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 is an oral, small molecule drug candidate that is highly specific for PLK1 inhibition with a 24-hour half-life. 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 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, allowing for flexible dosing and scheduling which has shown favorable safety and tolerability across multiple clinical trials; 18 Table of Contents • Onvansertib is orally bioavailable, 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 microtubule-targeting 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. Combining onvansertib with standard-of-care cancer agents provides opportunities for synergy with many cancer therapies. There are five ongoing or soon to be activated clinical trials of onvansertib: two trials (TROV-054 and ONSEMBLE) in second line treatment in patients with KRAS-mutated Metastatic Colorectal Cancer ("mCRC"), one trial in second line treatment in patients with Metastatic Pancreatic Ductal Adenocarcinoma ("mPDAC"), and two investigator-initiated trials in patients with unresectable locally advanced or metastatic Triple Negative Breast Cancer ("TNBC") and relapsed Small Cell Lung Cancer ("SCLC"). 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 patients with KRAS-mutated mCRC (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 presented on September 12, 2022 provided an update of the ongoing TROV-054 phase 1b/2 single arm clinical trial in KRAS-mutated metastatic colorectal cancer: • Objective response rate ("ORR") across all evaluable patients was 35%, with 17 of 48 evaluable patients achieving an objective response. Responses have been observed across multiple KRAS variants; • Median duration of response ("mDoR") across all evaluable patients was 11.7 months (95% confidence interval ("CI"): 8.9 – not reached); • Median progression free survival ("mPFS") across all evaluable patients was 9.3 months (95% CI: 7.6 – 13.5). Historical control trials of different drug combinations, including the standard-of-care ("SOC") of FOLFIRI with bevacizumab, in similar patient populations have shown ORR and mPFS of 5 – 13% and ~4.5 – 5.7 months, respectively. 19 Table of Contents • A subgroup analysis of patients who were bevacizumab naïve vs patients who had received prior bevacizumab in 1st line therapy showed that patients who were bevacizumab naïve (n=13) had an ORR of 69% and mPFS of 13.5 months , which is well above historical controls. In contrast, patients previously treated with bevacizumab (n=35) had an ORR of 23% and mPFS of 7.8 months. Phase 2 Randomized Clinical Trial in KRAS-mutated mCRC (the ONSEMBLE trial) The ONSEMBLE trial (CRDF-003), is a Phase 2 open-label, randomized 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 will be conducted at approximately 40 clinical trial sites across the U.S. The primary objective of the ONSEMBLE trial is to evaluate onvansertib’s safety and efficacy in combination with the standard-of-care FOLFIRI/bevacizumab regimen in patients with second-line KRAS/NRAS-mutated mCRC. The trial is expected to enroll approximately 150 patients who will be randomized 1:1:1 to receive standard-of-care alone, standard-of-care plus 20 mg onvansertib, or standard-of-care plus 30 mg onvansertib, with onvansertib administered on days 1-5 and 15-19 of 28-day treatment cycles. The primary endpoint of the trial is objective response rate. Progression-free survival and duration of response will be key secondary endpoints. Activation of the trial is expected in Q4 2022, with topline data anticipated in 2H 2024. 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. Preliminary data presented on September 12, 2022 provided an update of the ongoing CRDF-001 phase 2 open label clinical trial in mPDAC: • Preliminary data from 5 evaluable patients showed 1 patient achieving an initial partial response (PR) and 3 patients achieving stable disease (SD); • The 4 patients achieving SD or PR remain on study; the fifth evaluable patient discontinued treatment due to disease progression and an additional 3 patients remain on study awaiting their first post-baseline scan; • Additional data is anticipated in mid 2023. Phase 1b/2 Investigator-Initiated Clinical Trial in TNBC A single-arm, Phase 1b/2 trial of onvansertib in combination with paclitaxel in patients with unresectable locally advanced or metastatic TNBC is open for enrollment at Dana Farber Cancer Institute ("DFCI"). In Phase 1b, approximately 14-16 patients will be treated with different doses of onvansertib in combination with a fixed dose of paclitaxel to determine the maximum tolerated dose and RP2D of onvansertib. In Phase 2, approximately 34 patients will be treated with the selected onvansertib RP2D in combination with paclitaxel. The primary endpoint of Phase 2 of the trial is ORR, with PFS included as a secondary endpoint. Preliminary data from the trial are expected in Q4 2023 or Q1 2024. For more information, please visit NCT05383196 at www.clinicialtrials.gov . 20 Table of Contents Phase 2 Investigator-Initiated Clinical Trial in SCLC A single-arm, two-stage, Phase 2 trial of onvansertib monotherapy in patients with relapsed SCLC is open for enrollment at the University of Pittsburgh Medical Center ("UPMC"). The trial is designed to enroll 15 patients in Stage 1, with the study proceeding to Stage 2 if 2 or more Stage 1 patients achieve an objective response. Stage 2 is designed to enroll an additional 20 patients. The primary endpoint of the trial is ORR, while key secondary endpoints include PFS and overall survival. Preliminary data from the trial are expected in mid 2023. For more information, please visit NCT05450965. 