What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-12 · 64 added, 44 removed, 160 unchanged (40% of the section changed)

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Built on more than a decade of foundational science on extracellular tRNA synthetase biology and its effect on immune responses, we have built a global intellectual property estate directed to a potential pipeline of protein compositions derived from 20 tRNA synthetase genes and their extracellular targets, such as neuropilin-2 (NRP2).

Our primary focus is on ATYR1923, a clinical stage product candidate which downregulates immune responses by binding to the NRP2 receptor and is in development for the treatment of interstitial lung diseases (ILDs).

ATYR1923, a fusion protein comprised of the immuno-modulatory domain of histidyl tRNA synthetase (HARS) fused to the fragment cystallizable (FC) region of a human antibody, is a selective modulator of NRP2 that downregulates the innate and adaptive immune response in inflammatory disease states.

We are developing ATYR1923 as a potential therapeutic for patients with ILDs, a group of immune-mediated disorders that cause progressive fibrosis of the lung tissue.

Our primary focus is on ATYR1923, a clinical stage product candidate which downregulates immune responses by binding to the NRP2 receptor and i s in development for the treatment of inflammatory lung diseases .

ATYR1923, a fusion protein comprised of the immuno-modulatory domain of histidyl tRNA synthetase (HARS) fused to the fragment cystallizable (FC) region of a human antibody, is a selective mo dulator of NRP2 that downregulates the innate and adaptive immune response in inflammatory disease states.

We began developing ATYR1923 as a potential therapeutic for patients with interstitial lung diseases (ILDs), a group of immune-mediated disorders that cause progressive fibrosis of the lung tissue.

We selected pulmonary sarcoidosis, a major form of ILD, as our first clinical indication and are currently enrolling a proof-of-concept Phase 1b/2a clinical trial in patients.

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The inflammatory lung injury related to COVID-19 may be similar to that of interstitial lung diseases.

By targeting aberrant immune responses, we believe that ATYR1923’s mechanism of action has substantial overlap with this disease pathology.

In April 2020, we announced that the U.S.

Food and Drug Administration (FDA) accepted our investigational new drug (IND) application to evaluate ATYR1923 in a Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

The Phase 2 clinical trial will be a randomized, double blind, placebo-controlled study with ATYR1923 in 30 confirmed COVID-19 positive patients at up to 10 centers in the United States.

Subject to successful clinical trial site initiation and patient enrollment, we expect data from this Phase 2 clinical trial in COVID-19 patients this year.

By targeting aberrant immune responses, we believe that ATYR1923’s mechanism of action has substantial overlap with this disease pathology and are currently enrolling a Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

Our Phase 2 clinical trial is a randomized, double blind, placebo-controlled study with ATYR1923 in 30 confirmed COVID-19 positive patients at up to 10 centers in the United States.

Subject to successful clinical trial site initiation and patient enrollment, we expect data from this Phase 2 clinical trial in COVID-19 patients in the fourth quarter of this year.

In January 2020, we entered into a license with Kyorin Pharmaceutical Co., Ltd.

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The grant will fund approximately 50% of the total estimated project cost, with our company contributing the remaining 50%.

The research grant agreement between Pangu BioPharma, HKUST and the Government of the Hong Kong Special Administration is effective April 1, 2020.

The research grant agreement between Pangu BioPharma, HKUST and the Government of the Hong Kong Special Administration was effective April 1, 2020.

Our continued research of tRNA synthetases is being conducted through both industry and academic collaborations.

In March 2019, we entered into a research collaboration and option agreement with CSL Behring (CSL) for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline.

Under the terms of the collaboration, CSL is obligated to fund all research and development activi ties and will pay a total of $4.25 million per synthetase program ($17.0 million if all four synthetase programs advance) in option fees based on achievement of research milestones and CSL’s determination to continue development.

The impact of the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

In March 2019, we entered into a research collaboration and option agreement, as amended, with CSL Behring (CSL) for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline.

Under the terms of the collaboration, CSL is obligated to fund all research and development activities and will pay a total of $4.25 million per synthetase program ($17.0 million if all four synthetase programs advance) in option fees based on achievement of research milestones and CSL’s determination to continue development.

The impact o f the COVID-19 pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets aroun d the world.

