent Developments Since it was first reported to have emerged inDecember 2019 , a novel strain of coronavirus, which causes COVID-19, has spread around the world, including theNew York metropolitan area andCopenhagen, Denmark , where our primary office and laboratory spaces are located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the COVID-19 pandemic impacts our operations or those of our third-party partners, including our preclinical studies, clinical trials, manufacturing operations and commercialization efforts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the COVID-19 pandemic, the emergence of new 27 Table of Contents variants of the virus such as the Delta and Omicron variants and the actions to contain the coronavirus or treat its impact, among others. We have taken precautionary measures intended to help minimize the risk of the virus to our employees which could negatively affect our business. To date, the COVID-19 pandemic has caused slower initiation of new clinical trials and a fluctuating rate of recruitment for ongoing clinical trials, which has marginally delayed our clinical development activities and thereby postponed certain accompanying costs. The aggregate impact of the coronavirus has not been significant to the Company.
We cannot presently predict the scope and severity of the potential future
shutdowns or disruptions of vendors and other businesses and government
agencies, such as the
Components of Our Results of Operations
Product Revenue
Product revenue consists of sales of DANYELZA.
Operating Costs and Expenses
Cost of goods sold
Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of DANYELZA, including materials, third-party manufacturing costs, packaging services, freight, labor costs for personnel involved in the manufacturing process, indirect overhead costs and third-party royalties payable on our net product revenues.
Research and Development Expenses
Research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include, but are not limited to:
sponsored research, laboratory facility services, clinical trial and data
? service at MSK under the Sponsored Research Agreements, or the SRAs, the two
CFSAs, the MCTA, and the MDSA, with MSK;
expenses incurred under agreements with CROs, as well as investigative sites
? and consultants that conduct our non-clinical and pre-clinical studies and
clinical trials;
expenses incurred under agreements with CMOs, including manufacturing scale-up
? expenses and the cost of acquiring and manufacturing pre-clinical studies and
clinical trial materials, including manufacturing validation batches;
? upfront, milestone and other non-revenue related payments due under our
third-party licensing agreements;
? employee-related expenses, which include salaries, benefits, travel and
stock-based compensation;
? expenses related to regulatory activities, including filing fees paid to
regulatory agencies;
? outsourced professional scientific development services; and
? allocated expenses for utilities and other facility-related costs, including
rent, insurance, supplies and maintenance expenses, and other operating costs.
28 Table of Contents The successful development and regulatory approval of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of DANYELZA and omburtamab or any future product candidates we may develop. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including, but not limited to:
? the number of clinical sites included in the trials;
? the availability and length of time required to enroll a sufficient number of
suitable patients in our clinical trials;
the actual probability of success for our product candidates, including the
? safety and efficacy, early clinical data, competition, manufacturing capability
and commercial viability;
? significant and changing government regulation and regulatory guidance;
? the performance of our existing and any future collaborators;
? the number of doses patients receive;
? the duration of patient follow-up;
? the results of our clinical trials and pre-clinical studies;
? the establishment of commercial manufacturing capabilities;
? adequate ongoing availability of raw materials and drug substance for clinical
development and any commercial sales;
? the terms and timing of regulatory approvals, including the timing of our BLA
and MAA submissions and their acceptance;
the receipt of marketing approvals, including a safety, tolerability and
? efficacy profile that is satisfactory to the FDA, the EMA or any other non-
regulatory authority;
? any requirement by the FDA, the EMA or any other non-US regulatory authority to
conduct post market surveillance or safety studies;
? the expense of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights; and
? the success of commercialization of approved products.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, the EMA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development. We may also never succeed in achieving regulatory approval for omburtamab or any other product candidates we may develop.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development,
29
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primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct clinical trials and potentially prepare regulatory submissions for our pipeline candidates, including supplementary regulatory submissions for DANYELZA.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses consist primarily of employee related expenses, including salaries, bonus, benefits, and stock-based compensation expenses for personnel in executive, commercial, finance and administrative functions. Other significant costs include facility costs not otherwise included in research and development expenses or cost of goods sold, legal fees relating to corporate matters, and fees for patent, accounting, tax, and consulting services. We anticipate that our selling, general, and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of additional product candidates and costs associated with operating as a public company, including expenses related to services associated with maintaining compliance with exchange listing and theSEC requirements, director and officer insurance costs and investor and public relations costs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.
