Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report contains forward-looking statements that involve risk and uncertainties, including those described in the section of this Annual Report titled “Special Note Regarding Forward-Looking Statements.” As a result of many factors, including those factors set forth in the section of this Annual Report titled “Risk Factors,” 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.
Overview
We are a clinical-stage biopharmaceutical company with a pipeline of novel biologic therapeutic candidates, developed using our proprietary modular protein engineering platforms. We leverage our innovative protein engineering technologies and deep understanding of target biology to create therapeutic candidates with attributes and mechanisms we believe to be superior to current approaches and applicable to a range of challenging, validated targets with high potential.
Recent Developments
Separation from Former Parent
In January 2024, Inhibrx, Inc., or the Former Parent, announced its intent, as approved by its board of directors, to effect the spin-off of INBRX-101, an optimized, recombinant alpha-1 antitrypsin, or AAT, augmentation therapy in a registrational trial for the treatment of patients with alpha-1 antitrypsin deficiency. On May 29, 2024, the Former Parent completed a distribution to holders of its shares of common stock of 92% of the issued and outstanding shares of common stock of the Company, or the Distribution. On May 30, 2024, the Former Parent completed a series of internal restructuring transactions, or the Separation.
On May 30, 2024, the Former Parent completed the merger, or the Merger, of Art Acquisition Sub, Inc., a wholly-owned subsidiary of Aventis Inc., or the Acquirer, a wholly-owned subsidiary of Sanofi S.A., or Sanofi, with and into the Former Parent with the Former Parent continuing as the surviving entity. Pursuant to the Merger (i) all assets and liabilities primarily related to INBRX-101, or the 101 Business, were transferred to the Acquirer; and (ii) by way of the Separation, the Company acquired the assets and liabilities and corporate infrastructure associated with its ongoing programs, INBRX-106 and ozekibart (INBRX-109), and its discovery pipeline, as well as the remaining close-out obligations related to its previously terminated program, INBRX-105.
Upon the closing, each Former Parent stockholder received: (i) $30.00 per share in cash, (ii) one contingent value right per share, representing the right to receive a contingent payment of $5.00 in cash upon the achievement of a regulatory milestone, and (iii) one SEC-registered, publicly listed, share of Inhibrx for every four shares of the Former Parent’s common stock held.
From and after the closing, Inhibrx continues to operate as a stand-alone, publicly traded company focused on ozekibart (INBRX-109) and INBRX-106, both of which are clinical-stage programs.
For periods prior to the spin-off, descriptions of historical business activities are presented as if the spin-off had already occurred, and the Former Parent’s activities related to such assets and liabilities had been performed by the Company. Refer to Note 1 to our consolidated financial statements included elsewhere in this Annual Report for further discussion of the underlying basis used to prepare the consolidated financial statements. The operating results presented in the Company’s historical financial statements prior to the Merger and in connection with the Separation and the Merger may not be indicative of the results of the Company following the Merger and Separation.
Transactions with Related Parties
We entered into a Separation and Distribution Agreement and various agreements relating to transition services, licenses and certain other matters with the Former Parent, which govern our relationship with the Former Parent prior to, at and after the Former Parent completed the Distribution. These agreements include the allocation of
90
employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to, at and after the Distribution. The terms of these agreements, including amounts billed during the period, are discussed in greater detail in Note 7 to our consolidated financial statements included elsewhere in this Annual Report.
Current Clinical Pipeline
Our current clinical pipeline of therapeutic candidates includes ozekibart (INBRX-109) and INBRX-106, both of which utilize our multivalent formats where the precise valency can be optimized in a target-centric way to mediate what we believe to be the most appropriate agonist function:
ozekibart (INBRX-109) INBRX-106
Tetravalent DR5
agonist Hexavalent OX40
agonist
Program Therapeutic Area Target(s)/Format STAGE OF DEVELOPMENT
Preclinical Phase 1 Phase 2 Phase 3
ozekibart (INBRX-109)* Oncology DR5
Tetravalent Agonist
INBRX-106** Oncology OX40
Hexavalent Agonist
__________________
* Currently being investigated in chondrosarcoma, Ewing sarcoma, and colorectal cancer.
