Cardiff Oncology, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding the future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. In addition, our business and financial performance may be affected by the factors that are discussed under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 24, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The following discussion and analysis is qualified in its entirety by, and should be read in conjunction with, the more detailed information set forth in the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. Overview We are a clinical-stage biotechnology company leveraging PLK1 inhibition to develop novel therapies across a range of cancers with the greatest unmet medical need. Our goal is to target tumor vulnerabilities with treatment combinations that overcome disease resistance, improve disease response to standard treatment regimens and increase overall survival. We are developing onvansertib, an oral and highly selective PLK1 inhibitor, in combination with standard-of-care chemotherapy and targeted therapeutics. Our clinical development programs incorporate tumor genomics and biomarker assays to refine assessment of patient response to treatment. Our Drug Candidate, Onvansertib Onvansertib, our lead compound, is a novel, highly potent, highly selective PLK1 inhibitor. PLK1, a serine/threonine kinase, has a well-understood mechanism of action within tumor cell proliferation and is overexpressed in a number of tumors (including colorectal, pancreatic, prostate, ovarian, breast and lung cancer). In particular, PLK1’s activity in various phases of the cell cycle provide multiple targets for a PLK1 inhibitor to inhibit DNA repair and interrupt cell division, thereby killing tumor cells. PLK1 inhibition has been considered an attractive target of cancer therapeutics for the last two decades, however past PLK1 drug candidates have failed to show acceptable tolerability and efficacy. We believe the attributes of onvansertib described below, as well as clinical evidence of favorable safety and efficacy, with expected on-target, easy to manage and reversible side effects, may prove beneficial in addressing clinical therapeutic needs across a variety of cancers: • Onvansertib is highly potent and highly selective against the PLK1 enzyme (IC 50 = 2nM; IC 50 is the concentration for 50% inhibition), compared to prior PLK1 inhibitors that were pan-inhibitors of several PLK targets. Low or no 18 Table of Contents activity of onvansertib was observed on a panel of 63 kinases (IC50>500 nM), including the PLK members PLK2 and PLK3 (IC 50 >10,000 nM). • Onvansertib has a relatively short drug half-life of 24 hours, compared to a half-life of approximately 5 days for prior PLK1 inhibitors. A short half-life allows for flexible dosing and improved managing of drug concentrations to reduce dose-related toxicities. • Onvansertib is orally bioavailable, compared to prior PLK1 inhibitors that were delivered intravenously, allowing for relative ease and flexibility of dosing. In vitro studies have shown synergistic effects when onvansertib was administered in combination with different cytotoxic agents including antimicrotubule agents, topoisomerase 1 inhibitors, antimetabolites, alkylating agents, proteasome inhibitors, kinase inhibitors, BCL-2 inhibitors, and androgen biosynthesis inhibitors. In addition, in vivo combination studies have confirmed the positive results obtained in vitro and synergistic effects have been observed in xenograft models of onvansertib in combination with irinotecan, 5-fluorouracil ("5-FU"), abiraterone, PARP inhibitors, venetoclax, and paclitaxel, while additive effects in combination with cytarabine or bevacizumab have been demonstrated. There are three ongoing clinical trials in onvansertib in combination treatment: second line treatment in patients with KRAS-mutated Metastatic Colorectal Cancer ("mCRC"), second line treatment in patients with Metastatic Pancreatic Ductal Adenocarcinoma ("mPDAC"), and in patients with Metastatic Castration-Resistant Prostate Cancer ("mCRPC") showing early signs of resistance to abiraterone. Phase 1b/2 Clinical Trial in KRAS-mutated mCRC TROV-054 is a Phase 1b/2 open-label multi-center clinical trial of onvansertib in combination with standard of care FOLFIRI and bevacizumab (Avastin ® ) for the second line treatment of patients with KRAS-mutated mCRC, which is being conducted at seven clinical trial sites across the U.S. - USC Norris Comprehensive Cancer Center, The Mayo Clinic Cancer Centers (Arizona, Minnesota, and Florida), Kansas University Medical Center, Inova Schar Cancer Institute and CARTI Cancer Center. The primary objectives of this trial are to evaluate the Dose-Limiting Toxicities ("DLTs"), maximum tolerated dose ("MTD") and recommended Phase 2 dose ("RP2D") of onvansertib in combination with FOLFIRI and bevacizumab (Phase 1b) and to continue to assess the safety and preliminary efficacy of onvansertib in combination with FOLFIRI and bevacizumab (Phase 2). The scientific rationale for this clinical trial is based on the two key principles of synthetic lethality and synergy, with the objective of demonstrating a proof-of-concept of clinical benefit within this phase1b/2 trial. Synthetic lethality refers to a critical vulnerability to tumor cell death by way of PLK1 inhibition within CRC tumor cells harboring KRAS mutations versus KRAS wild-type isogenic cells. Synergy occurs when the combination of two drugs results in an unexpected greater activity than an expected additive effect of the two drugs. Onvansertib in combination with two DNA-damaging agents, irinotecan, and 5-FU (two components of FOLFIRI), demonstrated synergy in colorectal cancer cell lines and both combinations have demonstrated significantly greater tumor growth inhibition than either drug alone in CRC in vivo models. We believe this synergy occurs because PLK1 can promote the repair of DNA damage caused by chemotherapeutic agents and by inhibiting PLK1, onvansertib leaves damaged tumor cells unable to replicate. Data we presented on January 18, 2022 provided an update of the ongoing phase 1b/2 clinical trial in KRAS-mutated metastatic colorectal cancer. • 34% (12 of 35) of patients treated per protocol at the RP2D in combination with FOLFIRI and bevacizumab achieved a Complete Response ("CR") or Partial Response ("PR") (CR: 1 patient; PR: 11 patients); • 35% (17 of 48) of patients across all dose levels achieved a CR or PR. Historically, Objective Response Rates ("ORR") of 5-13% have been reported in similar second line patient populations treated with various different drug combinations, including the standard of care chemotherapy of FOLFIRI with bevacizumab; 19 Table of Contents • 10% (5 of 48) of patients discontinued the trial to pursue potentially curative metastasis-directed therapy (surgical resection or microwave ablation); • Median Progression-Free Survival ("mPFS") across all response-evaluable patients (n=48) is 9.4 months and has not yet been reached in those treated per protocol at the RP2D. Historically, mPFS of ~4.5-5.7 months has been reported in a similar patient population treated with standard of care chemotherapy of FOLFIRI with bevacizumab; • The combination regimen of onvansertib plus FOLFIRI/bevacizumab is well tolerated with no major or unexpected toxicities attributed to onvansertib. Phase 2 Clinical Trial in mPDAC CRDF-001 is a Phase 2 open-label multi-center clinical trial of onvansertib in combination with nanoliposomal irinotecan (Onivyde ® ), leucovorin, and fluorouracil for second line treatment of patients with mPDAC, which is being conducted at six clinical trial sites across the U.S. – The Mayo Clinic Cancer Centers (Arizona, Minnesota, and Florida), Kansas University Medical Center, Inova Schar Cancer Institute, and the University of Nebraska Medical Center. The first patient was dosed in June 2021. The objective of this trial is to assess the safety and preliminary efficacy of onvansertib in combination with nanoliposomal irinotecan (Onyvide ® ), 5-FU and leucovorin as a second-line treatment in patients with mPDAC who have failed first-line gemcitabine-based therapy. The trial is expected to enroll approximately 45 patients. Phase 2 Clinical Trial in mCRPC TROV-053 is a Phase 2 open-label multi-center clinical trial of onvansertib in combination with abiraterone acetate and prednisone in patients with mCRPC, which is being conducted at three clinical trial sites - Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute and Massachusetts General Hospital. This trial is now closed for enrollment. The primary objective of this trial is to observe the effects of onvansertib in combination with abiraterone and prednisone on disease control as assessed by Prostate Specific Antigen ("PSA") decline or stabilization after 12 weeks of treatment in patients with mCRPC showing early signs of resistance to abiraterone. The rationale for this trial is based on the Mechanism of Action ("MOA") of onvansertib and abiraterone acetate and the synergy of these two drugs when used in combination in pre-clinical experiments. Onvansertib inhibits tumor cell proliferation by inducing G2/M (mitosis) arrest and consequently cell death. The combination of onvansertib and abiraterone acetate synergistically increases mitotic arrest and cell death in prostate cancer cells and has demonstrated significantly greater tumor growth inhibition than either drug alone in vivo . Data presented on April 8, 2022 at American Association for Cancer Research ("AACR") Annual Meeting provided evidence of the safety and efficacy of onvansertib in combination with abiraterone. Disease control increased with increasing dose density of onvansertib from 29% to 45% of patients achieving PSA stabilization and from 53% to 75% of patients with radiographic stable disease; Arm A (n=17) – onvansertib 24mg/m 2 days 1-5 in 21-day cycle to Arm C (n=20) – 12mg/m 2 days 1-14 in 21-day cycle. Median progression-free survival ("mPFS") increased with increasing