What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-06-10 · 110 added, 49 removed, 181 unchanged (47% of the section changed)

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The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our final prospectus for our initial public offering, or IPO, dated April 29, 2021 and filed with the United States Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act.

Some of the information with respect to our plans and strategy for our business, including forward-looking statements that involve risks and uncertainties.

Some of the information with respect to our plans and strategy for our business includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, including those set forth in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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In addition, in May 2020, we entered into a loan and security agreement, or the Loan Agreement, under which we have the ability to borrow up to $14.0 million until November 2021.

As of March 31, 2021, we had no outstanding borrowings under the Loan Agreement.

As of June 30, 2021, we had no outstanding borrowings under the Loan Agreement.

Due to our significant research and development expenditures, we have accumulated substantial net losses since our inception.

As of March 31, 2021, we had an accumulated deficit of $153.8 million.

As of June 30, 2021, we had an accumulated deficit of $221.3 million.

We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

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If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.

As of March 31, 2021, we had cash and cash equivalents of $84.6 million.

We believe that our cash and cash equivalents, including the net proceeds from our IPO, will be sufficient to fund our operating expenses and capital expenditure requirements for at least twenty-four months.

As of June 30, 2021, we had cash and cash equivalents of $183.2 million.

We believe that our cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through at least the second quarter of 2023.

Impact of COVID-19 on Our Business

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These and other events resulting from the COVID-19 pandemic could disrupt, delay, or otherwise adversely impact our business.

Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic are contained in the section titled “Item 1A.

Risk Factors.”

Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic is contained in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report.

Financial Operations Overview

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We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the SEC and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums and investor relations costs.

Change in fair value of preferred stock tranche liability

Change in fair value of our preferred stock tranche liability consists primarily of remeasurement gains or losses attributable to changes in the fair value of the tranche rights associated with our Series A preferred stock.

The tranche liability was settled in June 2020 upon the closing of the second tranche of our Series A preferred stock financing.

All obligations have been met by December 31, 2020 and therefore there will be no further remeasurement.

Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020:

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended

March 31, $ Change

June 30, $ Change

(in thousands)

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Other income:

Interest income, net

Other expense, net

Change in fair value of preferred stock tranche liability

— 7,301 (7,301)

Interest income

Other expense

(16) (3) (13)

Total other income

35 7,322 (7,287)

Net (loss) income

$ (10,921) $ 2,257 $ (13,178)

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2021 and 2020:

The following table summarizes our research and development expenses for the three months ended June 30, 2021 and 2020:

Three Months Ended

March 31, $ Change

June 30, $ Change

(in thousands)

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Contract research organization expense

1,337 828 509

Protein production, lab supplies and consumables

Total research and development expenses $ 7,265 $ 3,780 $ 3,485

Research and development expenses for the three months ended June 30, 2021 were $7.3 million, compared to $3.8 million for the three months ended June 30, 2020.

The increase of approximately $3.5 million was primarily due to:

• $1.6 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613;

• $0.8 million of increased personnel costs due to increased headcount associated with expanded research and development activities;

• $0.5 million of increased contract research organization expense due to increased discovery efforts;

• $0.3 million of increased other expenses driven primarily by increased rent expense due to the addition of research focused short-term leased facilities.

General and Administrative Expenses

General and administrative expenses were $3.7 million for the three months ended June 30, 2021, compared to $1.3 million for the three months ended June 30, 2020.

The increase of approximately $2.4 million was primarily due to:

• $0.9 million and $0.3 million of increased personnel and recruiting costs, respectively, due to the requirements of operating as a public company;

• $0.5 million of increased professional costs to support our operations as a public company;

• $0.5 million of increased insurance costs associated with public company management liability insurance.

Changes in the fair value of the preferred stock tranche liability resulted in a gain of $7.3 million for the three months ended June 30, 2020.

The tranche liability was settled in June 2020 upon the closing of the second tranche of our Series A preferred stock financing.

