What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-03 · 61 added, 100 removed, 167 unchanged (49% of the section changed)

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 “Selected Financial Data” and the financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

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Risk Factors” and in other parts of this Annual Report on Form 10-K.

A discussion of our financial performance for the year ended December 31, 2020 as compared to the year ended December 31, 2019 appears below under the captions “Results of Operations” and “Liquidity and Capital Resources.” A discussion of our financial performance for the year ended December 31, 2019 compared to the year ended December 31, 2018 can be found in our Registration Statement filed on Form S-1/A, in the “Management Discussion And Analysis Of Financial Condition And Results Of Operations” section, under the same captions, filed with the SEC on September 24, 2020, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at ir.pmvpharma.com/financial-information/sec-filings .

A discussion of our financial performance for the year ended December 31, 2021 as compared to the year ended December 31, 2020 appears below under the captions “Results of Operations” and “Liquidity and Capital Resources.” A discussion of our financial performance for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in our Annual Report filed on Form 10-K, in the “Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations”, under the same captions, filed with the SEC on March 3, 2021, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at ir.pmvpharma.com/financial-information/sec-filings .

These website addresses are intended to be inactive, textual references only.

None of the materials on, or accessible through, these websites are part of this report or are incorporated by reference herein.

We are a precision oncology company pioneering the discovery and development of small molecule, tumor-agnostic therapies targeting p53 mutations.

We are a precision oncology company pioneering the discovery and development of small molecule, tumor-agnostic therapies targeting p53.

p53 is a well-defined tumor suppressor protein known as the “guardian of the genome,” and normal, or wild-type, p53 has the ability to eliminate cancer cells.

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We are deploying our precision oncology platform to target the top ten most frequent, or hotspot, p53 mutations that are collectively associated with approximately 10-15% of all cancers.

In addition, we are expanding the utilization of our platform to target certain cancers where wild-type p53 function is silenced.

Since our formation in March 2013, we have devoted substantially all of our time and efforts to performing research and development activities and raising capital.

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We expect to continue to incur significant losses for the foreseeable future.

Prior to our initial public offering, or IPO, we funded our operations primarily from the issuance and sale of convertible preferred stock.

As of December 31, 2020, we had $361.4 million in cash and cash equivalents.

We believe that our existing capital resources will be sufficient to fund our planned operations at least through 2023.

Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates.

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Adequate funding may not be available to us on acceptable terms, or at all.

If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

If we fail to raise capital or enter into

such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

We plan to continue to use third-party service providers, including clinical research organizations, or CROs, and contract manufacturing organization, or CMOs, to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates.

We do not currently have a sales force.

Components of Results of Operations

To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future.

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Outside professional services consist of legal, accounting and audit services and other consulting fees.

expenses consist of rent expense related to our office and research and development facility.

We expect to incur additional expenses as a public company, including expenses related to compliance with the rules and regulations of the SEC , and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services.

We expect to increase our headcount significantly to support our operations as a public company.

Allocated expenses consist of rent expense related to our office and research and development facility.

We have incurred additional expenses as a public company, including expenses related to compliance with the rules and regulations of

the SEC , and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services.

We have increased our headcount significantly to support our operations as a public company.

We also expect to increase our general and administrative expenses as we advance our product candidates through preclinical research and development, manufacturing, clinical development , and commercialization.

Interest Income, Net

Interest income, net primarily consists of interest income from our interest-bearing cash, cash equivalents and short-term marketable securities and interest costs related to amortization of premiums and discounts on short-term marketable securities.

Results of Operations

Interest income, net primarily consists of interest income from our interest-bearing cash, cash equivalents and marketable securities and interest costs related to amortization of premiums and discounts on our marketable securities.

Comparison of the Years Ended December 31, 2021 and 2020

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Interest income, net

Other expense

Other income (expense)

Total other income (expense)

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The increase of $12.6 million was primarily due to the following:

$1.4 million decrease in research expenses, driven primarily by a decline in costs from certain of our contract research organizations.

$1.9 million increase in development expenses, primarily associated with increased effort advancing our lead compound PC14586 through pre-clinical studies and into a Phase 1/2 clinical trial;

$2.6 million increase in expenses for personnel related costs and stock-based compensation, primarily driven by increased headcount for developing PC14586 and initiation of an investigational new drug, or IND, study for the Y220C mutation.

