Item 2. Management’s Discussion and Analysis
Item 2. 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 in conjunction with our financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below.
Overview and Pipeline
We are a clinical stage genetic medicines company focused on developing transformative therapies for central nervous system, or CNS, disorders with limited or no approved treatment options. Our vision is to fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with CNS diseases. The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success. We have entered into a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr. James Wilson, a leader in the genetic medicines field. We also leverage our close working relationship with Penn’s Orphan Disease Center, or ODC, to develop historical and prospective comparable natural history patient profiles for comparison to participants in interventional trials. Through this collaboration we have assembled a strong portfolio of genetic medicine product candidates, for which we retain global rights, the details of which are outlined in the below table:
*8 additional CNS pipeline license options remain; 3 license options were previously exercised, and rights were subsequently returned to the University of Pennsylvania.
† Program includes ongoing natural history study of infantile and juvenile GM1 gangliosidosis patients
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PBGM01 for the Treatment of GM1
We are currently developing PBGM01, which utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GLB1 gene encoding β-galactosidase (or β-gal) for infantile GM1. Infantile GM1 is the most common and severe form of GM1, in which patients have mutations in the GLB1 gene that produce little or no residual β-gal enzyme activity. β-gal is an enzyme that catalyzes the first step in the natural degradation of GM1 ganglioside as well as other glycan substrates. Reduced β-gal activity results in the accumulation of toxic levels of GM1 ganglioside in neurons throughout the brain, causing rapidly progressive neurodegeneration, with a life expectancy of two to ten years. Currently, there are no disease-modifying therapies approved for the treatment of GM1. Early onset infantile GM1 is characterized by onset in the first 6 months of life, while late onset infantile GM1 is characterized by onset between 6 and 24 months. We believe PBGM01 could provide patients with significantly improved outcomes. In preclinical studies we observed meaningful transgene expression in both the CNS and in peripheral organs affected in GM1. We are conducting a clinical trial using an ICM method of administration, which involves an injection at the craniocervical junction.
We have an active Investigational New Drug application, or IND, from the U.S. Food and Drug Administration, or FDA, and approved clinical trial authorizations, or CTAs, in multiple countries for PBGM01, and we are actively proceeding with our Imagine-1 Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBGM01 in patients with a diagnosis of early and late infantile GM1.
We have completed dosing of the initial four cohorts in our Imagine-1 Trial. This includes a total of eight patients, as follows: Cohort 1 for late infantile GM1 treated with low dose PBGM01, Cohort 2 for late infantile GM1 treated with high dose PBGM01, Cohort 3 for early infantile GM1 treated with low dose PBGM01, and Cohort 4 for early infantile GM1 treated with high dose PBGM01.
In December 2022 and February 2023, we reported interim safety and biomarker data for the first three cohorts of our Imagine-1 trial. The safety data showed that PBGM01 was well tolerated with no serious adverse events and no evidence of dorsal root ganglion toxicity or complications related to the ICM injection. We observed a dose-dependent increase in β-gal activity in the cerebral spinal fluid, or CSF, coupled with a dose-dependent decrease in CSF levels of GM1 ganglioside. We also reported meaningful improvement in a subset of patients across developmental areas in assessments utilizing the Vineland II and Bayley III scales, performed by caregivers and trained healthcare providers, respectively. The data suggests that stage of disease may be a determinant in treatment outcomes.
We expect to report initial safety and biomarker data from patients in Cohort 4 in the middle of 2023.
A key objective of the initial phase of the Imagine-1 trial is to determine the optimal dose for the confirmatory phase of the study. Based on the favorable safety profile of PBGM01 observed to date, the observed dose-response in key biomarkers, such as CSF β-gal activity and GM1 ganglioside levels, and that our preclinical studies showed no safety signals at doses higher than currently being evaluated in the ongoing clinical trial, we plan to treat additional patients in the Imagine-1 trial at higher doses of PBMG01 than the doses of PBGM01 administered to date in Cohorts 1 to 4. To this end, we have submitted a protocol amendment for Imagine-1 study to treat patients at a higher dose, or Dose 3, of PBGM01 that will inform registrational dose selection. The Imagine-1 clinical trial protocol amendment intends to treat early and late infantile GM1 gangliosidosis patients at Dose 3, which is two times higher than the current high dose, or Dose 2. Following regulatory review, the company looks forward to resuming patient enrollment efforts and expects to the dose the first patient at Dose 3 in the second half of the year.