Impacts to our business have included the delay in enrollment of our Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and the discontinuation of some patients in that trial, temporary closures of portions of our facilities and those of our licensees and collaborators, disruptions or restrictions on our employee's ability to travel and delays in certain research and development activities.

Other potential impacts to our business include, but are not limited to disruptions to or delays other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

Other p otential impacts to our business include, but are not limited to disruptions to or delays in other clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the FDA or other regulatory authorities, and our ability to raise capital and conduct business development activities.

Financial Operations Overview

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was incorporated in the State of Delaware in September 2005.

The condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma as of March 31, 2020.

The condensed consolidated financial statements include our accounts and our 98% majority-owned subsidiary in Hong Kong, Pangu BioPharma Limited as of June 30, 2020.

All intercompany transactions and balances are eliminated in consolidation.

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Either party may terminate the Kyorin Agreement in the event that the other party breaches the agreement and fails to cure the breach, becomes insolvent or challenges certain of the intellectual property rights licensed under the agreement .

For the three months ended March 31, 2020, we recognized $7.9 million as license revenue under the Kyorin Agreement.

For the six months ended June 30, 2020, we recognized $8.0 million as license revenue under the Kyorin Agreement.

In March 2019, we entered into a research collaboration and option agreement with CSL for the development of product candidates derived from up to four tRNA synthetases from our preclinical pipeline (CSL Agreement).

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The first phase totaling $0.6 million was funded in May 2019 and future phases will be funded on a quarterly basis.

In June 2020, the CSL Agreement was amended to extend the work on the first phase of the research program through September 30, 2020.

As a result of the extension, CSL is obligated to provide $0.2 million of additional funding for research and development activities.

In addition, CSL will pay a total of up to $4.25 million per synthetase program ($17.0 million if all four synthetase programs advance) in option fees based on achievement of research milestones and CSL’s determination to continue development.

As of March 31, 2020, no research milestones had been met.

As of June 30, 2020, no research milestones had been met.

We will grant CSL an option to negotiate licenses for worldwide rights to each IND candidate that emerges from the CSL Agreement.

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Either party has the right to terminate the agreement upon material breach of obligation or insolvency of the other party.

For the three months ended March 31, 2020, we recognized $ 0.2 million as license revenue under the CSL Agreement.

For the six months ended June 30, 2020, we recognized $0.3 million as license revenue under the CSL Agreement.

Research and Development Expenses

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect that the levels of our research and development expenses will increase in the current year and will consist primarily of costs related to our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis, our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications, and research, and other potential therapeutics based on tRNA synthetase biology and NRP2 biology.

We expect that the levels of our research and development expenses will increase in the current year and will consist primarily of costs related to our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis, our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications, and other potential therapeutics based on tRNA synthetase biology and NRP2 biology.

We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates.

In particular, as a result of the COVID-19 pandemic, many clinical trial sites in our ongoing Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis have temporarily suspended dosing of previously-enrolled patients and/or enrollment of new patients.

As a result, we anticipate that the availability of top-line results from the clinical trial will be delayed.

In particular, as a result of the COVID-19 pandemic, many clinical trial sites in our ongoing Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis temporarily suspended dosing of previously-enrolled patients and/or enrollment of new patients.

While the majority of such sites are now continuing enrollment and trial activities, the availability of top-line results from the clinical trial is delayed.

This delay may also cause certain research and development expenses related to the trial to be incurred in future quarters, and ultimately, the incurrence of such expenses related to the clinical trial could shift materially.

In addition, neither the duration of or expenses related to our Phase 2 clinical trial in COVID-19 patients with severe respiratory complications can be determined with certainty at this time.

At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our programs, we are unable to estimate with any certainty the costs we will incur or the timelines we will require in the continued development of our product candidates.

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Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019 (in thousands):

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended June 30,

Research and development expenses

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Other expense, net

Revenues for the three months ended March 31, 2020 consisted of $7.9 million of license revenue under the Kyorin Agreement and $0.2 million license revenue under the CSL Agreement.

Revenues for the three months ended June 30, 2020 consisted of $0.1 million of license revenue under the Kyorin Agreement and $0.1 million license revenue under the CSL Agreement.

Revenues for the three months ended June 30, 2019 consisted $0.1 million license revenue under the CSL Agreement.

Research and development expenses.

Research and development expenses were $3.6 million and $3.3 million for the three months ended March 31, 2020 and 2019, respectively.

