Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “expects,” “plans,” “intends,” “will,” “should,” “projects,” “believes,” “predicts,” “anticipates,” “estimates,” “potential” or “continue,” or the negative thereof or other comparable terminology. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout the Form 10-Q and are statements regarding our intent, belief, or current expectations, primarily with respect to our business and related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, entitled “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Form 10-Q.
OVERVIEW
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q; and the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Form 10-K for the year ended December 31, 2023 as filed with the SEC on February 28, 2024, or 2023 Form 10-K.
Company Overview
Summary
We are a commercial-stage biopharmaceutical company aiming to change lives by changing the course of blood cancer. Our first-in-class telomerase inhibitor, RYTELO TM (imetelstat), harnesses Nobel Prize winning science in a treatment that aims to potentially reduce proliferation and induce death of malignant cells in the bone marrow, potentially altering the underlying course of these hematologic malignancies.
On June 6, 2024, the U.S. Food and Drug Administration (FDA) approved RYTELO for the treatment of adult patients with low- to intermediate-1 risk myelodysplastic syndromes, or lower-risk MDS, with transfusion-dependent, or TD, anemia requiring four or more red blood cell units over eight weeks who have not responded to or have lost response to or are ineligible for erythropoiesis-stimulating agents, or ESAs. In September 2023, we submitted a marketing authorization application, or MAA, in Europe that was validated for review by the European Medicines Agency, or EMA, for RYTELO for the same proposed indication as in the U.S. We expect review of the MAA could be completed in early 2025, We plan to finalize our strategy for European Union, or EU, commercialization in 2025, which, subject to regulatory approval, could include self-commercialization or potential partnerships.
Our regulatory approval in the U.S. for lower-risk MDS and our EMA submission are each based on positive data from the IMerge Phase 3 clinical trial. The trial met its primary endpoint of ≥ 8-week red blood cell transfusion independence rate and a key secondary endpoint of ≥ 24-week red blood cell transfusion independence rate, demonstrating highly statistically significant (i.e., p<0.001 for both) and clinically meaningful benefits with imetelstat treatment versus placebo. Furthermore, statistically significant and clinically meaningful efficacy results were observed in the trial across key MDS patient subtypes, including patients who were ringed sideroblast positive, or RS positive, and ringed sideroblast negative, or RS negative; patients with high (4-6 RBC units/8 weeks) and very high baseline transfusion burden (>6 RBC units/8 weeks); and patients classified as Low or Intermediate-1 risk according to the International Prognostic Scoring System, or IPSS. The most common Grade 3/4 adverse reactions were neutropenia (72%) and thrombocytopenia (65%), which lasted a median duration of less than two weeks, and in more than 80% of patients were resolved to Grade <2 in under four weeks..
In addition to lower-risk MDS, we are developing imetelstat for the treatment of several myeloid hematologic malignancies. Our Phase 3 clinical trial IMpactMF is evaluating imetelstat in patients with Intermediate-2 or High-Risk myelofibrosis who have relapsed after or are refractory to treatment with a janus associate kinase inhibitor, or JAK inhibitor, or relapsed/refractory MF, or R/R MF, with overall survival, or OS, as the primary endpoint. In August 2024, the trial reached approximately 70% enrollment. Based on our current planning assumptions for enrollment and event (death) rates in the trial, we expect the interim analysis for OS in IMpactMF may occur in early 2026, and the final analysis may occur in early 2027.
We are also conducting a Phase 1 combination therapy clinical trial, named IMproveMF, in first-line Intermediate-1, Intermediate-2 or High-Risk myelofibrosis, or frontline MF, that currently is enrolling patients. Imetelstat is also being studied in an investigator-led Phase 2 clinical trial, named IMpress, in Intermediate-2 or High-Risk myelodysplastic syndromes, or higher risk MDS, and acute myeloid leukemia, or AML, patients that are relapsed or refractory to hypomethylating agent, or HMA, treatment, in which the first patient was dosed in June 2023.
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We believe that the positive data from IMerge Phase 3 and IMerge Phase 2, as well as our prior Phase 2 clinical trial of imetelstat in patients with relapsed/refractory MF, provide strong evidence that imetelstat targets telomerase to inhibit the uncontrolled proliferation of malignant stem and progenitor cells enabling recovery of bone marrow and normal blood cell production.
