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 together with our unaudited consolidated financial statements
and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, or this Quarterly Report, and
with our audited consolidated financial statements and notes thereto for the year ended March 31, 2020, included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2020.
In addition to historical information,
some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information
with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act. We have based these forward-looking statements on our current expectations and projections about future events. The following
information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report,
particularly including those risks identified in Part II, Item 1A “Risk factors” and our other filings with
the SEC.
We caution you that forward-looking statements
are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the
development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly
Report. Statements made herein are as of the date of the filing of this Quarterly Report with the Securities Exchange Commission,
or SEC, and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity,
and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly
Report, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically
required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations
or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual
results will differ from those set forth in the forward-looking statements.
Overview
General
We are a clinical-stage biotechnology company
committed to applying our leading expertise in the field of oncolytic immunotherapy to transform the lives of cancer patients.
We use our proprietary Immulytic platform to design and develop product candidates that are intended to maximally activate the
immune system against cancer.
Oncolytic immunotherapy is an emerging drug
class, which we intend to establish as the second cornerstone of immune-based cancer treatments, alongside checkpoint blockade.
Oncolytic immunotherapy exploits the ability of certain viruses to selectively replicate in and directly kill tumors, as well as
induce a potent, patient-specific, anti-tumor immune response. Our product candidates incorporate multiple mechanisms of action
into a practical “off-the-shelf” approach that is intended to maximize the immune response against a patient’s
cancer and to offer significant advantages over personalized vaccine approaches. We believe that the bundling of multiple approaches
for the treatment of cancer into single therapies will simplify the development path of our product candidates, while also improving
patient outcomes at a lower cost to the healthcare system than the use of multiple different drugs.
The foundation of our Immulytic platform
consists of a proprietary, engineered strain of herpes simplex virus 1, or HSV-1, that has been “armed” with a fusogenic
glycoprotein intended to substantially increase anti-tumor activity. Our Immulytic platform enables us to incorporate various genes
into HSV-1 that are intended to further augment the inherent properties of HSV-1 in order to both directly destroy tumor cells
and induce an anti-tumor immune response. We currently have three product candidates in our development pipeline: RP1, our lead
product candidate, RP2 and RP3.
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We are conducting a number of clinical
trials of RP1, both as a monotherapy and in combination with anti-PD-1 therapy, with a focus on immune-responsive tumors. We
are conducting a randomized, controlled Phase 2 clinical trial of RP1 in up to approximately 240 patients with cutaneous
squamous cell carcinoma, or CSCC, RP1’s lead indication. This registration-directed clinical trial is evaluating RP1 in
combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron Pharmaceuticals, Inc., or Regeneron, versus
cemiplimab alone. Regeneron has granted to us a non-exclusive royalty-free license to cemiplimab for use in this trial, is
funding one-half of the clinical trial costs, and is supplying cemiplimab at no cost to us. If compelling clinical data are
generated demonstrating the benefits of the combined treatment in this clinical trial, we believe the data from this
Phase 2 clinical trial could support a filing with regulatory authorities for marketing approval. We expect that the
primary data read-out from this Phase 2 clinical trial will be in 2022. We have also opened for enrollment a
Phase 1b clinical trial of single agent RP1 in solid organ transplant recipients with CSCC, which we believe to be
potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of
additional patients). We intend to enroll approximately 30 patients in this clinical trial to assess the safety and efficacy
of RP1 in liver and kidney transplant recipients with recurrent CSCC. This patient population is severely immune-compromised
and considered very high risk if they were to contract COVID-19. We have not yet enrolled any patients into this clinical
trial as this patient population has generally been advised to stay isolated.
We have also entered into a collaboration
with Bristol-Myers Squibb Company, or BMS, under which it has granted us a non-exclusive, royalty-free license to, and is supplying
at no cost, its anti-PD-1 therapy, nivolumab, for use in combination with RP1 in a multi-cohort Phase 1/2 clinical trial.
We are currently enrolling a 125-patient extension cohort of RP1 combined with nivolumab in anti-PD-1 failed cutaneous melanoma.
