What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-24 · 57 added, 59 removed, 212 unchanged (35% of the section changed)

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Our platform utilizes custom-built high throughput and translatable systems that measure integrated muscle function in whole organ extracts to identify small molecule precision medicines regulating key proteins in muscle tissue, initially focused on addressing rare neuromuscular and cardiac diseases.

Our lead candidate, EDG-5506, is an orally administered

allosteric, selective, fast myofiber (type II) myosin small molecule inhibitor designed to address the root cause of dystrophinopathies including Duchenne muscular dystrophy (DMD) and Becker muscular dystrophy (BMD), and recently completed a Phase 1 clinical trial.

Our lead product candidate, EDG-5506, is an orally administered allosteric, selective, fast myofiber (type II) myosin small molecule inhibitor designed to address the root cause of dystrophinopathies including Duchenne muscular dystrophy (DMD) and Becker muscular dystrophy (BMD).

We have developed and characterized a library of selective fast skeletal myosin inhibitors exhibiting a broad range of pharmacological and pharmacokinetic (PK) properties.

We also intend to advance two other muscle-focused precision medicines into clinical development.

Our second program, EDG-5440, is a next generation myosin ATPase modulator designed to target skeletal muscle in a specific set of rare neuromuscular diseases.

Our third program, EDG-002, focuses on identification of novel mechanism cardiac modulators.

We are initially pursuing a new target for inherited hypertrophic cardiomyopathy (HCM) in addition to exploring the potential of this novel mechanism across other cardiac disorders.

We believe our programs also offer substantial opportunities for us to expand into related rare diseases for which there are limited or no approved treatments.

In October 2021, we announced positive topline results from the MAD portion of a first-in-human Phase 1, HV clinical trial.

In October 2021, we announced positive topline results from the multiple ascending dose (MAD) portion of a first-in-human Phase 1, HV clinical trial.

In addition, in January 2022, we announced positive topline results from the BMD, or Phase 1b, portion of a first-in-human Phase 1 clinical trial assessing the safety, tolerability, PK and PD of EDG-5506.

We are currently enrolling a follow-on open-label, single-center study that will assess the safety and PK of EDG-5506 over one year in adults with BMD .

We anticipate initiation of Phase 2 trials in individuals with BMD in the first half of 2022 and DMD in the second half of 2022.

We have fully enrolled an open-label, single-center study that will assess the safety and PK of EDG-5506 over one year in adults with BMD and in October 2022, announced positive interim 6-month results from the ongoing study.

We initiated a Phase 2 clinical trial in individuals with BMD in July 2022 and initiated our Phase 2 clinical trial in children with DMD in October 2022 .

We have also identified a second muscle-focused potential precision medicine that focuses on identification of novel mechanism cardiac modulators.

We are initially pursuing a new target with our lead product candidate for cardiomyopathy, EDG-7500, for inherited hypertrophic cardiomyopathy (HCM) in addition to exploring the potential of this novel mechanism across other cardiac disorders.

In addition, our EDG-003 cardiovascular discovery program is exploring the potential of other novel mechanisms to address other cardiac disorders.

We believe our programs also offer substantial opportunities for us to expand into other rare diseases for which there are limited or no approved treatments.

Since our inception in 2017, we have devoted substantially all of our focus and financial resources to discovering, identifying and developing potential product candidates, including advancing our development programs, conducting preclinical studies of our product candidates and initiating a clinical trial, organizing and staffing our company, business planning, raising capital and securing related intellectual property rights.

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We have incurred significant losses since the commencement of our operations.

Our net losses were $42.8 million and $17.1 million for the years ended December 31, 2021 and 2020, respectively, and we expect to continue to incur significant losses for the foreseeable future as we advance our product candidates through preclinical development and clinical trials and seek regulatory approval of our product candidates.

Our net losses were $67.6 million and $42.8 million for the year ended December 31, 2022 and 2021, respectively, and we expect to continue to incur significant losses for the foreseeable future as we advance our product candidates through preclinical development and clinical trials and seek regulatory approval of our product candidates.

Our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned research and development activities.

As of December 31, 2022, we had an accumulated deficit of $144.6 million.

To date, we have financed our operations primarily through private placements of convertible preferred stock and an initial public offering (IPO) of our common stock.

From inception through December 31, 2021, these private placements have provided gross proceeds of $160.7 million and the IPO generated net proceeds of $186.1 million after deducting underwriting discounts and commissions and offering costs of $16.3 million.

To date, we have financed our operations primarily through private placements of convertible preferred stock and public offerings of our common stock.

From inception through December 31, 2022, these private placements have provided gross proceeds of $160.7 million, and the initial public offering and follow-on public offering of our common stock have generated net proceeds of $315.3 million.

