What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-03-11 · 58 added, 63 removed, 189 unchanged (39% of the section changed)

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“Risk Factors” and under “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

We are a biopharmaceutical company developing novel therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways and by harnessing the immune system to attack cancer cells.

We are a biopharmaceutical company developing biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells.

Our strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes.

Our lead clinical stage program is DKN-01, a monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1.

DKK1 is a protein that regulates the Wnt signaling pathways and enables tumor cells to proliferate and spread, as well as suppresses the immune system from attacking the tumor.

When DKN-01 binds to DKK1, an anti-tumor effect can be generated.

DKN-01-based therapies have generated responses and clinical benefit in several patient populations.

We are currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, hepatobiliary cancer, gynecologic cancers, or prostate cancer.

We entered into an exclusive option and license agreement (the “BeiGene Agreement”) with BeiGene, Ltd., or BeiGene, which granted BeiGene the right to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and New Zealand.

We intend to apply our extensive experience identifying and developing transformational products to aggressively develop these antibodies and build a pipeline of programs that has the potential to change the practice of cancer medicine.

We are currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, gynecologic cancers, or colorectal cancer.

Our second clinical stage program is FL-301, a monoclonal antibody that targets cells that express Claudin18.2 on their cell surface.

We also have two preclinical antibody programs, FL-302 and FL-501.

We intend to apply our extensive experience identifying and developing transformational products to build a pipeline of programs that have the potential to change the practice of cancer medicine.

We have devoted substantially all of our resources to development efforts relating to our product candidates, including manufacturing and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property.

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We expect to continue to incur significant expenses and have operating losses for at least the next several years as we:

● continue the development of our product candidate, DKN-01;

● seek to obtain regulatory approvals for DKN-01;

● outsource the manufacturing of DKN-01 for clinical trials and any indications for which we receive regulatory approval;

● continue the development of our product candidates, DKN-01, FL-301, FL-302 and FL-501;

● seek to obtain regulatory approvals for our product candidates;

● outsource the manufacturing of our product candidates for clinical trials and any indications for which we receive regulatory approval;

● contract with third parties for the sales, marketing and distribution of DKN-01 for any indications for which we receive regulatory approval;

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Accordingly, we will need to raise additional capital prior to the commercialization of DKN-01 or any other product candidate.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, such as the BeiGene Agreement.

However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all.

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As of December 31, 2022, we had cash and cash equivalents of $65.5 million.

We believe that our cash and cash equivalents as of December 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the filing of this Annual Report on Form 10-K.

We believe that our cash and cash equivalents as of December 31, 2022, together with the approximately $50.0 million in cash and cash equivalents acquired in the merger with Flame, will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the filing of this Annual Report on Form 10-K.

See “—Liquidity and Capital Resources.”

In connection with the merger with Flame and pursuant to the Certificate of Designation of the Series X non-voting convertible preferred stock (“Series X Preferred Stock”), if stockholder approval for the conversion of the Series X Preferred Stock to common stock (the “Stockholder Approval”) is not obtained from the holders of our common stock within six months from the date of issuance of the Series X Preferred Stock, the holders of the Series X Preferred Stock may require us to settle all of the then-outstanding shares of Series X Preferred Stock for cash at fair value.

We fully expect the vote to pass and for the Series X Preferred Stock to convert into common stock.

However, there can be no assurance that the Stockholder Approval will be received.

If we fail to receive the Stockholder Approval within six months from the date of issuance of the Series X Preferred Stock and are required to settle then-outstanding shares of Series X Preferred Stock for cash at fair value, our financial position would be materially adversely affected and we would be forced to seek additional funding, which may not be available on acceptable terms or at all, or reduce or eliminate certain clinical trials, programs and operating expenses, which would adversely affect our business prospects.

Financial Overview

Research and Development Expenses

Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for DKN-01 and TRX518.

We recognize research and development expenses as they are incurred.

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The successful development of our clinical product candidates is highly uncertain.

At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product

candidates or the period, if any, in which material net cash inflows from these product candidates may commence.

At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence.

This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

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Interest income consists primarily of interest income earned on cash and cash equivalents.

During the year ended December 31, 2020, interest income was $0.1 million.

During the year ended December 31, 2021 we had an immaterial amount of interest income.

Research and development incentive income

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Since our inception, we have not recorded any U.S.

federal, state or foreign income tax benefits for the net losses we have incurred in each year, due to our uncertainty of realizing a benefit from those items.