The FDA has granted Orphan Drug Designation, or ODD, Rare Pediatric Disease Designation, or RPDD, and Fast Track Designation, to PBGM01 for the treatment of GM1. The European Commission has granted Orphan designation and Advanced Therapy Medicinal Product, or ATMP, designation for PBGM01.
Through our manufacturing partners, we have manufactured the PBGM01 clinical supply and have established a clinical supply chain to support global clinical trials.
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PBFT02 for the Treatment of FTD-GRN
We are currently developing PBFT02, which utilizes an AAV1 capsid to deliver a functional copy of the granulin gene, or GRN, encoding for human progranulin, or PGRN, for the treatment of FTD caused by progranulin deficiency, or FTD-GRN. FTD-GRN is an inheritable form of FTD in which patients have mutations in the GRN gene, causing a deficiency in PGRN. PGRN is a complex and highly conserved protein thought to have multiple roles in cell homeostasis, neurodevelopment, and inflammation. Emerging evidence suggests that PGRN deficiency in FTD and other neurodegenerative disorders may contribute to lysosomal dysfunction. Currently, there are no disease-modifying therapies approved for the treatment of FTD-GRN. Based on findings in preclinical studies, we believe that PBFT02 may provide FTD-GRN patients with significantly improved outcomes. We selected the AAV1 capsid and ICM administration for PBFT02 because this approach led to extensive and robust expression of human PGRN throughout the brain and spinal cord of non-human primates, or NHPs, and due to the higher PGRN levels in CSF using AAV1 as compared with other serotypes tested. ICM administration of AAV1 to NHPs resulted in supraphysiologic CSF levels of human PGRN compared to levels in healthy human subjects’ CSF, and in excess of levels achieved in NHPs with AAVhu68 or AAV5.
We have an active IND from the FDA and approved CTAs in multiple countries for PBFT02, which allows us to proceed with our upliFT-D Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBFT02 in patients with a diagnosis of early symptomatic FTD-GRN.
In August 2022, we dosed the first patient in our upliFT-D trial.
We expect to report initial safety and biomarker data from patients in Cohort 1 in the second half of 2023.
The FDA has granted ODD and Fast Track Designation to PBFT02 for the treatment of FTD-GRN and the European Commission granted Orphan designation for PBFT02.
Through our manufacturing partners, we have manufactured the PBFT02 clinical supply and have established a clinical supply chain to support global clinical trials.
Other Clinical Product Candidates
We have two clinical product candidates, PBKR03 and PBML04, for which, in order to reduce operating expenses, we have stopped further clinical development and are exploring strategic alternatives for these assets.
PBKR03 utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional GALC gene encoding the hydrolytic enzyme galactosylceramidase to treat Krabbe disease. Krabbe disease is an autosomal recessive lysosomal storage disease caused by mutations in the GALC gene, which provides instructions for making an enzyme called galactosylceramidase, which breaks down certain fats, including galactosylceramide and psychosine. This results in the accumulation of galactolipids such as psychosine, resulting in widespread death of myelin-producing cells in the CNS and in the peripheral nervous system, or PNS. We have an active IND from the FDA and approved CTAs in multiple countries for PBKR03 to support our GALax-C Trial, an international, multi-center, open-label, single-arm Phase 1/2 clinical trial of PBKR03 in patients with a diagnosis of infantile Krabbe disease. In March 2022, we dosed the first patient in our GALax-C Trial. In November 2022, we announced plans to stop further clinical development of PBKR03 in order to reduce operating expenses, and are exploring strategic alternatives for this asset.
