Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. These statements generally relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The following discussion and analysis contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and the timing of events may differ materially from those discussed in our forward-looking statements as a result of various factors, including those discussed below and those discussed in the section entitled “Risk Factors” included in this Quarterly Report on Form 10-Q. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the SEC.
Forward-looking statements include, but are not limited to, statements about:
•our plans to develop, manufacture and commercialize lirentelimab, AK006 and our other product candidates, including our targeted clinical indications, intellectual property strategy, sales and marketing objectives and infrastructure capabilities;
•the timing, focus and clinical indications of our preclinical studies and clinical trials, and the reporting of data from those trials;
•the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;
•the expected patient enrollment in our clinical trials;
•the impact that the adoption of new accounting pronouncements will have on our financial statements;
•the beneficial characteristics, safety, efficacy and therapeutic effects of lirentelimab, AK006 or our other product candidates;
•the timing or likelihood of regulatory filings and approvals, including our expectation to seek special designations, such as orphan drug designation, for lirentelimab, AK006 or our other product candidates for various diseases;
•our ability to obtain and maintain regulatory approval of lirentelimab, AK006 or our other product candidates;
•our continued reliance on third-parties to conduct additional clinical trials of lirentelimab and our other product candidates;
•our ability to obtain, maintain, or negotiate favorable terms of any collaboration, partnership, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize lirentelimab and our other product candidates;
•the need to hire additional personnel and our ability to attract and retain such personnel;
•the need for additional financing;
•our expectations regarding financial performance, including revenues, expenses and net losses, and impacts from our relationship with Lonza AG (including our Reorganization Plan);
•the sufficiency of our existing cash, cash equivalents and marketable securities to fund our future operating expenses and capital expenditure requirements;
•the costs associated with being a public company;
•our anticipated uses of our existing cash, cash equivalents and investments; and
•the impact of inflation and increased interest rates, and their impact on capital markets.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including, but not limited to, those described in “Risk Factors”. In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking
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statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section entitled “Risk Factors” included in Part II, Item 1A and elsewhere in this Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a clinical stage biotechnology company developing therapeutics which target immunomodulatory receptors present on immune effector cells involved in allergic, inflammatory and proliferative diseases. Activating these immunomodulatory receptors allows us to directly target cells involved in disease pathogenesis and, in the setting of allergy and inflammation, has the potential to result in broad inhibition of inflammatory cells. In the setting of proliferative diseases, blocking the inhibitory function of the receptors could restore the immune cells’ ability to identify and kill proliferative cells. Our most advanced therapeutics are lirentelimab (AK002) and AK006.
Lirentelimab targets Siglec-8, an inhibitory receptor expressed selectively on mast cells and eosinophils, two types of white blood cells that are widely distributed in the body and play a central role in the inflammatory response. Binding of lirentelimab (AK002) to Siglec-8 results in rapid and sustained depletion of eosinophils via antibody dependent cellular cytotoxicity (ADCC) and inhibition of mast cells via multiple stimuli including IL-33, TSLP, IgE, MRGPRX-2, TLR and others. Inappropriately activated mast cells and eosinophils have been identified as key drivers in a number of severe diseases affecting the skin, lungs, gastrointestinal tract, eyes and other organs. We are currently developing lirentelimab for the treatment of atopic dermatitis, chronic spontaneous urticaria and potentially other indications.
Lirentelimab has completed an open label Phase 2a clinical trial including patients with chronic spontaneous urticaria and patients with omalizumab refractory urticaria. Chronic spontaneous urticaria is a debilitating skin condition characterized by frequent and unpredictable eruption of hives, severe itching and swelling. Based on the promising symptom improvements reported in the Phase 2a study we initiated a randomized, double-blind, placebo-controlled Phase 2b trial of subcutaneous (“SC”) lirentelimab in patients with chronic spontaneous urticaria.
Lirentelimab has also completed clinical studies in severe allergic conjunctivitis, indolent systemic mastocytosis, eosinophilic gastritis (“EG”) and/or eosinophilic duodenitis (“EoD”), and eosinophilic esophagitis (“EoE”). Based on promising observations in these studies in patients with comorbid atopic dermatitis, we initiated a randomized, double-blind, placebo-controlled Phase 2 clinical trial of SC lirentelimab in adult patients with moderate-to-severe atopic dermatitis. Atopic dermatitis is a chronic pruritic inflammatory condition that is characterized by dry, red, itchy patches of skin.