Other Income / (Loss), Net
OnDecember 28, 2020 , the Company announced that it entered into a definitive agreement to sell its DANYELZA PRV to United Therapeutics Corporation for$105.0 million . The PRV was granted in conjunction with the approval by the FDA of DANYELZA®, for the treatment of refractory/relapsed high-risk NB. Under the terms of the MSK License Agreement, we retained 60% of the net proceeds received from the sale, and the remaining 40% was paid to MSK. As a result, we received net proceeds from this sale of$62.0 million . The transaction closed onJanuary 21, 2021 when the substantive closing conditions included within the agreement were resolved.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance withU.S. generally accepted accounting principles, or GAAP. We believe that several accounting policies are significant to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates-which also would have been reasonable-could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, net product revenues, 30
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the accrual for research and development expenses, the accrual of milestone and royalty payments, and the valuation of stock options. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they occur. Actual results could differ from those estimates. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets.
Revenue Recognition
Product revenue
We recognize revenue from sales of DANYELZA at a point in time when our customer is deemed to have obtained control of the product, which generally occurs upon receipt at the end-user hospital. Substantially all of the Company's product sales were inthe United States . The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for the three months endedMarch 31, 2022 andMarch 31, 2021 . Mckesson, AmerisourceBergen, and Cardinal Health accounted for 60%, 25%, and 11%, respectively, of our gross product revenue for the three months endedMarch 31, 2022 .Mckesson and Cardinal Health accounted for 80% and 16%, respectively, of our gross product revenue for the three months endedMarch 31, 2021 . The amount of revenue we recognize from sales of DANYELZA varies due to rebates, chargebacks and discounts provided under governmental and other programs, distribution related fees and other sales-related deductions. In order to determine those deductions, we estimate, utilizing the expected value method, the amount of revenue that we will ultimately be entitled to. Such estimate are based upon contracts with customers and government agencies, statutorily-defined discounts applicable to government-funded programs, estimated payor mix, and other relevant factors. Calculating these amounts involves estimates and judgments.
Research and Development Expenses
Research and development costs are charged to operations when incurred and are included in operating expenses. Research and development costs consist principally of compensation cost for our employees and consultants that perform our research activities, the costs to obtain and maintain our licenses, the payments to third parties for CMOs and CROs and additional product development, and consumables and other materials used in research and development. We record accruals for estimated ongoing research costs. When evaluating the adequacy of accrued liabilities, we analyze progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Actual results could differ from our estimates. We are obligated to make certain milestone and royalty payments in accordance with the contractual terms of the MSK License, CD33 License, MabVax Sublicense, and SADA License Agreement based upon the resolution of certain contingencies. Certain of these milestone payments are due and payable with the passage of time whether or not the milestones have actually been met. We record the milestone and royalty payment when the achievement of the milestone (including the passage of time) or payment of the milestone or royalty is probable and the amount of the payment is reasonably estimable.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the 31 Table of Contents
measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
• Level 1 - Unadjusted quoted prices for identical assets or liabilities in active markets;
• Level 2 - Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
• Level 3 - Unobservable inputs for the asset or liability, which include management's own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.
The Company's cash equivalents are carried at fair value, determined according to the fair value hierarchy described above.