Recent Developments
On July 26, 2024, we announced that the National Comprehensive Cancer Network, or NCCN, has updated its Clinical Practice Guidelines in Oncology for the treatment of MDS to include RYTELO as a Category 1 and 2A treatment of symptomatic anemia in patients with lower-risk MDS. Treatments are classified as Category 1 and 2A when there is uniform NCCN consensus ≥85% that the intervention is appropriate. For RS- lower-risk MDS patients with symptomatic anemia, RYTELO is included as a Category 1 second-line treatment after either erythropoiesis-stimulating agents (ESAs) or luspatercept in patients with serum EPO ≤500 mU/mL, and as a Category 2A first-line treatment in patients with serum EPO >500 mU/mL and unlikely to respond to immunosuppressive therapy. For RS+ lower-risk MDS patients with symptomatic anemia, RYTELO is included as a Category 1 second-line treatment after luspatercept in patients with serum EPO ≤500 mU/mL, and as a Category 2A first-line treatment in patients with serum EPO >500 mU/mL.
Financial Overview
Since our inception, we have primarily financed our operations through the sale of equity securities, draw downs on our debt facility, interest income on our marketable securities and payments we received under our prior collaborative and licensing arrangements. As of June 30, 2024, we had approximately $430.4 million in cash, cash equivalents, restricted cash and marketable securities and a long-term principal debt balance of $80.0 million.
We began commercializing RYTELO in June 2024, and the commercial potential of and our ability to successfully commercialize RYTELO is unproven. Our success in commercializing RYTELO will require, among other things, effective sales, marketing, manufacturing, distribution, information systems and pricing strategies, as well as compliance with applicable laws and regulations. In addition, although we recently began commercializing RYTELO, substantially all of our revenues to date have been payments under prior collaboration agreements, and milestones, royalties and other revenues from our licensing arrangements. We reported a small profit for the year ended December 31, 2015, and we have not reported any profit since. We have incurred significant net losses since our inception in 1990, resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations. As of June 30, 2024, we had an accumulated deficit of approximately $1.7 billion.
The significance of future losses, future revenues and any potential future profitability will depend primarily on the clinical and commercial success of RYTELO, our sole product.. In addition, we are developing RYTELO for the treatment of several myeloid hematologic malignancies that will continue to require additional time and significant investment in clinical trials to complete. We also expect to continue to seek regulatory approvals of RYTELO in jurisdictions outside of the United States. As a result, we expect research and development expenses and selling, general and administrative expenses to increase in future periods as we continue to support the commercialization of RYTELO in the U.S. and further development of RYTELO, including the conduct and completion of IMpactMF, IMproveMF and IMpress, as well as the potential European commercialization of RYTELO, in lower-risk MDS.
On March 21, 2024, we completed an underwritten offering of 41,999,998 shares of our common stock and a pre-funded warrant to purchase 8,002,668 shares of our common stock. All of the securities were issued separately. The offering price of the common stock was $3.00 per share. The offering price of the pre-funded warrant was $2.99 per share. The pre-funded warrant has an exercise price of $0.001 per share and may be exercised at any time until it is exercised in full. As of June 30, 2024, the 2024 pre-funded warrant had not been exercised. The net cash proceeds from the March 2024 public offering were approximately $141.0 million, after deducting the underwriting discount and other offering expenses paid by us, and excluding any future proceeds from the exercise of the 2024 pre-funded warrant.
Based on our current operating plans and assumptions, we believe that our existing cash, cash equivalents, and current and noncurrent marketable securities, together with projected revenues from U.S. sales of RYTELO, will be sufficient to fund our projected operating requirements into the second quarter of 2026. We will require substantial additional funding to further advance the development of imetelstat, including through the completion of our ongoing clinical trials and any potential future clinical trials, as well as conducting the clinical, regulatory and commercialization activities necessary to potentially bring imetelstat to market in relapsed/refractory MF and any other indications we are pursuing or may in the future pursue, and our need for additional funds may arise sooner than planned. If adequate funds are not available on a timely basis, if at all, our RYTELO commercialization efforts may be adversely affected and we may be unable to pursue further development of imetelstat, which would severely harm our business and we might cease operations.