** Currently being investigated in patients with non-small cell lung cancer, or NSCLC, and head and neck squamous cell carcinoma, or HNSCC.
ozekibart (INBRX-109)
ozekibart (INBRX-109) is a tetravalent death receptor 5, or DR5, agonist currently being evaluated in patients diagnosed with chondrosarcoma, colorectal cancer, and Ewing sarcoma.
Chondrosarcoma
In June 2021, based on the initial Phase 1 data results, we initiated a registration-enabling Phase 2 trial for the treatment of unresectable or metastatic conventional chondrosarcoma for which the United States Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA, granted orphan drug designation in November 2021 and August 2022, respectively. The primary endpoint for this Phase 2 trial is progression-free survival, or PFS. Data from the registration-enabling Phase 2 trial in unresectable or metastatic conventional chondrosarcoma is expected during the third quarter of 2025.
91
Ewing sarcoma
In November 2023, we announced interim efficacy and safety data from the cohort of the Phase 1 trial evaluating ozekibart (INBRX-109) in combination with Irinotecan, or IRI, and Temozolomide, or TMZ, for the treatment of advanced or metastatic, unresectable Ewing sarcoma. Overall, ozekibart (INBRX-109) in combination with IRI/TMZ was well tolerated from a safety perspective. Based on this preliminary data, the ongoing Phase 1/2 trial in the Ewing sarcoma cohort was expanded. Interim data on this cohort are anticipated during the second half of 2025.
Colorectal adenocarcinoma
In January 2025, we announced interim efficacy and safety data from the cohort of the Phase 1 trial evaluating ozekibart (INBRX-109) in combination with FOLFIRI for the treatment of advanced or metastatic, unresectable colorectal adenocarcinoma, or CRC. Efficacy was assessed in 10 of the 13 patients evaluable as of the cutoff date of December 2, 2024, who received at least one dose of ozekibart, based on RECIST v1.1 criteria. We have expanded recruitment of this cohort by 50 patients as a result of these preliminary findings in order to validate these findings in a more uniform patient population. Data on this cohort are anticipated in the third quarter of 2025.
INBRX-106
INBRX-106 is a precisely engineered hexavalent sdAb-based therapeutic candidate targeting OX40, designed to be an optimized agonist of this co-stimulatory receptor. It is currently being investigated as a single agent and in combination with Keytruda in patients with locally advanced or metastatic solid tumors. Parts 1 and 3, dose escalation as a single agent and in combination with Keytruda, have been completed. We observed durable responses across multiple tumor types.
In Part 4 of the Phase 1/2 trial, we continue to enroll patients with NSCLC and HNSCC, both in combination with Keytruda. Primary endpoints for these cohorts are objective response rate, or ORR, disease control rate, or DCR, duration of response, or DOR, and safety. In addition, a new cohort has been initiated in NSCLC to evaluate chemotherapy when used in conjunction with the INBRX-106 and Keytruda combination. The primary endpoint for this cohort is safety. We expect to have a more mature dataset on these cohorts during the fourth quarter of 2025 and plan to provide an update at that time.
In June 2024, a seamless Phase 2/3 clinical trial was initiated for INBRX-106 in combination with Keytruda as a first-line treatment for patients with local advanced recurrent or metastatic head HNSCC. This trial recruits patients who have not received prior checkpoint inhibitors and whose tumors express a PDL-1 CPS equal to or greater than 20. We plan to enroll approximately 60 patients in the Phase 2 portion with a primary endpoint of ORR supported by secondary endpoints of DOR, PFS, and safety. We expect to announce initial data on Phase 2 during the fourth quarter of 2025. If positive, we anticipate this data will ungate the Phase 3 portion, where we expect approximately 350 patients will be randomized to INBRX-106 or placebo in combination with Keytruda. The co-primary endpoints for the Phase 3 portion of the study will be PFS and overall survival.
Components of Results of Operations
Revenue
As of the date of this Annual Report, all of our revenue has been derived from licenses with collaboration partners and grant awards. We have not generated any revenue from the commercial sale of approved therapeutic products to date.