$0.3 million increase in research expenses, largely driven by increased contractual research organization costs focused on discovery research;

$ 11.7 million increase in development expenses, primarily associated with increased effort advancing our lead compound PC14586 through the Phase 1/2 clinical trial;

$0.5 million increase in expenses for personnel related costs and stock-based compensation, primarily driven by the rise in the Company’s stock value subsequent to the IPO in September 2020.

General and Administrative Expenses

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The increase of $10.8 million was primarily due to the following:

$3.0 million increase in expense for employee compensation, driven primarily by increased headcount to build out general and administrative infrastructure for the Company;

$2.1 million increase in expense for insurance and outside services, which is primarily driven by $1.2 million in regulatory and finance support, $0.6 million directors and officers insurance, and $0.3 million associated with legal expenses for patent filings and service contract drafting and review.

$5.5 million increase in personnel related expenses due to increased headcount to build out general and administrative infrastructure;

$1.1 million increase in finance and legal support, $0.5 million increase in business licenses and fees, $1.9 million increase for directors and officers insurance, and a $1.8 million increase due to facility and equipment related costs for the Company’s new headquarters in Princeton, New Jersey.

Interest Income, Net

Interest income, net was $0.5 million for the year ended December 31, 2021, compared to $0.7 million for the year ended December 31, 2020.

The decrease of $0.6 million is driven by decreased income from cash investments in marketable securities and U.S treasuries.

The decrease of $0.2 million is driven by decreased interest rates from cash investments in marketable securities and U.S treasuries as of the year ended December 31, 2021.

Liquidity and Capital Resources

Our financial condition is summarized as follows:

As of December 31,

Financial assets:

Cash and cash equivalents

Marketable securities - current

Marketable securities - noncurrent

Total financial assets

Working capital:

Current assets

Current liabilities

Total working capital

Sources of Liquidity

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We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all.

As of December 31, 2020, we have cash and cash equivalents of $361.4 million and an accumulated deficit of $109.9 million.

Prior to our initial public offering, or IPO, we financed our operations primarily through issuances of our convertible preferred stock.

As of December 31, 2021, we had cash, cash equivalents, and marketable securities of $314 million and an accumulated deficit of $167.7 million.

We have financed our operations primarily through issuances of our convertible preferred and common stock.

In 2019, we sold an aggregate of 5,469,606 shares of our Series C convertible preferred stock to accredited investors, generating gross proceeds of $61.9 million.

In July 2020, we sold an aggregate of 5,321,864 shares of our Series D convertible preferred stock to accredited investors, generating gross proceeds of $70.0 million.

On September 25, 2020, we completed our IPO pursuant to which we issued and sold 13,529,750 shares of our common stock, including the exercise in full by the underwriters of their option to purchase up to 1,764,750 additional shares of common stock, at a public offering price of $18.00 per share.

The gross proceeds from the IPO were approximately $243.5 million and the net proceeds were approximately $223.2 million, after deducting underwriting discounts and commissions and other offering expenses.

In September 2020, we completed an IPO of 13,529,750 shares of our common stock, which includes the exercise in full by the underwriters of their option to purchase 1,764,750 additional shares

of common stock, at a public offering price of $18.00 per share for aggregate gross proceeds of $243.5 million.

We received $223.2 million in net proceeds after deducting underwriting discounts and commissions and other offering expenses payable by us.

In October 2021, we filed a shelf registration statement on Form S-3, which may result in aggregate gross process of up to $150.0 million.

We did not sell any shares pursuant to the shelf registration statement and did not receive any gross proceeds in fiscal year 2021.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with CROs and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes.

These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

In January 2021, we signed a lease for 50,581 square feet of office and laboratory space at One Research Way in Princeton, New Jersey.

That lease term extends through 2032, has a five-year extension option, and is intended to replace our two existing facilities.

Payments under this lease will total $19.6 million through May 2032.

Amounts related to future lease payments as of December 31, 2021 totaled $20.4 million, with $1.4 million to be paid within the next 12 months.

Plan of Operation and Future Funding Requirements

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We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical development and move into clinical development of our product candidates.