We believe that our existing cash and cash equivalents and marketable securities of $351.9 million will enable us to fund our planned operating expenses and capital expenditure requirements through at least the next 12 months.

In March 2020, the World Health Organization declared the novel coronavirus disease (COVID-19) outbreak a global pandemic.

To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines.

Accordingly, businesses have adjusted, reduced or suspended operating activities.

Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted productivity, have resulted in increased operational expenses, certain adjustments to the operations of our clinical trial, delays in the enrollment of new patients at our clinical trial site, and

delays in certain supply chain activities and collecting and analyzing data from patients in our clinical trial, and may further disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course as well as the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, and vaccination deployment efforts.

Macroeconomic and Geopolitical Developments and the COVID-19 Pandemic

We are monitoring macroeconomic and geopolitical developments, such as the Russia-Ukraine conflict, inflation, cybersecurity risks and sanctions so that the Company can be prepared to react to new developments as they arise.

We are carefully monitoring these developments, as well as the COVID-19 pandemic, and the resulting economic impact.

Disruptions caused by the COVID-19 pandemic, including the effects of the stay-at-home orders and work-from-home policies, have impacted our productivity, have resulted in increased operational expenses, certain adjustments to the operations of our clinical trial, delays in the enrollment of new patients at our clinical trial site, and delays in certain supply chain activities and collecting and analyzing data from patients in our clinical trial.

As the COVID-19 pandemic continues and new variants emerge, it may further disrupt our business and delay our development programs and regulatory timelines, the magnitude of which will depend, in part, on the length and severity of any restrictions and other limitations on our ability to conduct business in the ordinary course as well as the spread, severity and potential resurgence of COVID-19, the impact of new COVID-19 variants, and vaccination deployment efforts.

As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trial and other related business activities.

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Such expenses include:

● employee and consultant-related expenses including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions;

● expenses incurred in connection with the planned clinical development of our product candidates including under agreements with third parties, such as consultants and contract research organizations (CROs);

● the cost of manufacturing drug products for use in our preclinical studies and ongoing and planned clinical trials including under agreements with third parties such as consultants and contract development and manufacturing organizations (CDMOs);

● expenses incurred in connection with the preclinical development of our product candidates including outsourced professional scientific development services, consulting research fees and payments made under sponsored research arrangements with third parties;

● employee and external consultant-related expenses including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions;

● external expenses incurred in connection with the clinical development of our product candidates including under agreements with third parties, such as consultants and contract research organizations (CROs);

● the cost of external manufacturing drug products for use in our preclinical studies and ongoing and planned clinical trials including under agreements with third parties such as consultants and contract development and manufacturing organizations (CDMOs);

● expenses incurred in connection with the preclinical development of our product candidates including external, or outsourced professional scientific development services, consulting research fees and payments made under sponsored research arrangements with third parties;

● laboratory supplies;

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● payments made under third-party licensing agreements.

The majority of these expenses have been incurred to advance our lead product candidate, EDG-5506.

We expect that significant additional spending will be required to progress EDG-5506 through the remainder of the clinical development phases.

The majority of these expenses have been incurred to advance our lead product candidate, EDG-5506 and to a lesser degree EDG-7500.

We expect that significant additional spending will be required to progress these and other potential discoveries through the remainder of the clinical development phases.

These expenses will primarily consist of expenses for the administration of clinical trials as well as manufacturing costs for clinical material supply.

We track our direct research and development expenses on a program-by-program basis once a lead compound has been selected and clinical trials have been initiated.

These direct costs consist primarily of external costs such as fees paid to outside consultants, CROs, CDMOs, clinical trial sites and central laboratories in connection with our discovery and preclinical activities, process development, manufacturing and clinical development activities.

These direct costs consist primarily of external costs such as fees paid to outside consultants, CROs, CDMOs, clinical trial sites and central laboratories in connection with our discovery

and preclinical activities, process development, manufacturing and clinical development activities.

These expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date.

Our direct research and development expenses by program also include costs of laboratory supplies that can be directly attributed to

a specific program as well as any fees incurred under license agreements.

Our direct research and development expenses by program also include costs of laboratory supplies that can be directly attributed to a specific program as well as any fees incurred under license agreements.

We do not allocate employee-related costs, including stock-based compensation, or facility expenses, including rent, depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified.

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Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials.

As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance EDG-5506 through clinical trials and additional product candidates enter clinical trials;

We initiated a Phase 2 clinical trial in individuals with BMD in July 2022 and a Phase 2 clinical trial in children with DMD in October 2022.

As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance EDG-5506, EDG-7500, a product from our EDG-003 cardiovascular discovery program through clinical trials and additional product candidates enter clinical trials;

continue to develop our proprietary drug discovery platform;

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Research and development expenses were $54.0 million for the year ended December 31, 2022 compared to $32.2 million for the year ended December 31, 2021.

The increase of $17.2 million was primarily driven by $6.1 million of higher external research and development expenses related to our Phase 1 clinical trial of EDG-5506, an increase of $4.8 million related to increased costs in outsourced chemistry, drug metabolism and efficacy studies for drug discovery and

preclinical development of our other programs and an increase of $6.4 million in internal costs, including personnel related.

Internal costs increased by $6.1 million in personnel-related costs, due largely to an increased employee headcount and stock-based compensation to support the growth of our research and development programs and $0.3 million in lab supply costs and depreciation expense.

The increase of $21.8 million was primarily driven by an increase of $8.4

million in internal costs, including personnel related costs, due largely to an increased employee headcount and stock-based compensation to support the growth of our research and development programs, an increase of $7.4 million related to increased drug discovery and preclinical development of our EDG-7500 candidate selected in the fourth quarter of 2022 and our EDG-003 cardiovascular discovery program and $6.1 million of higher external research and development expenses related to our EDG-5506 clinical program, including clinical trial costs and product candidate manufacturing costs to support current and future trials.

General and administrative expenses

General and administrative expenses were $17.6 million for the year ended December 31, 2022 compared to $11.0 million for the year ended December 31, 2021.

The increase of $8.8 million was primarily related to the cost of operating as a public company, including $3.9 million in increased personnel-related costs from increased headcount and stock-based compensation, $2.2 million in increased directors and officers insurance and $2.7 million in increased professional and consulting costs and other administrative costs.

The increase of $6.6 million was primarily related to the cost of operating as a public company, including $4.3 million in increased personnel-related costs from increased headcount, including stock-based compensation to support our growing research and development efforts, $1.7 million in increased professional and consulting costs and other administrative costs and $0.6 million in increased directors and officers insurance.

Interest income

Interest income was $4.0 million and $0.4 million for the years ended December 31, 2022 and 2021, respectively.

The increase of $0.3 million was the result of higher cash and marketable securities balances from the proceeds of our IPO in 2021 as compared to our cash balances in 2020, resulting in higher interest income earned.

The increase of $3.6 million was primarily due to higher interest rates on our marketable securities balances and larger cash and marketable securities balances from the proceeds of the September 2022 Offering.

Liquidity and Capital Resources

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Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations.

We have funded our operations to date primarily with proceeds from the sale of convertible preferred stock and the initial public offering of our common stock.

Through December 31, 2021, we had received gross proceeds of $160.7 million from the sale of convertible preferred stock and $186.1 million in net proceeds from the initial public offering of our common stock after deducting underwriting discounts, commissions and offering costs of $16.3 million.

To date, we have financed our operations primarily through private placements of convertible preferred stock and public offerings of our common stock.

As of December 31, 2022, we had cash, cash equivalents and marketable securities in the amount of $351.9 million.

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Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating activities

Cash used in operating activities in the year ended December 31, 2022 was primarily driven by our net loss for the period of $67.6 million, and was also impacted by changes in operating assets and liabilities which decreased net working capital by $4.1 million.

Cash used in operating activities was reduced by non-cash charges of $4.7 million relating to stock-based compensation expense of $4.4 million and depreciation of $0.3 million.

Cash used in operating activities was reduced by non-cash charges of $10.9 million relating to stock-based compensation expense of $10.9 million, depreciation of $0.4 million and amortization of right-of-use asset of $0.2 million, which was partially offset by amortization of premium and accretion of discounts, net on marketable securities of $0.5 million.

Cash used in operating activities in the year ended December 31, 2021 was primarily driven by our net loss for the period of $42.8 million, and was also impacted by changes in operating assets and liabilities which decreased net working capital by $4.6 million.

Cash used in operating activities was also impacted by non-cash charges of $0.5 million relating to stock-based compensation expense of $0.3 million and depreciation expense of $0.2 million.

Cash used in operating activities was reduced by non-cash charges of $4.7 million relating to stock-based compensation expense of $4.4 million and depreciation of $0.3 million.

Investing activities

Cash used in investing activities during the year ended December 31, 2022 amounted to $70.6 million which was due to $292.4 million in purchases of marketable securities and $5.5 million for leasehold improvements for our new facility and the purchase of equipment, which was partially offset by $196.8 million in maturities of marketable securities and $30.6 million in sales of marketable securities.

Cash used in investing activities during the year ended December 31, 2021 amounted to $242.2 million which was due to $288.2 million in purchases of marketable securities and $0.7 million for purchases of equipment, which was partially offset by $43.2 million in maturities of marketable securities and $3.4 million of sales of marketable securities.

Cash used in investing activities during the year ended December 31, 2020 amounted to $24.4 million which was due to $24.2 million in purchases of marketable securities and $0.2 million for purchases of equipment.

Financing activities

Net cash provided by financing activities during the year ended December 31, 2021 was $186.4 million, primarily consisting of cash proceeds from the initial public offering of the Company’s common stock.

In addition, we generated cash proceeds of $0.4 million from the issuance of common stock upon the exercise of stock options and the employee stock purchase plan and paid $0.1 million in preferred stock issuance costs.

Net cash provided by financing activities during the year ended December 31, 2020 was $120.3 million, primarily consisting of cash proceeds of $120.1 million generated from our sale of shares of Series B-2 and Series C convertible preferred stock.

In addition, we generated cash proceeds of $0.2 million from the issuance of common stock upon the exercise of stock options.

Cash provided by financing activities during the year ended December 31, 2022 was $129.6 million, which was due to $129.2 in net proceeds from the September 2022 Offering, cash proceeds of $0.4 million from the issuance of common stock upon the exercise of stock options, $0.3 million for the payment of deferred offering costs and $0.3 million in proceeds from the employee stock purchase plan.

Cash provided by financing activities during the year ended December 31, 2021 was $186.4 million, primarily consisting of cash proceeds of $186.1 million from the initial public offering of the Company’s common stock.

In addition, we generated cash proceeds of $0.4 million from the issuance of common stock upon the exercise of stock options and the employee stock purchase plan, which was partially offset by $0.1 million in preferred stock issuance costs.

Funding requirements

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We are subject to all of the risks incident in the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business.

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

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

Our expenses will also increase if, and as, we:

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● the compliance and administrative costs associated with being a public company;

● the effects of inflation on our business operations;

● the extent to which we acquire or invest in businesses, products, or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

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In addition, in the event we sublicense the OSIF licensed patent rights, we are obligated to pay OSIF a specified portion of income we receive from sublicensing.

Our long-term cash requirements as of December 31, 2021 include our lease obligations.

In January 2022, we entered into a lease agreement for approximately 18,614 square feet of office and laboratory space in Boulder, Colorado.

The new lease commences on or around September 1, 2022 and includes escalating rent payments and an 84-month term.

The lease agreement includes a tenant improvement allowance for $1.0 million of construction costs to be paid for by the landlord and up to an additional $2.0 million of tenant improvement allowance for which the Company will repay the landlord on an amortized straight-line basis over the initial term of the lease, commencing on the commencement date and continuing for the duration of the initial term at 6% interest.

The total annual minimum lease payments will be less than $0.5 million per year with a total of approximately $3.3 million committed under the lease agreement.

Our long-term cash requirements as of December 31, 2022 includes our lease obligations.

In January 2022, we entered into a lease agreement for approximately 18,614 square feet of office and laboratory space in Boulder, Colorado which includes escalating rent payments and an 8.2 year term.

As of December 31, 2022 our operating lease liability balance is $4.4 million, of which $0.6 million is current.

In February 2023, we signed an amendment to this lease to occupy additional 9,624 square feet of space.

Future minimum payments under this additional space totals $1.7 million, of which $0.1 million is current.

Critical Accounting Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States.

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements.

The preparation of our financial statements and related disclosures requires us to make estimates and judgments

that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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Our actual results may differ from these estimates.

The economic uncertainty in the current environment caused by the COVID-19 pandemic could limit our ability to accurately make and evaluate our estimates and judgments.

Actual results may differ from these estimates under different assumptions or conditions.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

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Stock-based compensation

We measure stock-based awards granted to employees, directors and non-employee consultants based on their fair value on the date of grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award.

period, which is generally the vesting period of the respective award.

We issue stock options with only service-based vesting conditions and record the expense for these awards using the straight-line method.

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We determine the fair market value of our common stock using the closing price of our common stock as reported on the Nasdaq Global Select Market.

Stock-based compensation expense was $4.4 million for the year ended December 31, 2021.

As of December 31, 2021, there was $25.2 million of total unrecognized stock-based compensation expense related to unvested stock-based compensation awards, which is expected to be recognized over a weighted-average period of approximately 3.4 years.

Recently Issued Accounting Pronouncements

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

Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements that were adopted in 2022.

Emerging Growth Company and Smaller Reporting Company Status

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We may continue to be a smaller reporting company if either (1) the market value of our stock held by non-affiliates is less than $250 million or (2) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure

requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

Specifically, as a smaller reporting company, we may

choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b‑2 of the Exchange Act and are not required to provide the information required under this item.

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