What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-12 · 101 added, 80 removed, 211 unchanged (46% of the section changed)

19 unchanged sentences

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 29, 2021.

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

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

As of September 30, 2021, we had an accumulated deficit of $235.0 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 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.

Clinical Trial Collaboration and Supply Agreement

In August 2021, we entered into a Clinical Trial Collaboration and Supply Agreement, or Clinical Supply Agreement, with Merck, Sharp & Dohme, or Merck, to evaluate WTX-124 in combination with KEYTRUDA®, or pembrolizumab, Merck’s anti-PD-1 therapy.

The planned clinical trial will be conducted by Werewolf and is designed to evaluate the safety and preliminary efficacy of WTX-124 as a monotherapy and in combination with pembrolizumab in patients with solid tumors.

Under the terms of the Clinical Supply Agreement, Werewolf will sponsor the study and Merck will supply Werewolf with pembrolizumab in exchange for jointly owning any inventions or discoveries relative to the combined use of WTX-124 and pembrolizumab.

Each party is responsible for its own internal costs and expenses to support the trial.

Impact of COVID-19 on Our Business

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To date, we have not experienced a material financial statement impact or business disruptions, including with our vendors, or impairments of any of our assets as a result of the pandemic.

However, we cannot, at this time, predict the specific extent, duration or full impact that the COVID-19 pandemic will have on our financial statements and operations, including our ongoing and planned preclinical activities and future clinical trials.

The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration and spread of the pandemic and its impact on our contract research organizations, or CROs, third-party manufacturers, and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel.

To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel.

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may

take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business.

Furthermore, the COVID-19 pandemic could affect our employees or the employees of research sites and service providers on which we rely, including CROs, as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, thereby disrupting our business operations.

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We typically use our employee and infrastructure resources across our development programs.

We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.

We track external development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.

Our external development costs for the three and nine months ended September 30, 2021 and 2020 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

$ 2,850 $ 1,358 $ 5,474 $ 2,974

2,146 1,253 4,515 2,491

859 270 2,497 564

Pre-development candidates

410 98 781 156

Total external development costs

$ 6,265 $ 2,979 $ 13,267 $ 6,185

Research and development activities are central to our business model.

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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.

Other Income (Expense)

Change in fair value of preferred stock tranche liability

3 unchanged sentences

Results of Operations

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:

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

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

Three Months Ended

June 30, $ Change

September 30, $ Change

(in thousands)

8 unchanged sentences

(13,795) (6,053) (7,742)

Other income:

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

Other income (expense):

Interest income (expense), net

Total other income (expense)

$ (13,758) $ (6,068) $ (7,690)

Research and Development Expenses

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

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

Three Months Ended

June 30, $ Change

September 30, $ Change

(in thousands)

Personnel $ 2,678 $ 1,106 $ 1,572

Manufacturing 3,789 2,079 1,710

$ 3,037 $ 1,405 $ 1,632

1,562 742 820

Contract research organization expense

1,337 828 509

Protein production, lab supplies and consumables

Contract research organization 2,476 900 1,576

Lab consumables 623 567 56

Facilities 210 138 72

Other 11 22 (11)

Total research and development expenses $ 9,787 $ 4,812 $ 4,975

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.

Research and development expenses for the three months ended September 30, 2021 were $9.8 million, compared to $4.8 million for the three months ended September 30, 2020.

The increase of approximately $5.0 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;

• $1.6 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.

• $1.7 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;

• $1.6 million of increased contract research organization expense, primarily driven by preclinical studies to support upcoming IND submissions for WTX-124 and WTX-330.

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 following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020:

Three Months Ended

September 30, $ Change

(in thousands)

Personnel $ 1,775 $ 479 $ 1,296

Professional services 912 496 416

Facilities 403 223 180

Other 918 43 875

Total general and administrative expenses $ 4,008 $ 1,241 $ 2,767

General and administrative expenses were $4.0 million for the three months ended September 30, 2021, compared to $1.2 million for the three months ended September 30, 2020.

The increase of approximately $2.8 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.

• $1.3 million of increased personnel costs due to the requirements of operating as a public company;

• $0.4 million of increased professional service costs to support our operations as a public company;

• $0.9 million of increased other costs, primarily driven by $0.7 million of increased insurance costs associated with public company management liability insurance.