At this time, due to the

inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all.

For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability.

At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all.

For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, we may achieve profitability.

Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations.

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We expect to incur substantial additional losses in the future as we expand our research and development activities.

Our cash operating expenditures were $46.6 million in 2021 and $32.7 million in 2020, and we expect to increase our investment in operations in 2022 .

Based on our research and development plans, we expect that our cash balances as of December 31, 2021 will be sufficient to fund our operations at least through 2023.

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the timing and amount of milestone payments we may receive under any future collaboration agreements;

our ability to maintain future licenses and research and development programs and to establish new collaboration arrangements;

our ability to maintain future business licenses and research and development programs and to establish new collaboration arrangements;

the costs involved in prosecuting and enforcing patent and other intellectual property claims;

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Cash used in operating activities

Cash provided by investing activities

Cash (used in) provided by investing activities

Cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating Activities

Net cash used in operating activities for the year ended December 31, 2020, was $32.7 million, which consisted primarily of net loss of $34.4 million increased by non-cash charges of $2.5 million and decreased by a net change of $0.9 million in our net operating assets.

Net cash used in operating activities for the year ended December 31, 2021, was $46.6 million, which consisted primarily of net loss of $57.8 million decreased by non-cash charges of $7.2 million and a net change of $4.1 million in our net operating assets.

The non-cash charges primarily consisted of stock-based compensation of $5.3 million, depreciation of $0.9 million, and non-cash lease expense of $1.0 million.

The change in our net operating assets and liabilities was primarily due to a decrease in prepaid expenses and other assets, an increase in accrued expenses, and an increase in outstanding payables.

Net cash used in operating activities for the year ended December 31, 2020, was $32.7 million, which consisted primarily of a net loss of $34.4 million decreased by non-cash charges of $2.5 million and increased by a net change of $0.9 million in our net operating assets.

The non-cash charges primarily consisted of stock-based compensation of $1.9 million and depreciation of $0.3 million.

The change in our net operating assets and liabilities was primarily due to an increase in current assets, accompanied by a decrease in outstanding payables, and an increase in accrued compensation and accrued liabilities in 2020.

Net cash used in operating activities for the year ended December 31, 2019, was $22.1 million, which consisted primarily of net loss of $25.4 million decreased by non-cash charges of $1.4 million and by a net change of $1.9 million in our net operating assets.

The non-cash charges primarily consisted of stock-based compensation of $0.9 million and depreciation and amortization expense of $0.5 million.

The change in our net operating assets and liabilities was primarily due to an increase in outstanding payables in 2019.

Investing Activities

Our investing activities provided $28.0 million of cash during the year ended December 31, 2020, which consisted primarily of maturities of marketable securities of $42.6 million, partially offset by purchases of marketable securities of $14.5 million and purchases of property and equipment of $0.1 million.

Our investing activities used $143.6 million of cash during the year ended December 31, 2021, which consisted primarily of purchases of marketable securities of $256.8 million, along with purchase of property and equipment of $1.3 million partially offset by maturities of marketable securities of $114.6 million.

Financing Activities

Our financing activities provided $293.0 million of cash during the year ended December 31, 2020, which consisted primarily of gross IPO proceeds of $243.5 million and Series D Preferred Stock issuance of $70.0 million, offset by equity issuance costs of $20.6 million.

Our financing activities provided $61.8 million of cash during the year ended December 31, 2019, which consisted primarily of proceeds from the issuance of our Series C convertible preferred stock of $61.9 million, and proceeds from the exercise of stock options of $0.1 million, partially offset by payments of equity issuance costs of $0.2 million.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2020 (in thousands):

Operating lease obligations:

These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

In January 2021, we signed a lease for 50,581 square feet of office and laboratory space at One Research Way in Princeton, New Jersey.

That lease term extends through 2032, has a five-year extension option, and is intended to replace our two existing facilities.

Payments under this lease will total $19.6 million through May 2032.

Critical Accounting Policies and Significant Judgments and Estimates

Our financing activities provided $2.0 million of cash during the year ended December 31, 2021, which consisted primarily of proceeds from the exercise of stock options.