The increase of $0.3 million was due primarily to the progression of our Phase 1b/2a clinical trial for ATYR1923 in pulmonary sarcoidosis which was initiated in December 2018.

Research and development expenses were $4.4 million and $3.3 million for the three months ended June 30, 2020 and 2019, respectively.

The increase of $1.0 million was due primarily to the progression of our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

General and administrative expenses.

General and administrative expenses were consistent between periods at $2.6 million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively.

General and administrative expenses were $2.1 million and $2.4 million for the three months ended June 30, 2020 and 2019, respectively.

The decrease of $0.3 million was due primarily to a $0.2 million decrease in professional fees and a $0.1 million decrease in taxes and licenses offset by a $0.1 million increase in insurance costs.

Other expense, net.

Other expense, net was $0.1 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively.

The $0.2 million decrease was primarily a result of lower balance on our Term Loans which we started paying down in June 2018.

Other expense, net was $0.1 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively.

The $0.1 million decrease was primarily a result of lower balances on our Term Loans which we started paying down in June 2018.

Comparison of the Six Months Ended June 30, 2020 and 2019

The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019 (in thousands):

Six Months Ended June 30,

Research and development expenses

General and administrative expenses

Other income (expense), net

Revenues for the six months ended June 30, 2020 consisted of $ 8.0 million from license revenue under the Kyorin Agreement and $ 0.3 million from license revenue under the CSL Agreement.

Revenues for the six months ended June 30, 2019 consisted of $0.1 million from license revenue under the CSL Agreement.

Research and development expenses.

Research and development expenses were $8.0 million and $6.7 million for the six months ended June 30, 2020 and 2019, respectively.

The increase of $1.3 million was due primarily to the progression of our ATYR1923 Phase 1b/2a clinical trial in patients with pulmonary sarcoidosis and our ATYR1923 Phase 2 clinical trial in COVID-19 patients with severe respiratory complications.

General and administrative expenses.

General and administrative expenses were $4.7 million and $5.0 million for the six months ended June 30, 2020 and 2019, respectively.

The decrease of $0.2 million was due primarily to a $0.2 million decrease in professional fees and $0.1 million decrease in taxes and licenses offset by a $0.1 million increase in employee associated costs.

Other expense, net.

Other expense, net was $0.2 million and $0.5 million for the six months ended June 30, 2020 and 2019, respectively.

The $0.2 million decrease was primarily a result of lower balances on our Term Loans which we started paying down in June 2018.

Liquidity and Capital Resources

Other than the net income generated in the three months ended March 31, 2020, we have incurred losses and negative cash flows from operations since our inception.

As of March 31, 2020, we had an accumulated deficit of $320.6 million and we expect to continue to incur net losses for the foreseeable future.

We believe that our existing cash, cash equivalents and available-for-sale investments, of $49.8 million as of March 31, 2020 will be sufficient to meet our anticipated cash requirements for a period of at least one year from the filing date of this Quarterly Report on Form 10-Q.

As of June 30, 2020, we had an accumulated deficit of $327.0 million and we expect to continue to incur net losses for the foreseeable future.

We believe that our existing cash, cash equivalents and available-for-sale investments, of $41.4 million as of June 30, 2020 will be sufficient to meet our anticipated cash requirements for a period of at least one year from the filing date of this Quarterly Report on Form 10-Q.

Sources of Liquidity

From our inception through March 31, 2020, we have financed our operations primarily through the sale of equity securities and convertible debt and through venture debt and term loans.

From our inception through June 30, 2020, we have financed our operations primarily through the sale of equity securities and convertible debt and through venture debt and term loans.

Debt Financing

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Wainwright is entitled to a commission at a fixed rate equal to 3% of the gross proceeds.

Under the ATM Offering Program, during 2019, we sold an aggregate of 611,687 shares of common stock at an average price of $5.43 per share for net proceeds of $3.0 million.

We did not utilize the ATM Offering Program during the three months ended March 31, 2020.

Under the ATM Offering Program, during 2019, we sold an aggregate of 611,687 shares of common stock at an average price of $5.43 per share for gross proceeds of $3.3 million.

During the six months ended June 30, 2020, we sold an aggregate of 23,148 shares of common stock at an average price of $4.49 per share for gross proceeds of $0.1 million under the ATM Offering Program.

