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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 66 added, 50 removed, 233 unchanged (33% of the section changed)

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Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

We are a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural protein degradation system.

Our proprietary targeted protein degradation platform, which we refer to as Pegasus™, allows us to discover highly selective small molecule protein degraders with activity against disease-causing proteins throughout the body.

We are a biopharmaceutical company focused on discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural protein degradation system.

Our proprietary targeted protein degradation, or TPD, platform, which we refer to as Pegasus ™ , allows us to discover highly selective small molecule protein degraders with activity against disease-causing proteins throughout the body.

We believe that our small molecule protein degraders have unique advantages over existing therapies and allow us to address a large portion of the human genome that was previously intractable with traditional modalities.

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To date, we have utilized our Pegasus ™ platform to design novel protein degraders focused in the areas of immunology-inflammation and oncology, and continue to apply our platform’s capabilities to additional therapeutic areas.

Our initial programs are IRAK4, IRAKIMiD, and STAT3, which each address high impact targets within the interleukin-1 receptor/toll-like receptor, or IL-1R/TLR, and janus kinase/signal transducers and activators of transcription, or JAK/STAT, providing the opportunity to treat a broad range of immune-inflammatory diseases, hematologic malignancies, and solid tumors.

Our initial programs are IRAK4, IRAKIMiD, and STAT3, which each address high impact targets within the interleukin-1 receptor/toll-like receptor, or IL-1R/TLR, and janus kinase/signal transducers and activators of transcription, or JAK/STAT, pathways providing the opportunity to treat a broad range of immune-inflammatory diseases, hematologic malignancies, and solid tumors.

Our programs exemplify our focus on addressing high impact targets that have been elusive to conventional modalities and that drive the pathogenesis of multiple serious diseases with significant unmet medical needs.

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We submitted an Investigational New Drug Application, or IND, to the U.S.

Food and Drug Administration, or FDA, for KT-474 in 2020, and initiated the single ascending dose (SAD) portion of our Phase 1 trial in adult healthy volunteers in February 2021.

The program is on partial clinical hold regarding the multiple ascending dose (MAD) portion of the Phase 1 trial, pending FDA review of interim data in healthy volunteers from the SAD portion of the trial.

In the second half of 2021, we expect to initiate enrollment in the MAD portion of the trial, including healthy volunteers and a subsequent cohort of hidradenitis suppurativa, or HS, and atopic dermatitis, or AD, patients, pending FDA’s removal of the partial clinical hold.

Food and Drug Administration, or FDA, for KT-474 in 2020, and initiated the single ascending dose, or SAD, portion of our Phase 1 trial in adult healthy volunteers in February 2021.

In June 2021, the FDA lifted the partial clinical hold on the multiple ascending dose, or MAD, portion of the Phase 1 trial of KT-474 following review of interim results from the SAD portion of the Phase 1 trial.

As a result, in July 2021, we initiated enrollment in the MAD portion of the Phase 1 trial of KT-474, including healthy volunteers.

A subsequent cohort is expected to include hidradenitis suppurativa, or HS, and atopic dermatitis, or AD, patients.

We also expect to submit INDs for degraders KT-413 and KT-333 from our IRAKIMiD and STAT3 programs, respectively, in the second half of 2021, and if cleared, to initiate Phase 1 trials in patients thereafter.

Since our inception in 2015, we have devoted substantially all of our efforts to organizing and staffing our company, research and development activities, business planning, raising capital, building our intellectual property portfolio and providing general and administrative support for these operations.

To date, we have received gross proceeds of $617.8 million from the sale of common stock including our August 2020 initial public offering (“IPO”) and concurrent private placement, sales of our Convertible Preferred Stock (the “Convertible Preferred Stock”) and through our collaborations with Vertex Pharmaceuticals Incorporated, or Vertex, and Genzyme Corporation, or Sanofi.

To date, we have received gross proceeds of $877.2 million from the sale of common stock including our July 2021 follow-on offering and concurrent private placement, August 2020 initial public offering (“IPO”) and concurrent private placement, sales of our Convertible Preferred Stock (the “Convertible Preferred Stock”) and through our collaborations with Vertex Pharmaceuticals Incorporated, or Vertex, and Genzyme Corporation, or Sanofi.

