BioAtla, Inc. 10-Q

Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis together with our unaudited condensed financial statements and notes thereto included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2023 included in the Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or the SEC, on March 26, 2024. In addition to historical information, this Quarterly Report contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in the Annual Report on form 10-K, and the caption “Risk Factors” in this Quarterly Report, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Furthermore, past operating results are not necessarily indicative of results that may occur in future periods. Overview We are a clinical-stage biopharmaceutical company developing our novel class of highly specific and selective antibody-based therapeutics for the treatment of solid tumor cancer. Our CABs capitalize on our proprietary discoveries with respect to tumor biology, enabling us to target known and widely validated tumor antigens that have previously been difficult or impossible to target. Our novel CAB therapeutic candidates exploit characteristic pH differences between the tumor microenvironment and healthy tissue. Unlike healthy tissue, the tumor microenvironment is acidic, and we have designed our antibodies to selectively bind to their targets on tumor cells under acidic pH conditions but not on targets in normal tissues. Our approach is to identify the necessary targeting and potency required for cancer cell destruction, while aiming to eliminate or greatly reduce on-target, off-tumor toxicity—one of the fundamental challenges of existing cancer therapies. We are a United States-based company with research facilities in San Diego, California and, through our contractual relationship with BioDuro-Sundia, a provider of preclinical development services, in Beijing, China. Since the commencement of our operations, we have focused substantially all of our resources on conducting research and development activities, including drug discovery, preclinical studies and clinical trials of our product candidates, including the ongoing Phase 2 clinical trials of mecbotamab vedotin (BA3011), ozuriftamab vedotin (BA3021), and evalstotug (BA3071), and our Phase 1 clinical trial of BA3182 (CAB-EpCAM x CAB-CD3), establishing and maintaining our intellectual property portfolio, manufacturing clinical and research material through third parties, hiring personnel, establishing product development and commercialization collaborations with third parties, raising capital and providing general and administrative support for these operations. Since 2014, such research and development activities have exclusively related to the research, development, manufacture and Phase 1 and Phase 2 clinical testing of our CAB antibody-based product candidates and the strengthening of our proprietary CAB technology platform and pipeline. We have incurred significant losses to date. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current and future product candidates. Our net loss was $23.2 million for the three months ended March 31, 2024 compared to $27.5 million for the three months ended March 31, 2023. As of March 31, 2024, we had an accumulated deficit of $439.5 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We do not expect to generate meaningful revenue from product sales for the foreseeable future, and we expect to continue to incur significant operating expenses for the foreseeable future due to the cost of research and development, including identifying and designing product candidates and conducting preclinical studies and clinical trials, and the regulatory approval process for our product candidates. We expect our expenses, and the potential for losses, to be variable as we focus development efforts on our prioritized programs. We expect research and development expenses to vary as we continue to advance clinical trials of our lead product candidates, and are expected to decrease in the near term as we complete enrollment and treatment of patients in certain trials. We expect our expenses and capital requirements could increase substantially in connection with our ongoing activities as we: • advance the clinical development of mecbotamab vedotin; • advance the clinical development of ozuriftamab vedotin; • advance the clinical development of evalstotug; • advance the clinical development of BA3182; • expand our pipeline of bispecific and other CAB antibody-based product candidates; • continue to invest in our CAB technology platform; • maintain, protect and expand our intellectual property portfolio, including patents, trade secrets and know-how; • seek marketing approvals for any product candidates that successfully complete clinical trials; • establish additional product collaborations and commercial manufacturing relationships with third parties; 13 • build sales, marketing and distribution infrastructure and relationships with third parties to commercialize product candidates for which we may obtain marketing approval; • continue to expand our operational, financial and management information systems; and • attract, hire and retain additional clinical, scientific, management, administrative and commercial personnel. As a result, we will require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations and other similar arrangements. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations. As of March 31, 2024, our cash and cash equivalents totaled approximately $80.6 million. Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations for a period of at least twelve months from the date of issuance of the financial statements included in this report. Our current operating plan includes plans to complete enrollment in certain of our clinical trials, delaying development of certain pre-clinical programs, and prioritizing and focusing clinical development on selected assets and indications. In addition, we have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Financial Operations Overview Revenue To date, we have not generated any revenue from the sale of products and do not expect to generate meaningful revenue in the near future. The Company has entered into collaborations and licensing agreements with various third parties that, in some cases, may provide for potential future milestone and royalty payments to us (see Note 7 to our financial statements). Prior to developing our own programs, we received revenue from services performed under fixed price service contracts that, in some cases, provided for potential milestone and royalty payments to us. We did not recognize any revenue from collaborations, licenses, or our legacy service contracts during the three months ended March 31, 2024 and 2023, respectively. Operating Expenses Research and Development Research and development expenses consist primarily of costs incurred in the discovery and development of our product candidates. • External expenses consist of: • Fees paid to third parties such as contractors, clinical research organizations (CROs) and consultants, and other costs related to preclinical and clinical trials; • Fees paid to third parties such as contract manufacturing organizations (CMOs) and other vendors for manufacturing research and clinical trial materials; and • Expenses related to laboratory supplies and services. • Unallocated expenses consist of: • Personnel-related expenses, including salaries, benefits and equity-based compensation expenses, for personnel in our research and development functions; and • Related equipment and facilities depreciation expense. 14 We expense research and development costs in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and services are performed. We expect our research and development expenses to remain variable from quarter to quarter as we continue to advance our clinical programs, then to decrease in the near term as we complete enrollment and treatment in certain of our clinical trials, and focus development on selected high potential indications. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. Successful 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. Accordingly, to the extent that our product candidates continue to advance into clinical trials, including larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, the quality and consistency in their manufacture, investment in our clinical programs and competition with other products. As a result of these variables, we are unable to determine the duration and completion costs of our research and development projects and programs or when and to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. General and Administrative Our general and administrative expenses include personnel-related expenses for personnel in our executive, finance, corporate and other administrative functions, intellectual property and patent costs, facilities and other allocated expenses, other expenses for outside professional services, including legal, human resources, investor relations, audit and accounting services and insurance costs. Personnel-related expenses consist of salaries, benefits and equity-based compensation. We expect our general and administrative expenses to remain flat to moderately increasing in the future to support development of our prioritized CAB programs. Interest Income Interest income consists primarily of interest earned on our cash and cash equivalent balances. Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 Three Months Ended March 31, 2024 2023 Change (in thousands) Operating expenses: Research and development $ 18,852 $ 21,697 $ (2,845 ) General and administrative 5,605 7,233 (1,628 ) Total operating expenses 24,457 28,930 (4,473 ) Loss from operations (24,457 ) (28,930 ) 4,473 Other income: Interest income 1,223 1,480 (257 ) Other expense — (10 ) 10 Total other income 1,223 1,470 (247 ) Net loss and comprehensive loss $ (23,234 ) $ (27,460 ) $ 4,226 15 Research and Development Expense The following table summarizes our research and development expenses allocated by CAB program for the periods indicated: Three Months Ended March 31, 2024 2023 Change (in thousands) External expenses: Mecbotamab vedotin, BA3011 (CAB AXL-ADC) $ 5,333 $ 4,559 $ 774 Ozuriftamab vedotin, BA3021 (CAB ROR2-ADC) 2,541 2,143 398 Evalstotug, BA3071 (CAB CTLA-4) 2,608 2,752 (144 ) BA3182 (CAB EpCAM x CAB CD3) 1,170 1,370 (200 ) Other CAB Programs 1,630 5,368 (3,738 ) Total external expenses 13,282 16,192 (2,910 ) Personnel and related 3,424 3,083 341 Equity-based compensation 1,080 1,451 (371 ) Facilities and other 1,066 971 95 Total research and development expenses $ 18,852 $ 21,697 $ (2,845 ) Research and development expenses were $18.9 million and $21.7 million for the three months ended March 31, 2024 and 2023, respectively. The decrease of approximately $2.8 million was primarily driven by a $3.7 million decrease in pre-clinical development costs primarily for BA3142, our CAB-B7H3 x CAB-CD3 bispecific program, and BA3361, our CAB Nectin-4 ADC program, a $0.4 million decrease in stock-based compensation related to awards issued under our 2020 Equity Incentive Plan, offset by a $0.8 million increase in development costs for our clinical stage programs, primarily mecbotamab vedotin and ozuriftamab vedotin, and a $0.3 million increase in personnel related costs. General and Administrative Expense General and administrative expenses were $5.6 million and $7.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease of approximately $1.6 million was primarily driven by a $0.9 million decrease in stock-based compensation related to awards issued under our 2020 Equity Incentive Plan, $0.4 million due to professional services and consulting expenses, $0.1 million due to a decrease in insurance due to a decrease in premiums for our D&O policy, and a $0.1 million decrease in travel related expense. Interest Income Interest income was $1.2 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively. The decrease of $0.3 million was due to lower cash and cash equivalents compared to the same period in 2023, offset by the impact of higher yields during the same period in 2023. Liquidity and Capital Resources We have incurred aggregate net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. Since July 2020, we have funded our operations primarily through the issuance of equity. As of March 31, 2024, we had cash and cash equivalents of $80.6 million. In January 2023, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) acting as sales agent pursuant to which the Company may, from time to time at its sole discretion, sell shares of the Company’s common stock, with aggregate gross sales proceeds of up to $100.0 million. The Company will pay Jefferies a commission of 3.0% of the aggregate gross proceeds the Company receives from all sales of the Company’s common stock under the Sales Agreement. We have not sold any shares of our common stock under the Sales Agreement as of March 31, 2024. 16 Future Funding Requirements Our primary uses of cash are to fund operating expenses, which consist primarily of research and development expenses related to our programs and related personnel costs. The timing and amount of future funding requirements depends on many factors, including the following: • the initiation and advancement, scope, rate of progress, completion of enrollment, results and costs of our preclinical studies, clinical trials and other related activities for our product candidates; • the costs associated with manufacturing our product candidates and establishing commercial supplies and sales, marketing and distribution capabilities; • the timing and costs of capital expenditures to support our research and development efforts; • the number and characteristics of other product candidates that we pursue; • our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights; • the timing, receipt and amount of sales from our potential products; • our need and ability to hire additional management, scientific and medical personnel; • the effect of competing products that may limit market penetration of our product candidates; • our need to implement additional internal systems and infrastructure, including financial and reporting systems; • the economic and other terms, timing and success of any collaboration, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements; • the compliance and administrative costs associated with being a public company; and • the extent to which we acquire or invest in businesses, products or technologies, although we have no commitments or agreements relating to any of these types of transactions. Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations for a period of at least twelve months from the date the financial statements included in this report are issued. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will require additional funding in order to complete development of our product candidates and commercialize our products, if approved. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. We cannot assure you that, in the event we require additional financing, such financing will be available at acceptable terms to us, if at all. Failure to generate sufficient cash flows from operations, raise additional capital, and reduce discretionary spending should additional capital not become available could have a material adverse effect on our ability to achieve our intended business objectives. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated preclinical studies and clinical trials. To the extent that we raise additional capital through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates. We may also have to forego future revenue streams of research programs at an earlier stage of development or on less favorable terms than we would otherwise choose, or have to grant licenses on terms that may not be favorable to us. Our ability to raise additional funds will depend on financial, economic and other factors, many of which are beyond our control. For example, market volatility resulting from a variety of causes, including supply chain disruptions, and geopolitical disruptions, including the recent conflict between Russia and Ukraine and the conflict between Israel and Hamas, could adversely impact our ability to access capital as and when needed. We may choose to raise additional capital through the issuance of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to our investors and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, acquiring other businesses, products or technology, or declaring dividends. If we are unable to obtain additional funding from these or other sources, it may be necessary to significantly reduce our rate of spending through reductions in staff and delay, scale back or stop certain research and development programs. 17 Cash flows The following summarizes our cash flows for the periods indicated: Three Months Ended March 31, 2024 2023 (in thousands) Net cash used in: Operating activities $ (30,828 ) $ (22,654 ) Investing activities — (50 ) Financing activities (13 ) (116 ) Net decrease in cash and cash equivalents $ (30,841 ) $ (22,820 ) Cash Used in Operating Activities Net cash used in operating activities for the three months ended March 31, 2024 was $30.8 million, which consisted of a net loss of $23.2 million, a net change of $10.1 million in our operating assets and liabilities and $2.5 million of non-cash transactions. The net change in our operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses of $9.0 million, a net decrease in operating lease right-of-use assets and lease liabilities of $0.3 million, and an increase in prepaid expenses and other assets of $0.9 million. The non-cash transactions primarily consisted of $2.3 million of stock-based compensation and non-cash charges of $0.2 million related to depreciation and amortization. Net cash used in operating activities for the three months ended March 31, 2023 was $22.7 million, which consisted of a net loss of $27.5 million, a net change of $0.9 million in our operating assets and liabilities and $3.9 million of non-cash transactions. The net change in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $3.2 million, offset by an increase in prepaid expenses and other assets of $2.1 million. The non-cash transactions primarily consisted of $3.6 million of stock-based compensation and non-cash charges of $0.3 million related to depreciation and amortization. Cash Used in Investing Activities Cash used in investing activities was immaterial for the three months ended March 31, 2024. Cash used in investing activities for the three months ended March 31, 2023 was $50,000, related to the purchase of property and equipment. Cash Used in Financing Activities Net cash used in financing activities was immaterial for the three months ended March 31, 2024, consisting primarily of the payment of taxes related to the net settlement of restricted stock units. Net cash used in financing activities was $0.1 million for the three months ended March 31, 2023, which consisted primarily of the payment of taxes related to the net settlement of restricted stock units. Critical Accounting Policies and 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 GAAP. The preparation of these 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 revenue generated, and 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 and conditions. Our critical accounting policies are those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. For a description of our critical accounting policies, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2023. There have not been any material changes to the critical accounting policies discussed therein during the three months ended March 31, 2024. 18 Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Item 3 . Quantitative and Qualitative Disclosures About Market Risk. Not applicable to a smaller reporting company.