As of December 31, 2021, we had federal and state net operating loss carryforwards of $196.2 million and $178.0 million, respectively.

federal or state income tax benefits for the net losses we have incurred in each year, due to our uncertainty of realizing a benefit from those items.

As of December 31, 2022, we had federal, state and foreign net operating loss carryforwards of $210.5 million, $191.5 million and $0.4 million, respectively.

The federal and state net operating losses begin to expire in 2030, while the foreign net operating losses carryforward indefinitely.

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As of December 31, 2022, we also had federal and state research and development tax credits of $7.9 million and $1.8 million, respectively, which begin to expire in 2030.

There is no provision for income taxes in the United States or Israel because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions.

The deferred tax asset recorded in the consolidated balance sheets relates to our Australian operations.

There is no provision for income taxes in the United States because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions.

Critical Accounting Policies and Significant Judgments and Estimates

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As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

We are an “emerging growth company”, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We may elect to use the extended transition period for complying with new or revised accounting standards under Section 102(b) (1) of the JOBS Act.

This election would allow us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

We may take advantage of these reporting exemptions until we are no longer an emerging growth company, which in certain circumstances could be for up to five years.

We will remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period and (d) the last day of our 2022 fiscal year containing the fifth anniversary of the date on which shares of our common stock became publicly traded in the U.S.

As of December 31, 2021, we remain an EGC.

Previously, we were an “emerging growth company”, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

The JOBS Act permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b) (1) of the JOBS Act.

This election allowed us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.

We were able to take advantage of these reporting exemptions until we were no longer an emerging growth company.

We were an EGC until the last day of our 2022 fiscal year, containing the fifth anniversary of the date on which shares of our common stock became publicly traded in the U.S.

As of January 1, 2023, we ceased to be an EGC.

Results of Operations

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Australian research and development incentives

Foreign currency gains (losses)

Foreign currency losses

Loss before income taxes

License revenues for the each of the years ended December 31, 2021 and 2020 were $1.5 million, related to the BeiGene Agreement for the development and commercialization of DKN- 01 in Asia (excluding Japan), Australia, and New Zealand.

Benefit from (provision for) income taxes

License revenue for the year ended December 31, 2021 was $1.5 million, related to the Exclusive Option and License Agreement with BeiGene (the “BeiGene Agreement”) for the development and commercialization of DKN- 01 in Asia (excluding Japan), Australia, and New Zealand.

The BeiGene Agreement became effective on January 3, 2020.

There was no such license revenue recognized during the year ended December 31, 2022 as the upfront payment was recognized in full as of December 31, 2021.

Research and Development Expenses

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Research and development expenses were $45.0 million for the year ended December 31, 2022, compared to $32.2 million for the year ended December 31, 2021.

The increase of $11.7 million in research and development expenses was primarily due to an increase of $5.3 million in manufacturing costs related to clinical trial material due to timing of manufacturing campaigns, an increase of $3.3 million in clinical trial costs due to deprioritizing the continued development of TRX518 in 2019 and timing of patient enrollment, an increase of $2.9 million in payroll and other related expenses due to an increase in headcount of our research and development full time employees and an increase of $0.5 million in stock based compensation expense due to new stock options granted to employees during the year ended December 31, 2021.

These increases were partially offset by a decrease of $0.2 million in consulting fees associated with research and development activities and a $0.1 million decrease in rent expense due to the closing of our research laboratory in April 2020.

The increase of $12.8 million in research and development expenses was primarily due to an increase of $6.3 million in manufacturing costs related to clinical trial material due to timing of manufacturing campaigns, an increase of $3.6 million in clinical trial costs due to patient enrollment and the duration of patients on study, an increase of $1.8 million in payroll and other related expenses due to an increase in headcount of our research and development full time employees and an increase of $0.9 million in stock based compensation expense due to new stock options granted to employees during the year ended December 31, 2022.

There was also an increase of $0.2 million in consulting fees associated with research and development activities.

General and Administrative Expenses

General and administrative expenses were $11.8 million for the year ended December 31, 2022, compared to $10.8 million for the year ended December 31, 2021.

The increase of $1.2 million was due to a $0.7 million increase in payroll and other related expenses due to an increase in headcount of our general and administrative full time employees as well as an increase in compensation expense and an increase of $0.4 million in stock based compensation expense due to new stock options granted to employees during the year ended December 31, 2021.