We have incurred significant operating losses since inception.

Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current product candidates or any future product candidates.

Our net losses were $45.6 million and $41.2 million for the years ended December 31, 2020 and 2019, respectively, and $13.1 million and $10.9 million for the three months ended March 31, 2021 and 2020, respectively.

In addition, as of March 31, 2021 and December 31, 2020 we had an accumulated deficit of $141.8 million and $128.8 million, respectively.

Our net losses were $45.6 million and $41.2 million for the years ended December 31, 2020 and 2019, respectively, and $24.7 million and $14.0 million and $37.7 million and $24.9 million for the three and six months ended June 30, 2021 and 2020, respectively.

In addition, as of June 30, 2021 and December 31, 2020 we had an accumulated deficit of $166.5 million and $128.8 million, respectively.

We expect that our expense and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

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add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operating as a public company.

In addition, if we obtain marketing approval for any of our lead product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

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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 continue our operations at planned levels and be forced to reduce or terminate our operations.

As of March 31, 2021, we had cash, cash equivalents and marketable securities of $435.2 million.

We believe the existing cash, cash equivalents and marketable securities on hand, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

As of June 30, 2021, we had cash, cash equivalents and marketable securities of $404.4 million.

We believe the existing cash, cash equivalents and marketable securities on hand, together with the net proceeds from the sale of our common stock in a public offering and concurrent private placement on July 6, 2021 of $243.1 million , will enable us to fund our operating expenses and capital expenditure requirements into 2025.

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

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Results of Operations

Comparison of 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 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

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Collaboration revenue

Collaboration revenues were $18.7 million for the three months ended March 31, 2021, of which $11.6 million and $7.1 million were attributable to our collaboration agreements with Sanofi and Vertex, respectively.

Collaboration revenue was $3.4 million for the three months ended March 31, 2020 all of which was attributable to our collaboration with Vertex.

Collaboration revenues were $18.5 million for the three months ended June 30, 2021, of which $14.4 million and $4.1 million were attributable to our collaboration agreements with Sanofi and Vertex, respectively.

Collaboration revenue was $3.3 million for the three months ended June 30, 2020 all of which was attributable to our collaboration with Vertex.

Research and development expenses

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Total research and development expenses

Research and development expenses were $26.0 million for the three months ended March 31, 2021, compared to $12.1 million for the three months ended March 31, 2020.

Research and development expenses were $35.2 million for the three months ended June 30, 2021, compared to $13.8 million for the three months ended June 30, 2020.

The increase of $21.4 million was primarily due to higher direct expenses related to clinical activities for IRAK4, IND-enabling studies for IRAKIMiD, and STAT3 programs of $6.5 million, as well as increased expenses related to the investment in our platform, exploratory programs, and Vertex collaboration of $6.4 million.

We also had a $8.5 million increase in personnel, occupancy and related costs due to increases in employee headcount in the research and development functions.

General and administrative expenses

General and administrative expenses were $8.0 million for the three months ended June 30, 2021, compared to $3.7 million for the three months ended June 30, 2020.

The increase of $4.4 million was primarily due to increases in legal and professional service fees and an increase in personnel, facility and other expenses stemming from an increase in headcount to support our growth as a public company.

Other Income (Expense), Net

Other income, net was $0.1 million for the three months ended June 30, 2021, as compared to $0.2 million for the three months ended June 30, 2020.

The decrease was primarily due to the prevailing interest rates in the respective periods.

Comparison of 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

(in thousands)

Revenue—from related parties

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income (expense), net

Collaboration revenue

Collaboration revenues were $37.2 million for the six months ended June 30, 2021, of which $26.0 million and $11.2 million were attributable to our collaboration agreements with Sanofi and Vertex, respectively.

Collaboration revenue was $6.7 million for the six months ended June 30, 2020 all of which was attributable to our collaboration with Vertex.

Research and development expenses

The following table summarizes our research and development expenses for each period presented:

Six Months Ended

(in thousands)

External research and development costs:

Internal research and development costs

Total research and development expenses

Research and development expenses were $61.2 million for the six months ended June 30, 2021, compared to $25.9 million for the six months ended June 30, 2021.

