What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-25 compared with 2020-03-24 · 63 added, 61 removed, 209 unchanged (37% of the section changed)

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Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

We are a precision oncology medicine company pioneering the discovery and development of small molecule, tumor-agnostic therapies.

We are a precision oncology medicine company pioneering the discovery and development of small molecule, MasterKey therapies.

We target undrugged oncogenic driver mutations in patients with genetically defined cancers.

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Our proprietary technology platform, which we refer to as our Mutation-Allostery-Pharmacology, or MAP, platform, is designed to allow us to analyze population-level genetic sequencing data to discover oncogenic mutations that promote cancer across tumor types.

Our goal is to identify families of mutations that can be inhibited with a single small molecule therapy in a tumor-agnostic manner.

We have designed our lead product candidate, BDTX-189, to potently and selectively inhibit a family of oncogenic proteins defined by mutations which occur outside the adenosine triphosphate, or ATP site, and which we refer to as non-canonical mutations.

Our goal is to identify families of mutations that can be inhibited with a single small molecule MasterKey therapy in a tumor-agnostic manner.

We have designed our lead product candidate, BDTX-189, to potently and selectively inhibit a spectrum of oncogenic proteins defined by mutations which occur outside the adenosine triphosphate, or ATP, site, and which we refer to as non-canonical mutations.

Non-canonical mutations occur across a range of tumor types that affect both the epidermal growth factor receptor, or EGFR, and the tyrosine-protein kinase ErbB-2, or HER2.

We have designed BDTX-189 to bind to the active site of

these mutant kinases and inhibit their function.

We have designed BDTX-189 to bind to the active site of these mutant kinases and inhibit their function.

BDTX-189 is also designed to spare normal, or wild type, EGFR, which we believe will improve upon the toxicity profiles of current ErbB kinase inhibitors.

We submitted our IND for BDTX-189 in November 2019, which was allowed by the U.S.

Food and Drug Administration, or FDA, on December 13, 2019.

We have since begun enrollment and dosing of patients in the Phase 1 portion of our MasterKey-01 trial to pursue a tumor-agnostic development strategy.

We are also leveraging our MAP platform to identify other families of non-canonical mutations in validated oncogenes beyond ErbB, which has the potential to expand the reach of targeted therapies.

Since our inception in 2014, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, acquiring, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our programs.

Since our inception in 2014, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights while conducting research and development activities for our programs.

We do not have any products approved for sale and have not generated any revenue from product sales.

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We have not yet successfully completed any pivotal clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.

Through December 31, 2019, we had received net proceeds of $200.6 million from sales of our preferred stock and net cash proceeds of $1.8 million from borrowings under convertible promissory notes.

We have incurred significant operating losses since inception.

Through December 31, 2020, we had received net proceeds of $200.6 million and $212.1 million from sales of our preferred and common stock, respectively.

We submitted our IND for BDTX-189 in November 2019, which was allowed by the U.S.

Food and Drug Administration (“FDA”) on December 13, 2019.

We have since begun enrollment and dosing of patients in the Phase 1 portion of our MasterKey-01 trial to pursue a tumor-agnostic development strategy and expect to complete the Phase 1 portion of the trial by the first half of 2021.

In July 2020, we were granted Fast Track designation for BDTX-189 for the treatment of adult patients with solid tumors harboring an allosteric human epidermal growth factor receptor 2 (HER2) mutation or an epidermal growth factor receptor (EGFR) or HER2 Exon 20 insertion mutation who have progressed following prior treatment and who have no satisfactory treatment options.

Since inception we have incurred significant operating losses.

Our net losses were $67.3 million and $35.3 million for the years ended December 31, 2020 and 2019, respectively.

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We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

• continue preclinical studies and initiate or advance clinical trials for BDTX-189, our glioblastoma program and other product candidates;

• advance the development of our product candidate pipeline;

• continue preclinical studies and initiate or advance clinical trials for BDTX-189, our BDTX-1535 program and other product candidates;

• continue to develop and expand our proprietary MAP platform to identify additional product candidates;

• obtain, maintain, expand and protect our intellectual property portfolio;

• seek marketing approvals for our product candidates that successfully complete clinical trials, if any;

• hire additional clinical, scientific and commercial personnel;

• seek marketing approvals for our product candidates that successfully complete clinical trials, if any;

• acquire or in-license additional product candidates;

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• add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

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If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2019, we had cash and cash equivalents of $154.7 million.

We believe that the net proceeds from our IPO, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into 2023.