Results of Operations

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended

June 30, $ Change

(in thousands)

Operating expenses:

Research and development

$ 12,082 $ 6,543 $ 5,539

General and administrative

6,326 2,416 3,910

Total operating expenses

18,408 8,959 9,449

Operating loss

(18,408) (8,959) (9,449)

Other income:

Change in fair value of preferred stock tranche liability

— 7,301 (7,301)

Interest income

Other expense

(32) (3) (29)

Total other income

52 7,389 (7,337)

Net (loss) income

$ (18,356) $ (1,570) $ (16,786)

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2021 and 2020:

Six Months Ended

June 30, $ Change

(in thousands)

Manufacturing

$ 5,025 $ 1,715 $ 3,310

2,790 1,552 1,238

Contract research organization expense

2,065 1,490 575

Protein production, lab supplies and consumables

1,269 1,284 (15)

Total research and development expenses $ 12,082 $ 6,543 $ 5,539

Research and development expenses for the three months ended March 31, 2021 were $4.8 million, compared to $2.8 million for the three months ended March 31, 2020.

The increase of $2.1 million was primarily due to:

Research and development expenses for the six months ended June 30, 2021 were $12.1 million, compared to $6.5 million for the six months ended June 30, 2020.

The increase of approximately $5.5 million was primarily due to:

• $3.3 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613;

• $1.2 million of increased personnel costs due to increased headcount associated with expanded research and development activities;

• $0.6 million of increased contract research organization expense due to increased discovery efforts;

• $0.4 million of increased other expenses due to other expenses driven primarily by increased rent expense due to the addition of research focused short-term leased facilities, and increased research and development consulting expense.

General and Administrative Expenses

General and administrative expenses were $2.6 million for the three months ended March 31, 2021, compared to $1.1 million for the three months ended March 31, 2020.

The increase of $1.5 million was primarily due to:

• $0.6 million and $0.3 million of increased personnel and recruiting costs, respectively, in preparation for increased requirements of operating as a public company;

• $0.5 million of increased consulting costs to support the Company in preparation for its IPO.

General and administrative expenses were $6.3 million for the six months ended June 30, 2021, compared to $2.4 million for the six months ended June 30, 2020.

The increase of approximately $3.9 million was primarily due to:

• $1.7 million and approximately $0.5 million of increased personnel and recruiting costs, respectively, due to the requirements of operating as a public company;

• $0.9 million of increased professional costs to support our operations as a public company;

• $0.5 million of increased insurance costs associated with public company management liability insurance.

Changes in the fair value of the preferred stock tranche liability resulted in a gain of $7.3 million for the six months ended June 30, 2020.

The tranche liability was settled in June 2020 upon the closing of the second tranche of our Series A preferred stock financing.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations through March 31, 2021 primarily through the issuance of convertible promissory notes for aggregate cash proceeds of $11.0 million and the issuance and sale of our Series A and Series B preferred stock for aggregate cash proceeds of $116.3 million.

On May 4, 2021, we closed our IPO, pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of $16.00 per share.

We received net proceeds of approximately $108.9 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

We have funded our operations through June 30, 2021 primarily through the issuance of convertible promissory notes for aggregate cash proceeds of $11.0 million, the issuance and sale of shares of our Series A and Series B preferred stock for aggregate cash proceeds of $116.3 million and the issuance and sale of shares of our common stock in our IPO in May 2021 for net proceeds of approximately $109.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

In addition, in May 2020, we entered into the Loan Agreement, under which we have the ability to borrow up to $14.0 million until November 2021.

As of March 31, 2021, we had no outstanding borrowings under the Loan Agreement.

As of June 30, 2021, we had no outstanding borrowings under the Loan Agreement.

Plan of Operation and Future Funding Requirements

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Due to our significant research and development expenditures, we have accumulated substantial net losses in each period since inception.

We have incurred an accumulated deficit of $153.8 million through March 31, 2021.

Based on our current research and development plans, we expect that our existing cash and cash equivalents, including the net proceeds from our IPO, will be sufficient to fund our operations for at least twenty-four months.

We have incurred an accumulated deficit of $221.3 million through June 30, 2021.

We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical

and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect.

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the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase;

• the cost of manufacturing WTX-124, WTX-330, WTX-613 and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;

• the cost of manufacturing our product candidates WTX-124, WTX-330, WTX-613 and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale;

• the costs of any third-party products used in our planned combination clinical trials that are not covered by such third parties or other sources;

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Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects.

