What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-14 compared with 2020-05-12 · 81 added, 52 removed, 130 unchanged (51% of the section changed)

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gingivalis infection causes Alzheimer’s pathology in animal models, and these effects have been successfully treated with a gingipain inhibitor in preclinical studies.

Our proprietary lead drug candidate, COR388, is an orally administered, brain-penetrating small molecule gingipain protease inhibitor.

COR388 was well-tolerated with no concerning safety signals in our Phase 1a and Phase 1b clinical trials conducted to date, which enrolled a total of 67 subjects, including nine patients with mild to moderate Alzheimer’s disease.

We initiated a global Phase 2/3 clinical trial of COR388, called the GAIN trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe.

We plan to conduct the interim analysis by the end of 2020 after approximately 100 patients in each of the GAIN trial’s three arms complete six months of treatment and expect top-line results by the end of 2021.

Our proprietary lead drug candidate, atuzaginstat (COR388), is an orally administered, brain-penetrating small molecule gingipain protease inhibitor.

Atuzaginstat was well-tolerated with no concerning safety signals in our Phase 1a and Phase 1b clinical trials conducted to date, which enrolled a total of 67 subjects, including nine patients with mild to moderate Alzheimer’s disease.

We initiated a global Phase 2/3 clinical trial of atuzaginstat, called the GAIN ( GingipAIN Inhibitor for Treatment of Alzheimer’s Disease) trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe.

We plan to conduct the interim analysis by the end of 2020 after approximately 100 patients in each of the GAIN trial’s three arms complete 24 weeks of treatment and expect top-line results by the end of 2021.

The GAIN Trial also includes an open-label extension (OLE) in the United States that began dosing patients in April 2020.

Upon completing the 48-week placebo-controlled period of the GAIN Trial, participants in the GAIN Trial’s placebo and active arms in the U.S.

may be eligible to enroll in the OLE study, where they will receive 40 mg or 80 mg of atuzaginstat twice daily for an additional 48 weeks.

The OLE is intended to evaluate long-term safety and efficacy measures of participants in the GAIN Trial.

Business Update Regarding COVID-19

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We are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, preclinical operations and clinical trials.

Our office-based employees have been working from home since mid-March 2020, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our lab facility.

We are not currently experiencing any significant supply chain disruptions and have drug supply for the full GAIN Trial on hand.

Our office-based employees have been working primarily from home since mid-March 2020, while ensuring essential staffing levels in our operations remain in place, including maintaining key personnel in our lab facility.

We ar e not currently experiencing any significant supply chain disruptions and have drug supply for the full GAIN Trial on hand.

We have diversified our vendor relationships geographically for both starting materials and manufacturing.

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Non-refundable advance payments and deposits for services that will be used or rendered for future research and development activities are recorded as prepaid expenses and recognized as an expense as the related services are performed.

To date, substantially all of our research and development expenses have supported the advancement of COR388 and our other drug candidates are in early-stage preclinical development.

To date, substantially all of our research and development expenses have supported the advancement of atuzaginstat and our other drug candidates are in preclinical development.

As a result, we do not allocate our costs to individual drug candidates.

We expect that at least for the foreseeable future, a substantial majority of our research and development expense will support the clinical and regulatory development of COR388.

We expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials, pursue regulatory approval of COR388 and advance other drug candidates into preclinical and clinical development.

We expect that at least for the foreseeable future, a substantial majority of our research and development expense will support the clinical and regulatory development of atuzaginstat .

We expect our research and development expenses to increase substantially during the next few years as we seek to complete existing and initiate additional clinical trials, pursue regulatory approval of atuzaginstat and advance other drug candidates into preclinical and clinical development.

Over the next few years, we expect our preclinical, clinical and contract manufacturing expenses to increase significantly relative to what we have incurred to date.

Predicting the timing or the final cost to complete our clinical program or validation of our manufacturing and supply processes is difficult and delays may occur because of many factors.

We initiated a global Phase 2/3 clinical trial of COR388, called the GAIN trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe.

The duration, costs and timing of our clinical trial and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:

We initiated a global Phase 2/3 clinical trial of atuzaginstat, called the GAIN trial, in mild to moderate Alzheimer’s patients in April 2019 in the United States and in September 2019 in Europe.