In addition to our clinical development efforts with lirentelimab, we also have a robust preclinical research effort directed at generating antibodies to novel immunomodulatory receptors. The most advanced of these are AK006 and AK007. AK006 targets Siglec-6, an inhibitory receptor expressed selectively on mast cells. Binding of AK006 to Siglec-6 activates the native inhibitory function of the receptor which in turn reduces mast cell activation. In preclinical studies, AK006 inhibited multiple modes of mast cell activation, including targeting IgE, IL-33, KIT, C5a, and MRGPRX2, resulting in the deep suppression of mast cell activation. In addition to mast cell inhibition, AK006 reduced human tissue mast cells via antibody-dependent cellular phagocytosis (ADCP). AK006 appears to have the potential to provide broader and deeper mast cell inhibition than lirentelimab and, in addition to its inhibitory activity, reduce mast cell numbers. We plan to begin human studies with AK006 in the first half of 2023 in healthy volunteers and subsequently in patients with mast cell driven diseases.
AK007 targets Siglec-10, a myeloid inhibitory checkpoint receptor that is selectively expressed on tumor associated macrophages (“TAMs”) and dendritic cells (“DCs”). AK007 is designed to block all known ligand interaction with Siglec-10, including the “don’t eat me” signal CD24. “Don’t eat me” signals such as CD47 and CD24, have been identified to be overexpressed in tumors and allow cancer cells to avoid destruction by macrophages and other myeloid cells of the innate immune system. In preclinical research, AK007 polarizes tumor-associated myeloid cells and promotes anti-tumor immunity. Allakos is currently conducting preclinical studies with AK007.
Since our inception in 2012, we have devoted substantially all of our resources and efforts towards the research and development of our product candidates. Our lead product candidate, lirentelimab, a monoclonal antibody targeting Siglec-8, entered clinical trials in 2016. In addition to activities conducted internally at our facilities, we have utilized significant financial resources to engage contractors, consultants and other third parties to conduct various preclinical and clinical development activities on our behalf.
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To date, we have not had any products approved for sale and have not generated any revenue nor been profitable. Further, we do not expect to generate revenue from product sales until such time, if ever, that we are able to successfully complete the development and obtain marketing approval for one of our product candidates. We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We have incurred significant operating losses to date and expect to incur significant operating losses for the foreseeable future. Our net losses were $42.4 million and $197.0 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $975.2 million.
In February 2022, we implemented a reorganization plan to reduce operating costs, contractual commitments and better align our workforce with the clinical development plans of our business (the “Reorganization Plan”). As a result, we entered into a termination agreement (the “Termination Agreement”) with Lonza AG, Lonza Sales Ltd and Lonza Sales AG (collectively, “Lonza AG”) regarding all outstanding manufacturing service agreements and reduced our workforce by approximately 35%. While this resulted in increased costs in the first and second quarters of 2022, our overall spending in subsequent quarters was significantly reduced. Future expenses are subject to periodic fluctuations particularly due to the timing of ongoing manufacturing development efforts.
As of March 31, 2023, we had cash, cash equivalents and marketable securities of $252.6 million, which we believe will be sufficient to fund our planned operations for at least the next 12 months from the issuance of our financial statements.
Vendor Termination Agreement
Approximately $231.2 million of noncancellable purchase obligations as of December 31, 2021, related to various manufacturing services agreements with Lonza AG or affiliates (such agreements, the “MSAs”). On February 14, 2022 (the “Effective Date”), we entered into the Termination Agreement with Lonza AG regarding all outstanding MSAs. Lonza AG will continue to provide certain services to us, including completion of cGMP batches that were then already underway and subsequently completed by the third quarter of 2022 and will continue to provide certain other specified services to assist with the transition post-termination. The Termination Agreement provides that we pay 126 million Swiss Francs, approximately USD $136.5 million (the “Termination Amount”) to Lonza AG, as a result of such termination. In accordance with the terms of the Termination, we paid 95% of the Termination Amount (approximately USD $130 million) during the first quarter of 2022. The remaining 5% (approximately USD $6.5 million) was paid during the third quarter of 2022. The Termination Agreement contains mutual releases by all parties thereto, for all claims known and unknown, relating and arising out of, or connected with, the MSAs and the subject matter(s) thereof, subject to certain exceptions.
As the agreement was terminated on February 14, 2022, we recognized the costs associated with the Termination Agreement during the first quarter of 2022 in accordance with ASC 420 except for approximately $6.0 million attributed to services remaining to be rendered by Lonza AG and therefore to be expensed in future periods as the services are performed.
