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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-02-24 · 30 added, 51 removed, 74 unchanged (52% of the section changed)

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Company Overview

We are a clinical stage oncology company, developing new precision medicine treatment options for cancer patients in indications with the greatest unmet medical need.

Our goal is to target tumor vulnerabilities with treatment combinations that overcome disease resistance and improve disease response to standard treatment regimens and to increase overall survival.

We are developing onvansertib, an oral and highly selective PLK1 inhibitor, in combination with standard-of-care anti-cancer therapeutics.

Our clinical development programs incorporate tumor genomics and biomarker technology to refine assessment of patient response to treatment.

We have three clinical programs currently ongoing:

a Phase 1b/2 study of onvansertib in combination with FOLFIRI/Avastin® (bevacizumab) in mCRC;

a Phase 2 trial of onvansertib in combination with nanoliposomal irinotecan, leucovorin and fluorouracil for the second-line treatment of patients with PDAC;

and a Phase 2 study of onvansertib in combination with Zytiga® (abiraterone)/prednisone in mCRPC.

Financial and Company Updates

On November 18, 2021 we announced that Pfizer, Inc.

made an equity investment of $15.0 million in the Company as part of the Pfizer Breakthrough Growth Initiative.

In connection with the equity investment, Adam Schayowitz, Ph.D., MBA, Vice President & Medicine Team Group Lead for Breast Cancer, Colorectal Cancer and Melanoma at Pfizer, will join our Scientific Advisory Board and Pfizer has rights of first access to any pre-clinical or final clinical data and results generated as part of the onvansertib development program at least two business days prior to us providing such data to a third party.

On July 12, 2021, we announced the appointments of Katherine L.

Ruffner, M.D., as Chief Medical Officer and James E.

Levine as Chief Financial Officer.

We entered into an employment agreement with Mr.

Levine on July 12, 2021 and with Dr.

Ruffner on August 4, 2021.

We are a clinical-stage biotechnology company, headquartered in San Diego, CA, leveraging Polo-like Kinase 1 (“PLK1”) inhibition to develop novel therapies across a range of cancers.

Our lead asset is onvansertib, a PLK1 inhibitor that is being evaluated in combination with standard of care therapies in clinical programs targeting indications such as KRAS/NRAS-mutated metastatic colorectal cancer, metastatic pancreatic cancer, as well as investigator-initiated trials in triple negative breast cancer and small cell lung cancer.

These programs and our broader development strategy are designed to target tumor vulnerabilities in order to overcome treatment resistance and deliver superior clinical benefit compared to the standard of care alone.

Our common stock is listed on the Nasdaq Capital Market under the ticker symbol "CRDF".

Company Updates

On February 2, 2023 we announced the appointment of Fairooz Kabbinavar, M.D., FACP, as Chief Medical Officer.

On January 11, 2022 we announced the appointment of Tod Smeal, Ph.D., as Chief Scientific Officer and Charles Monahan, R.Ph., as Senior Vice President, Regulatory Affairs.

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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 drugs.

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.

research and development expenses, and competing technologies being developed by organizations with significantly greater resources.

Critical Accounting Estimate

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Actual results could differ from those estimates.

We believe that the following discussion represents our critical accounting policies.

We believe that the following discussion represents our critical accounting estimates.

Accrued Clinical Trial Expenses

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Due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trial activities.

Recent Accounting Pronouncements

Financial Statements—Note 2 Basis of Presentation and Summary of Significant Accounting Policies in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.

Results of Operations

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Our total revenues were $386,000 and $359,000 for the years ended December 31, 2022 and 2021, respectively.

Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to onvansertib.

Revenues are from our annual minimum or sales-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.

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Research and development expenses increased by $9.7 million to $27.1 million for the year ended December 31, 2022 from $17.4 million for the year ended December 31, 2021.

The overall increase in research and development expenses was primarily due to costs associated with clinical programs and outside service costs for three ongoing clinical trials related to the development of our lead drug candidate, onvansertib.

Facilities costs increased due to amending our operating lease.

Stock based compensation costs increased primarily due to new grants issued during 2021.

The overall increase in expenses was primarily related to CMC, clinical pharmacology and 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 93% 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.

Selling, General and Administrative Expenses

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Selling, general and administrative expenses increased by $1.3 million to $13.2 million for the year ended December 31, 2022, from $11.8 million for the year ended December 31, 2021.

The significant components of the increase were outside services and stock-based compensation.

The increase in outside services is primarily related to strategic valuation consulting related to our lead drug candidate, onvansertib.

Outside services and professional fees also increased due to legal expenses related to the expansion of our patent portfolio and recruiting fees related to hiring of key employees and directors.

The increase in stock-based compensation is primarily due to additional stock option grants to employees and directors during the period and the modification of stock option grants for departing directors in June 2021.