We initiated this cohort after completing enrollment in a prior Phase 2 cohort in the same clinical trial of approximately
30 patients with melanoma. The data generated in the melanoma cohort demonstrated that RP1 combined with nivolumab has the
potential to treat anti-PD-1 failed melanoma. We also believe this cohort to be potentially registrational (in its own right or,
subject to discussion with regulatory authorities, following enrollment of additional patients). We expect that the primary data
read-out from this Phase 2 clinical trial will be in 2022. Further information about this Phase 2 clinical trial of RP1 is
set forth below under “Recent Developments—Phase 2 Clinical Trial of RP1”.
We
continue to enroll patients in other Phase 2 cohorts under our collaboration with BMS in which we are testing RP1 in combination
with nivolumab in non-melanoma skin cancers and microsatellite instability high, or MSI-H/ dMMR, tumors. Subject to
formally modifying our collaboration agreement with BMS, we and BMS recently agreed to increase the number of patients in our non-melanoma
skin cancer cohort from 30 to 45 patients to include anti-PD-1 failed patients. Due in part to COVID-19 related disruptions, we
expect the original 30 patient non-melanoma skin cancer cohort to be fully accrued in early 2021. The total number of patients
to be enrolled into our MSI-H/dMMR cohort is 15. Similar to the non-melanoma skin cancer cohort, it is likely that accumulating
sufficient data to inform a decision as to whether to pursue MSI-H/dMMR tumors into registration-directed development will be delayed
into 2021. We also intend to initiate a cohort of patients with anti-PD-1 failed non-small cell lung cancer, or NSCLC, by the end
of 2020.
We are also developing additional product
candidates, RP2 and RP3, that have been further engineered to enhance anti-tumor immune responses and are intended to address additional
tumor types. In addition to the expression of GALV-GP R(-) and human GM-CSF, RP2 has been engineered to express an antibody-like
molecule intended to block the activity of CTLA-4, a protein that inhibits the full activation of an immune response, including
to tumors. RP3 has been engineered with the intent to further stimulate an anti-tumor immune response through activation of the
immune co-stimulatory pathways through expression of the ligands for CD40 and 4-1BB.
We initiated a Phase 1 clinical trial
of RP2 alone and in combination with nivolumab in October 2019. This clinical trial of RP2 is also being conducted as part
of our collaboration with BMS, under which BMS has granted us a non-exclusive, royalty-free license to, and will supply at no cost,
nivolumab, for use in combination with RP2. Subject to formally modifying our collaboration agreement with BMS, we and BMS recently
agreed to increase the number of patients in the combination part of the clinical trial from 12 to 30 patients. Further information
about our Phase 1 clinical trial of RP2 is set forth below under “Recent Developments—Phase 1 Clinical Trial
of RP2”.
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We have obtained clearance from the
Medicines and Healthcare Products Regulatory Agency in the United Kingdom to enter clinical development with RP3 and intend to
initiate enrollment of a Phase 1 clinical trial by the end of 2020.
RP1, RP2 and RP3 are administered by direct
injection into solid tumors, guided either visually or by ultrasound, computerized tomography, or CT, or other imaging methods.
We believe that direct injection maximizes virus-mediated tumor cell death, provides the most efficient delivery of virus-encoded
immune activating proteins into the tumor with the goal of activating systemic immunity, and limits the systemic toxicities that
could be associated with intravenous administration. Activation of systemic immunity through local administration is intended to
lead to the induction of anti-tumor immune responses leading to clinical response of tumors that have not themselves been injected.
Recent Developments
Phase 2 Clinical Trial of RP1
We recently announced updated clinical data
from our multi-cohort Phase 1/2 clinical trial evaluating RP1 in combination with nivolumab in patients with melanoma and
non-melanoma skin cancers. RP1 in combination with nivolumab has continued to be well tolerated, and we believe demonstrates continued
promising efficacy signals in patients with skin cancers, including in patients with CSCC and those with anti-PD-1 failed and other
difficult-to-treat melanomas.