Reorganization Plan
Under the Reorganization Plan, we reduced our workforce by approximately 35%. Impacted employees were informed on February 16, 2022. At the time of departure, impacted employees were eligible to receive severance benefits and we funded COBRA premiums, contingent upon an impacted employee’s execution (and non-revocation) of a customary separation agreement, which includes a general release of claims against us.
In connection with the Reorganization Plan, we recognized restructuring charges of approximately $5.2 million during the first quarter of 2022, related to severance payments and other employee-related separation costs.
In addition, the Board determined that it was in the best interests of us and our stockholders to put in place arrangements designed to promote the continued dedication and commitment of those employees, including executives, determined to be key to the planned go-forward operations. The Board approved, and management implemented, a retention program for employees remaining which included cash retention bonuses totaling $3.1 million for certain retained employees and grants of RSUs totaling 8.2 million awards in aggregate to all employees. Half of these RSUs are time-based RSUs with four-year vesting and half are performance-based with full vesting occurring only if we achieve all primary endpoints in any of our Phase 2/3 clinical studies other than the Phase 3 Eosinophilic Duodenitis study that completed in the third quarter of 2022. The cash retention bonuses are required to be repaid in full if the employee leaves prior to December 31, 2023. As a result, these cash retention bonuses are being amortized over the requisite service period with $1.0 million remaining in prepaid expenses and other current assets as of March 31, 2023.
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Components of Operating Results
Revenue
We have not generated any revenue from product sales or otherwise, and do not expect to generate any revenue for at least the next several years.
Operating Expenses
We classify operating expenses into two categories: (i) research and development and (ii) general and administrative.
Research and Development Expenses
Research and development expenses represent the following costs incurred by us for the discovery, development and manufacturing of our product candidates:
•consultant and personnel-related costs including consulting fees, employee salaries and benefits, travel and stock-based compensation expense;
•costs incurred under service agreements with contract research organizations (“CROs”) that conduct nonclinical research and development activities on our behalf;
•costs incurred under service agreements with clinical CROs and clinical investigative sites to conduct our clinical studies;
•costs incurred under service agreements with contract development and manufacturing organizations (“CDMOs”) for the manufacture and fill finish of our product candidates, as well as any costs required to cancel any related purchase obligations;
•costs related to in-house research and development activities conducted at our facilities including laboratory supplies, non-capital laboratory equipment and depreciation of capital laboratory equipment and leasehold improvements;
•costs incurred under exclusive and non-exclusive license agreements with third-parties; and
•allocated facility and other costs including the rent and maintenance of our facilities, insurance premiums, depreciation of shared-use leasehold improvements and general office supplies.
We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations, patient enrollment or information provided to us by our clinical CROs and clinical investigative sites, along with analysis by our in-house clinical operations personnel. Advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized as prepaid expenses, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
Prior to the regulatory approval of our product candidates, we recognize expenses incurred with our CDMOs for the manufacture of product candidates that could potentially be available to support future commercial sales, if approved, in the period in which they have occurred. To date, we have not yet capitalized any costs to inventory as we are unable to determine if these costs will provide a future economic benefit, given the unapproved nature of our product candidates.
The successful development of our product candidates is highly uncertain. Accordingly, it is difficult to estimate the nature, timing and extent of costs necessary to complete the remainder of the development of our product candidates. We are also unable to predict when, if ever, we will be able to generate revenue from our product candidates. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty surrounding:
•demonstrating sufficient safety and tolerability profiles of product candidates;
•successful enrollment and completion of clinical trials;
•requisite clearance and approvals from applicable regulatory authorities;
•establishing and maintaining commercial manufacturing capabilities with CDMOs;
•obtaining and maintaining protection of intellectual property; and
•commercializing product candidates, if and when approved, alone or in collaboration with third-parties.
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A change pertaining to any of these variables would significantly impact the timing and extent of costs incurred with respect to the development and commercialization of our product candidates.
External costs incurred from CDMOs, clinical CROs and clinical investigative sites have comprised a significant portion of our research and development expenses since inception. We track these costs on a program-by-program basis following the advancement of a product candidate into clinical development. Consulting and personnel-related costs, laboratory supplies and non-capital equipment utilized in the conduct of in-house research, in-licensing fees and general overhead, are not tracked on a program-by-program basis, nor are they allocated, as they commonly benefit multiple projects, including those still in our pipeline.