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 September 30, 2022 and 2021 Revenues Total revenues were $93,000 for the three months ended September 30, 2022, as compared to $86,000 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 September 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 1,000 $ 521 $ 479 Stock-based compensation 286 174 112 Clinical trials, outside services, and lab supplies 4,279 3,104 1,175 Facilities and other 444 355 89 Total research and development $ 6,009 $ 4,154 $ 1,855 Research and development expenses increased by $1.9 million for the three months ended September 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 (research and development average headcount grew by 73% over the comparative period). Selling, General and Administrative Expenses Selling, general and administrative expenses consisted of the following: Three Months Ended September 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 808 $ 671 $ 137 Stock-based compensation 751 766 (15) Outside services and professional fees 840 914 (74) Facilities and other 678 579 99 Total selling, general and administrative $ 3,077 $ 2,930 $ 147 21 Table of Contents Selling, general and administrative expenses increased by $0.1 million for the three months ended September 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 27% over the comparative period). 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. Net Loss Net loss and per share amounts were as follows: Three Months Ended September 30, (in thousands, except per share amounts) 2022 2021 Increase (Decrease) Net loss $ (8,571) $ (6,913) $ 1,658 Preferred stock dividend (6) (6) — Net loss attributable to common shareholders $ (8,577) $ (6,919) $ 1,658 Net loss per common share — basic and diluted $ (0.20) $ (0.17) $ 0.03 Weighted average shares outstanding — basic and diluted 43,333 39,552 3,781 The $1.7 million increase in net loss attributable to common shareholders was primarily the result of an increase of operating expenses for the three months ended September 30, 2022, compared to the same period in the prior year. The $0.03 increase 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 October 1, 2021 through September 30, 2022. Nine Months Ended September 30, 2022 and 2021 Revenues Total revenues were $258,000 for the nine months ended September 30, 2022, as compared to $226,000 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: Nine Months Ended September 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 3,131 $ 1,095 $ 2,036 Stock-based compensation 746 286 460 Clinical trials, outside services, and lab supplies 15,699 9,510 6,189 Facilities and other 1,089 661 428 Total research and development $ 20,665 $ 11,552 $ 9,113 Research and development expenses increased by $9.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. The overall increase in expenses was primarily related to 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 (research and development average headcount grew by 108% over the comparative period). 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: Nine Months Ended September 30, (in thousands) 2022 2021 Increase (Decrease) Salaries and staff costs $ 2,460 $ 1,752 $ 708 Stock-based compensation 2,498 1,958 540 Outside services and professional fees 3,119 2,799 320 Facilities and other 2,026 1,494 532 Total selling, general and administrative $ 10,103 $ 8,003 $ 2,100 Selling, general and administrative expenses increased by $2.1 million for the nine months ended September 30, 2022, compared to the same period in 2021. Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 37% over the comparative period). 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: Nine Months Ended September 30, (in thousands, except per share amounts) 2022 2021 Increase (Decrease) Net loss $ (30,007) $ (18,849) $ 11,158 Preferred stock dividend (18) (18) — Net loss attributable to common shareholders $ (30,025) $ (18,867) $ 11,158 Net loss per common share — basic and diluted $ (0.69) $ (0.49) $ 0.20 Weighted average shares outstanding — basic and diluted 43,291 38,501 4,790 The $11.2 million increase in net loss attributable to common shareholders was primarily the result of an increase in operating expenses for the nine months ended September 30, 2022, compared to the same period in the prior year. The $0.20 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 October 1, 2021 through September 30, 2022. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for the nine months ended September 30, 2022, was $24.4 million, compared to $15.7 million for the nine months ended September 30, 2021. Our use of cash was primarily a result of the net loss of $30.0 million for the nine months ended September 30, 2022, adjusted for non-cash items related to stock-based compensation of $3.2 million, amortization of premiums on short-term investments of $0.7 million, and release of clinical trial funding commitment of $0.1 million. The net change in our operating assets and liabilities was $1.4 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 $31.1 million primarily related to sales and maturities in excess of purchases of marketable securities, offset by purchases of capital equipment during the nine months ended September 30, 2022, compared to net cash used in investing activities of $122.7 million for net purchases of marketable securities during the same period in 2021. 23 Table of Contents Net cash provided in financing activities was $75,000 from the exercise of stock options during the nine months ended September 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 September 30, 2022, and December 31, 2021, we had working capital of $111.5 million and $139.6 million, respectively. We have incurred net losses since our inception and have negative operating cash flows. As of September 30, 2022, we had $114.3 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. Based on our current projections we expect that our capital resources are sufficient to fund our operations into 2025. 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.