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

Comparison of the Nine Months Ended September 30, 2021 and 2020

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

Nine Months Ended

September 30, $ Change

(in thousands)

11 unchanged sentences

— 7,301 (7,301)

Interest income

Other expense

(32) (3) (29)

Interest income, net

Total other income

89 7,374 (7,285)

Net (loss) income

$ (32,114) $ (7,638) $ (24,476)

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

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

Nine Months Ended

September 30, $ Change

(in thousands)

Personnel $ 5,956 $ 2,884 $ 3,072

Manufacturing 8,814 3,795 5,019

$ 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)

Contract research organization 4,453 2,390 2,063

Lab consumables 1,980 1,851 129

Facilities 626 403 223

Other 40 32 8

Total research and development expenses $ 21,869 $ 11,355 $ 10,514

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.

Research and development expenses for the nine months ended September 30, 2021 were $21.9 million, compared to $11.4 million for the nine months ended September 30, 2020.

The increase of approximately $10.5 million was primarily due to:

• $3.1 million of increased personnel costs due to increased headcount associated with expanded discovery efforts as well as the hiring of a clinical development team;

• $5.0 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.

• $2.1 million of increased contract research organization expense, primarily driven by preclinical studies to support upcoming IND submissions for WTX-124 and WTX-330.

General and Administrative Expenses

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 following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020:

Nine Months Ended

September 30, $ Change

(in thousands)

Personnel $ 4,416 $ 1,592 $ 2,824

Professional services 3,147 1,214 1,933

Facilities 1,010 673 337

Other 1,761 178 1,583

Total general and administrative expenses $ 10,334 $ 3,657 $ 6,677

General and administrative expenses were $10.3 million for the nine months ended September 30, 2021, compared to $3.7 million for the nine months ended September 30, 2020.

The increase of approximately $6.7 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;

• $2.8 million of increased personnel costs due to the requirements of operating as a public company;

• $1.9 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.

• $1.6 million of increased other costs, primarily driven by $1.2 million of increased insurance costs associated with public company management liability insurance.

Other Income (Expense)

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

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

1 unchanged sentence

Sources of Liquidity

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.

We have funded our operations through September 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 29, 2021.

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

As of September 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 $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.

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 through at least the second quarter of 2023.

We have incurred an accumulated deficit of $235.0 million through September 30, 2021.

Based on our current research and development plans, we expect that our existing cash and cash equivalents of $170.4 million, will be sufficient to fund our operations through at least the second quarter of 2023.

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.

23 unchanged sentences

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 for the six months ended June 30, 2021 and 2020:

Six Months Ended

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

Nine Months Ended

September 30,

(in thousands)

8 unchanged sentences

Operating Activities

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.

Net cash used in operating activities for the nine months ended September 30, 2021 was $30.2 million, compared to $12.6 million for the nine months ended September 30, 2020.

This increase of approximately $17.6 million was primarily attributable to an increase in net loss of $24.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Investing Activities

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.

Net cash used in investing activities for the nine months ended September 30, 2021 was $0.2 million, compared to $0.6 million for the nine months ended September 30, 2020.

This decrease of approximately $0.3 million was primarily attributable to a decrease in purchases of property and equipment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Financing Activities

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.

Net cash provided by financing activities for the nine months ended September 30, 2021 was $109.4 million, compared to $22.0 million for the nine months ended September 30, 2020.

This increase of $87.4 million was primarily attributable to the proceeds from the issuance of common stock at the closing of the IPO during the nine months ended September 30, 2021, partially offset by the proceeds from the issuance of Series A redeemable convertible preferred stock during the nine months ended September 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 June 30, 2021, we had no outstanding borrowings under the Loan Agreement.

As of September 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%.

Interest-only payments on any loan balances are required to be paid on a monthly basis through May 29, 2021 or, at our election, November 29, 2021.

Interest-only payments on any loan balances are required to be paid on a monthly basis through November 29, 2021.

Subsequent to the interest-only period, any loan balances are required to be repaid in equal monthly payments of principal plus interest until the loan matures in May 2024.

2 unchanged sentences

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

The Loan Agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, change of control and occurrence of a material adverse effect.

The Loan Agreement contains customary representations, warranties and covenants and also includes

customary events of default, including payment defaults, breaches of covenants, change of control and occurrence of a material adverse effect.

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.

6 unchanged sentences

Off-Balance Sheet Arrangements

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

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

Critical Accounting Policies and Estimates

16 unchanged sentences

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