PBML04 utilizes a proprietary, next-generation AAVhu68 capsid to deliver to the brain and peripheral tissues a functional arylsulfatase A gene, or ARSA , encoding the ARSA enzyme to treat Metachromatic Leukodystrophy, or MLD. MLD is a rare, autosomal recessive lysosomal storage disease caused by mutations in the ARSA gene, resulting in little or no functional activity of the ARSA enzyme, which is essential for the degradation of sphingolipid cerebroside-3-sulfate, or sulfatide. When the ARSA enzyme is lacking, sulfatides accumulate in lysosomal storage deposits in microglia, oligodendrocytes, and Schwann cells, leading to widespread demyelination. Our preclinical data in ARSA-/- mice and in NHPs support the ability of PBML04 administration into CSF to result in dose-dependent increases in brain
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and CSF levels of functional human ARSA enzyme, leading to improved biochemical, histopathological, behavioral, survival endpoints, and with no safety or toxicity signs up to the highest tested dose in NHPs. Preclinical findings were presented by GTP in 2021. In April 2022, we submitted an IND for PBML04 to support clinical development in MLD. On May 20, 2022, the FDA cleared our IND application for PBML04, which supports PBML04-001, an international, multi-center, open-label, single-arm clinical trial of PBML04 in patients with a diagnosis of late onset infantile MLD. In November 2022, we announced plans to stop further clinical development of PBML04 in order to reduce operating expenses, and are exploring strategic alternatives for this asset.
Research Programs
We have two programs in preclinical research stages under our license agreement with Penn: PBAL05 for ALS and, an unnamed program for Huntington’s disease. PBAL05 is targeting patients with ALS who have a gain-of-function mutation in the C9orf72 gene. Our unnamed program is focused on the treatment of Huntington’s disease, a repeat expansion disorder. Beyond this portfolio, through our research collaboration with GTP, we also have the option to license programs for eight additional new indications in CNS diseases along with certain rights and licenses to new gene therapy technologies developed by Penn, such as novel capsids, toxicity reduction technologies and delivery and formulation.
We also have an exploratory research program with GTP for larger non-monogenic indications, currently focused on TLE, which can be expanded to other large CNS diseases upon mutual agreement with GTP.
Business Overview
We were incorporated in July 2017 under the laws of the State of Delaware. Since inception, our operations have consisted primarily of conducting preclinical studies, developing licensed technology, conducting clinical trials, and manufacturing clinical supply to support clinical trials. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock. Our net losses were $34.3 million and $42.8 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $526.7 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. 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 or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Our net 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.
We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.
As of March 31, 2023, we had cash, cash equivalents and marketable securities of $167.8 million. We expect our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2025.
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Financial Operations Overview
License Agreement
University of Pennsylvania
We have a research, collaboration and licensing agreement, as amended, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies. Under the Penn Agreement, we have the obligation to fund certain research relating to the preclinical development of selected products in research programs as well as exploratory research programs in non-rare and/or non-monogenic, or large, CNS indications, currently TLE. We also fund discovery research conducted by Penn through August 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements. Our discovery research funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million through June 2026. Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until August 2026. If we were to exercise any of these remaining options, we would owe Penn a non-refundable aggregate fee of $1.0 million, with $0.5 million per product indication paid immediately and another $0.5 million fee owed upon a further developmental milestone.
The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, currently TLE and such other mutually agreed upon large CNS indications. Each payment will be due upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications. In addition, on a product-by-product basis, we are obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.
Upon successful commercialization of a product using the licensed technology, we are obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. In addition, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement. In addition, we will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.
The Penn Agreement includes an exploratory research collaboration to identify targets and early product candidates in such large CNS indications. The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, currently focused on TLE, and that can be expanded to other large CNS diseases upon mutual agreement. The initial term of the exploratory research program is 3 years, or until August 2024, which term can be extended by mutual agreement. Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.