The increase of $35.2 million was primarily due to higher direct expenses related to IND-enabling studies and clinical activities for IRAK4, IRAKIMiD, and STAT3 programs of $10.4 million, as well as increased expenses related to the investment in our platform, exploratory programs, and Vertex collaboration of $11.7 million.

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General and administrative expenses

General and administrative expenses were $5.9 million for the three months ended March 31, 2021, compared to $2.6 million for the three months ended March 31, 2020.

General and administrative expenses were $13.9 million for the six months ended June 30, 2021, compared to $6.2 million for the six months ended June 30, 2020.

The increase of $7.7 million was primarily due to increases in legal and professional service fees and an increase in personnel, facility and other expenses stemming from an increase in headcount to support our growth as a public company.

Other Income (Expense), Net

Other income, net was $0.1 million for the three months ended March 31, 2021, as compared to $0.3 million for the three months ended March 31, 2020.

Other income, net was $0.2 million for the six months ended June 30, 2021, as compared to $0.5 million for the six months ended June 30, 2020.

The decrease was primarily due to the prevailing interest rates in the respective periods.

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To date, we have funded our operations primarily with proceeds from our IPO, sale of our Convertible Preferred Stock and collaboration agreements.

To date, we have received gross proceeds of $617.8 million from the sale of common stock in our August 2020 IPO and concurrent private placement, sales of our Convertible Preferred Stock and through our collaborations with Vertex and Sanofi.

As of March 31, 2021, we had cash and cash equivalents and marketable securities of $435.2 million.

To date, we have received gross proceeds of $877.1 million from the sale of common stock in our August 2020 IPO and concurrent private placement, our July 2021 follow-on offering and concurrent private placement, sales of our Convertible Preferred Stock and through our collaborations with Vertex and Sanofi.

As of June 30, 2021, we had cash and cash equivalents and marketable securities of $404.4 million.

The following table summarizes our sources and uses of cash for each of the periods presented:

Three Months Ended

Six Months Ended

(in thousands)

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Cash provided by financing activities

Net decrease in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash Flow used in Operating Activities

During the three months ended March 31, 2021, cash used in operating activities was $22.8 million, primarily resulting from our net loss of $13.1 million during the period and $17.8 million change in deferred revenue under our Sanofi and Vertex collaboration agreements.

During the six months ended June 30, 2021, cash used in operating activities was $53.3 million, primarily resulting from our net loss of $37.7 million during the period and $35.5 million change in deferred revenue under our Sanofi and Vertex collaboration agreements.

These were offset by adjustments for non-cash items of $12.4 million (primarily consisting of stock-based compensation, depreciation and amortization and premiums and discounts on available-sale-securities) and a $7.4 million net increase in operating assets and liabilities primarily driven by changes in accounts payable and accrued expenses partially offset by changes in prepaid expenses and other operating assets and liabilities.

During the three months ended March 31, 2020, cash used in operating activities was $12.1 million, primarily resulting from our net loss of $10.9 million during the period and $3.4 million change in deferred revenue under our Vertex collaboration agreement.

These were offset by adjustments for non-cash items of $0.9 million (primarily consisting of stock-based compensation and depreciation expense) and a $1.4 million net increase in operating assets and liabilities primarily driven by changes in prepaid expenses partially offset by changes in accrued expenses.

During the six months ended June 30, 2020, operating activities used $23.5 million of cash, resulting primarily from the net loss of $24.9 million adjusted for net non-cash items of $2.0 million (primarily stock-based compensation and depreciation expense) and an increase in cash used of $0.6 million due to the net changes of our operating assets and liabilities.

Cash Flow provided by (used in) Investing Activities

During the three months ended March 31, 2021, cash provided by investing activities was $44.3 million, comprised of maturities of marketable securities of $60.5 million offset by purchases of marketable securities of $16.0 million and purchases of property and equipment of $0.2 million.

During the three months ended March 31, 2020, cash used in investing activities was $37.4 million, comprised of purchases of marketable securities of $36.0 million and purchases of property and equipment of $1.4 million.