We anticipate that our research and development expenses will fluctuate from quarter-to-quarter in the future, primarily driven by the timing of costs associated with the manufacturing of our lead product candidate, lirentelimab, as we refine the frequency and increase the scale of our manufacturing batches, including raw material costs. Additionally, we expect costs to fluctuate from quarter-to-quarter associated with our ongoing and future early, mid and late-stage clinical trials for various indications.
General and Administrative Expenses
General and administrative expenses consist of fees paid to consultants, salaries, benefits and other personnel-related costs, including stock-based compensation, for our personnel in executive, finance, accounting and other administrative functions, legal costs, fees paid for accounting and tax services, costs associated with pre-commercialization activities and facility costs not otherwise included in research and development expenses. Legal costs include general corporate and patent legal fees and related costs.
We anticipate that our general and administrative expenses will fluctuate from quarter-to-quarter in the future to support our continued research and development activities, as well as progress on our preliminary commercial development activities, including costs related to personnel, outside consultants, attorneys and accountants, stock-based compensation, among others. Additionally, we expect to incur costs associated with continuing to operate as a public company, including expenses related to maintaining compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, additional insurance premiums, investor relations activities and other ancillary administrative and professional services.
Interest Income
Interest income primarily consists of interest and investment income earned on our cash, cash equivalents and investments included on the balance sheets.
Other Expense, Net
Other expense, net, primarily consists of amounts realized from gains and losses related to fluctuations in foreign currencies.
In-Licensing Agreements
We have entered into a number of exclusive and nonexclusive, royalty bearing license agreements with third-parties for certain intellectual property. Under the terms of the license agreements described below, we are obligated to pay milestone payments upon the achievement of specified clinical, regulatory and commercial milestones. Research and development expense associated with our milestone payments are recognized when such milestone has been achieved. Actual amounts due under the license agreements vary depending on factors including, but not limited to, the number of product candidates we develop and our ability to successfully develop and commercialize our product candidates covered under the respective agreements. In addition to milestone payments, we are also subject to future royalty payments based on sales of our product candidates covered under the agreements, as well as certain minimum annual royalty and commercial reservation fees. Because the achievement of milestones and the timing and extent of future royalties is not probable, these contingent amounts have not been included on our balance sheets or as part of Contractual Obligations and Commitments discussion below.
We did not incur any milestone expense for the three months ended March 31, 2023 and 2022. As of March 31, 2023, we have not incurred any royalty liabilities related to our license agreements, as product sales have not yet commenced.
Exclusive License Agreement with The Johns Hopkins University
In December 2013, we entered into a license agreement with JHU for a worldwide exclusive license to develop, use, manufacture and commercialize covered product candidates including lirentelimab, which was amended in September 2016. Under the terms of the agreement, we have made upfront and milestone payments of $0.7 million through March 31, 2023. We may be required to make aggregate additional milestone payments of up to $1.8 million. We also issued 88,887 shares of common stock as consideration under
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the JHU license agreement. In addition to milestone payments, we are also subject to low single-digit royalties to JHU based on future net sales of each licensed therapeutic product candidate by us and our affiliates and sublicensees, with up to a low six-digit dollar minimum annual royalty payment.
Non-exclusive License Agreement with BioWa Inc. and Lonza Sales AG
In October 2013, we entered into a tripartite agreement with BioWa and Lonza Sales for the non-exclusive worldwide license to develop and commercialize product candidates including lirentelimab that are manufactured using a technology jointly developed and owned by BioWa and Lonza Sales. Under the terms of the agreement, we have made milestone payments of $3.4 million through March 31, 2023 and we may be required to make aggregate additional milestone payments of up to $38.0 million. In addition to milestone payments, we are also subject to minimum annual commercial license fees of $40,000 per year to BioWa until such time as BioWa receives royalty payments, as well as low single-digit royalties to BioWa and to Lonza Sales. Royalties are based on future net sales by us and our affiliates and sublicensees.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. During the three months ended March 31, 2023, there were no other changes to our critical accounting policies and estimates as disclosed in our 2022 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 to our unaudited financial statements for recently issued accounting pronouncements, including the respective effective dates of adoption and effects on our results of operations and financial condition.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Operating expenses |
|
|
|
|
|
|
Research and development |
|
$ |
33,078 |
|
|
$ |
176,807 |
|
General and administrative |
|
|
11,968 |
|
|
|
18,844 |
|
Total operating expenses |
|
|
45,046 |
|
|
|
195,651 |
|
Loss from operations |
|
|
(45,046 |
) |
|
|
(195,651 |
) |
Interest income |
|
|
2,678 |
|
|
|
83 |
|
Other expense, net |
|
|
(36 |
) |
|
|
(1,455 |
) |
Net loss |
|
|
(42,404 |
) |
|
|
(197,023 |
) |
Unrealized gain (loss) on investments |
|
|
296 |
|
|
|
(316 |
) |
Comprehensive loss |
|
$ |
(42,108 |
) |
|
$ |
(197,339 |
) |
Research and Development Expenses
Research and development expenses were $33.1 million for the three months ended March 31, 2023 compared to $176.8 million for the three months ended March 31, 2022, a decrease of $143.7 million. The first quarter of 2022 research and development expenses included a $130.5 million charge related to the Lonza Termination agreement and $4.6 million of costs as a result of the Reorganization Plan. The remaining decrease in research and development expenses as compared to the prior year first quarter of $8.6 million is primarily attributed to decreases in contract research and development costs and clinical costs primarily relating to lirentelimab (AK002).