Our financing activities provided $293.0 million of cash during the year ended December 31, 2020, which consisted primarily of gross IPO proceeds of $243.5 million and Series D Preferred Stock issuance proceeds of $70.0 million, offset by equity issuance costs of $20.6 million.

Critical Accounting and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes.

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We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

The financial terms of these agreements are

subject to negotiation, vary from contract to contract and may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense.

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As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, we based our expected term for awards issued to employees and non-employees using the simplified method which is presumed to be the midpoint between the vesting date and the end of the contracted term.

Contractual Term —The contractual term represents the nominal period that the stock-based awards are outstanding.

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

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Because there was no public market for our common stock, our board of directors determined the fair value of our common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having valuations of the common stock performed by a third-party valuation specialist, as further described below.

As of December 31, 2020, the total compensation cost related to nonvested service-based awards not yet recognized is $4,602.

The weighted-average period over which the nonvested awards is expected to be recognized is 2.9 years.

The aggregate intrinsic value of options outstanding as of December 31, 2020 was $238.8 million, of which $154.1 million related to vested options and $84.7 million related to unvested options.

Common Stock Valuations

The fair value of the shares of common stock underlying our stock-based awards prior to our IPO was determined by our board of directors with input from management and contemporaneous third-party valuations.

We believe that our board of directors had the relevant experience and expertise to determine the fair value of our common stock prior to our IPO.

Given the absence of a public trading market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , our board of directors exercised reasonable judgment and considered numerous and subjective factors to determine the best estimate of the fair value of our common stock at each grant date.

These factors include:

contemporaneous valuations of our common stock performed by independent third-party specialists;

the prices, rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

the prices of common or convertible preferred stock sold to third-party investors by us

lack of marketability of our common stock;

our actual operating and financial performance;

current business conditions and projections;

hiring of key personnel and the experience of our management;

the history of the company;

our stage of development;

likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions;

the market performance of comparable publicly traded companies;

and global capital market conditions.

In valuing our common stock, our board of directors determined the equity value of our business using the hybrid method with input from management and contemporaneous third-party valuations.

The hybrid method is based upon the probability-weighted value across two scenarios, being (i) successfully consummating an initial public offering and (ii) alternative scenarios in which an initial public offering is not consummated.

The hybrid method can be a useful alternative to explicitly modeling all probability-weighted expected return scenarios in situations when the company has transparency into one or more near term exits but is unsure about what will occur if current plans do not materialize.

In the first scenario, the potential exit date, the probability exit value and the likelihood of interim financings were considered.

In the second scenario, which was assigned the residual probability, the potential exit date, the equity volatility, the assumed interest rate, the dividend yield and equity inflection points at which the allocation of proceeds changes were considered.

The valuation method considers the total number of shares authorized and outstanding, as well as recent issuances of both preferred and common stock.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding the time to the liquidation event and volatility.

Changes in these estimates and assumptions or the relationships between these assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.

Following our IPO, the fair value of each share of underlying common stock will be based on the closing price of our common stock as reported by Nasdaq on the date of grant.

Future expense amounts for any particular period could be affected by changes in our assumptions or market conditions.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, see Note 2 of the notes to our audited financial statements for the year ended December 31, 2020 included elsewhere in this Annual Report on Form 10-K for the year ended December 31, 2020.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or Jobs Act, enacted in April 2012.

For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We could be an emerging growth company for up to five years following the year in which we completed our initial public offering, although circumstances could cause us to lose that status earlier.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

Under the Jobs Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have elected to use the extended transition period to enable us to comply with new or revised accounting standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Quantitative and Qualita tive Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business.

These risks primarily relate to interest rate risks.

We had cash and cash equivalents of $361.4 million as of December 31, 2020, which consists of interest-bearing U.S.

treasury securities and money market funds.

Our exposure due to changes in interest rates is not material due to the nature and amount of our money-market funds and short-term marketable securities.

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates;

however, we may contract with foreign vendors that are located outside the United States in the future.

This may subject us to fluctuations in foreign currency exchange rates in the future.

For a description of recent accounting pronouncements, see Note 2 of the notes to our audited financial statements for the year ended December 31, 2021 included elsewhere in this Annual Report on Form 10-K.

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-K

Item 7. Management’s Discussion and Analysis