Collaboration and Manufacturing and Supply Agreements
Catalent
In June 2019, we entered into a collaboration agreement, or the Collaboration Agreement, with Catalent. As part of the Collaboration Agreement, we were required to pay an annual fee for five years ending in 2025 for the exclusive use of a dedicated clean room suite, or the Clean Room Suite.
In April 2020, we entered into a development services and clinical supply agreement, or the Manufacturing and Supply Agreement, with Catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical
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ingredients for our gene therapy product candidates. The Manufacturing and Supply Agreement confirms the terms contemplated by the Collaboration Agreement and the Collaboration Agreement continues to be in effect pursuant to its terms. Under the terms of the Manufacturing and Supply Agreement, Catalent agreed to manufacture batches of drug product for our gene therapy product candidates at the Clean Room Suite at a Catalent facility provided for in the Collaboration Agreement. The Manufacturing and Supply Agreement provided for a term of five years. The Manufacturing and Supply Agreement also included minimum annual purchase commitments. We have the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice. If we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.
Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, we had an annual minimum commitment of $10.6 million per year owed to Catalent for five years from the validation of the Clean Room, subject to certain inflationary adjustments.
On March 31, 2023, we entered into certain letter agreements amending each of (i) the Collaboration Agreement and (ii) the Manufacturing and Supply Agreement, together with the Collaboration Agreement, the Existing Agreements.
Letter agreement I, or Agreement I, eliminated the minimum annual purchase obligation and the obligation to pay an annual fee for use of the Clean Room Suite, thereby eliminating the annual minimum commitment of $10.6 million per year owed to Catalent through November 2025 under the Existing Agreements. In consideration of Agreement I, we agreed to make aggregate payments to Catalent of $6.0 million between June 30, 2023 and May 1, 2024. We accrued the $6.0 million of aggregate payments as of the three-months ended March 31, 2023.
Letter agreement II, or Agreement II, and together with Agreement I, the Letter Agreements, extended the term of the Existing Agreements until November 6, 2030, and established a limited exclusive relationship between us and Catalent for the manufacture of bulk drug substance and drug product for our adeno-associated virus delivery therapeutic product candidates for the treatment of FTD and GM1. The limited exclusive relationship under Agreement II converts to a non-exclusive relationship (i) in the event Catalent fails to meet certain performance standards and (ii) following certain conditional events related to the divestiture by us of either FTD or GM1, in which case, if such events occur, we would pay Catalent certain fees. In addition, in the event of certain transactions, we may terminate the Existing Agreements for convenience with respect to such products, in which case, we would pay to Catalent a certain termination fee.
Immediately prior to the execution of the Letter Agreements, we had a $5.3 million prepaid asset related to upfront payments made to secure the Clean Room Suite. In connection with the Letter Agreements, we no longer have exclusive access to the Clean Room Suite at Catalent and, as a result, we recognized an expense of $5.3 million related to the elimination of the prepaid asset as of the three months ended March 31, 2023.
We classified the $11.3 million of expenses, which comprises of $6.0 million in aggregate payments due to Catalent and the $5.3 million elimination of the prepaid asset, as general and administrative expense within the statement of operations for the three months ended March 31, 2023, as both amounts do not directly relate to the future advancement of our research and development programs.
Components of Results of Operations
Research and Development and Acquired In-Process Research and Development
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. These expenses include:
● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval, including payments to Penn for preclinical research and development;
● expenses incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use, which are classified as acquired in-process research and development;
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● personnel expenses, including salaries, benefits and share-based compensation expense for employees engaged in research and development functions;
● expenses related to funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;
● expenses incurred under agreements with contract manufacturing organizations, or CMOs, including the cost of acquiring and manufacturing preclinical study and clinical trial materials;
● expenses and fees paid to consultants who assist with research and development activities; and
● expenses incurred at and for our lab facilities, including rent, utilities, depreciation, and maintenance.