Operating Expenses
Research and Development
As of the date of this Annual Report, our research and development expenses have related primarily to research activities, including our discovery efforts, and preclinical and clinical development and the manufacturing of our therapeutic candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
In accordance with the applicable accounting and regulatory requirements, we track all research and development expenses in the aggregate and do not manage or track either external or internal expenses on a program-by-program
92
basis. External research and development expenses are instead managed and tracked by the nature of the activity, and primarily consist of contract manufacturing and clinical trial expenses. Internal research and development expenses primarily relate to personnel, early research and consumable costs, which are deployed across multiple projects under development. We manage and prioritize our research and development expenses based on scientific data, probability of successful technical development and regulatory approval, market potential and unmet medical need, among other considerations. We regularly review our research and development activities and, as necessary, reallocate resources that we believe will best support the long-term growth of our overall business. We review expenses incurred by vendor and by contract as benchmarked against the progression of our clinical and other milestones.
External research and development expenses consist of:
• expenses incurred in connection with the preclinical development of our programs;
• clinical trials of our therapeutic candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
• expenses associated with the manufacturing of our therapeutic candidates under agreements with contract development and manufacturing organizations, or CDMOs;
• expenses associated with regulatory requirements, including fees and other expenses related to our Scientific Advisory Board; and
• other external expenses, such as laboratory services related to our discovery and development programs and other shared services.
Internal research and development expenses consist of:
• salaries, benefits and other related costs, including non-cash stock-based compensation under the former Amended and Restated 2017 Employee, Director and Consultant Equity Incentive Plan, or the 2017 Plan, and the 2024 Omnibus Incentive Plan, or the 2024 Plan, for personnel engaged in research and development functions;
• facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities; and
• other internal expenses, such as laboratory supplies and other shared research and development costs.
We expect that research and development expense will continue to increase over the next several years as we continue development of our therapeutic candidates currently in clinical stage development and support our preclinical programs. In particular, clinical development of our therapeutic candidates, as opposed to preclinical development, generally has higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Moreover, the costs associated with our CDMOs to manufacture our therapeutic candidates and future commercial products is also much more costly as compared to early-stage preclinical development. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our therapeutic candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments, and our ongoing assessments as to each therapeutic candidate’s commercial potential. We will need substantial additional capital in the future to support these efforts. In addition, we cannot forecast which therapeutic candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our clinical development costs may vary significantly based on factors such as:
• the per patient trial costs;
• the number of trials required for approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
93
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the ability to identify patients eligible for our clinical trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• the potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the cost, timing, and successful manufacturing of our therapeutic candidates;
• the phase and development of our therapeutic candidates;
• the efficacy and safety profile of our therapeutic candidates;
• the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;
• maintaining a continued acceptable safety profile of our therapeutic candidates following approval, if any;
• significant and changing government regulation and regulatory guidance;
• the ability to attract and retain personnel;
• the impact of any business interruptions to our operations or to those of the third parties with whom we work;
• the uncertainties related to potential economic downturn, inflation, interest rates, geopolitical events and widespread health events on capital and financial markets, the supply chain and our expenses; and
• the extent to which we establish additional strategic collaborations or other arrangements.
General and Administrative
General and administrative, or G&A, expenses consist primarily of:
• salaries, benefits and other related costs, including non-cash stock-based compensation under the former 2017 Plan and 2024 Plan, for personnel engaged in G&A functions;
• expenses incurred in connection with accounting, audit, and tax services, legal services, including costs associated with obtaining and maintaining our patent portfolio, investor relations and consulting expenses under agreements with third parties, such as consultants and contractors;
• expenses incurred in connection with commercialization and business development activity; and
• facilities, depreciation and other expenses, which include direct and allocated expenses for depreciation and amortization, rent and maintenance of facilities, insurance and supplies.
During the year ended December 31, 2024, we incurred increased G&A expenses in connection to the Merger, including stock compensation expense upon acceleration of options, and other transaction costs, including legal, advisory, and consulting services. We do not expect these expenses to recur in future years. We expect certain of our G&A expenses will continue to increase in the future to support our continued research and development activities, including costs related to pre-commercialization and business development activities. Additionally, we will continue to incur other professional service fees, including but not limited to, legal costs associated with the filing, prosecution, and maintenance of our patents for our therapeutic candidates, and other legal matters, as well as costs associated with services for compliance, accounting, legal, regulatory, tax, investor and public relations.