As of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million, which we believe will fund our operating expenses and capital expenditure requirements into 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

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If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or other research and development initiatives.

COVID-19 Considerations

In March 2020, the World Health Organization declared the outbreak of coronavirus disease (“COVID-19”) a pandemic.

The COVID-19 pandemic continues to evolve, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures.

Such orders, restrictions and recommendations, and the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses not deemed “essential,” work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events.

Although states have quarantines and similar restrictions in place, the regulations vary on a state by state basis and the effectiveness of these restrictions on slowing the spread of COVID-19 varies.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by federal, state or local authorities.

In addition, we have taken steps to minimize the current environment’s impact on our business and strategy, including devising contingency plans and securing additional resources from third party service providers.

For the safety of our employees and families, we have introduced enhanced safety measures for scientists to be present in our labs and increased the use of third party service providers for the conduct of certain experiments and studies for research programs.

Certain of our third party service providers have also experienced shutdowns or other business disruptions.

We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, healthcare systems or the global economy and we cannot presently predict the scope and severity of any potential business shutdowns or disruptions.

In particular, our ability to conduct our MasterKey-01 trial in a timely manner that meets our current projected timelines could be adversely impacted.

While the Phase 1 portion of the trial currently remains on track to complete by the first half of 2021, potential COVID-19-associated risks include delays in patient recruitment and principal investigator availability, clinical trial site shutdowns or other interruptions and potential limitations on the quality, completeness and interpretability of data we are able to collect.

Additionally, our drug product supply chain, early stage research & development programs and activities and other aspects of our business operations could be negatively impacted by the pandemic and COVID-19-related delays or disruptions.

Beyond the impact on our pipeline, the extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others.

If we or any of the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, results of operations and financial condition.

Components of our results of operations

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We expense research and development costs as incurred, which include:

• expenses incurred under our services agreement with Ridgeline Therapeutics GmbH, or Ridgeline;

• expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;

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• employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

• expenses incurred under our services agreement with Ridgeline Therapeutics GmbH, or Ridgeline;

• costs related to compliance with regulatory requirements;

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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.

As a result, we expect that our research and development expenses will increase substantially over the next several years as we commence our planned clinical trials for BDTX-189, as well as conduct other preclinical and clinical development, including submitting regulatory filings for our other product candidates.

Historically, many of our research and development activities have been conducted pursuant to our services agreement with Ridgeline, a related party, and we are transitioning many of these activities internally as we increase our internal capacity.

While the service fee we have historically paid under our Ridgeline Services Agreement will be reduced significantly as a result of that transition, we expect that we will incur increased personnel and overhead costs associated with moving those functions in-house, which we expect will offset that reduction in Ridgeline services fees.

As a result, we expect that our research and development expenses will increase substantially over the next several years as we continue our clinical trials for BDTX-189, as well as conduct other preclinical and clinical development, including submitting regulatory filings for our other product candidates, including BDTX-1535.

Historically, many of our research and development activities were conducted pursuant to our services agreement with Ridgeline, a related party, and we have transitioned many of these activities internally as we’ve increased our internal capacity.

While the service fee we have historically paid under our Ridgeline Services Agreement has been reduced significantly as a result of this transition, we expect that we will incur increased personnel and overhead costs associated with moving those functions in-house, which we expect will offset that reduction in Ridgeline services fees.

In addition, we expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels.

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Other income (expense)

Interest income

Interest income consists of income earned on our cash balance.

Our interest income has not been significant due to low balances and low interest earned on those balances.

Change in fair value of derivative liabilities

Our issuance of Series A and Series B preferred stock provided investors the right to participate in subsequent offerings of Series A and Series B preferred stock, respectively, in the event specified developmental and regulatory milestones were achieved (see Note 6 to our consolidated financial statements).

We classified the tranche rights as derivative liabilities on our consolidated balance sheets.

We remeasured the derivative liabilities associated with tranche rights to fair value at each reporting date, and recognized changes in the fair value of the derivative liabilities in the consolidated statements of operations.

Upon the closing of our IPO on February 3, 2020, the preferred stock warrants became exercisable for common stock instead of preferred stock, and the fair value of the warrant liability at that time was reclassified to additional paid-in capital.

As a result, we will no longer remeasure the fair value of the warrant liability at each reporting date.

Other income (expense)

Other income (expense) consists primarily of realized and unrealized foreign currency transaction gains and losses.

Other income (expense) consists primarily of interest income earned on our cash equivalents and investment balances, realized and unrealized foreign currency transaction gains and losses, and changes in fair value of derivative liabilities.