Stock-Based Compensation
We measure stock options granted to employees, directors, and consultants based on the fair value on the date of the grant and recognize compensation expense of those awards, over the requisite service period, which is the vesting period of the respective award for employees and directors. Forfeitures are accounted for as they occur. We issue stock options to employees and directors with only service-based vesting conditions and record the expense for these awards using the straight-line method over the requisite service period. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. Historically, we have been a private company and lack company-specific historical and implied volatility information for our shares. Therefore, we estimate our expected share price volatility based on a combination of the historical volatility of a group of publicly-traded peer companies and the historical volatility of the Y-mAbs share price, and we expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price. The expected term of our stock options has been determined utilizing the "simplified" method for awards as we have limited historical data to support the expected term assumption. The risk-free interest rate is determined by reference to theU.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that we have never paid cash dividends on shares of our common stock and do not expect to pay any cash dividends in the foreseeable future.
Fair Value of Stock Options
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of the granted stock options were as follows:
Risk-free interest rate: The risk-free interest rate assumption is based on the
?
term of our stock options.
Expected Dividend Yield: The expected dividend yield assumption is based on the
? fact that we have never paid cash dividends and have no present intention to
pay cash dividends. Consequently, we used an expected dividend of zero.
Expected Volatility: The expected stock price volatility is estimated based on
? a combination of the historical volatility of a group of publicly traded peer
companies and the historical volatility of the Y-mAbs share price. Our industry
peers consist of several public companies in the biopharmaceutical industry.
Expected Term: We determine the average expected life of stock options based on
? the simplified method in accordance with
and 110. We expect to continue to use the 32 Table of Contents
simplified method until we have sufficient historical exercise data to provide a
reasonable basis upon which to estimate the expected term.
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, Change 2022 2021 Amount Percentage (in thousands) Revenue: Product revenue, net$ 10,486 $ 5,383 $ 5,103 % 95 Total revenues 10,486 5,383 5,103 95 Operating costs and expenses: Cost of goods sold 1,831 93 1,738 1,869 Research and development 22,912 21,579 1,333 6 Selling, general, and administrative 13,438 11,970 1,468 12 Total operating costs and expenses 38,181 33,642 4,539 13 Loss from operations (27,695) (28,259) 564 (2) Other income / (loss), net Gain from sale of priority review voucher - 62,010
(62,010) (100) Interest and other loss (373) (338) (35) 10 Net income / (loss)$ (28,068) $ 33,413 $ (61,481) (184) Revenue
We launched DANYELZA in
Cost Of Goods Sold
We began capitalizing inventory costs once DANYELZA was approved by the FDA inNovember 2020 . Cost of Goods Sold was$1,831,000 and$93,000 for the three months endedMarch 31, 2022 and 2021, respectively. Our cost of goods sold includes amounts related to materials, third-party contract manufacturing, third-party packaging services, freight, labor costs for personnel involved in the manufacturing process, third party royalties for approved products, and indirect overhead costs. In periods prior to receiving FDA approval for DANYELZA, we recognized inventory and related manufacturing costs of DANYELZA as research and development expenses. This resulted in inventory being sold during the quater endedMarch 31, 2021 for which a portion of the costs had been previously expensed prior to FDA approval. All inventory sold in the quater endedMarch 31, 2022 , had been produced after we had received FDA approval for DANYELZA. In addition, in 2016, we expensed$1.2 million of minimum royalties related to DANYELZA prior to commercial launch which were fully creditable against earned royalties in future periods. As a result, there was no royalty expense recorded for the three months endedMarch 31, 2021 . If we had not sold previously expensed inventory and if we had not utilized the minimum royalty credit, our cost of goods sold would have been approximately$561,000 for the three months endedMarch 31, 2021 . 33 Table of Contents
Research and Development Expenses