Other Income (Expense)
Gain related to transaction with Acquirer. Gain related to transaction with Acquirer consists of our gain recorded in connection with the completion of the Merger during the second quarter of 2024. We do not expect future gains in connection with the Merger in future periods.
Interest expense. Interest expense consists of interest on our former loans with Oxford incurred prior to the Merger, upon which the outstanding debt was assumed by the Acquirer. In future periods, we expect to incur interest expense in connection with our loan and security agreement with Oxford Finance LLC and other lenders, or collectively, Oxford, entered into in January 2025, or the 2025 Loan Agreement.
Interest income. Interest income consists of interest earned on cash and cash equivalents, which include sweep and money market account balances as well as investments held in highly liquid debt securities with original maturities of less than three months from our date of acquisition.
94
Loss on Equity Method Investment
Our equity interest in Phylaxis BioScience, LLC, or Phylaxis, is accounted for as an equity method investment and the Company’s proportionate share of the net income or loss of Phylaxis is included as loss in equity method investment in the consolidated statement of operations.
Results of Operations
Comparison of Years Ended December 31, 2024 and December 31, 2023
The following table summarizes our consolidated results of operations for each of the periods indicated (in thousands, except percentages):
YEAR ENDED DECEMBER 31, CHANGE
2024 2023 ($) (%)
Revenue:
License fee revenue $ 200 $ 1,800 $ (1,600) (89) %
Total revenue 200 1,800 (1,600) (89) %
Operating expenses:
Research and development 203,743 191,640 12,103 6 %
General and administrative 127,905 29,381 98,524 335 %
Total operating expenses 331,648 221,021 110,627 50 %
Loss from operations (331,448) (219,221) (112,227) 51 %
Other income (expense):
Gain related to transaction with Acquirer 2,021,498 — 2,021,498 100 %
Interest expense (13,491) (31,840) 18,349 (58) %
Interest income 10,940 11,917 (977) (8) %
Other income (expense), net
75 (580) 655 (113) %
Total other income (expense) 2,019,022 (20,503) 2,039,525 (9,947) %
Provision for income taxes 2 3 (1) (33) %
Loss on equity method investment — 1,634 (1,634) (100) %
Net income (loss)
$ 1,687,572 $ (241,361) $ 1,928,933 (799) %
License Fee Revenue
License fee revenue during the year ended December 31, 2024 was $0.2 million and consisted of revenue related to our license agreement with Regeneron Pharmaceuticals, Inc., which we recognized following the grant of two six-month extensions of the option term during the year, each for revenue of $0.1 million. License fee revenue during the year ended December 31, 2023 was $1.8 million and consisted of $1.6 million of revenue related to our agreements with Phylaxis and $0.2 million of revenue related to a former option agreement which was completed during 2023. The revenue under our Phylaxis arrangement was earned following the transfer of a second-generation compound to Phylaxis during the year ended December 31, 2023, upon which we received an additional 5% equity interest in Phylaxis, which we recognized as revenue at its fair value of $1.6 million. See Note 6 to our consolidated financial statements included elsewhere in this Annual Report for additional information on our license and collaboration agreements.