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General and Administrative Expenses
General and administrative expenses were $12.0 million for the three months ended March 31, 2023 compared to $18.8 million for the three months ended March 31, 2022, a decrease of $6.9 million. The first quarter of 2022 general and administrative expenses included $4.3 million of costs as a result of the Reorganization Plan. The remaining decrease in general and administrative expenses from the prior year first quarter was primarily due to decreases in stock-based compensation expense and other general and administrative expenses.
Interest Income
Interest income was $2.7 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, with the increase attributed primarily to higher interest rates from investments.
Other Expense, Net
Other expense, net was $0.0 million for the three months ended March 31, 2023 compared to $1.5 million net expense for the three months ended March 31, 2022, with the change primarily attributed to changes in foreign exchange gains and losses.
Net Loss
Net loss was $42.4 million for the three months ended March 31, 2023 compared to net loss of $197.0 million for the three months ended March 31, 2022. Total stock-based compensation and depreciation expense for the three months ended March 31, 2023 and 2022 was $12.2 million and $13.5 million, respectively. Net loss for the three months ended March 31, 2022 included approximately $139.4 million of expenses related to the Lonza Termination Agreement and the Reorganization Plan.
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2023, we had cash, cash equivalents and investments of $252.6 million. Based on our existing business plan, we believe that our current cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations through at least the next 12 months from the issuance of our financial statements.
We are a clinical stage biotechnology company with a limited operating history. As a result of our significant research and development expenditures, we have generated net losses since our inception. We have financed our operations primarily through equity offerings.
September 2022 Offering
On September 21, 2022, we closed an underwritten registered direct offering (the “September 2022 Offering”) under our shelf registration statement on Form S-3 (File No. 333-265085) pursuant to which we sold an aggregate of 29,882,000 shares of our common stock, at a public offering price of $5.02 per share. We received aggregate net proceeds of $140.6 million, after deducting the underwriting commissions and offering expenses.
“At-the-Market” Equity Offering
On August 4, 2022, we entered into a sales agreement (the “2022 Sales Agreement”) with Cowen. Pursuant to the Sales Agreement we may sell, from time to time up to an aggregate of $75.0 million in gross sales proceeds of our common stock through an ATM Offering. We will pay Cowen a commission equal to 3.0% of the gross proceeds from the sale of shares of our common stock under the Sales Agreement. The $75.0 million of common stock that may be offered, issued and sold in the ATM Offering is included in the $250.0 million of securities that may be offered, issued and sold by us under our registration statement on Form S-3 (File No. 333-265085). We expect to use the net proceeds from sales under the 2022 Sales Agreement for general corporate purposes.
During the three months ended March 31, 2023, we sold 0.1 million shares of our common stock at an average price of $7.20 per share through our ATM Offering, resulting in proceeds of $1.0 million net of commissions. Under our current ATM Offering program, $74 million of common stock remain available for future sales as of March 31, 2023; however, we are not obligated to make any sales under this program.
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Summary Cash Flows
Comparison of the three months ended March 31, 2023 and 2022
The following table summarizes the primary sources and uses of our cash, cash equivalents, and restricted cash for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net cash used in operating activities |
|
$ |
(30,139 |
) |
|
$ |
(174,287 |
) |
Net cash provided by investing activities |
|
|
35,318 |
|
|
|
57,412 |
|
Net cash provided by financing activities |
|
|
1,458 |
|
|
|
347 |
|
Net decrease in cash, cash equivalents and restricted cash |
|
$ |
6,637 |
|
|
$ |
(116,528 |
) |
Cash Used in Operating Activities
Net cash used in operating activities was $30.1 million for the three months ended March 31, 2023, which was primarily attributable to our net loss of $42.4 million adjusted for net noncash charges of $11.2 million and net changes in operating assets and liabilities of $1.1 million. Noncash charges included approximately $10.7 million in stock-based compensation expense, $1.5 million in depreciation and amortization expense, $1.5 million in amortization of premiums and discounts on investments and $0.5 million in noncash lease expense.