Patients successfully completing the 48-week placebo-controlled period of the GAIN trial are eligible to participate in the open-label extension (OLE) in the United States.

We started dosing patients in the OLE starting in April 2020 where they receive 40 mg or 80 mg of atuzaginstat twice daily for an additional 48 weeks.

The OLE is intended to evaluate the long-term safety and efficacy measures of participants in the GAIN trial.

The duration, costs and timing of our clinical trial and development of our product c andidates will depend on a variety of factors that include, but are not limited to, the following:

per patient trial costs;

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the efficacy and safety profile of the product candidates.

Because our product candidate is still in clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability.

Because our product candidate is in clinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidate or whether, or when, we may achieve profitability.

The COVID-19 pandemic may have an adverse impact on our operations, supply chains, our current or future clinical trials, and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

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Interest Income

Interest income consists of interest earned on our cash equivalents and investment gains and losses recognized during the period.

Interest income consists of interest earned on our cash equivalents and investments recognized during the period.

Results of Operations

Three Months Ended March 2020 and 2019

The following sets forth our results of operations for the three months ended March 31, 2020 (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the three months ended June 30, 2020 (in thousands):

Three Months Ended June 30,

Operating expenses:

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Research and Development Expenses (in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Direct research and development expenses:

Atuzaginstat (COR388)

Other direct research costs

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Total research and development expenses

Research and development expenses were $14.4 million for the three months ended March 31, 2020, compared to $4.8 million for the three months ended March 31, 2019.

The increase of $9.6 million was driven mostly by increases of $5.2 million in

clinical trial expenses for our lead product candidate, COR388 which entered into Phase 2/3 clinical trials in 2019 , $ 1.6 million in drug manufacturing costs to support the clinical trial and $0.

6 million in non-clinical related costs .

Additionally, we experienced a net increase of $ 1 .

9 million in personnel related expenses due to an increase in our employee headcount which was comprised of an increase in compensation and benefit costs of $ 1 .

1 million and $ 0.8 million in allocated stock-based compensation costs.

Research and development expenses were $14.1 million for the three months ended June 30, 2020, compared to $7.1 million for the three months ended June 30, 2019.

The increase of $7.0 million was driven mostly by increasing patient enrollments in the GAIN trial resulting in increases of $2.7 million in clinical trial expenses for our lead product candidate, atuzaginstat which entered into Phase 2/3 clinical trials in 2019, $1.5 million in drug manufacturing costs to support the clinical trial and $0.5 million in non-clinical related costs.

Additionally, we experienced a net increase of $2.2 million in personnel related expenses primarily due to an increase in our employee headcount which was comprised of an increase in compensation and benefit costs of $0.5 million and $1.7 million in allocated stock-based compensation costs.

General and Administrative Expenses

General and administrative expenses increased $2.2 million to $3.5 million for the three months ended March 31, 2020 from $1.3 million for three months ended March 31, 2019.

The increase in general and administrative expenses was primarily due to an increase of $0.6 million in insurance costs and $0.2 million in legal and accounting fees and other professional service fees associated with becoming a public company .

In addition, personnel costs increased $1.4 million due to an increase in our employee headcount which was comprised of an increase in compensation and benefits costs of $0.5 million and $0.9 million in allocated stock-based compensation expense.

General and administrative expenses increased $1.7 million to $4.2 million for the three months ended June 30, 2020 from $2.5 million for three months ended June 30, 2019 primarily due to an increase in personnel costs due to an increase in our employee headcount which was comprised of an increase in compensation and benefits costs of $0.4 million and $1.3 million in allocated stock-based compensation expense.

Interest Income

Interest income was $0.7 million for the three months ended March 31, 2020 compared to $0.4 million for the three months ended March 31, 2019.

Interest income was $0.7 million for the three months ended June 30, 2020 compared to $0.5 million for the three months ended June 30, 2019.

The increase was a result of increased average cash and investment balances from the proceeds of private placement which closed in February 2020 and our initial public offering which closed in May 2019.

We anticipate lower overall yields from our investment portfolio in future quarters due to the impact of the COVID-19 pandemic on the financial markets, specifically the credit securities markets.

We anticipate overall yields from our investment portfolio will remain at historic lows in future quarters due to the impact of the COVID-19 pandemic on the financial markets, specifically the credit securities markets.