95
Research and Development Expense
The following table sets forth the primary external and internal research and development expenses (in thousands, except percentages):
YEAR ENDED DECEMBER 31, CHANGE
2024 2023 ($) (%)
External expenses:
Contract manufacturing $ 55,643 $ 77,248 $ (21,605) (28) %
Clinical trials 47,665 42,960 4,705 11 %
Other external research and development 11,691 10,440 1,251 12 %
Internal expenses:
Personnel 72,790 47,818 24,972 52 %
Equipment, depreciation, and facility 9,693 7,401 2,292 31 %
Other internal research and development 6,261 5,773 488 8 %
Total research and development expenses $ 203,743 $ 191,640 $ 12,103 6 %
Research and development expense increased by $12.1 million from $191.6 million during the year ended December 31, 2023 to $203.7 million during the year ended December 31, 2024. The overall increase was primarily due to the following factors:
• contract manufacturing expense decreased by $21.6 million due to the nature of the development and manufacturing activities performed during each period at our CDMO and CRO partners supporting our clinical and preclinical therapeutic candidates, primarily due to the divestiture of INBRX-101, for which we incurred significant expenses during the year ended December 31, 2023 related to large scale drug substance manufacturing services performed by one of our CDMO partners including the utilization of raw materials;
• clinical trial expense increased by $4.7 million primarily due to the expansion of our ongoing registration-enabling Phase 2 trial for ozekibart (INBRX-109) for the treatment of unresectable or metastatic conventional chondrosarcoma and due to the expansion of our INBRX-106 Phase 1/2 trial and initiation of the Phase 2/3 trial for HNSCC, including expenses for in-house clinical trial support, as well as costs incurred for our registration-enabling Phase 2 trial for INBRX-101 for the treatment of emphysema due to AATD, prior to our spin-off of the INBRX-101 program during the period. These expenses were offset in part by reduced clinical expenses following the termination of our INBRX-105 program;
• personnel-related expense increased by $25.0 million, which was primarily related to $25.9 million in stock option expense recognized upon the acceleration of outstanding options in connection with the closing of the Merger;
• facility and equipment-related expense increased by $2.3 million, which was attributable to expenses related to capitalized software placed in service during the period; and
• other research and development expense increased by $1.7 million, which was primarily attributable to an increase in clinical-related consulting expenses and the purchase of lab supplies, offset in part by decreases in costs associated with preclinical studies.
G&A Expense
G&A expense increased by $98.5 million from $29.4 million during the year ended December 31, 2023 to $127.9 million during the year ended December 31, 2024. The overall increase was primarily due to the following factors:
• one-time expenses incurred related to the Merger of $68.1 million, consisting of legal, advisory, and consulting services performed in connection to the transaction, and SEC filing fees in connection with filings related to the transaction;
• personnel-related expenses increased by $19.9 million, which was primarily related to $15.2 million in stock option expense recognized upon the acceleration of outstanding options in connection with the close of the Merger, in addition to other bonuses paid in connection with the Merger;
96
• professional fees for legal services increased by $8.2 million, which was primarily attributable to costs incurred in connection with legal proceedings, which have since concluded, finding us not liable for damages, and other intellectual property matters;
• pre-commercialization expenses increased by $1.7 million, primarily related to increases in consulting services and scientific publications to support our commercial operations business intelligence strategies related to ozekibart (INBRX-109) and prior to the Merger, related to INBRX-101, in addition to a focus on patient advocacy and recruitment efforts, offset in part by a decrease in market research efforts following the disposition of INBRX-101; and
• facility and equipment-related expense increased by $0.6 million, which was primarily attributable to an increase in software subscriptions and tenant improvements during the current year.
Other Income (Expense)
Gain related to transaction with Acquirer. During the year ended December 31, 2024, we earned $2.0 billion of other income, consisting of gains recorded in connection with the completion of the Merger. We recorded a gain of $1.7 billion related to Merger consideration for our outstanding common stock, warrants, and stock options, in addition to $211.3 million related to the extinguishment of our loan under an amended loan agreement with Oxford, or the Amended 2020 Loan Agreement, which loan was assumed by the Acquirer. In addition to the Acquirer assuming our outstanding debt, the Acquirer assumed outstanding assets and liabilities related to INBRX-101 upon the transaction, resulting in a gain of $14.5 million. The Acquirer also reimbursed us for or paid on our behalf $68.0 million of transaction costs related to the Merger, resulting in a gain. We do not expect future income or gains in connection with the Merger in future periods.
Interest expense. Interest expense decreased by $18.3 million from $31.8 million during the year ended December 31, 2023 to $13.5 million during the year ended December 31, 2024, all of which relates to interest incurred and the amortization of debt discounts related to the Amended 2020 Loan Agreement. The decrease in interest expense is the result of the extinguishment of the Amended 2020 Loan Agreement in connection with the Merger. We did not incur any interest following the close of the Merger on May 30, 2024, the date upon which the Acquirer assumed our outstanding debt.