Change in Fair Value of Derivative Financial Instruments—Warrants

We have issued warrants to purchase shares of our common stock that are accounted for as derivative liabilities.

As of December 31, 2021, the derivative financial instruments—warrants liabilities related to securities issued were revalued to $0, resulting in a decrease in fair value of $285,000 from December 31, 2020 based primarily upon the fluctuation in our stock price, as well as the decrease in the remaining life of the warrants.

The change in value upon remeasurement at December 31, 2021 was recorded as a gain from the change in fair value of derivative financial instruments—warrants in the statement of operations.

Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 30% 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.

The decrease in outside services is primarily related to strategic valuation consulting related to our lead drug candidate, onvansertib performed during the prior period.

Net loss and per share amounts were as follows:

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Preferred stock dividend (24) (24) —

Deemed dividend on preferred stock — (3,267) (3,267)

Net loss attributable to common stockholders $ (38,728) $ (28,315) $ 10,413

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Weighted-average shares outstanding — basic and diluted 43,600 39,030 4,570

The increase of $5.7 million in net loss attributable to common shareholders was primarily the result of an increase in operating expenses, offset by a decrease in deemed dividend on preferred stock for the year ended December 31, 2021 compared to the same period in the prior year.

The $0.35 decrease in basic and diluted net loss per share was impacted by the increase in net loss attributable to shareholders and by the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 5.2 million shares of common stock during the twelve months ended December 31, 2021.

The increase of $10.4 million in net loss attributable to common shareholders was primarily the result of an increase in operating expenses for the year ended December 31, 2022 compared to the same period in the prior year.

The $0.16 increase in basic and diluted net loss per share was impacted by the increase in net loss attributable to shareholders and was partially offset by the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 2.7 million shares of common stock primarily from the conversion of Series E Convertible Preferred Stock during the twelve months ended December 31, 2022.

Liquidity and Capital Resources

The COVID-19 pandemic in the United States has caused business disruptions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted.

The economic effects of the outbreak could also have an adverse effect on our ability to raise additional capital.

At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain.

There has not been a material impact on our financial statements for the twelve months ended December 31, 2021.

As of December 31, 2022, we had $16.3 million in cash and cash equivalents and $88.9 million in short-term investments.

Net cash used in operating activities for the year ended December 31, 2022 was $33.8 million, compared to $23.0 million for the year ended December 31, 2021.

Our use of cash was primarily a result of the net loss of $28.3 million for the year ended December 31, 2021, adjusted for non-cash items mainly related to stock-based compensation of $3.2 million, release of clinical trial funding commitment of $2.0 million, and depreciation of $0.5 million.

Our use of cash was primarily a result of the net loss of $38.7 million for the year ended December 31, 2022, adjusted for non-cash items mainly related to stock-based compensation of $4.3 million, and amortization of premiums on short-term investments of $0.6 million.

The net change in our operating assets and liabilities was $0.4 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 used by investing activities was $131.4 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively.

Investing activities during the year ended December 31, 2021 were primarily related to $131.2 of net purchases of marketable securities.

Investing activities during the year ending December 31, 2020 primarily consisted of the purchase of capital equipment.

Net cash provided by financing activities was $35.5 million during the year ended December 31, 2021, compared to $137.3 million provided in financing activities during the year ended December 31, 2020.

Financing activities during the year ended December 31, 2021 related primarily to sales of Common Stock and proceeds from exercise of warrants.

Financing activities during the year ended December 31, 2020 related primarily to sales of common stock, preferred stock, warrants and proceeds from exercise of warrants.

Net cash provided by investing activities was $38.1 million primarily related to sales and maturities in excess of purchases of marketable securities, partially offset by purchases of capital equipment during the year ended December 31, 2022,

compared to net cash used in investing activities of $131.4 million for net purchases of marketable securities during the same period in 2021.

Net cash provided by financing activities was $0.1 million from the exercise of stock options during the year ended December 31, 2022, compared to $35.5 million of proceeds from the sale of common stock and proceeds from warrant exercises for the same period in 2021.

As of December 31, 2022 and 2021, we had working capital of $103.5 million and $139.6 million, respectively.

The increase in working capital is primarily due to the increase in cash and cash equivalents from financing activities during the year ended December 31, 2021.

The decrease in working capital is primarily due to the net loss partially offset by the increase in cash and cash equivalents from financing activities during the year ended December 31, 2022.

We have incurred net losses since our inception and have negative operating cash flows.

As of December 31, 2022, we had $105.3 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 these financial statements.

Based on our current projections we expect that our capital resources are sufficient to fund our operations into 2025.

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.

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To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience additional dilution.

The economic effects of COVID-19 could also have an adverse effect on our ability to raise additional capital.

Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs.

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We continually assess our spending plans to effectively and efficiently address our liquidity needs.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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