If approved for marketing by regulatory authorities outside of the U.S., we may seek potential commercialization partners for such territories. Until international regulatory authorities approve RYTELO for marketing, if at all, we cannot begin commercialization activities outside of the U.S.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2024, as compared to the critical accounting policies and estimates disclosed in our 2023 Form 10-K.
Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 on Summary of Significant Accounting Policies in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q describes the significant accounting policies used in the preparation of the condensed consolidated financial statements.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes historically have been minor and have been included in the condensed consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our condensed consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.
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RESULTS OF OPERATIONS
Our results of operations have fluctuated from period to period and may continue to fluctuate in the future. Results of operations for any period may be unrelated to results of operations for any other period. Thus, historical results should not be viewed as indicative of future operating results. In this regard, although we have begun to recognize revenue from RYTELO product sales in the U.S., we are very early in the product launch. We expect that our sales revenue may vary significantly from period to period as the launch progresses.
RYTELO is our only product approved for marketing by the FDA and is approved solely for lower-risk MDS. Revenue based on sales of RYTELO is dependent on our ability to execute a successful commercial launch of RYTELO in the U.S., and obtaining regulatory approval to commercialize RYTELO in other countries and other indications. We are subject to risks common to companies in our industry and at our stage of development, including, but not limited to, risks inherent in research and development efforts, including the development, manufacture, regulatory approval for and commercialization of RYTELO; uncertainty of non-clinical and clinical trial results or regulatory approvals or clearances; the future development of imetelstat by us and its use by patients generally, including any future efficacy or safety results from clinical or commercial use that may cause the benefit-risk profile of imetelstat to become unacceptable; the uncertain and unpredictable drug research and discovery process; overcoming disruptions and/or delays due to macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues; our need for substantial additional capital; enforcement of our patent and proprietary rights; reliance upon our CROs, contract manufacturing organizations, or CMOs, consultants, licensees, investigators and other third parties; and potential competition.
The following table summarizes our results of operations for the three and six months ended June 30:
Three Months Ended
Six Months Ended
2024
2023
Change $
Change %
2024
2023
Change $
Change %
(in thousands, except for percentage data)
(in thousands, except for percentage data)
Revenues:
Product revenues, net
$
780
$
—
$
780
100
%
$
780
$
—
$
780
100
%
Royalties
102
29
73
72
%
406
50
356
88
%
Total revenues
882
29
853
97
%
1,186
50
1,136
96
%
Operating expenses:
Cost of goods sold
17
—
17
100
%
17
—
17
100
%
Research and development
30,779
35,490
(4,711
)
-15
%
60,152
62,709
(2,557
)
-4
%
Selling, general and
administrative expenses
39,419
16,490
22,929
58
%
66,484
29,384
37,100
56
%
Total operating expenses
70,215
51,980
18,235
26
%
126,653
92,093
34,560
27
%
Interest income
5,332
4,738
594
11
%
9,571
8,591
980
10
%
Interest expense
(3,319
)
(2,003
)
(1,316
)
40
%
(6,752
)
(3,925
)
(2,827
)
42
%
Other income and (expense), net
(63
)
(11
)
(52
)
83
%
(125
)
28
(153
)
122
%
Net income (loss)
$
(67,383
)
$
(49,227
)
$
(18,156
)
27
%
$
(122,773
)
$
(87,349
)
$
(35,424
)
29
%
Revenues:
Product Revenues, Net
On June 6, 2024, we announced that the FDA approved RYTELO for the treatment of adult patients with low- to intermediate-1 risk myelodysplastic syndromes, or lower-risk MDS, with transfusion-dependent, or TD, anemia requiring four or more red blood cell units over eight weeks who have not responded to or have lost response to or are ineligible for erythropoiesis-stimulating agents, or ESA. To date, our only source of product revenue has been from the U.S. sales of RYTELO, which we began shipping to our customers in June 2024. We did not generate any revenue from product sales prior to the three months ended June 30, 2024 . Total product revenue, net for the three months ended June 30, 2024 was approximately $780,000. We expect product revenues, net to increase through the remainder of 2024.