Interest income. During the year ended December 31, 2024, we earned $10.9 million of interest income on our sweep and money market account balances. During the year ended December 31, 2023, we earned $11.9 million of interest income, of which $7.5 million related to interest earned on our sweep and money market account balances and $4.4 million related to the accretion of discount on investments in debt securities during the period.
Income Taxes
Income tax expense was approximately $2,000 and $3,000 during the years ended December 31, 2024 and December 31, 2023, respectively. For the years ended December 31, 2024 and December 31, 2023, we have applied a 100% valuation allowance against our federal deferred tax assets since it is more likely than not that the deferred tax assets will not be realized.
Loss on Equity Method Investment
During the year ended December 31, 2023, we received an additional 5% equity interest in Phylaxis following the achievement of a milestone under our agreements. Upon receipt of the equity interest, we established an equity method investment at its fair value of $1.6 million. The loss on equity method investment during the year ended December 31, 2023 of $1.6 million consists of our share of losses from our investment in Phylaxis, which reduced our equity investment to zero. During the year ended December 31, 2024, we did not record any gain or loss on our equity method investment.
Liquidity and Capital Resources
Sources of Liquidity
As of the date of this Annual Report, sources of capital raised to fund our operations have been comprised of the sale of equity securities, borrowings under loan and security agreements, payments received from commercial partners
97
for licensing rights to our therapeutic candidates under development, grants, and proceeds from the sale and issuance of convertible promissory notes.
In January 2025, we entered into the 2025 Loan Agreement with Oxford, upon which we received gross proceeds of $100.0 million. The 2025 Loan Agreement provides for up to an additional $50.0 million to be funded upon our request and at Oxford’s sole discretion.
Future Funding Requirements
Since our inception, we have devoted substantially all of our efforts to therapeutic drug discovery and development, conducting preclinical studies and clinical trials, enabling manufacturing activities in support of our therapeutic candidates, pre-commercialization activities, organizing and staffing the Company, establishing our intellectual property portfolio, and raising capital to support and expand these activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Our net income or losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities, as well as the timing of other corporate transactions. During the year ended December 31, 2024, we had net income of $1.7 billion following the closing of the Merger, and during the year ended December 31, 2023, our net loss was $241.4 million. As of December 31, 2024, we had an accumulated deficit of $106.1 million and cash and cash equivalents of $152.6 million.
Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months from the date of filing of this Annual Report. Our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
The process of conducting preclinical studies and testing therapeutic candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain. Though we had net income during the year ended December 31, 2024 following the Merger, we expect to continue to incur net losses for the foreseeable future until, if ever, we have an approved product and can successfully commercialize it. We expect our research and development expenses to increase as we continue our development of, and seek marketing approvals for, our therapeutic candidates (especially as we move more candidates into later stages of clinical development), and begin to commercialize any approved products, if ever. At this time, we are preparing to proceed with the commercialization of certain of our therapeutic candidates, if ever approved. As a result, we will incur significant pre-commercialization expenses in preparation for launch, the outcome of which is uncertain. Additionally, if approved, we will incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. We also expect additional general and administrative expenses as we hire additional personnel and incur increased accounting, audit, legal, regulatory and compliance, investor and public relations expense to support our continued expansion.