There was also an increase in insurance expense and taxes of $0.3 million and $0.2 million, respectively.

These increases were partially offset by a decrease of $0.4 million in professional fees during the year ended December 31, 2021 as compared to the year ended December 31, 2020, which included $0.2 million of expense in connection with the termination of the Lincoln Park Purchase Agreement.

The increase of $1.0 million was primarily due to an increase of $0.6 million in stock based compensation expense due to new stock options granted to employees during the year ended December 31, 2022, and a $0.3 million increase in payroll and other related expenses due to an increase in headcount of our general and administrative full time employees.

There was also a $0.1 million increase in professional fees during the year ended December 31, 2022 as compared to 2021, primarily due to higher recruiting costs.

Interest Income

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During the year ended December 31, 2021, we recorded an immaterial amount of interest income.

The decrease in interest income is primarily due to lower interest rates during the year ended December 31, 2021 as compared to 2020.

The increase in interest income is primarily due to higher interest rates during the year ended December 31, 2022 as compared to 2021.

Australian Research and Development Incentives

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The remaining R&D incentive receivable has been recorded as “Research and development incentive receivable” in the consolidated balance sheets.

Foreign Currency Gains (Loss)

We recorded foreign currency gains (losses) of ($0.4) million and $0.7 million, respectively, for the years ended December 31, 2021 and 2020.

The change in foreign currency gains (losses) is due to the changes in the Australian dollar exchange rate related to activities of the Australian entity.

Foreign Currency Losses

We recorded foreign currency losses of $0.6 million and $0.4 million, respectively, for the years ended December 31, 2022 and 2021.

The change in foreign currency losses is due to the changes in the Australian dollar exchange rate related to activities of the Australian entity.

Interest Expense

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We expect to continue to generate operating losses in the foreseeable future.

We believe that our cash and cash equivalents of $114.9 million as of December 31, 2021 will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of this Annual Report on Form 10-K.

In addition, we will seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies.

We believe that our cash and cash equivalents of $65.5 million as of December 31, 2022, along with approximately $50.0 million in cash and cash equivalents that we acquired through the merger with Flame, will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of this Annual Report on Form 10-K.

In connection with the merger with Flame and pursuant to the Certificate of Designation of the Series X non-voting convertible preferred stock (the “Series X Preferred Stock”), if stockholder approval for the conversion of the Series X Preferred Stock to common stock (the “Stockholder Approval”) is not obtained from the holders of our common stock within six months from the date of issuance of the Series X Preferred Stock, the holders of Series X Preferred Stock may require us to settle all of the then-outstanding shares of Series X Preferred Stock for cash at fair value.

We fully expect the vote to pass and for the Series X Preferred Stock to convert to common stock.

However, there can be no assurance that the Stockholder Approval will be received.

In addition, to support our future operations, we will seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies.

If we do not obtain additional funding or development program cost-sharing, we could be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, which could adversely affect our business prospects.

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Cash used in operating activities

Cash provided by investing activities

Cash provided by financing activities

Cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase(decrease) in cash and cash equivalents

Operating activities.

Net cash used in operating activities for the year ended December 31, 2022 was primarily related to our net loss of $54.6 million and net changes in working capital, including an increase in research and development receivable of $1.0 million, an increase of $0.8 million in other assets and a decrease in lease liabilities of $0.4 million.

These changes were partially offset by an increase in accounts payable and accrued expenses of $0.9 million and a decrease in prepaid expenses and other assets of $0.4 million, decrease in deferred tax assets of $0.2 million, noncash stock-based compensation expense of $5.2 million and noncash lease expense of $0.4 million.

There was also a noncash change of $0.6 million due to foreign currency losses.

Net cash used in operating activities for the year ended December 31, 2021 was primarily related to our net loss from the operation of our business of $40.6 million and net changes in working capital, including a decrease in deferred revenue of $1.5 million, an increase in research and development receivable of $1.2 million, an increase in prepaid expenses and other assets of $0.6 million, a decrease in lease liabilities of $0.4 million and change in restricted stock liability of $0.2 million.

These changes were partially offset by an increase in accounts payable and accrued expenses of $3.9 million, a decrease in other assets of $0.6 million, an increase in deferred offering costs of $0.2 million, noncash stock-based compensation expense of $3.7 million, noncash lease expense of $0.4 million and amortization of contract asset of $0.1 million.

There was also a non cash change of $0.4 million due to foreign currency losses.

Net cash used in operating activities for the year ended December 31, 2020 was primarily related to our net loss from the operation of our business of $27.5 million and net changes in working capital, including a decrease in accounts payable and accrued expenses of $2.6 million, a decrease in lease liabilities of $0.5 million and an increase in contract acquisition costs of $0.3 million.

There was also a non cash change of $0.7 million due to foreign currency gains.

These changes were partially offset by a decrease of $0.8 million in prepaid expenses and other assets, an increase of $1.5 million in deferred revenue, a decrease in research and development receivable of $0.1 million, noncash stock based compensation expense of $2.6 million, noncash lease expense of $0.5 million and amortization of contract asset of $0.1 million.

There was also a noncash change of $0.4 million due to foreign currency losses.

Investing Activities.

Net cash provided by investing activities during the year ended December 31, 2020 was related to the sale of equipment.

There were no investing activities during the year ended December 31, 2021.

There were no investing activities during the years ended December 31, 2022 and 2021.

Financing Activities.

Net cash provided by financing activities for the year ended December 31, 2021 consisted of $97.2 million in proceeds from the issuance of common stock in connection with the public offering the Company completed in September 2021 (the “2021 Public Offering”) and $1.0 million in proceeds from the issuance of common stock upon the exercise of stock options and warrants.

These increases were partially offset by payments of $0.2 million for offering costs.

Net cash provided by financing activities for the year ended December 31, 2020 consisted of $48.5 million in proceeds from the issuance of common stock in connection with our public offering in June of 2020, $27.0 million in proceeds from the issuance of

Series A Preferred Stock and Series B Preferred Stock in connection with the January 2020 Private Placement and $0.4 million in proceeds from the issuance of common stock upon the exercise of stock options and warrants.

Net cash used in financing activities for the year ended December 31, 2022 consisted of payments of offering costs of $0.2 million.

Net cash provided by financing activities for the year ended December 31, 2021 consisted of $97.2 million in proceeds from the issuance of common stock in connection with the public offering we completed in September 2021 (the “2021 Public Offering”) and $1.0 million in proceeds from the issuance of common stock upon the exercise of stock options and warrants.

These increases were partially offset by payments of $0.2 million for offering costs.

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We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates in development.

In addition, we expect to incur additional costs associated with operating as a public company.

Our expenses will also increase as we:

● pursue the clinical development of our most advanced product candidate, DKN-01;

● seek to identify and develop additional product candidates;

● pursue the clinical development of our most advanced product candidate, DKN-01, and our newly acquired product candidates, FL-301, FL-302 and FL-501;

● maintain, expand and protect our intellectual property portfolio;

● expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

● increase our product liability and clinical trial insurance coverage as we initiate our clinical trials and commercialization efforts.

Additional funding may not be available at the time needed on commercially reasonable terms, if at all.

Contractual Obligations and Contingent Liabilities

On October 1, 2021, we entered into a second amendment to the 47 Thorndike Street Lease, the (“Second Amendment”).

Under the Second Amendment, we extended the term of the 47 Thorndike Street Lease through January 31, 2023.

Under the Second Amendment, we will continue to pay the current monthly base rent amount of $36,000 contemplated by the 47 Thorndike Street Lease through April 30, 2022, with an increase commencing on May 1, 2022 and adjusting the monthly base rent amount to approximately $37,000 through January 31, 2023.

We remain committed to $5.0 million of non-cancellable commitments under manufacturing agreements with vendors to manufacture DKN-01 for use in clinical trials and $0.7 million related to preclinical research studies.

On May 16, 2022, we entered into a third amendment to the 47 Thorndike Street Lease, the (“Third Amendment”).

Under the Third Amendment, we extended the term of the 47 Thorndike Street Lease through July 31, 2024.

Under the Third Amendment, we will continue to pay the current monthly base rent amount of $37,000 contemplated by the 47 Thorndike Street Lease through January 31, 2023, with an increase commencing on February 1, 2023 adjusting the monthly base rent amount to approximately $37,696 through January 31, 2024, and then another increase commencing on February 1, 2024 adjusting the monthly base rent amount to $38,335 for the period of February 2024 through July 31, 2024.

We remain committed to $4.7 million of non-cancellable commitments under manufacturing agreements with vendors to manufacture DKN-01 for use in clinical trials.

This description of our contractual obligations does not include potential future milestones or royalties that we may be required to make under license and collaboration agreements due to the uncertainty of events requiring payment under these agreements.

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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