In February 2020, we completed an underwritten follow-on public offering of 4,235,294 shares of our common stock at a price to the public of $4.25 per share .

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The total gross proceeds from the underwritten follow-on public offering, including the underwriters’ option to purchase additional shares, was approximately $20.7 million, before deducting underwriting discounts, commissions and offering expenses payable by us.

We anticipate using the net proceeds from the offering for general corporate purposes, including clinical trial expenses, research and development expenses, manufacturing expenses, and general administrative expenses.

We anticipate using the net proceeds from the offering for general corporate purposes, including clinical trial expenses, research and de velopment expenses, manufacturing expenses, and general administrative expenses .

The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):

Six Months Ended June 30,

Net cash provided by (used in):

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Operating activities.

Net cash provided by operating activities for the three months ended March 31, 2020 was primarily related to the receipt of an $8.0 million upfront payment associated with the Kyorin Agreement resulting in net income of $1.8 million plus cash outflows from the changes in our operating assets and liabilities of $0.6 million and adjusted for non-cash stock-based compensation expense of $0.4 million.

Net cash used in operating activities for the three months ended March 31, 2019 was primarily related to our net loss of $6.1 million, adjusted for non-cash stock-based compensation expense of $0.6 million and net cash outflows from the changes in our operating assets and liabilities of $0.9 million.

Net cash used in operating activities was $4.3 million and $10.8 million for the six months ended June 30, 2020 and 2019, respectively.

Net cash used in operating activities for the six months ended June 30, 2020 was primarily related to our net loss of $4.7 million, adjusted for non-cash stock-based compensation expense of $0.8 million and net cash outflows from the changes in our operating assets and liabilities of $1.4 million.

Net cash used in operating activities for the six months ended June 30, 2018 was primarily related to our net loss of $12.0 million, adjusted for non-cash stock-based compensation expense of $1.1 million and net cash outflows from the changes in our operating assets and liabilities of $0.8 million.

Investing activities.

Net cash provided by (used in) investing activities for the three months ended March 31, 2020 and 2019 was $11.4 million and ($3.4) million, respectively.

Net cash provided by (used in) investing activities for the six months ended June 30, 2020 and 2019 was $2.0 million and ($1.1) million, respectively.

The fluctuation in net cash provided by or used in investing activities resulted primarily from the timing differences in investment purchases, sales and maturities, and the fluctuation of our portfolio mix between cash equivalents and short-term investment holdings.

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Financing activities.

Net cas h provided by financing activities for the three months ended March 31, 2020 consisted primarily of $18.8 million proceeds from issuance of common stock through the underwrit ten follow-on public financing in February 2020 , net of offering costs , which was partially offset by $2.0 million of repayment s on our Term Loans .

Net cash used in financing activities for the three months ended March 31, 2019 consisted of $2.0 million in repayment s on our Term Loans , partially offset by $1.4 million in proceeds from t he issuance of common stock through the ATM Offering Program , net of offering costs.

Net cash provided by financing activities for the six months ended June 30, 2020 consisted primarily of $18.8 million in proceeds from the issuance of common stock through an underwritten follow-on public offering in February 2020, net of offering costs, offset by a $4.0 million repayment on our Term Loans.

Net cash provided by financing activities for the six months ended June 30, 2019 consisted of $4.9 million in proceeds from the issuance of common stock through a registered direct offering, net of offering costs and $2.5 million in proceeds from the issuance of common stock through ATM Offering Programs, net of offering costs, offset by a $4.0 million repayment on our Term Loans.

Funding Requirements

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Our future capital requirements are difficult to forecast and will depend on many factors, including:

our ability to initiate, and the progress and results of, our current clinical trials of ATYR1923;

our ability to initiate, and the progress and results of, our clinical trials of ATYR1923;

delays of our current clinical trials of ATYR 1923 and any resulting cost increases as a result of the COVID-19 pandemic;

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We may be unable to raise additional funds on acceptable terms or at all.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have recently experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

As a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.

If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive.

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These contracts generally provide for termination after a notice period, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

Our contractual obligations have not materially changed outside the ordinary course of our business during the three months ended March 31, 2020, as compared to those disclosed in our 2019 Annual Report.

Our contractual obligations have not materially changed outside the ordinary course of our business during the six months ended June 30, 2020, as compared to those disclosed in our 2019 Annual Report.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis