What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-25 · 58 added, 73 removed, 199 unchanged (40% of the section changed)

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

The following discussion and analysis should be read in conjunction with Part II, Item 6.

“Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report.

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report.

This discussion and analysis and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections.

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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, MasterKey therapies.

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

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

The foundation of our company is built upon a deep understanding of cancer genetics, protein structure and function, and medicinal chemistry.

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 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.

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 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.

Our proprietary technology platform, which we refer to as our Mutation-Allostery-Pharmacology, or MAP, drug discovery engine, 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 MasterKey therapies thereby providing precision oncology to greater numbers of patients with genetically defined tumors.

We have designed our clinical-stage product candidates, BDTX-1535 and BDTX-189, to potently and selectively inhibit families of oncogenic mutations which occur across a range of tumor types that affect the ErbB-1 epidermal growth factor receptor, or EGFR, and in the case of BDTX-189 also affect the tyrosine-protein kinase ErbB-2, or HER2.

We have designed these product candidates to bind to the active site of these mutant kinases and inhibit their function.

BDTX-1535 and BDTX-189 are also designed to spare normal, or wild type, EGFR (EGFR WT), which we believe will improve upon the toxicity profiles of current ErbB family inhibitors.

We are also leveraging our MAP drug discovery engine to identify other families of non-canonical mutations in validated oncogenes beyond the ErbB family, 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, discovering product candidates and securing related intellectual property rights while conducting research and development activities for our programs.

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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, 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.

To date, we have funded our operations with proceeds from the sale of preferred stock and common stock.

Since inception we have incurred significant operating losses.

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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 BDTX-1535 program and other product candidates;

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

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

• continue to develop and expand our proprietary MAP drug discovery engine to identify additional product candidates;

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

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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.

The ongoing COVID-19 pandemic has presented and continues to present a substantial public health and economic challenge around the world, 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.

We have been closely monitoring the impact of the ongoing COVID-19 pandemic on all aspects of our business, including how it has and may 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.

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.

In particular, our ability to conduct our clinical trials in a timely manner that meets our current projected timelines could be adversely impacted.

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.

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, despite progress in vaccination efforts, remain highly uncertain and cannot be predicted with confidence, such as the duration of the ongoing COVID-19 pandemic, new strains of the virus, including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines, new information that may emerge concerning the severity of COVID-19 and the effectiveness of any additional preventative and protective actions taken to contain COVID-19 or treat its impact in the short and long term, among others.

While certain measures have been relaxed in certain parts of the world as increasing numbers of people have received COVID-19 vaccines, others have remained in place with some areas continuing to experience renewed outbreaks and surges in infection rates.

The extent to which such measures are removed or new measures are put in place will depend upon how the pandemic continues to evolve, as well as the distribution of available vaccines, the rates at which they are administered and the emergence of new variants of the virus.

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.

The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

Components of our results of operations

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Operating expenses

Research and development expenses (inclusive of amounts with a related party)

Research and development expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates.

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

• expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations, or CMOs, that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;

contract manufacturing organizations, or CMOs, that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;

• other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

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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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Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

We do not track our research and development expenses on a program-by-program basis.

Our direct external research and development expenses consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities.

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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.

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.

In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.

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For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and administrative expenses (inclusive of amounts with a related party)

General and administrative expenses

General and administrative expenses consist primarily of salaries and benefits, travel and stock-based compensation expense for personnel in executive, business development, finance, human resources, legal, information technology, pre-commercial and support personnel functions.

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Other income (expense)

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.

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

Results of operations

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Operating expenses:

Research and development (inclusive of $2,364 and $9,966 respectively, with a related party)

$ 48,209 $ 21,753 $ 26,456

General and administrative (inclusive of $0 and $445, respectively, with a related party)

21,361 7,579 13,782

Research and development $ 96,829 $ 48,209 $ 48,620

General and administrative 30,043 21,361 8,682

Total operating expenses 126,872 69,570 57,302

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Interest income 3,464 4,041 (577)

Change in fair value of derivative liabilities — (6,393) 6,393

Other income (expense) (1,724) 6 (1,730)

Other expense (2,188) (1,724) (464)

Total other income (expense), net 1,276 2,316 (1,040)

Net loss attributable to common stockholders $ (67,254) $ (35,258) $ (31,996)

Research and development (inclusive of amounts with a related party)

Net loss $ (125,596) $ (67,254) $ (58,342)

Research and development

Research and development expenses were $96.8 million for the year ended December 31, 2021, compared to $48.2 million for the year ended December 31, 2020.