Royalties
In connection with the divestiture of our human embryonic stem cell assets, including intellectual property and proprietary technology, to Lineage Cell Therapeutics, Inc., or Lineage, (formerly BioTime, Inc. which acquired Asterias Biotherapeutics, Inc.) in 2013, we are entitled to receive royalties on sales from certain research or commercial products utilizing our divested intellectual property.
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We recognized royalty revenues of $102,000 and $406,000 in the three and six months ended June 30, 2024, respectively compared to $29,000 and $50,000, respectively, for the same period in 2023. Royalty revenues in 2024 and 2023 primarily reflect estimated royalties from sales of cell-based research products from our divested stem cell assets.
Future license fee and royalty revenues are dependent on additional agreements being signed, if any, our current license agreement with Lineage being maintained and the underlying patent rights for the license remaining active. We expect royalty revenues for the full-year of 2024 to be lower than the full-year of 2023 as a result of reduced royalties from sales of cell-based research products from our divested stem cell assets.
Operating Expenses:
In connection with the FDA approval of RYTELO on June 6, 2024, we subsequently begin capitalizing inventory manufactured or purchased after this date. As a result, we expensed certain manufacturing costs of RYTELO as research and development expense prior to FDA approval and, therefore, these costs are not included in cost of goods sold. We expect our operating expenses to remain consistent through the remainder of 2024.
Our cost of goods sold consist of raw materials, third-party manufacturing costs to manufacture the raw materials into finished product, freight, and indirect overhead costs associated with the sale of RYTELO in the U.S.
The following table summarizes our expenses, including as a percentage of total expenses, for the three and six months ended June 30:
Three Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2024
2023
Change %
2024
2023
Change %
(in thousands, except for percentage data)
Cost of goods sold
$
17
$
—
100
%
$
17
$
—
100
%
Research and development
30,779
35,490
-15
%
60,152
62,709
-4
%
Selling, general and administrative
39,419
16,490
58
%
66,484
29,384
56
%
Total operating cost and expenses
$
70,215
$
51,979
26
%
$
126,653
$
92,093
27
%
Cost of goods sold
Cost of goods sold was approximately $17,000 for the three and six months ended June 30, 2024, which consisted of costs to manufacture, and distribute our market product, RYTELO. We began capitalizing inventory upon FDA approval of RYTELO. All product costs incurred prior to FDA approval of RYTELO in June 2024 were expensed as research and development expenses.
Prior to receiving FDA approval for RYTELO in June 2024, we manufactured inventory to be sold upon commercialization and recorded the costs as research and development expense. As a result, the manufacturing costs related to the inventory manufactured prior to receiving FDA approval were expensed in a prior period and are therefore excluded from the cost of goods sold for the three and six months ended June 30, 2024. We estimate our cost of sales related to product revenue as a percentage of net product revenue will continue to be positively affected as we sell through certain inventory that was previously expensed prior to FDA approval.
Research and Development Expenses
During the three and six months ended June 30, 2024 and 2023, our imetelstat program and our research discovery program related to potential next generation telomerase inhibitors were the only research and development programs we supported. For these research and development programs, we incur direct external, personnel-related and other research and development costs. For the three and six months ended June 30, 2024 and 2023, direct external expenses included costs for our CROs, consultants and other clinical-related vendors, as well as expenses for contract manufacturing and quality activities. Personnel-related expenses primarily consist of salaries and wages, stock-based compensation, payroll taxes and benefits for our employees involved with ongoing research and development efforts. Other research and development expenses primarily consist of research-related overhead associated with allocated expenses for rent and maintenance of facilities and other supplies.
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Research and development expenses for the three and six months ended June 30, 2024 and 2023 were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2024
2023
2024
2023
(Unaudited)
Direct external expenses
$
20,032
$
25,777
$
40,082
$
43,541
Personnel-related expenses
10,208
7,757
18,999
15,456
All other expenses
539
1,956
1,071
3,712
Total research and development expenses
$
30,779
$
35,490
$
60,152
$
62,709
The decrease in research and development expenses for the three and six months ended June 30, 2024, compared to the same period in 2023, was primarily due to decreases in clinical development costs related to the Phase 3 IMerge trial, as well as decreases in manufacturing and quality costs due to the timing of imetelstat manufacturing batches. Additionally, a portion of manufacturing and quality costs were capitalized in the current period due to FDA approval of RYTELO. The decrease is partially offset by an increase in labor costs due to higher headcount, incentive and stock-based compensation expense recognized due to the vesting of performance-based stock options upon FDA approval. For a more complete discussion of the risks and uncertainties associated with the development of imetelstat, see the sub‑sections entitled “Risks Related to the Development of Imetelstat” and “Risks Related to the Commercialization of RYTELO TM (Imetelstat” and “Risks Related to Regulatory Approval of RYTELO” in Part II, Item 1A entitled “Risk Factors” and elsewhere in this quarterly report on Form 10‑Q.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $39.4 million and $66.5 million for the three and six months ended June 30, 2024, respectively compared to $16.5 million and $29.4 million for the same period in 2023. The increase in selling, general and administrative expenses for the three and six months ended June 30, 2024, compared to the same period in 2023, primarily reflects higher personnel-related expenses and stock-based compensation recognized upon FDA approval of RYTELO due to the vesting of performance-based stock options.
Interest Income
Interest income was $5.3 million and $9.6 million for the three and six months ended June 30, 2024, compared to $4.7 million and $8.6 million for the same period in 2023. The increase in interest income for the three and six months ended June 30, 2024, compared to the same period in 2023, primarily reflects a larger marketable securities portfolio with the receipt of net cash proceeds from the underwritten offering completed in March 2024, as well as higher yields from recent marketable securities purchases. Interest earned in future periods will depend on the size of our marketable securities portfolio and prevailing interest rates.
Interest Expense
Interest expense was $3.3 million and $6.8 million for the three and six months ended June 30, 2024, compared to $2.0 million and $3.9 million for the same period in 2023. The increase in interest expense for the three and six months ended June 30, 2024, compared to the same period in 2023, primarily reflects rising interest rates. Currently, we have $80.0 million in principal debt outstanding. Interest expense reflects interest owed under the Loan Agreement, as well as amortization of associated debt issuance costs and debt discounts using the effective interest method and accrual for an end of term charge. See Note 6 on Debt in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q for additional information about the Loan Agreement.
Other Income and (Expense), Net
Other income and expense, net was an expense of $63,000 and $125,000 for the three and six months ended June 30, 2024, compared to an expense of $11,000 for the three months ended June 30, 2023, and an income of $28,000 for the six months ended June 30, 2023. Other income and expense primarily reflects bank charges related to our cash operating accounts and marketable securities portfolio and foreign currency transaction adjustments.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2024, we had cash, restricted cash, cash equivalents, and marketable securities of $430.4 million, compared to $378.1 million at December 31, 2023. The increase in cash, restricted cash, cash equivalents and marketable securities during the six months ended June 30, 2024 was primarily the net result of the receipt of net cash proceeds of $141.0 million from our underwritten offering completed in March 2024.
On March 21, 2024, we completed an underwritten public offering consisting of 41,999,998 shares of our common stock and a pre-funded warrant to purchase 8,002,668 shares of our common stock. All of the securities were issued separately. The offering price
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of the common stock was $3.00 per share. The offering price of the pre-funded warrant was $2.99 per share. The pre-funded warrant has an exercise price of $0.001 per share and may be exercised at any time until it is exercised in full. As of June 30, 2024, the 2024 pre-funded warrant had not been exercised. The net cash proceeds from this offering were approximately $141.0 million, after deducting the underwriting discount and other offering expenses paid by us, and excluding any future proceeds from the exercise of the pre-funded warrant. See Note 8 on Stockholders’ Equity in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q for additional information about the underwritten offering completed in March 2024.
From January 1, 2024 through June 30, 2024, we received $414,000 in cash proceeds from the exercise of warrants we issued in 2020, covering 281,211 shares of our common stock. As of June 30, 2024, we had warrants remaining from our 2020 issuance covering 2,155,650 shares of our common stock, which if exercised in full for cash, would provide $2.8 million in cash proceeds.
As of June 30, 2024, we had a long-term principal debt balance of $80.0 million under the Loan Agreement with Hercules and SVB. In June 2022, we entered into a second amendment to the Loan Agreement with Hercules and SVB. Under the second amendment, the aggregate principal amount available to us increased from $75.0 million to $125.0 million. On December 14, 2023, we entered into a third amendment to the Loan Agreement. After giving effect to the third amendment, the aggregate principal amount draw down and remaining available to us under the Loan Agreement remains at $125.0 million, with such principal being available in a series of tranches, subject to certain terms and conditions. The third amendment also provides that (i) the fourth tranche of the Loan Agreement was increased from $10.0 million to $30.0 million, (ii) the commitment period for the fifth tranche of the Loan Agreement of $20.0 million, which is available subject to achievement of a regulatory milestone and satisfaction of certain capitalization requirements, was extended through December 15, 2024, (iii) the variable annual interest rate on the outstanding loans has been decreased to the greater of: (x) 9.0%, or (y) the sum of (A) the Prime Rate (as reported in The Wall Street Journal) minus 4.5%, plus (B) 9.0%; and (iv) the interest only period of the Term Loan has been extended from June 30, 2024 through December 31, 2024, due to regulatory approval of RYTELO and satisfaction of certain financial and capitalization requirements. In connection with the third amendment, on the third amendment effective date, we borrowed and received the entire fourth tranche of the Term Loan in the amount of $30.0 million. After giving effect to such borrowing, the outstanding principal amount under the Amended Loan Agreement is $80.0 million. On September 15, 2023, the third tranche of $20.0 million of the Term Loan expired and is no longer available for us, but was added to the fourth tranche as part of the third amendment to the Loan Agreement. The Term Loan matures on October 1, 2025, which was extended from April 1, 2025 upon regulatory approval of RYTELO.
We have an investment policy to invest our cash in liquid, investment grade securities, such as interest-bearing money market funds, certificates of deposit, U.S. Treasury securities, municipal securities, government and agency securities, commercial paper and corporate notes. Our investment portfolio does not contain securities with exposure to sub-prime mortgages, collateralized debt obligations, asset-backed securities or auction rate securities and, to date, we have not recognized any impairment charges on our marketable securities or any significant changes in aggregate fair value that would impact our cash resources or liquidity. To date, we have not experienced lack of access to our invested cash and cash equivalents; however, access to our invested cash and cash equivalents may be impacted by adverse conditions in the financial and credit markets.
On November 1, 2023, we entered into an At Market Issuance Sales Agreement, or the 2023 Sales Agreement, with B. Riley Securities, pursuant to which we may elect to issue and sell shares of our common stock having an aggregate offering price of up to $100.0 million in such quantities and on such minimum price terms as we set from time to time through B. Riley Securities as our sales agent. We have agreed to pay B. Riley Securities an aggregate commission equal to up to 3.0% of the gross proceeds of the sales under the agreement. To date, no sales of common stock have occurred under the 2023 Sales Agreement.
Financing Strategy
We may, from time to time, consider additional funding through a combination of new collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. We will continue to manage our capital structure and consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. Any such capital transactions may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.
Future Funding Requirements
Based on our current operating plans and assumptions, we believe that our existing cash, cash equivalents, and current and noncurrent marketable securities, together with projected revenues from U.S. sales of RYTELO, will be sufficient to fund our projected operating requirements into the second quarter of 2026. We will require substantial additional funding to further advance the development of imetelstat, including through the completion of our ongoing clinical trials and any potential future clinical trials, as well as conducting the clinical, regulatory and commercialization activities necessary to potentially bring imetelstat to market in relapsed/refractory MF and any other indications we are pursuing or may in the future pursue, and our need for additional funds may arise sooner than planned. If adequate funds are not available on a timely basis, if at all, our RYTELO commercialization efforts may be adversely affected and we may be unable to pursue further development of imetelstat, which would severely harm our business and we might cease operations.
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Despite recent FDA approval of RYTELO, the outcome of any clinical activities and/or regulatory approval process is highly uncertain, we cannot reasonably estimate whether our future development activities may succeed; whether we will obtain regulatory approval for RYTELO in the EU in lower-risk MDS, or in any other jurisdictions or indications we are pursuing or may in the future pursue, or whether we will be able to effectively commercialize RYTELO in the U.S. for lower-risk MDS or other potential indications, if at all. We may never recoup our investment in any RYTELO development which would adversely affect our financial condition and our business and business prospects, and might cause us to cease operations. In addition, our plans and timing expectations could be further delayed or interrupted by the effects of macroeconomic or other global conditions, including those resulting from inflation, rising interest rates, prospects of a recession, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues. Further, our future capital requirements are difficult to forecast and will depend on many factors, including:
• the accuracy of the assumptions underlying our estimates for our capital needs;
• the level of sales and market acceptance of RYTELO;
• the scope, progress, timing, magnitude and costs of non-clinical and clinical development, manufacturing and commercialization of imetelstat, including potential commercialization in the EU for lower-risk MDS, or in any other jurisdictions or other indication we may pursue, subject to clearances and approvals by the FDA and similar international regulatory authorities;
• delays or disruptions in opening sites, screening and enrolling patients or treating and following patients, in our current or any potential future clinical trials of RYTELO;
• the costs, timing and outcomes of regulatory reviews or other regulatory actions related to RYTELO, including with respect to our MAA submission for RYTELO in the EU for lower-risk MDS;
• the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
• the costs of manufacturing, developing, commercializing and marketing RYTELO, including with respect to third-party vendors and service providers and our ability to achieve any meaningful reduction in manufacturing costs;
• the sales price for RYTELO;
• the availability of coverage and adequate third-party reimbursement for RYTELO;
• the extent to which we acquire or in-license other drugs and technologies, or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions, or to which we out-license RYTELO;
• the extent to which we are able to enter into and conduct successful strategic partnerships, collaborations, alliances or licensing arrangements with third parties, including for the commercialization and marketing of RYTELO in certain regions outside of the U.S., if approved for commercialization;
• the extent and scope of our selling, general and administrative expenses, including expenses associated with potential future litigation;
• our level of indebtedness and associated debt service obligations;
• the costs of maintaining and operating facilities in California and New Jersey, as well as higher expenses for travel;
• macroeconomic or other global conditions that may reduce our ability to access equity or debt capital or other financing on preferable terms, which may adversely affect future capital requirements and forecasts; and
• the costs of enabling our personnel to work remotely, including providing supplies, equipment and technology necessary for them to perform their responsibilities.
Until we can generate a sufficient amount of revenue from sales of RYTELO to finance our cash requirements, which we may never achieve, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements, which may not be possible. Availability of such financing sources may be negatively impacted by any further delays in our clinical trials, regulatory developments, or the other risks described in this section.
Additional financing through public or private debt or equity financings, including pursuant to the 2023 Sales Agreement with B. Riley Securities, Inc., the final $25.0 million tranche under the Loan Agreement, which is subject to the approval by an investment committee comprised of Hercules and SVB, capital lease transactions or other financing sources, may not be available on acceptable terms, or at all. We may be unable to raise equity capital, or may be forced to do so at a stock price or on other terms that could result
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in substantial dilution of ownership for our stockholders. The receptivity of the public and private debt and equity markets to proposed financings has been substantially affected by uncertainty in the general economic, market and political climate due to the effects of macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, government shutdowns, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, and may in the future be affected by other factors which are unpredictable and over which we have no control. These effects have increased market volatility and could result in a significant long-term disruption of global financial markets, which could reduce or eliminate our ability to raise additional funds through financings, and could negatively impact the terms upon which we may raise those funds. Similarly, these macroeconomic conditions have created extreme volatility and disruption in the capital markets and is expected to have further global economic consequences. If the equity and credit markets deteriorate, including as a result of macroeconomic or other global conditions, such as inflation, rising interest rates, prospects of a recession, government shutdowns, bank failures and other disruptions to financial systems, civil or political unrest, military conflicts, pandemics or other health crises and supply chain and resource issues, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. If we are unable to effectively commercialize RYTELO, or raise additional capital or establish alternative collaborative arrangements with third-party collaborative partners for RYTELO, the development and commercialization of RYTELO may be further delayed, altered or abandoned, which might cause us to cease operations.