onvansertib dose density from 4.1 months in Arm A to 13.2 months as of the data cut-off date in Arm C patients. Genomic analysis of ctDNA showed a correlation between alterations in two key genes of the PI3K signaling pathway—MTOR and PTEN, which appears to underly increased pathway activity, and sensitivity to onvansertib/abiraterone combination in mCRPC patients with early abiraterone resistance. The treatment regimen of onvansertib in combination with abiraterone/prednisone has been well tolerated. Preclinical Data On April 8, 2022 we announced the results of preclinical studies evaluating the anti-cancer activity of onvansertib in combination with the PARP inhibitor ("PARPi") olaparib in PARPi-resistant patient-derived xenograft (PDX) ovarian cancer models. The results were featured in a poster presentation at the AACR Annual Meeting. Data showed the combination of onvansertib and olaparib providing statistically significant survival benefits compared to treatment with either agent alone in three PDX ovarian cancer models. Two of the three PDX models studied were cisplatin- 20 Table of Contents sensitive with a mutated BRCA1 gene, while the third was cisplatin-resistant with wild type BRCA1. The onvansertib-olaparib combination was also shown to be well tolerated in mice. Critical Accounting Policies Our accounting policies are described in ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS of our Annual Report on Form 10-K as of and for the year ended December 31, 2021, filed with the SEC on February 24, 2022. There have been no changes to our critical accounting policies since December 31, 2021. RESULTS OF OPERATIONS Three Months Ended June 30, 2022 and 2021 Revenues Total revenues were $91,000 for the three months ended June 30, 2022, as compared to $68,000 for the prior period. Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to onvansertib. Revenue recognition of the royalty depends on the timing and overall sales activities of the licensees. Research and Development Expenses Research and development expenses consisted of the following: Three Months Ended June 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 1,069 $ 292 $ 777 Stock-based compensation 126 72 54 Clinical trials, outside services, and lab supplies 5,903 3,606 2,297 Facilities and other 350 149 201 Total research and development $ 7,448 $ 4,119 $ 3,329 Research and development expenses increased by $3.3 million for the three months ended June 30, 2022, compared to the same period in 2021. The overall increase in expenses was primarily related to chemistry, manufacturing, and controls ("CMC") and clinical pharmacology for studies to support the development of our lead drug candidate, onvansertib. Salaries and staff costs increased primarily due to additional hires in senior management and our clinical operations team. Selling, General and Administrative Expenses Selling, general and administrative expenses consisted of the following: Three Months Ended June 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 792 $ 513 $ 279 Stock-based compensation 929 964 (35) Outside services and professional fees 673 914 (241) Facilities and other 692 447 245 Total selling, general and administrative $ 3,086 $ 2,838 $ 248 Selling, general and administrative expenses increased by $0.2 million for the three months ended June 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount. Facilities and other costs increased due to higher insurance costs and the amending of our operating lease. The decrease in outside services and professional fees was due to recruiting fees incurred for the recruitment of officers and directors in the prior period. 21 Table of Contents Net Loss Net loss and per share amounts were as follows: Three Months Ended June 30, (in thousands, except per share amounts) 2022 2021 Increase (Decrease) Net loss $ (10,443) $ (6,757) $ 3,686 Preferred stock dividend (6) (6) — Net loss attributable to common shareholders $ (10,449) $ (6,763) $ 3,686 Net loss per common share — basic and diluted $ (0.24) $ (0.17) $ 0.07 Weighted average shares outstanding — basic and diluted 43,306 38,761 4,545 The $3.7 million increase in net loss attributable to common shareholders was primarily the result of an increase of operating expenses for the three months ended June 30, 2022, compared to the same period in the prior year. The $0.07 decrease in net loss per share was impacted by the increase in basic weighted average shares outstanding resulting primarily from the issuance of approximately 3.8 million shares of common stock and common stock equivalents from July 1, 2021 through June 30, 2022. Six Months Ended June 30, 2022 and 2021 Revenues Total revenues were $165,000 for the six months ended June 30, 2022, as compared to $140,000 for the prior period. Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to onvansertib. Revenue recognition of the royalty depends on the timing and overall sales activities of the licensees. Research and Development Expenses Research and development expenses consisted of the following: Six Months Ended June 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 2,130 $ 574 $ 1,556 Stock-based compensation 460 112 348 Clinical trials, outside services, and lab supplies 11,419 6,406 5,013 Facilities and other 647 306 341 Total research and development $ 14,656 $ 7,398 $ 7,258 Research and development expenses increased by $7.3 million for the six months ended June 30, 2022, compared to the same period in 2021. The overall increase in expenses was primarily related to chemistry, manufacturing, and controls ("CMC") and clinical pharmacology for studies to support the development of our lead drug candidate, onvansertib. Salaries and staff costs increased primarily due to additional hires in senior management and our clinical operations team. The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period. 22 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses consisted of the following: Six Months Ended June 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 1,652 $ 1,081 $ 571 Stock-based compensation 1,747 1,192 555 Outside services and professional fees 2,279 1,886 393 Facilities and other 1,348 914 434 Total selling, general and administrative $ 7,026 $ 5,073 $ 1,953 Selling, general and administrative expenses increased by $2.0 million for the six months ended June 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount. The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period. Facilities and other costs increased due to higher insurance costs and the amending of our operating lease. Net Loss Net loss and per share amounts were as follows: Six Months Ended June 30, (in thousands, except per share amounts) 2022 2021 Increase (Decrease) Net loss $ (21,436) $ (11,936) $ 9,500 Preferred stock dividend (12) (12) — Net loss attributable to common shareholders $ (21,448) $ (11,948) $ 9,500 Net loss per common share — basic and diluted $ (0.50) $ (0.31) $ 0.19 Weighted average shares outstanding — basic and diluted 43,269 37,967 5,302 The $9.5 million increase in net loss attributable to common shareholders was primarily the result of an increase in operating expenses for the six months ended June 30, 2022, compared to the same period in the prior year. The $0.19 increase in basic net loss per share was impacted by the increased net loss attributable to common shareholders and the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 3.8 million shares of common stock from July 1, 2021 through June 30, 2022. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the six months ended June 30, 2022, was $16.9 million, compared to $10.2 million for the six months ended June 30, 2021. Our use of cash was primarily a result of the net loss of $21.4 million for the six months ended June 30, 2022, adjusted for non-cash items related to stock-based compensation of $2.2 million, amortization of premiums on short-term investments of $0.6 million, and release of clinical trial funding commitment of $0.1 million. The net change in our operating assets and liabilities was $1.5 million increasing cash used in operations. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years. Net cash provided by investing activities was $26.0 million primarily related to sales and maturities in excess of purchases of marketable securities during the six months ended June 30, 2022, compared to net cash used in investing activities of $130.7 million for net purchases of marketable securities during the same period in 2021. Net cash provided in financing activities was $0 during the six months ended June 30, 2022, compared to $20.5 million of proceeds from the sale of common stock and proceeds from warrant exercises for the same period in 2021. As of June 30, 2022, and December 31, 2021, we had working capital of $118.9 million and $139.6 million, respectively. 23 Table of Contents We have incurred net losses since our inception and have negative operating cash flows. As of June 30, 2022, we had $122.0 million in cash, cash equivalents and short-term investments and we believe we have sufficient cash to meet our funding requirements for at least the next 12 months following the issuance date of this Quarterly Report on Form 10-Q. Our drug development efforts are in their early stages, and we cannot make estimates of the costs or the time that our development efforts will take to complete, or the timing and amount of revenues related to the sale of our drug candidates. The risk of completion of any program is high because of the many uncertainties involved in developing new drug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses, and competing technologies being developed by organizations with significantly greater resources. For the foreseeable future, we expect to continue to incur losses and require additional capital to further advance our clinical trial programs and support our other operations. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience additional dilution. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.