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.

General and administrative (inclusive of amounts with a related party)

The following table summarizes our research and development expenses for the year ended December 31, 2021 and 2020.

Year Ended December 31,

(in thousands)

BDTX-189 research and development expenses $ 26,158 $ 16,198 $ 9,960

BDTX-1535 research and development expenses 6,659 440 6,219

Other research programs and platform development expenses 33,295 16,593 16,702

Personnel expenses 25,017 13,348 11,669

Allocated facility expenses 3,454 720 2,734

Other expenses 2,246 910 1,336

$ 96,829 $ 48,209 $ 48,620

The increase of $48.6 million was primarily due to an increase of $16.7 million in other research programs and platform development as we increased research activities related to our platform and new programs.

In addition, we incurred an additional $10.0 million and $6.2 million for BDTX-189 and BDTX-1535, respectively, for the year ended December 31, 2021, compared to the year ended December 31, 2020.

Personnel expenses increased $11.7 million as we have increased our headcount and related personnel expenses.

Facility costs increased $2.7 million for the year ended December 31, 2021, compared to the year ended December 31, 2020 due to the signing of a new lease.

General and administrative

General and administrative expenses were $30.0 million for the year ended December 31, 2021, compared to $21.4 million for the year ended December 31, 2020.

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.

The increase of $8.7 million was primarily due to an increase in personnel expenses of $6.2 million related to an increase in headcount and external fees of $1.1 million related to legal and other professional fees due to operating as a public company.

Other income (expense)

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.

Other income was $1.3 million for the year ended December 31, 2021, compared to other income of $2.3 million for the year ended December 31, 2020.

The decrease was primarily attributable to amortization of premium on investments increasing at a higher rate in 2021 compared to 2020 and interest income staying relatively flat.

Liquidity and capital resources

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Cash used in operating activities $ (100,148)

Cash used in investing activities (281,691)

Cash provided by (used in) investing activities

Cash provided by financing activities 729

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Operating activities

During the year ended December 31, 2021, we used cash in operating activities of $100.1 million, primarily resulting from our net loss of $125.6 million, partially offset by the non-cash charge related to stock compensation expense of $14.0 million, and an increase in prepaid expenses and other current assets.

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.

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, 2021, we had cash provided by investing activities of $130.6 million primarily from the sales and maturities of investments.

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

Financing activities

During the year ended December 31, 2021, we had cash provided by financing activities of $0.7 million, consisting of proceeds from the exercise of stock options.

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.

Funding requirements

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

• advance BDTX-189 through clinical trials;

• advance BDTX-1535 and BDTX-189 through clinical trials;

• advance preclinical development of our early stage programs, including BDTX-4933 IND-enabling related activities;

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We anticipate that we will require additional capital as we seek regulatory approval of our product candidates and if we choose to pursue in-licenses or acquisitions of other product candidates.

If we receive regulatory approval for BDTX-189 or our other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.

If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements.

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If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Critical accounting policies and significant judgments and use of estimates

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While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Accrued research and development expenses (including amounts due to related party)

Accrued research and development expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.

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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 (see Note 2 to our consolidated financial statements).

Valuation of derivative liabilities

Tranche rights

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 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 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.

The derivative liabilities were valued as forward contracts which considered inputs including, but not limited to, the probability of attaining milestones, market-based assumptions for expected term and the risk-free rate.

Changes to these assumptions could have a significant impact on the fair value of the derivative liabilities.

Recently issued accounting pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report.

Internal control over financial reporting

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.

Emerging growth company and smaller reporting company status

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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