We track outsourced development expenses and other external research and development expenses to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, and other expenses which are deployed across multiple projects under development.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development expenses than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
We expect our research and development expenses to remain consistent or decrease in the near future. If our product candidate portfolio progresses into later-stage clinical trials, we expect that our research and development expenses will increase in the future to support our continued research and development activities and production of clinical supply.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, commercial, quality, regulatory, operations and human resource functions. General and administrative expenses also include corporate facility costs, including rent, utilities, depreciation and maintenance, legal expenses related to intellectual property and corporate matters, insurance expense, expenses related to contract modifications or terminations, and expenses for accounting and consulting services. We expect our general and administrative expenses to remain consistent or decrease in the near future, after excluding the impacts of our recent Letter Agreements with Catalent.
If our product candidate portfolio progresses into later-stage clinical trials, we expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts, and increased expenses of operating as a public company. These increases will likely include increased expenses related to the hiring of additional personnel in general and administrative functions, and expenses related to pre-commercialization efforts. If any of our current or future product candidates obtain regulatory approval, we expect that we would incur significantly increased expenses associated with building a commercial sales and marketing team.
Other income (expense), net
Other income (expense), net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities. Additionally, in the three months ended March 31, 2023, we recognized other income related to the sale of certain tax credits.
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Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table sets forth our results of operations for the three months ended March 31, 2023 and 2022:
Three months ended
March 31,
(in thousands)
2023
2022
Change
Operating expenses:
Research and development
$
16,836
$
26,213
$
(9,377)
Acquired in‑process research and development
—
1,500
(1,500)
General and administrative
19,047
15,099
3,948
Loss from operations
(35,883)
(42,812)
6,929
Other income (expense), net
1,545
1
1,544
Net loss
$
(34,338)
$
(42,811)
$
8,473
Research and Development Expenses
Research and development expenses decreased by $9.4 million to $16.8 million for the three months ended March 31, 2023 from $26.2 million for the three months ended March 31, 2022. The decrease was primarily due to a decrease of $9.2 million in clinical manufacturing expenses, which relates to the timing and reduction of our manufacturing activities to support our clinical trials, and decreases of $2.3 million and $1.4 million in wages and benefits and share-based compensation expense, respectively. These amounts were partially offset by a $3.2 million increase in preclinical and clinical activities and a $0.3 million increase in professional services and consulting. Expenses associated with the Penn Agreement will continue to vary from quarter to quarter based on our selection and prioritization of preclinical product candidates, the status of our preclinical pipeline and timing of preclinical work performed.
We track outsourced development, outsourced personnel expenses and other external research and development costs of specific programs. We do not track our internal research and development expenses on a program by program basis. Research and development expenses are summarized by program in the table below:
Three months ended
March 31,
(in thousands)
2023
2022
Program Specific Expenses
PBGM01 (GM1)
$
3,295
$
1,209
PBFT02 (FTD‑GRN)
1,151
3,297
PBKR03 (Krabbe)
783
2,686
PBML04 (MLD)
335
3,755
Other Programs and Discovery
2,463
2,089
Unallocated Internal Expenses
Personnel-related (including share-based compensation)
6,154
9,844
Other
2,655
3,333
$
16,836
$
26,213
General and Administrative Expenses
General and administrative expenses increased by $3.9 million to $19.0 million for the three months ended March 31, 2023 from $15.1 million for three months ended March 31, 2022. The increase was primarily due to non-recurring expenses of $11.3 million related to the Letter Agreements and an increase in expenses of $0.4 million for facilities and other. These amounts were partially offset by a decrease of $3.9 million and $2.2 million in wages and benefits and share-based compensation expense, respectively, related to a reduction in headcount, and a $1.7 million
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decrease in our professional fees, facilities and other expenses. Excluding the non-recurring expenses of $11.3 million related to the Letter Agreements, our general and administrative expenses decreased by $7.4 million.
Other income (expense), net
Other income (expense), net was $1.5 million and de minimus for the three months ended March 31, 2023 and 2022, respectively. Other income (expense), net for the three months ended March 31, 2023 consisted of $1.1 million attributable to interest income earned on cash, cash equivalents and marketable securities and $0.4 million related to the sale of certain tax credits.
