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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-14 · 57 added, 46 removed, 205 unchanged (33% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the SEC on March 28, 2024 (the Annual Report).

You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for fiscal year ended December 31, 2023, which was filed with the Securities and Exchange Commission (SEC) on March 28, 2024 (Annual Report).

Some of the information contained in this discussion and analysis or set forth elsewhere, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

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In a subsequent interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients (n=22 out of 28 patients) were observed to experience a reduction in tumor size of at least 30%.

If the future clinical trial results of the FAVOUR trial are unfavorable, our clinical development plans for firmonertinib, which include

conducting our global, pivotal Phase 3 FURVENT clinical trial in first-line non-squamous locally advanced or metastatic EGFRm NSCLC patients with exon 20 insertion mutations, may be adversely affected.

If the future clinical

trial results of the FAVOUR trial are unfavorable, our clinical development plans for firmonertinib, which include conducting our global, pivotal Phase 3 FURVENT clinical trial in first-line non-squamous locally advanced or metastatic EGFRm NSCLC patients with exon 20 insertion mutations, may be adversely affected.

In 2021, we licensed from Allist the right to develop and commercialize firmonertinib worldwide, with the exception of greater China, which includes mainland China, Hong Kong, Macau and Taiwan.

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Despite progress in the therapeutic landscape for EGFRm NSCLC, many patients, particularly those with uncommon mutations, such as exon 20 insertions or PACC mutations, are underserved by existing treatments.

In an interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients (n=22 out of 28 patients) were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by RECIST 1.1 criteria, which measurement of reduction is the threshold in this trial for a partial response and for inclusion in determination of the overall response rate (ORR), which is the primary endpoint of this trial.

In an interim data readout from the FAVOUR trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with exon 20 insertion mutations, 79% of patients (n=22 out of 28 patients) were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by blinded independent central review utilizing Response Evaluation Criteria in Solid Tumors (RECIST) 1.1 criteria, which measurement of reduction is the threshold in this trial for a partial response and for inclusion in determination of the overall response rate (ORR), which is the primary endpoint of this trial.

In the same interim data readout, those 79% of patients were observed to experience a 15.2-month median duration of response (DOR).

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however, we believe these interim clinical results underscore firmonertinib’s potential in patients whose tumors contain an uncommon EGFRm.

We have entered into the Global Technology Transfer and License Agreement (Allist License Agreement), pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Allist to develop and commercialize any product containing firmonertinib or any of its salts or derivatives as an active ingredient of a product, which is led by a joint collaboration committee, comprising of representatives from both Allist and us.

In September 2024, we announced positive interim proof-of-concept data from the FURTHER trial of firmonertinib in first-line patients with locally advanced or metastatic EGFRm NSCLC with PACC mutations.

In this interim readout, 64% of patients (n=14 out of 22 patients) were observed to experience a reduction in tumor size of at least 30% from the baseline in a patient without evidence of progression as measured by RECIST 1.1 criteria, which measurement of reduction is the threshold in this trial for a partial response and for inclusion in determination of the ORR, which is the primary endpoint of this trial.

Median DOR had not yet been reached, with 90.9% (n=20/22) of patients with confirmed responses remaining on study.

Interim results may not be indicative of final results;

however, we believe these interim clinical results underscore firmonertinib’s potential in patients whose tumors contain an uncommon EGFRm.

We entered into the Global Technology Transfer and License Agreement (Allist License Agreement), pursuant to which, we have, among other things, secured an exclusive, royalty bearing and sublicensable license under certain intellectual property, including patents and know-how, owned or controlled by Allist to develop and commercialize any product containing firmonertinib or any of its salts or derivatives as an active ingredient of a product, which is led by a joint collaboration committee, comprising of representatives from both Allist and us.

Under the Allist License Agreement, we are obligated to pay Allist milestone payments up to an aggregate of $765.0 million upon the achievement of certain development, regulatory and sales milestone events as set forth in the Allist License Agreement.

During the six months ended June 30, 2024 and 2023, no clinical milestones were met or achieved.

During the nine months ended September 30, 2024 and 2023, no milestones were met or achieved.

We are also obligated under the Allist License Agreement to pay Allist tiered royalties based on net sales of Licensed Products (as defined in the Allist License Agreement).

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We have incurred significant operating losses since our inception and have not yet generated any revenue.

Our net losses were $39.3 million and $33.7 million for the six months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024, we had an accumulated deficit of $197.1 million.

Our net losses were $59.9 million and $48.1 million for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, we had an accumulated deficit of $217.7 million.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our preclinical studies, clinical trials and our expenditures on other research and development activities.

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● other allocated expenses, which include direct and allocated expenses, insurance, equipment and other supplies.

Our direct research and development expenses consist principally of external costs, such as fees paid to CROs and consultants in connection with our clinical trials for firmonertinib, preclinical and toxicology studies and costs related to

manufacturing materials for clinical and preclinical studies.

Prior to our identification of potential product candidates in 2022, we did not track external costs by program.

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Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023:

Three Months Ended September 30,

(in thousands)

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We do not track internal research and development costs by product candidate.

The following table summarizes our research and development expenses for the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

The following table summarizes our research and development expenses for the three months ended September 30, 2024 and 2023:

Three Months Ended September 30,

(in thousands)

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Total research and development expenses

Research and development expenses were $21.8 million and $20.4 million for the three months ended June 30, 2024 and 2023, respectively.

The increase of $1.4 million was primarily due to a decrease of $5.1 million related to our lead product candidate, firmonertinib, offset by increases of $5.7 million in preclinical discovery work and $0.8 million in personnel-related costs due to increased headcount.

Costs related to firmonertinib decreased as a result of decreased costs related to our FURVENT Phase 3 clinical trial of $3.6 million, a $0.6 million decrease in costs related to our FAVOUR trial, and a $1.2 million decrease in costs related to our FURTHER Phase 1 clinical trial, partially offset by an increase in general firmonertinib costs.

Discovery-stage program costs increased due to an up-front payment related to the collaboration with Jiangsu Alphamab Biopharmaceuticals Co., Ltd.

Research and development expenses were $20.1 million and $14.3 million for the three months ended September 30, 2024 and 2023, respectively.

The increase of $5.8 million was primarily due to an increase of $2.1 million related to our lead product candidate, firmonertinib, as well as increases of $1.9 million in preclinical discovery work and $1.8 million in personnel-related costs due to increased headcount.

Costs related to firmonertinib increased as a result of

increased costs related to our FURVENT Phase 3 clinical trial of $4.2 million, offset by a decrease of $0.9 million in our FURTHER Phase 1 clinical trial, a decrease in costs related to our FAVOUR trial, and a decrease in general firmonertinib costs.

Discovery-stage program costs increased due to an option exercise payment to Aarvik Pharmaceuticals, Inc.

(Aarvik) related to our collaboration with them.

General and Administrative

General and administrative expenses were $3.9 million and $2.2 million for the three months ended June 30, 2024 and 2023, respectively.

General and administrative expenses were $4.1 million and $2.4 million for the three months ended September 30, 2024 and 2023, respectively.

The increase of $1.7 million was due primarily to increases of $0.8 million in personnel-related costs, and $0.9 million in insurance, taxes, and outside services.

Interest Income

Interest income was $3.8 million and $1.0 million for the three months ended June 30, 2024 and 2023, respectively.

Interest income was $3.7 million and $2.3 million for the three months ended September 30, 2024 and 2023, respectively.

The increase in interest income is due to increased invested balances and increased average market yields.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

Comparison of the Nine Months Ended September 30, 2024 and 2023

The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

(in thousands)

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We do not track internal research and development costs by product candidate.

The following table summarizes our research and development expenses for the six months ended June 30, 2024 and 2023:

Six Months Ended June 30,

The following table summarizes our research and development expenses for the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

(in thousands)

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Total research and development expenses

Research and development expenses were $38.8 million and $30.6 million for the six months ended June 30, 2024 and 2023, respectively.

Research and development expenses were $58.8 million and $44.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase of $14.0 million was primarily due to an increase of $2.9 million related to our lead product candidate, firmonertinib, an increase of $3.3 million in personnel-related costs due to increased headcount, and an increase of $7.8 million in preclinical discovery work.

Costs related to firmonertinib increased as a result of increased costs related to our FURVENT Phase 3 clinical trial of $1.7 million, a $1.0 million increase in other general firmonertinib costs, offset by a $0.9 million decrease in costs related to our FURTHER Phase 1 clinical trial, and a decrease of $1.0 million related to our FAVOUR trial.

Costs related to firmonertinib increased as a

result of increased costs related to our FURVENT Phase 3 clinical trial of $5.9 million, offset by a decrease of $1.9 million related to our FURTHER Phase 1b clinical trial, a decrease of $1.1 million related to our FAVOUR trial, and a decrease in other general firmonertinib costs.

General and Administrative

General and administrative expenses were $7.6 million and $4.2 million for the six months ended June 30, 2024 and 2023, respectively.

General and administrative expenses were $11.8 million and $6.6 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase of $5.1 million was due primarily to increases of $2.4 million in personnel-related costs, $1.2 million in outside services, and $1.4 million in software, insurance, and taxes.

Interest Income

Interest income was $7.1 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Interest income was $10.7 million and $3.3 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase in interest income is due to increased invested balances and increased average market yields.

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Additionally, in the first quarter of 2024, we completed our initial public offering of 11,180,555 shares of our common stock at a price to the public of $18.00 per share, including the exercise in full by the underwriters of their option to purchase 1,458,333 additional shares of our common stock, for aggregate proceeds of $183.2 million, net of underwriting discounts, commissions and other offering expenses.

As of June 30, 2024, we had cash and cash equivalents of $298.7 million.

As of September 30, 2024, we had cash and cash equivalents of $282.9 million.

Future Funding Requirements

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We cannot be assured that we will ever be profitable or generate positive cash flows from operating activities.

We believe that our existing cash and cash equivalents as of June 30, 2024 will be sufficient to meet our anticipated cash requirements into 2026.

We believe that our existing cash and cash equivalents as of September 30, 2024 will be sufficient to meet our anticipated cash requirements into 2026.

However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Financing activities

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

Net cash used in operating activities was $37.7 million for the six months ended June 30, 2024 reflecting our net loss of $39.3 million, offset by $1.4 million in stock-based compensation and a $0.2 million net decrease in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Net cash used in operating activities was $25.5 million for the six months ended June 30, 2023 reflecting our net loss of $33.7 million, offset by $0.4 million in stock-based compensation, and a $7.8 million net decrease in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Net cash used in operating activities was $54.1 million for the nine months ended September 30, 2024 reflecting our net loss of $59.9 million, offset by $2.3 million in stock-based compensation and a $3.5 million net increase in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Net cash used in operating activities was $41.0 million for the nine months ended September 30, 2023 reflecting our net loss of $48.1 million, offset by $0.6 million in stock-based compensation, and a $6.6 million net decrease in our operating assets and liabilities attributable to the timing in which we pay our vendors for research and development activities.

Investing Activities

No net cash was provided by investing activities for the six months ended June 30, 2024.

Net cash used by investing activities was $25.0 million for the six months ended June 30, 2023.

No net cash was provided by investing activities for the nine months ended September 30, 2024.

Net cash used in investing activities was $25.0 million for the nine months ended September 30, 2023.

This was attributable to the purchase of short-term investments.

Financing Activities

Net cash provided by financing activities was $186.0 million for the six months ended June 30, 2024, due to the net proceeds from our initial public offering.

Net cash provided by financing activities was $45.0 million for the six months ended June 30, 2023, primarily due to the issuance of Series B convertible preferred stock.

Net cash provided by financing activities was $186.5 million for the nine months ended September 30, 2024, due to the net proceeds from our initial public offering.

Net cash provided by financing activities was $44.0 million for the nine months ended September 30, 2023, primarily due to the issuance of Series B convertible preferred stock.

Contractual Obligations and Commitments

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These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts.

We have leases for office space in Gaithersburg, Virginia and Burlingame, California that extend through January 2025 and January 2026, respectively.

Amounts related to future lease payments as of June 30, 2024 totaled $0.2 million, to be paid within the next 12 months.

As of June 30, 2024, except for the operating leases, we did not have any long-term obligations, capital lease obligations, purchase obligations or long-term liabilities.

We have leases for office space in Gaithersburg, Maryland and Burlingame, California that extend through January 2025 and January 2026, respectively.

Amounts related to future lease payments as of September 30, 2024 totaled $0.2 million, to be paid within the next 12 months.

As of September 30, 2024, except for the operating leases, we did not have any long-term obligations, capital lease obligations, purchase obligations or long-term liabilities.

We also have commitments for obligations under our agreements with Allist, Jiangsu Alphamab Biopharmaceuticals Co., Ltd.

Under these agreements we are required to make milestone payments upon successful completion of certain clinical, regulatory, development, sales and commercial milestones.

Additionally, we are required to make royalty payments in connection with the sale of products developed under these agreements.

Because the achievement of these milestones and royalties is not probable and payment is not required as of September 30, 2024, such contingencies have not been recorded in our consolidated financial statements.

For additional information regarding our agreements, see Note 9 to our accompanying financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies, Significant Judgments and Use of Estimates

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We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 3 to our accompanying financial statements appearing elsewhere in this Quarterly Report.

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