We do not record our research and development expenses on a program-by-program or on a product-by-product basis as they primarily relate to personnel, research, manufacturing, license fees, and consumable costs, which are simultaneously deployed across multiple projects under development. These costs are included in the table below. Three Months Ended March 31, Change 2022 2021 Amount Percentage Outsourced manufacturing$ 7,692 $ 8,858 $ (1,166) % (13) Clinical trials 2,768 1,615 1,153 71
Outsourced research and supplies 2,681 3,089 (408)
(13)
Personnel costs 5,136 4,300 836
19
Professional and consulting fees 810 584 226
39 Stock-based compensation 1,848 1,755 93 5 Other 1,977 1,378 599 43$ 22,912 $ 21,579 $ 1,333 % 6 Research and development expenses were$22.9 million for the three months endedMarch 31, 2022 , as compared to$21.6 million for the three months endedMarch 31, 2021 . The$1.3 million increase was primarily due to a$0.9 million increase in employee-related costs, including salary, benefits and non-cash stock-based compensation for personnel related to our research activities due to our expanding workforce, a$1.2 million increase in clinical trials mainly related to omburtamab, and a$0.6 million increase in other items which mainly included increased expenses for IT consulting services and rent expenses. The increase was partially offset by a$1.2 million reduction of oursourced manufacturing costs mainly due to reduced CMC development costs for omburtamab, and a$0.4 million decrease in outsourced research and supplies primarily driven from the reduction in outsourced clinical studies.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses were$13.4 million for the three months endedMarch 31, 2022 , as compared to$12.0 million for the three months endedMarch 31, 2021 . The$1.4 million increase in selling, general, and administrative expenses was primarily attributable to a$0.7 million increase in employee related costs, including salary, benefits and non-cash stock-based compensation for personnel related to our business activities mainly due to the growth of commercialization team,$0.2 million increase in commercial expense, and a$0.2 million increase in travel expense, primarily related to the increased activity of our commercial team to support DANYELZA sales growth.
Other Income / (Loss), Net
OnDecember 28, 2020 , the Company announced that it entered into a definitive agreement to sell its DANYELZA Priority Review Voucher, or PRV to United Therapeutics Corporation for$105.0 million . The PRV was granted in conjunction with the approval by the FDA of DANYELZA for the treatment of refractory/relapsed high-risk NB. Under the terms of the MSK License, Y-mAbs retained 60% of the net proceeds received from the sale of the PRV, and the remaining 40% was paid to MSK. The transaction closed onJanuary 21, 2021 and the Company recognized a net gain of$62.0 million during the quarter endedMarch 31, 2021 related to the sale of the PRV. There were no PRV sales during the quarter endedMarch 31, 2022 . Interest and other loss for the three months endedMarch 31, 2022 was$373,000 as compared to$338,000 for the three months endedMarch 31, 2021 . Our interest and other loss increased by$35,000 due to an increase in foreign currency
exchange losses. 34 Table of Contents
Liquidity and Capital Resources
Overview
Except for the quarter endedMarch 31, 2021 , we have incurred significant net operating losses since inception, and expect to continue to incur net operating losses and significant expenses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We currently have one approved product, DANYELZA, which launched in the first quarter of 2021. We have financed our operations throughMarch 31, 2022 primarily through gross proceeds from the sale of our common stock of$378.8 million in the years 2015 through 2019, and an additional$115.0 million from the sale of our common stock in 2021, as well as additional funding from the proceeds from the sales of DANYELZA and from proceeds from the sale of the DANYELZA PRV. As ofMarch 31, 2022 andDecember 31, 2021 , we had cash and cash equivalents of$156.7 million and$181.6 million , respectively. We might need additional capital to continue funding our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources. In conjunction with the approval by the FDA of DANYELZA inNovember 2020 we received a PRV, which we subsequently sold to United Therapeutics Corporation in a transaction that closed inJanuary 2021 based on an agreed valuation of$105.0 million . We were obligated to pay 40% of the net proceeds to MSK. We intend to use the remaining proceeds to fund further research and development and other operational programs. For an analysis of the type of contractual obligation and the relevant time periods for the related cash requirements of such obligations which may have a material impact on our liquidity and capital resources see the section herein entitled "Contractual Obligations and Commitments".
Cash Flows
The following table provides information regarding our cash flows for the three
months ended
Three Months Ended March 31, Change 2022 2021 Amount Percentage (in thousands) (in thousands) Net cash used in operating activities$ (24,925) $ (31,861) $ 6,936 % (22) Net cash provided by investing activities - 61,610 (61,610) (100) Net cash provided by financing activities 32 107,835 (107,803) (100) Effect of exchange rates on cash and cash equivalents 53 53 - - Net increase / (decrease) in cash and cash equivalents$ (24,840) $
137,637
The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.
Net cash used in operating activities was$24.9 million for the three months endedMarch 31, 2022 , as compared to net cash used in operating activities of$31.9 million for the three months endedMarch 31, 2021 . The$7.0 million decrease in cash used in operating activities was primarily due to decreased cash used for working capital of$6.1 million during the three months endedMarch 31, 2022 compared to the corresponding period in 2021. This$6.1 million decreased cash used for working capital is driven by higher accounts receivable collection of$4.4 million for the three months endedMarch 31, 2022 , as compared toMarch 31, 2021 . Additionally, there was a$0.9 million decreased use of cash to fund the net loss in the three months endedMarch 31, 2022 of$22.5 million , net of non-cash adjustments, compared to the net loss in the three months endedMarch 31, 2021 of$23.3 million , net of non-cash adjustments. 35
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Net Cash Provided By Investing Activities
We did not generate or use cash for investing activities during the three months endedMarch 31, 2022 . Net cash provided by investing activities was$61.6 million for the three months endedMarch 31, 2021 . The net change of$61.6 million was primarily the result of$62.0 million of our share of net proceeds received from the sale of our PRV to United Therapeutics Corporation, please refer to the section entitled "Other Income / (Loss), Net".
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$32.0 thousand for the three months endedMarch 31, 2022 , which resulted from proceeds from exercised stock options. Net cash provided by financing activities was$107.8 million for the three months endedMarch 31, 2021 , which was driven by the net proceeds of$107.7 million received from our public offering inFebruary 2021 and proceeds from exercised stock options of$110.0 thousand for the three months ended
March 31, 2021 . Funding Requirements We expect our expenses to increase as we continue to expand our commercialization efforts for DANYELZA, continue the development of omburtamab, and advance our BLA for omburtamab. In addition, we plan to advance the development of other pipeline programs, initiate new research and pre-clinical development efforts and seek marketing approval for any additional product candidates that we successfully develop. If we obtain approval for any additional product candidates, we expect to incur commercialization expenses, which may be significant, related to establishing sales, marketing, manufacturing capabilities, distribution and other commercial infrastructure to commercialize such products. Accordingly, we might need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or future commercialization efforts. In conjunction with the approval by the FDA of DANYELZA inNovember 2020 we received a PRV, which we subsequently sold to United Therapeutics Corporation for$105.0 million . We were obligated to pay 40% of the net proceeds to MSK. We intend to use the remaining net proceeds of$62.0 million to fund further research and development and other operational programs. OnFebruary 22, 2021 , we completed a public offering of our common stock pursuant to which we issued and sold 2,804,878 shares of our common stock at a price to the public of$41.00 per share which included the exercise in full of the underwriters' option to purchase additional shares. We received aggregate gross proceeds from our third public offering of$115.0 million , with aggregate net proceeds of approximately$107.7 million after deducting underwriting discounts and commissions and offering expenses. We believe our current cash and cash equivalents of$156.7 million is sufficient to fund our operation through mid-2024, and have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the development and commercialization of naxitamab and omburtamab, and the research, development and commercialization of other potential product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
the scope, progress, timing, costs and results of clinical trials for
? developing our lead product candidates, naxitamab and omburtamab, and
conducting pre-clinical studies and clinical trials for our other product
candidates;
? research and pre-clinical development efforts for any future product candidates
that we may develop;
? our ability to enter into and the terms and timing of any collaborations,
licensing agreements, distribution agreements or other arrangements;
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? the achievement of milestones or occurrence of other developments that trigger
payments under any collaboration or other agreements;
? the number of future product candidates that we pursue and their development
requirements;
? the outcome, timing and costs of seeking regulatory approvals;
the costs of commercialization activities for any of our product candidates
that receive marketing approval to the extent such costs are not the
? responsibility of any future collaborators, including the costs and timing of
establishing product sales, marketing, distribution and manufacturing
capabilities;
? the amount and timing of future revenue, if any, received from commercial sales
of our current and future product candidates upon any marketing approvals;
? proceeds received, if any, from monetization of any future PRVs;
? our headcount growth and associated costs as we expand our research and
development and establish a commercial infrastructure;
the costs of preparing, filing and prosecuting patent applications, maintaining
? and protecting our intellectual property rights and defending against
intellectual property related claims; and
? the costs of operating as a public company.