Net cash used in operating activities was $174.3 million for the three months ended March 31, 2022, which was primarily attributable to our net loss of $197.0 million adjusted for net noncash charges of $15.1 million and net changes in operating assets and liabilities of $7.7 million. Noncash charges included approximately $11.4 million in stock-based compensation expense, $2.1 million in depreciation and amortization expense, $1.1 million in amortization of premiums and discounts on marketable securities and $0.4 million in noncash lease expense.
Cash Provided by Investing Activities
Net cash provided by investing activities was $35.3 million for the three months ended March 31, 2023, which consisted of $85.0 million in proceeds from maturities of investments, partially offset by $49.4 million for the purchases of investments and $0.3 million for the purchases of property and equipment.
Net cash provided by investing activities was $57.4 million for the three months ended March 31, 2022, which consisted of $60.0 million in proceeds from maturities of marketable securities and $20.0 million in proceeds from sales of marketable securities, partially offset by $20.0 million for the purchases of marketable securities and $2.6 million for the purchases of property and equipment.
Cash Provided by Financing Activities
Net cash provided by financing activities was $1.5 million for the three months ended March 31, 2023, which consisted of $1.0 million in net proceeds from the issuance of common stock in connection with the ATM Offering and $0.5 million in proceeds received from employees for the purchase of common stock through the 2018 ESPP and for the exercise of stock options.
Net cash provided by financing activities was $0.3 million for the three months ended March 31, 2022 primarily related to proceeds of $0.1 million received employees for the exercise of stock options and $0.2 million received from employees for the purchase of common stock through the 2018 ESPP.
Funding Requirements
As of March 31, 2023, we had cash, cash equivalents and investments, excluding restricted cash, of $252.6 million, which we believe will be sufficient to fund our planned operations for at least the next 12 months from the issuance date of our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q. We will continue to require additional capital to develop our product candidates, achieve commercial approval and fund operations for the foreseeable future. We intend to seek and have sought to raise funding from time to time through private or public equity or debt financings, or other sources such as strategic collaborations. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies.
The timing and amount of our capital expenditures will depend on many factors, including:
•the number and scope of clinical indications and clinical trials we decide to pursue;
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•the scope and costs of manufacturing activities;
•the extent to which we acquire or in-license other product candidates and technologies, if any;
•the cost, timing and outcome of regulatory review of our product candidates, and if successful, the cost and time necessary to bring product candidates to market;
•the cost and timing of establishing sales and marketing capabilities for product candidates receiving marketing approval, if any;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates; and
•the costs associated with being a public company.
If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development efforts. We may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves.
The issuance of additional equity securities may cause our stockholders to experience dilution. Future equity or debt financings may contain terms that are not favorable to us or our stockholders including debt instruments imposing covenants that restrict our operations and limit our ability to incur liens, issue additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation, licensing or asset sale transactions.
Contractual Obligations and Commitments
Our contractual obligations and commitments relate primarily to our operating leases and non-cancelable purchase obligations under agreements with various research and development organizations and suppliers in the ordinary course of business.
In the normal course of business, we enter into contracts with clinical CROs, clinical investigative sites and other counterparties assisting with our preclinical studies and clinical trials. Such contracts are generally cancellable, with varying provisions regarding termination. In the event of a contract being terminated, we would only be obligated for services received as of the effective date of the termination, along with cancellation fees, as applicable. Additionally, we have entered into agreements with certain vendors for the provision of goods and services, which includes development and manufacturing services with CDMOs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payment for the cancellation of committed purchase obligations or for early termination of the agreements. The amounts of the cancellation or termination payments may vary and are based on the timing of the cancellation or termination and the specific terms of the agreements. We expect to enter into additional collaborative research, contract research, clinical and commercial manufacturing, and supplier agreements in the future, which may require significant upfront payments and long-term commitments of capital resources. Additionally, see Note 6, Leases, and Note 7, Contingencies, to our unaudited interim financial statements for further information relating to lease commitments, indemnification obligations and other commitments.
Off-Balance Sheet Arrangements
Since our inception, we have not entered into any off-balance sheet arrangements as defined in the rules and regulations of the SEC.