Results of operations

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Other income (expense):

Interest expense (1) — (1)

Interest income 4,041 461 3,580

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Research and development expenses were $48.2 million for the year ended December 31, 2020, compared to $21.8 million for the year ended December 31, 2019.

The increase of $14.8 million was primarily due to an increase in headcount and external fees related to the continued development of our MAP platform and our product candidates, including BDTX-189.

The increase of $26.4 million was primarily due to an increase in headcount expenses of $7.1 million and external fees of $16.3 million related to the continued development of our MAP platform and our product candidates, including BDTX-189.

We do not currently track expenses on a program-by-program basis.

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General and administrative expenses were $21.4 million for the year ended December 31, 2020, compared to $7.6 million for the year ended December 31, 2019.

The increase of $5.6 million was primarily a result of higher personnel-related costs due to additional headcount and higher legal and other professional fees.

Interest income

Interest income was $0.5 million for the year ended December 31, 2019, compared to less than $0.1 million for the year ended December 31, 2018.

Change in fair value of derivative liabilities

The change in the fair value of derivative liabilities was $6.4 million for the year ended December 31, 2019, compared to less than $0.1 million for the year ended December 31, 2018.

The increase was due to the remeasurement of derivative liabilities related to the tranche right on our Series B preferred stock primarily due to an increase in the probability of a liquidity event during the year ended December 31, 2019.

The increase of $13.8 million was primarily due to an increase in headcount expenses of $6.0 million and external fees of $6.6 million related to legal and other professional fees due to operating as a public company.

Other income (expense)

Other income (expense) was less than $0.1 million for the years ended December 31, 2019 and 2018.

Other income was $2.3 million for the year ended December 31, 2020, compared to other expense of $5.9 million for the year ended December 31, 2019.

The increase was primarily attributable to no derivative liability in 2020 as well as interest income on investments and accretion of discount on investments in 2020 and none in 2019.

Liquidity and capital resources

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We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all.

We have funded our operations to date primarily with proceeds from the sale of preferred stock and borrowings under convertible promissory notes.

We have funded our operations to date primarily with proceeds from the sale of preferred stock.

On February 3, 2020, we completed an IPO of 12,174,263 shares of our common stock, including the exercise in full by the underwriters of their option to purchase up to 1,587,947 additional shares of common stock, for aggregate gross proceeds of $231.3 million.

The Company received $212.4 million in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company.

Through December 31, 2019, we had received net cash proceeds of $200.6 million from sales of our preferred stock and net cash proceeds of $1.8 million from borrowings under convertible promissory notes and as of December 31, 2019, we had cash and cash equivalents of $154.7 million.

We received $212.1 million in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by us.

Through December 31, 2020, we had received net cash proceeds of $200.6 million from previous sales of our preferred stock and as of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million.

The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):

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Operating activities

During the year ended December 31, 2020, we used cash in operating activities of $52.1 million, primarily resulting from our net loss of $67.3 million, partially offset by the non-cash charge related to stock compensation expense of $7.8 million, an increase in prepaid expenses and other current assets due to payments for research services and a decrease in deferred offering costs.

During the year ended December 31, 2019, we used cash in operating activities of $24.7 million, primarily resulting from our net loss of $35.3 million, partially offset by the non-cash charge related to the change in fair value of derivative liabilities of $6.4 million, an increase in prepaid expenses and other current assets primarily due to payments for research services and a decrease in amounts due to related parties due to payments made to Ridgeline.

During the year ended December 31, 2018, we used cash in operating activities of $8.5 million, primarily resulting from our net loss of $8.9 million, partially offset by an increase in accrued expenses.

Changes in accounts payable and accrued expenses in all periods were generally due to growth in our business, the advancement of our product candidates, and the timing of vendor invoicing and payments.

Investing activities

During the year ended December 31, 2020, we had cash used in investing activities of $281.7 million for the purchase of investments.

During the year ended December 31, 2019, we used cash in investing activities of less than $0.1 million, consisting solely of purchases of equipment.

During the year ended December 31, 2018, we used cash in investing activities of $0.1 million, consisting solely of purchases of equipment.

Financing activities

During the year ended December 31, 2019, we had cash provided by financing activities of $127.8 million, consisting primarily of proceeds from the issuance of convertible preferred stock.

During the year ended December 31, 2020, we had cash provided by financing activities of $214.9 million, consisting primarily of proceeds from the IPO.