Identifying potential product candidates and conducting pre-clinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing ownership interest in our company may be materially diluted, and the terms of these securities may include liquidation or other preferences that adversely affect common stockholders' rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through additional collaborations, strategic alliances 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 to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined under the applicable regulations
of theSEC . 37 Table of Contents
Contractual Obligations and Commitments
A summary of the financial balances related to our material outstanding contractual commitments and the maximum financial impact related to milestones under those contractual obligations are included in NOTE 9-LICENSE AGREEMENTS AND COMMITMENTS of our enclosed financial statements. We enter into contracts in the normal course of business with CROs, CMOs, clinical sites and other third parties for clinical trials, pre clinical research studies and testing, professional consultants for expert advice and other vendors for clinical supply, manufacturing and other services. These contracts are not considered contractual obligations, as they provide for termination upon prior notice, and, therefore, are cancelable contracts and do not include any minimum purchase commitments. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non cancellable obligations of our service providers, up to the date of cancellation. As further described below, under various licensing and related agreements with third parties, we have agreed to make milestone and royalty payments to third parties. We have entered into three license agreements and certain other agreements with MSK. The license agreements are further described below as the MSK License, the CD33 License, and the SADA License. Additionally, through the SAAA we have established a direct license with MSK relating to the GD2-GD3 Vaccine. Under the MSK License and the CD33 License we are obligated to (i) make certain payments to MSK, which become due based upon the achievement of the related milestone activities or the passage of time in the event such milestone activities are not achieved, as well as certain sales-related milestones, (ii) pay mid to high single-digit royalties to MSK, on a product-by-product and country-by-country basis, based on net sales of products licensed under the applicable agreement and (iii) pay to MSK a percentage of any sublicense fees received by us. Under the CD33 License, we are obligated to pay annual minimum royalties of$40,000 over the royalty term beginning in 2027, increasing to$60,000 once a patent within the licensed rights is issued. These amounts are non-refundable but are creditable against royalty payments otherwise due under the respective agreements. We are also obligated to pay MSK certain clinical, regulatory and sales-based milestone payments under the MSK License and the CD33 License. Certain of the clinical and regulatory milestone payments become due at the earlier of completion of the related milestone activity or the date indicated in the MSK License. Total clinical, regulatory and sales based milestones potentially due under the MSK License are$2,450,000 ,$9,000,000 and$20,000,000 , respectively. In addition, under the CD33 License, we are obligated to make potential payments of$550,000 ,$500,000 and$7,500,000 for clinical, regulatory and sales based milestones, respectively. We record milestones in the period in which the contingent liability is probable and the amount is reasonably estimable. OnApril 15, 2020 , we entered the SADA License Agreement, which requires us to pay to MSK andMIT mid to high single-digit royalties based on annual net sales of licensed products or the performance of licensed services by us and our affiliates and sublicensees. We are obligated to pay annual minimum royalties of$40,000 , increasing to$60,000 once a patent has been issued, over the royalty term, commencing on the tenth anniversary of the license agreement. These amounts are non refundable but are creditable against royalty payments otherwise due under the SADA License Agreement. Under the SADA License Agreement, we are also obligated to pay MSK andMIT certain clinical, regulatory and sales based milestone payments. Certain of the clinical and regulatory milestone payments become due at the earlier of completion of the related milestone activity or the date indicated in the SADA License Agreement. Total clinical and regulatory milestones potentially due under the SADA License Agreement are$4,730,000 and$18,125,000 , respectively. There are also sales based milestones, totaling$23,750,000 , that become due should the Company achieve certain amounts of sales of licensed products. In addition, for each SADA construct generated by MSK and sold for the Company by a sublicensee, the Company may pay sales milestones in the total amount of$60,000,000 based on the achievement of various levels of cumulative net sales by the sublicensee. Further, under the SADA License Agreement, we have committed to funding scientific research at MSK for up to$1,500,000 over the next three years, which we will expense as incurred.