Six Months Ended June 30, 2020 and 2019

The following sets forth our results of operations for the six months ended June 30, 2020 (in thousands):

For the Six Months Ended June 30,

Operating expenses:

Research and development

General and administrative

Loss from operations

Interest income

Research and Development Expenses (in thousands)

Six months ended June 30,

Direct research and development expenses:

Atuzaginstat (COR388)

Other direct research costs

Indirect research and development expenses:

Personnel related (including stock-based compensation)

Facilities and other research and development expenses

Total research and development expenses

Research and development expenses were $28.5 million for the six months ended June 30, 2020, compared to $11.9 million for the six months ended June 30, 2019.

The increase of $16.6 million was driven mostly by increasing patient enrollments in the GAIN trial resulting in $7.9 million in clinical trial expenses for our lead product candidate, atuzaginstat which entered into Phase 2/3 clinical trials in 2019, $3.1 million in drug manufacturing costs to support the clinical trial and $1.1 million in non-clinical related costs.

We also experienced a net increase of $4.1 million in personnel related expenses due to an increase in our employee headcount which was comprised of an increase in compensation and benefit costs of $1.6 million and $2.5 million in allocated stock-based compensation costs.

Additionally, facility and other non-clinical costs increased $0.3 million due primarily to pipeline research.

General and Administrative Expenses

General and administrative expenses increased approximately $4.0 million to $7.7 million for the six months ended June 30, 2020 from $3.7 million for the six months ended June 30, 2019.

The increase in general and administrative expenses was primarily due to an increase of $3.2 million in personnel costs due to an increase in our employee headcount which was comprised of an increase in compensation and benefits costs of $0.9 million and $2.3 million in allocated stock-based compensation expense and increases in $0.8 million in insurance expense associated with becoming a public company.

Interest Income

Interest income was $1.3 million for the six months ended June 30, 2020 compared to $0.9 million for the six months ended June 30, 2019.

Liquidity, Capital Resources and Plan of Operations

We have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

As of March 31, 2020, we had an accumulated deficit of $87.0 million and had cash, cash equivalents and short-term investments of $162.4 million.

Although our investment portfolio contains debt securities that have experienced price decreases and negative credit downgrades, based on our current cash requirements, we believe that we will continue to be able to hold all securities to their final maturity and not realize material gains or losses in the available for sale portfolios.

As of June 30, 2020, we had an accumulated deficit of $104.6 million and had cash, cash equivalents and short-term investments of $144.5 million.

Although our investment portfolio contains some debt securities that have experienced negative credit downgrades, based on our current cash requirements, we believe that we will continue to be able to hold all securities to their final maturity and not realize material gains or losses in the available for sale portfolios.

Based on our existing business plan, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our anticipated level of operations for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission.

Capital Resources

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our Phase 2/3 drug candidate, COR388, and other research efforts, and to a lesser extent, general and administrative expenditures.

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our Phase 2/3 drug candidate, atuzaginstat, research on our proprietary library of small molecules, additional pipeline candidates and other research efforts, and to a lesser extent, general and administrative 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 and accrued expenses.

Our product candidate is still in the early stages of clinical development and the outcome of these efforts is uncertain.

Our lead product candidate is in the early stages of clinical development and the outcome of these efforts is uncertain.

Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.

If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights.

If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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We may also be required to sell or license to others rights to our drug candidate in certain territories or indications that we would prefer to develop and commercialize ourselves.

As noted earlier, we completed an initial public offering;

We completed an initial public offering;

or the IPO in May 2019 by issuing and selling 5,073,800 shares of common stock at a public offering price of $17.00 per share, including 661,800 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares.

The aggregate net proceeds received by us from the offering, net of underwriting discounts and commissions and offering expenses, was approximately $77.8 million.

Upon the closing of the IPO, all of the

outstanding shares of redeemable convertible preferred stock automatically converted into 18,161,027 shares of common stock.

Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred stock outs tanding.

Upon the closing of the IPO, all of the outstanding shares of redeemable convertible preferred stock automatically converted into 18,161,027 shares of common stock.

Subsequent to the closing of the IPO, there were no shares of redeemable convertible preferred stock outstanding.

In February 2020, we completed a private placement by issuing and selling 2,500,000 shares at $50.00 per share.

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Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

However, based on our current business plans, w e believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations through 2022, including through the completion and the announcement of the top-line results of our Phase 2/3 GAIN trial.