During the year ended December 31, 2019, we had cash provided by financing activities of $127.8 million, consisting primarily of proceeds from the issuance of convertible preferred stock.

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The timing and amount of our operating expenditures will depend largely on our ability to:

• advance BDTX-189 through the clinic;

• advance preclinical development of our early-stage programs, including in GBM;

• advance BDTX-189 through clinical trials;

• advance preclinical development of our early stage programs, including BDTX-1535 IND-enabling related activities;

• manufacture, or have manufactured on our behalf, our preclinical and clinical drug material and develop processes for late state and commercial manufacturing;

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• obtain, maintain, expand and protect our intellectual property portfolio.

As of December 31, 2019, we had cash and cash equivalents of $154.7 million.

We believe that our existing cash and cash equivalents, including net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into 2023.

As of December 31, 2020, we had cash, cash equivalents and investments of $315.1 million, which we believe will fund our operating expenses and capital expenditure requirements into 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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Stock-based compensation

We measure stock options and other stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.

We have only issued stock options and restricted share awards with service-based vesting conditions and record the expense for these awards using the straight-line method.

We would apply the graded-vesting method to all stock-based awards with performance-based vesting conditions or to awards with both service-based and performance-based vesting conditions.

We measure stock options and other stock-based awards granted to employees, non-employees and directors based on their fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.

We have generally only issued stock options and restricted stock units with service-based vesting conditions and record the expense for these awards using the straight-line method.

For stock options or restricted stock units issued with performance-based vesting conditions, the related stock compensation expense is recognized based on the grant date fair value when achievement of the performance condition is deemed probable.

The graded-vesting method would apply to all stock-based awards with performance-based vesting conditions or to awards with both service-based and performance-based vesting conditions.

We have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant.

For grants of restricted stock units, we base the fair value on the stock price as of the date of grant.

The Company accounts for stock-based awards granted to employees and non-employees at fair value, which is measured using the Black-Scholes option-pricing model.

The measurement date for employee awards is generally the date of grant.

Prior to the adoption of Accounting Standards Update (“ASU”) No.

2018-07, Compensation — Stock Compensation (Topic 718) ("ASU 2018-07"), which simplifies the accounting for non-employee share based payment transactions and is discussed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, the fair value measurement date for non-employee awards was the date the performance of services was completed.

The measurement date for the awards is generally the date of grant.

Stock-based compensation costs are recognized as expenses over the requisite service period, which is generally the vesting period, on a straight-line basis for all time-vested awards.

We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.

Valuation of derivative liabilities

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Our issuance of Series A and Series B preferred stock (see Note 7 to our consolidated financial statements) provided investors the right to participate in subsequent offerings of Series A and Series B preferred stock, respectively, in the event specified developmental and regulatory milestones were or are achieved.

We classify the tranche rights as derivative liabilities on our consolidated balance sheets as we determined that the tranche rights met the definition of a freestanding financial instrument since they are legally detachable.

We classified the tranche rights as derivative liabilities on our consolidated balance sheets as we determined that the tranche rights met the definition of a freestanding financial instrument since they are legally detachable.

We also determined that such instruments represent forward sale contracts on redeemable shares and, accordingly, the instrument should be accounted for as a liability separate from the convertible preferred stock.

We remeasure the derivative liabilities associated with tranche rights to fair value at each reporting date, and recognize changes in the fair value of the derivative liabilities in our consolidated statements of operations.

We remeasured the derivative liabilities associated with tranche rights to fair value at each reporting date and recognize changes in the fair value of the derivative liabilities in our consolidated statements of operations.

The fair value of the derivative liabilities was determined using a back solve approach based on the price paid for the underlying preferred stock and the derivative liability.

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Internal control over financial reporting

In preparation of our financial statements to meet the requirements of our IPO, we determined that material weaknesses in our internal control over financial reporting existed during fiscal 2017 and remain unremediated as of December 31, 2019.

As disclosed in the annual report on Form 10-K for the year ended December 31, 2019, we previously determined that material weaknesses in our internal control over financial reporting existed during fiscal 2017.

In response to the material weaknesses, we took a number of actions to improve our internal control over financial reporting and determined that as of December 31, 2020, the controls were designed and have been operating effectively for a sufficient period of time to conclude that the material weaknesses have been remediated.

See Item 9A of this Annual Report.

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If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

As of June 30, 2020, the market value of our stock held by non-affiliates was greater than $700 million.

As of January 1, 2021, we ceased to be a smaller reporting company.

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-K

Item 7. Management’s Discussion and Analysis