Until such time we, if ever, can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including strategic licensing and collaborations, strategic transactions, or other similar arrangements and transactions, and from time to time, we engage in discussions with potential acquirers regarding the disposition of one or more of our therapeutic candidates. If the Company does raise additional capital through public or private equity or convertible debt offerings, the ownership interests of its existing stockholders will be diluted, and the terms of those securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If the Company raises capital through additional debt financings, such as our 2025 Loan Agreement with Oxford, it may be subject to covenants limiting or restricting its ability to take specific actions, such as incurring additional debt or making certain capital expenditures. To the extent that the Company raises additional capital through strategic licensing, collaboration or other similar agreements, it may have to relinquish valuable rights to its therapeutic candidates, future revenue streams or research programs at an earlier stage of development or on less favorable terms than it would otherwise choose, or to grant licenses on terms that may not be favorable to the Company. However, there can be no assurance as to the availability or terms upon which such finances or capital might be available in the future. If we are unable to secure adequate additional funding, we will need to reevaluate our operating plan and may be forced to make reductions in spending, extend payment terms
98
with suppliers, liquidate assets where possible, delay, scale back or eliminate some or all of our development programs, or relinquish rights to our intellectual property on less favorable terms than we would otherwise choose. These actions could materially impact our business, results of operations, financial condition, and prospects.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
• the outcome, costs and timing of preclinical studies and clinical trials for our current or future therapeutic candidates;
• whether and when we are able to obtain marketing approval to market any of our therapeutic candidates and the outcome of meetings with applicable regulatory agencies, including the FDA;
• our ability to successfully commercialize, including the costs and timing of manufacturing, any therapeutic candidates that receive marketing approval;
• the emergence and effect of competing or complementary therapeutics or therapeutic candidates;
• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
• our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel;
• the costs and timing of establishing or securing sales and marketing capabilities if any current or future therapeutic candidate is approved;
• the terms and timing of any strategic licensing, collaboration or other similar agreement that we have established or may establish;
• our ability to achieve market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved therapeutics;
• our ability to repay, refinance or restructure when payment is due any indebtedness we might incur, including in the event such indebtedness is accelerated;
• the valuation of our capital stock; and
• the continuing or future effects of a potential economic downturn, inflation, interest rates, geopolitical events, and widespread health events on capital and financial markets, the supply chain and our expenses.
We do not own or operate manufacturing and testing facilities for the production of any of our therapeutic candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on a limited number of third-party contract manufacturers for all of our required raw materials, antibodies and other biologics for our preclinical research, clinical trials, and if and when applicable, commercial product, and employ internal resources to manage our manufacturing relationships with these third parties.
Commitments
As of December 31, 2024, our material cash requirements from known contractual and other obligations primarily relate to our lease obligations and services provided by our third party CROs and CDMOs.
Our lease for our laboratory and office space expires in 2028, with an option to extend for an additional three years. As of December 31, 2024, we have future minimum rental obligations under these leases of $9.6 million, of which $2.3 million and $7.3 million are current and non-current, respectively. For more information regarding these lease agreements, refer to Note 9 to the consolidated financial statements.
We enter into contracts in the normal course of business with CROs related to our ongoing preclinical studies and clinical trials and with CDMOs for clinical supplies and manufacturing scale-up activities. These contracts are generally cancellable, with notice, at our option. We have recorded accrued expenses of approximately $21.1 million in our consolidated balance sheets for expenditures incurred for R&D services performed at CROs, CDMOs, and other third-party organizations as of December 31, 2024.
99
Cash Flow Summary
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
YEAR ENDED DECEMBER 31,
2024 2023
Net cash used in operating activities $ (194,409) $ (193,309)
Net cash used in investing activities (2,597) (4,593)
Net cash provided by financing activities 71,678 201,961
Net increase (decrease) in cash $ (125,328) $ 4,059
Operating Activities
Net cash used in operating activities was $194.4 million during the year ended December 31, 2024 and consisted primarily of net income of $1.7 billion, adjusted for non-cash items. Non-cash adjustments primarily related to gains recorded upon the Merger of $2.0 billion. Other non-cash adjustments included accretion on our debt discount and the non-cash portion of interest expense related to our debt of $2.1 million, stock-based compensation expense, including expense related to the acceleration of options upon the Merger, of $58.5 million, depreciation and amortization of $2.3 million and non-cash lease expense of $1.9 million. Changes in operating assets and liabilities also contributed to the cash used in operating activities, primarily related to an increase in other non-current assets of $3.7 million due to prepayments and additional deposits we made to our CRO partners during the period. Additionally, the operating lease liability decreased by $1.4 million as a result of lease payments made throughout the period. These uses of cash were offset by increases in accrued expenses and other current liabilities of $35.9 million, an increase in accounts payable of $17.9 million, and a decrease in prepaid expenses of $3.0 million due to the timing of payments to our CRO and CDMO partners during the period, each of which excludes the liabilities related to INBRX-101 which were assumed by the Acquirer in the Merger.