However, based on our current business plans, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our planned operations through 2022, including through the completion and the announcement of the top-line results of our Phase 2/3 GAIN trial.

The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash (used in) provided by:

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Operating Activities

Net cash used in operating activities was $10.8 million for the three months ended March 31, 2020.

Cash used in operating activities was primarily due to our net loss of $17.2 million for the period, adjusted for $2.2 million of non-cash items, including $2.0 million in stock-based compensation and a net increase in accounts payable, accrued expenses and other current liabilities of $4.2 million.

Net cash used in operating activities was $7.2 million for the three months ended March 31, 2019 and was primarily due to our net loss for the period of $5.7 million, adjusted for $0.1 million of non-cash items and a net increase in accounts payable, accrued expenses and other current liabilities of $2.2 million offset by an increase in operating assets of 3.9 million related to advance payments to start our GAIN clinical trial.

Net cash used in operating activities was $25.2 million for the six months ended June 30, 2020.

Cash used in operating activities was primarily due to our net loss of $34.8 million for the period, adjusted for $5.9 million of non-cash items, including $5.4 million in stock-based compensation and a net increase in accounts payable, accrued expenses and other current liabilities of $4.6 million offset by increases in our current assets of $0.9 million.

Net cash used in operating activities was $13.5 million for the six months ended June 30, 2019 and was primarily due to our net loss for the period of $14.7 million, adjusted for $0.4 million of non-cash items and a net increase in accounts payable, accrued expenses and other current liabilities of $5.6 million offset by an increase in operating assets of 4.8 million related to activities surrounding our GAIN clinical trial.

Investing Activities

Cash used by investing activities was $72.7 million for the three months ended March 31, 2020, primarily related to the purchase of available for sale investment securities with the proceeds from the private placement transaction which closed in February 2020.

Cash provided by investing activities was $3.2 million in the three months ended March 31, 2019, primarily related to the purchase of investments of $25.6 million, and maturities of short-term investments of $28.8 million.

Cash used by investing activities was $78.6 million for the six months ended June 30, 2020, primarily related to the purchase of available for sale investment securities with the proceeds from the private placement transaction which closed in February 2020.

Cash used by investing activities was $44.7 million in the six months ended June 30, 2019, primarily related to investment of the IPO proceeds received in May 2019

Financing Activities

Cash provided by financing activities was $117.9 million for the three months ended March 31, 2020, which consisted primarily of net proceeds from the private placement transaction and the proceeds from the exercise of stock options.

Cash provided by financing activities was $0.1 million in the three months ended March 31, 2019, which consisted primarily of net proceeds from the exercise of stock options in the period.

Cash provided by financing activities was $118.7 million for the six months ended June 30, 2020, which consisted primarily of net proceeds from the private placement transaction and the proceeds from the exercise of stock options.

Cash provided by financing activities was $77.9 million in the six months ended June 30, 2019, primarily related to the IPO proceeds received in May 2019.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and other commitments as of March 31, 2020, as compared to those disclosed in our Annual Report on Form 10-K.

There have been no material changes to our contractual obligations and other commitments as of June 30, 2020, as compared to those disclosed in our Annual Report on Form 10-K.

We enter into contracts in the normal course of business with third party contract organizations for clinical trials, non-clinical studies and testing, manufacturing, and other services and products for operating purposes.

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We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.

We will remain an emerging growth company until the earliest of (i) December 31, 2024, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We will remain an emerging growth company until December 31, 2020.

Critical Accounting Policies, Significant Judgments and Use of Estimates

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Therefore, we consider these to be our critical accounting policies and estimates.

The following critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgements and Use Estimates” in our 2019 Annual Report on Form 10-K and the notes to the unaudited condensed financial statements included in Item 1, “Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q.

We believe that of our critical accounting policies, the following accounting policies are the most critical to fully understanding and evaluating our financial condition and results of operations:

The following critical accounting policies are described under the heading “Management’s Discussi on and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgements and Use Estimates” in our 2019 Annual Report on Form 10-K and the notes to the unaudited condensed financial statements included in Item 1 , “Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q.

We believe that of our critical accounting policies, the following accounting policies are the most critical to fully understanding and evaluating our financial condition and result s of operations:

Research and Development Expenses;

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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