On
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27, 2018, withMabVax Therapeutics Holdings, Inc. andMabVax Therapeutics, Inc. , or together, MabVax, and MSK, which became effective onDecember 13, 2019 . Pursuant to the MabVax/Y-mAbs Sublicense, MabVax sublicensed to us certain patent rights and know-how for development and commercialization of products for the prevention or treatment of NB by means of administering a bi-valent ganglioside vaccine granted to MabVax, pursuant to an exclusive license agreement datedJune 20, 2008 between MabVax and MSK, as amended, or the MabVax/MSK License Agreement. We remain responsible for any potential downstream payment obligations by MabVax to MSK related to the GD2-GD3 Vaccine that were specified in the MabVax/MSK License Agreement. This includes the obligation to pay development milestones totaling$1,400,000 , annual minimum royalties of$10,000 , increasing to$25,000 from approval of the first NDA/BLA for a licensed product, over the royalty term, commencing on the second anniversary of the MabVax/Y-mAbs Sublicense and mid single-digit royalty payments to MSK on sales. Minimum royalties are non-refundable but creditable against royalty payments otherwise due from us to MSK pursuant to the MabVax/MSK License Agreement. In addition, if we obtain FDA approval for the GD2-GD3 Vaccine, then we are obligated to file with the FDA for a PRV. The SAAA stipulates that, if we are granted a PRV from the FDA covering a licensed product under the MabVax/Y-mAbs Sublicense and the PRV is subsequently sold, we will pay directly to MabVax and to MSK, respectively, a percentage of the proceeds from the sale thereof in order that MabVax and MSK each receive the same amount therefrom as envisaged under the MabVax/MSK License Agreement. The MabVax/MSK License Agreement will expire with effect for us, on a country by country basis, on the later of the expiration of (i) 10 years from the first commercial sale of the licensed product in such country or (ii) the last to expire valid claim covering such licensed product rights at the time of and in the country of sale. Research and development is inherently uncertain and, should such research and development fail, the MSK License, the CD33 License, and SADA License are cancelable at our option. We have also considered the development risk and each party's termination rights under the three license agreements when considering whether any contingent payments, certain of which also contain time based payment requirements, were probable. In addition, to the extent we enter into sublicense arrangements, we are obligated to pay to MSK a percentage of certain payments that we receive from sublicensees of the rights licensed to us by MSK, which percentage will be based upon the achievement of certain clinical milestones. To date, we have not entered into any sublicenses related to the CD33 License, the SADA License or the MabVax License. We have entered sublicenses with SciClone and Takeda in 2020 and Adium in 2021 as allowed under the MSK License. Our failure to meet certain conditions under such arrangements could cause the related license to such licensed product to be canceled and could result in termination of the entire respective arrangement with MSK. In addition, we may terminate the MSK License, the CD33 License, or the SADA License with prior written notice to MSK.
Recent Accounting Pronouncements
Refer to NOTE 3-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.
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