In addition, we may seek additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Due to uncertainty in the general economic, market and political climate, we may determine that it is necessary or appropriate to raise additional funds proactively to meet longer-term anticipated operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, including pursuant to the 2023 Sales Agreement, your ownership interest as a stockholder may be diluted, and the terms may include liquidation or other preferences that materially and adversely affect your rights as a stockholder. In addition, we have borrowed, and in the future may borrow, additional capital from institutional and commercial banking sources to fund imetelstat development and our future growth, including pursuant to our Loan Agreement or potentially pursuant to new arrangements with different lenders. We may borrow funds on terms under agreements, such as the Loan Agreement, that include restrictive covenants, including covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Moreover, if we raise additional funds through alliance, collaborative or licensing arrangements with third parties, we may have to relinquish valuable rights to RYTELO or our technologies or grant licenses on terms that are not favorable to us.
We cannot assure you that our existing capital resources, future interest income, future revenues from sales of RYTELO, potential future sales of our common stock, including under the 2023 Sales Agreement, will be sufficient to fund our operating plans. Moreover, while we did not hold cash deposits or securities at SVB, if other banks and financial institutions enter receivership, become insolvent or otherwise fail in the future in response to financial conditions affecting the banking system and financial markets or otherwise, our ability to access our cash, cash equivalents and marketable securities may be delayed or precluded, which could have a material adverse effect on our business, business prospects and financial position.
Cash Flows from Operating Activities
Net cash used in operations for the six months ended June 30, 2024 and 2023 was $115.7 million and $76.0 million, respectively. The increase in net cash used in operations for the six months ended June 30, 2024, compared to the same period in 2023, primarily reflects an increase in net loss to $122.8 million, adjusted for non-cash items including stock based compensation expense related for employees and directors.
Cash Flows from Investing Activities
Net cash used by investing activities was $1.9 million for the six months ended June 30, 2024 and $223.2 million for the six months ended June 30, 2023. The decrease in net cash used in investing activities for the six months ended June 30, 2024, compared to the same period in 2023, primarily reflects decreased purchases of marketable securities, as well as increased proceeds from maturities of marketable securities.
Cash Flows from Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 and 2023 was $164.6 million and $299.4 million, respectively. Financing activities in 2024 primarily reflect an underwriting offering of 41,999,998 shares of common stock and a pre-funded warrant to purchase 8,002,668 shares of common stock, resulting in net cash proceeds of $141.0 million completed in March 2024.
Material Cash Requirements
Our material cash requirements in the short- and long-term consist of the following operational and manufacturing expenditures, a portion of which contain contractual or other obligations. We plan to fund our material cash requirements with our current financial
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resources and may consider additional funding through a combination of additional equity and debt financings, new collaborative arrangements, strategic alliances, or from other sources.
Contractual Obligations
We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Our contractual obligations primarily consist of our current and noncurrent debt obligations under the Loan Agreement with Hercules and SVB, as described above and in Note 4 on Debt in Notes to Condensed Consolidated Financial Statements of this quarterly report on Form 10-Q, and obligations under non-cancellable operating leases. The aggregate amount of our future operating lease payments was reported in our 2023 Form 10-K and there have been no changes to the contractual terms of our operating leases during the six months ended June 30, 2024.
We have engaged third‑party contract manufacturers and have re-established our own manufacturing supply chain to manufacture and supply additional quantities of RYTELO that meet applicable regulatory standards for current and potential future clinical trials and commercial uses. Related to those contract manufacturing agreements, we have noncancelable commercial purchase commitments for approximately $62.5 million in the aggregate as of June 30, 2024. These purchase commitments can vary based on the commercial demand of RYTELO and are binding based on future manufacturing needs.
In the normal course of business, we enter into agreements with CROs for clinical trials for clinical and commercial supply manufacturing and with other vendors for non-clinical research studies, investigator-led trials and other services and products for operating purposes. We have not considered these payments to be contractual obligations since the contracts are generally cancellable at any time by us upon less than 180 days’ prior written notice. We also have certain in-license agreements that require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones. Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory approval and commercial milestones, which may not be achieved.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three months ended June 30, 2024, there were no material changes to our quantitative and qualitative disclosures about market risk as set forth in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our 2023 Form 10-K,
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.