The following table provides information regarding our cash flows cash flows for the three months ended March 31, 2021 and 2020:

Three Months Ended

The following table provides information regarding our cash flows for the six months ended June 30, 2021 and 2020:

Six Months Ended

(in thousands)

Net cash used in:

Net cash (used in) provided by:

Operating activities

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Financing activities

Net decrease in cash, cash equivalents and restricted cash

109,665 22,074

Net increase in cash, cash equivalents and restricted cash

$ 91,755 $ 13,886

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2021 was $7.3 million, compared to $3.4 million for the three months ended March 31, 2020.

This increase of $3.9 million was primarily attributable to an increase in net loss of $3.6 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Net cash used in operating activities for the six months ended June 30, 2021 was $17.8 million, compared to $7.7 million for the six months ended June 30, 2020.

This increase of approximately $10.1 million was primarily attributable to an increase in net loss of $16.8 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2021 was less than $0.1 million, compared to $0.4 million for the three months ended March 31, 2020.

This decrease of approximately $0.4 million was primarily attributable to a decrease in purchases of property and equipment for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Net cash used in investing activities for the six months ended June 30, 2021 was $0.1 million, compared to $0.5 million for the six months ended June 30, 2020.

This decrease of approximately $0.4 million was primarily attributable to a decrease in purchases of property and equipment for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2021 was $0.5 million.

During the three months ended March 31, 2020, there was no cash flow from financing activities.

This increase of $0.5 million was primarily attributable to the payment of costs related to our IPO during the three months ended March 31, 2021.

Net cash provided by financing activities for the six months ended June 30, 2021 was $109.7 million, compared to $22.1 million for the six months ended June 30, 2020.

This increase of $87.6 million was primarily attributable to the proceeds from the issuance of common stock at the closing of the IPO during the six months ended June 30, 2021, partially offset by the proceeds from the issuance of Series A redeemable convertible preferred stock during the six months ended June 30, 2020.

Term Loan Agreement

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Borrowings under the Loan Agreement would be collateralized by substantially all of our assets, excluding intellectual property.

As of March 31, 2021, we had no outstanding borrowings under the Loan Agreement.

As of June 30, 2021, we had no outstanding borrowings under the Loan Agreement.

Interest on any loan balances accrue at a variable annual rate equal to the greater of (i) PWB’s prime rate plus 1.75% and (ii) 5.00%.

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We have the option to prepay any amount borrowed under the Loan Agreement in full without a fee.

In the event of a specified liquidation event, which included our IPO, we will are required to pay the bank a success fee of 5.00% of the total amount borrowed under the term loan, if any.

In the event of a specified liquidation event, which included our IPO, we are required to pay the bank a success fee of 5.00% of the total amount borrowed under the term loan, if any.

Since we had no outstanding borrowings under the Loan Agreement, we were not obligated to pay a success fee in connection with our IPO.

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We are required to maintain unrestricted cash balances of at least 2.5 times our monthly cash burn, and we have covenanted not to make any capital expenditures in excess of $2.0 million in the aggregate in 2021 and $0.5 million in the aggregate in any fiscal year thereafter without the prior written consent of PWB.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we currently do not have, any off-balance sheet arrangements, as defined under applicable SEC rules.

Contractual Obligations

Our contractual obligations as of March 31, 2021 were as follows:

(in thousands) Total Less than 1 year 1 to 3 years 3 to 5 years More than 5 years

Operating lease obligations(1) $ 3,210 $ 1,378 $ 1,832 $ — $ —

(1) Operating lease obligations consist primarily of our continuing rent obligations for our principal office located in Cambridge, Massachusetts which expires in March 2024.

Lease Agreements

In March 2021, we entered into an office lease agreement for approximately 7,500 square feet of laboratory and office space in Watertown, Massachusetts pursuant to a lease that expires in May 2022.

Total estimated base rent payments over the remaining term of the lease are approximately $0.5 million.

In June 2021, we entered into an office lease agreement for approximately 25,778 square feet of laboratory and office space in Watertown, Massachusetts, which will serve as the Company’s headquarters.

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Total estimated base rent payments over the term of the lease are approximately $17.6 million.

This amount is not included in the table above as the Lease was entered into subsequent to March 31, 2021.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements, as defined under applicable SEC rules.

Critical Accounting Policies and Estimates

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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-Q

Item 2. Management’s Discussion and Analysis