Net cash used in operating activities was $193.3 million during the year ended December 31, 2023 and consisted primarily of a net loss of $241.4 million, adjusted for non-cash items including stock-based compensation expense of $24.8 million, accretion on our debt discount and the non-cash portion of interest expense related to our debt of $4.9 million, depreciation and amortization of $1.2 million, and non-cash lease expense of $1.8 million. Non-cash revenue of $1.6 million earned in relation to the equity interest in Phylaxis received during the period was offset by the loss on equity method investment of $1.6 million reflecting our share of losses in Phylaxis. Changes in operating assets and liabilities also contributed to the cash used in operating activities, including an increase in prepaid expenses of $10.3 million, primarily due to the prepayment for clinical drug substance manufacturing services at our CDMOs during the year. Additionally, the operating lease liability decreased by $1.9 million as a result of lease payments made throughout the year. Receivables increased by $0.5 million, primarily as a result of dividends earned and not received as of December 31, 2023. Deferred revenue decreased by $0.2 million following the recognition of $0.2 million of previously deferred revenue related to our former option agreement. These uses of cash were offset by an increase in accrued expenses of $26.1 million and an increase in accounts payable of $2.1 million, primarily due to the timing of clinical drug substance manufacturing services incurred at our CDMOs and clinical activities incurred at our CROs, in addition to increases in compensation-related accruals as related to employee bonuses.
Investing Activities
Net cash used in investing activities was $2.6 million and $4.6 million during the years ended December 31, 2024 and December 31, 2023, respectively, and was related to capital purchases of software, leasehold improvements, and laboratory and office equipment.
Financing Activities
Net cash provided by financing activities was $71.7 million during the year ended December 31, 2024 and consisted of proceeds of $71.7 million received from the exercise of stock options.
Net cash provided by financing activities was $202.0 million during the year ended December 31, 2023 and consisted primarily of proceeds of $200.0 million from the issuance of common stock and pre-funded warrants in a
100
private placement transaction, offset in part by issuance costs of $0.4 million. In addition, we received proceeds of $2.3 million from the exercise of stock options.
Critical Accounting Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with United States generally accepted accounting principles, or GAAP, which requires management to make estimates and assumptions that affect the amounts reported. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect in our consolidated financial statements. We review our estimates, judgments, and assumptions used in our accounting practices periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, our actual results may differ from these estimates.
While our significant accounting policies are described in more detail in Note 1 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments:
Accrued Research and Development and Clinical Trial Costs
We enter into contracts for research and development activities, including with CDMOs for clinical supplies and manufacturing scale-up activities related to our therapeutic candidates and with CROs for our preclinical studies and clinical trials. The financial terms of these agreements vary and may result in payment flows that do not match the periods over which materials or services are provided, resulting in either an accrual or a prepaid expense.
These accruals of research and development expenses require us to estimate expenses incurred, including estimates of the time period over which services will be performed, completion of contract components, the enrollment of subjects, and the status of our clinical trials. Such estimates are dependent upon the timeliness and accuracy of data provided by the CROs and CDMOs regarding the status and cost of the studies. If the actual timing of the performance of services varies from our estimates, we adjust the accrual or prepaid expense accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in 2012. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, presenting only two years of audited financial statements, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements.
In addition, an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Smaller Reporting Company Status
Additionally, we are a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not
101
smaller reporting companies, including, but not limited to, reduced disclosure obligations regarding executive compensation.
We will remain a smaller reporting company as long as either: (i) the market value of the shares of our common stock held by non-affiliates is less than $250.0 million as of the last business day of our most recently completed second fiscal quarter; or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of the shares of our common stock held by non-affiliates is less than $700.0 million as of the last business day of our most recently completed second fiscal quarter.
Recent Accounting Pronouncements
For information with respect to recently issued accounting standards and the impact of these standards, if any, on our consolidated financial statements, refer to Note 1 in our consolidated financial statements in Part II, Item 8 of this Annual Report.
102
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
103