Acquired In-Process Research and Development Expenses
During the three months ended March 31, 2023, we did not make any payments for acquired in-process research and development. During the three months ended March 31, 2022, we made payments under the Penn Agreement for acquired in-process research and development of $1.5 million related to the achievement of a development milestone.
Liquidity and Capital Resources
Overview
As of March 31, 2023, we had $167.8 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $526.7 million. We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures into the first half of 2025.
Funding Requirements
Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. 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, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
● the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
● the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
● the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
● the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
● our ability to establish additional collaborations on favorable terms, if at all;
● the expenses required to scale up our clinical, regulatory and manufacturing capabilities;
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● the expenses of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional 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 drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, further reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
On March 5, 2021, we entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $125.0 million through Cowen, as sales agent. No sales of common stock have been made pursuant to this Sales Agreement to date.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Three months ended
March 31,
(in thousands)
2023
2022
Cash provided by (used in) operating activities
$
(22,446)
$
(44,711)
Cash provided by (used in) investing activities
21,217
17,311
Cash provided by (used in) financing activities
—
49
Net increase (decrease) in cash and cash equivalents
$
(1,229)
$
(27,351)
Net Cash Used in Operating Activities
During the three months ended March 31, 2023, we used $22.4 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $34.3 million and a net decrease in our operating assets of $8.2 million, partially offset by non-cash charges of $3.7 million related to share-based compensation, depreciation, amortization, and amortization of premium and discount, net. The primary use of cash was to fund our operations related to the development of our product candidates.
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During the three months ended March 31, 2022, we used $44.7 million of net cash in operating activities. Cash used in operating activities reflected a net loss of $42.8 million and a net increase in our operating assets of $11.5 million, partially offset by non-cash charges of $9.6 million related to share-based compensation, depreciation, amortization, amortization of premium and discount, net, and acquired in-process research and development. The primary use of cash was to fund our operations related to the development of our product candidates.
Net Cash Provided by (Used) in Investing Activities
During the three months ended March 31, 2023, we purchased $51.4 million in marketable securities, and had sales and maturities of $72.6 million in marketable securities. Purchases of property and equipment were de minimus for the three months ended March 31, 2023.
During the three months ended March 31, 2022, we purchased $37.4 million in marketable securities, had sales and maturities of $56.9 million in marketable securities, had purchases of property and equipment of $0.7 million, and paid $1.5 million for technology licenses.
Net Cash Provided by (Used in) Financing Activities
During the three months ended March 31, 2023 , the company had no gross receipts or outflows of cash related to financing activites.
During the three months ended March 31, 2022, we received $49,000 from the exercise of stock options.
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Contractual obligations and other commitments
We lease approximately 37,000 square feet of office space in Philadelphia, Pennsylvania. The lease will expire in December 2031. We have an option to extend the term of the lease by up to two additional five-year terms. The aggregate estimated rent payments due over the initial term of the lease is $11.8 million, with rent payments that began in 2022.
We lease approximately 62,000 square feet of laboratory space in Hopewell, NJ. The lease will expire in March 2036. The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million, with rent payments that began in 2021.
As a result of the Letter Agreements, under both the Collaboration Agreement and the Manufacturing and Supply Agreement with Catalent, we no longer have an annual minimum commitment of $10.6 million per year owed to Catalent through November 2025. In addition, the Company will make aggregate payments to Catalent of $6.0 million between June 30, 2023 and May 1, 2024.
Under the Penn Agreement, we agreed to fund discovery research conducted by Penn for five years, which began in May 2020. Our funding commitment is $5.0 million a year through June 2026.
These contractual obligations and commitments are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included as the amount and timing of such payments are not known.
The contractual obligations and commitments above do not include any potential milestone or royalty payments that we may be required to make under the Penn Agreement.
Critical Accounting Policies and Estimates
During the three months ended March 31, 2023, there were no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our 2022 Annual Report filed on Form 10-K.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least $1.235 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30 th , (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We
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may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recent Accounting Pronouncements
See Note 3 to our unaudited interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.