During the six months ended June 30, 2021, cash provided by investing activities was $105.0 million, comprised of maturities of marketable securities of $152.0 million offset by purchases of marketable securities of $46.2 million and purchases of property and equipment of $0.8 million.

During the six months ended June 30, 2020, investing activities used $84.3 million of cash, primarily due to $110.5 million in purchases of marketable securities and $5.3 million in purchases of property and equipment offset by the $31.5 million of maturities of investments.

Cash Flow provided by Financing Activities

During the three months ended March 31, 2021, net cash provided by financing activities was $0.6 million, primarily consisting of $1.1 million in proceeds from the exercise of employee stock options offset by the payment of $0.4 million in offering costs related to our August 2020 IPO and finance lease payments of $0.2 million.

During the three months ended March 31, 2020, net cash provided by financing activities was $93.1 million, primarily consisting of $88.5 million of proceeds from the issuance of our Series C Preferred Stock, net of issuance costs and $4.8 million of proceeds from our issuances of Series B Preferred Stock, net of issuance costs, offset by payments under finance leases of $0.1 million.

During the six months ended June 30, 2021, net cash provided by financing activities was $2.2 million, primarily consisting of $2.6 million in proceeds from the exercise of employee stock options, $0.3 million in proceeds from the issuance of shares under our employee stock purchase plan offset by the payment of $0.4 million in offering costs related to our August 2020 IPO and finance lease payments of $0.3 million.

During the six months ended June 30, 2020, net cash provided by financing activities was $92.7 million, primarily consisting of $88.2 million of proceeds from our issuances of Series C convertible preferred stock in March 2020, net of issuance costs and $4.8 million of proceeds from the second closing of our Series B convertible preferred stock financing in January 2020, net of issuance costs.

Future funding requirements

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our need to implement additional internal systems and infrastructure, including financial and reporting systems.

We believe the existing cash, cash equivalents and marketable securities of $435.2 million as of March 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into 2025.

We believe the existing cash, cash equivalents and marketable securities of $404.4 million as of June 30, 2021, together with the net proceeds from the sale of our common stock in a public offering and concurrent private placement on July 6, 2021 of $243.1 million, will enable us to fund our operating expenses and capital expenditure requirements into 2025.

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

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To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional

debt, making capital expenditures or declaring dividends.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

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

During the three months ended March 31, 2021, there were no material changes to our critical accounting policies from those described in our Annual Report Form 10-K filed with the SEC on March 11, 2021.

During the six months ended June 30, 2021, there were no material changes to our critical accounting policies from those described in our Annual Report Form 10-K filed with the SEC on March 11, 2021.

JOBS Act Accounting Election

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We may continue to be a smaller reporting company even after we are no longer an emerging growth company.

We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

We may take advantage of certain of the scaled disclosures available to

smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.

As of June 30, 2021, the last business day of our most recently completed second fiscal quarter, the market value of our common stock that was held by non-affiliates exceeded $700.0 million.

As such, we will cease to be an “emerging growth company” as of December 31, 2021 and will be a “large accelerated filer” for our fiscal year ending December 31, 2021.

Recently Issued and Adopted Accounting Pronouncements

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

Quantitative and Qualitati ve Disclosures About Market Risk.

Our primary exposure to market risk relates to changes in interest rates.

As of March 31, 2021, we had cash and cash equivalents and marketable securities of $435.2 million.

Our exposure to interest rate sensitivity is impacted by changes in the underlying U.S.

bank interest rates.

Our surplus cash has been invested in money market fund accounts, interest-bearing savings accounts, U.S.

government debt securities as well as corporate debt securities from time to time.

We have not entered into investments for trading or speculative purposes.

Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.

All of our employees and our operations are currently located in the United States.

We have, from time to time, engaged in contracts with contractors or other vendors in a currency other than the U.S.

To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period between the date that transactions are initiated, and the date of payment or receipt of payment is generally of short duration.

Accordingly, we believe we do not have a material exposure to foreign currency risk.

Inflation generally affects us by increasing our cost of labor.

We do not believe that inflation had a material effect on our business, financial condition or results of operations during the periods presented.

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