As
of October 15, 2020, we have enrolled 36 melanoma and 20 non-melanoma skin cancer patients in this clinical trial, of which
all of the melanoma patients and 18 of the non-melanoma skin cancer patients are evaluable for efficacy. In order to be evaluable
for efficacy in this clinical trial, a patient must have had at least one follow up scan or disease progression before the first
follow up scan. Patients received up to eight doses of RP1 (up to 10 mL per visit once every two weeks, with a first dose of 10 6 PFU/mL
followed by 10 7 PFU/mL) and nivolumab (240mg once every two weeks for four months followed by 480mg once every
four weeks for up to two years) from the second RP1 dose. Of the 36 melanoma patients, 16 cutaneous melanoma patients had
previously received anti-PD-1 (eight of whom had also previously received anti-CTLA-4), eight cutaneous melanoma patients were
naïve to anti-PD-1 therapy, six patients had mucosal melanoma, and six patients had uveal melanoma. At the data cut-off date,
five patients with cutaneous melanoma who had received prior anti-PD-1 therapy had responses (four partial responses and one complete
response), four of whom also received prior anti-CTLA-4 therapy. An additional patient is classified as a surgical complete response
and one patient remains on study with stable disease, having neither progressed nor met the formal definition for response. Further,
four patients (two complete responses and two partial responses) with anti-PD-1 naïve cutaneous melanoma and two patients
with mucosal melanoma (one of whom had prior anti-PD-1 therapy and achieved a complete response) achieved responses. Of the 18
non-melanoma skin cancer patients evaluable for efficacy, 11 patients had CSCC, three had basal cell carcinoma, one had Merkel
cell carcinoma, and three had angiosarcoma. At the data cut-off date, two patients with angiosarcoma had achieved response and
eight patients with CSCC had achieved response, with five CSCC patients having achieved a complete response. An additional CSCC
patient had stable disease at the time of the patient’s first scan with treatment continuing. Across all cohorts all responses
are ongoing at out to approximately 20 months from the start of treatment with the exception of one CSCC patient and one anti-PD-1
failed melanoma patient. Follow-up data for one responding angiosarcoma patient who stopped nivolumab therapy due to nivolumab
side effects have currently not been obtained, and continuing response status is unknown. Adverse events remained consistent with
those observed during the Phase 1 clinical trial, with RP1 related side effects most commonly of mild/moderate severity (Grade
1 or 2), with less frequent Grade 3 events and no indication of exacerbation of side effects for the combination of RP1 and nivolumab
relative to what is expected for nivolumab alone. Tumor biopsies in patients have continued routinely to show immune activation,
including robust recruitment of CD8+ T cells, reversal of T cell exclusion, and increased PD-L1 expression.
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Phase 1 Clinical Trial of RP2
We
also recently announced initial single-agent RP2 data from our Phase 1 clinical trial of RP2 alone and in combination with
nivolumab in patients with solid tumors. In this Phase 1 clinical trial, we are assessing initial tolerability of RP2 in solid
tumors and determining the recommended Phase 2 dose of RP2 to be administered alone and then evaluating in combination with
nivolumab. We believe these initial Phase 1 clinical data support the safety and efficacy of single-agent RP2, including demonstrating
responses in injected and uninjected tumors in patients with difficult to treat, heavily pre-treated and immune insensitive advanced
cancers. In addition, we believe these data support our hypothesis that anti-CTLA-4 expressed from RP2 and combined with oncolytic
virus replication, with accompanying antigen release and presentation, can induce potent anti-tumor immune responses.
In
the dose-escalation portion of this clinical trial, patients were treated with single-agent RP2 using a 3+3 dose escalation at
two dose levels of up to 10 mL of RP2 once every two weeks, up to five times. The first dose level was 10 5 PFU/mL
for the initial dose followed by four doses of 10 6 PFU/mL, and the second dose level was 10 6 PFU/mL
for the initial dose followed by four doses of 10 7 PFU/mL. Lesions were directly injected or imaging guidance was
used for visceral lesions and tumor biopsies were obtained for biomarker analysis. Viral shedding and anti-HSV-1 antibody titers
were also monitored. As the first six patients were all HSV seropositive per the protocol, an additional three HSV seronegative
patients were enrolled as per the protocol.
As
of October 15, 2020, nine patients have been enrolled in the dose-escalation portion of this clinical trial and received single
agent RP2. Of the nine patients treated with single agent RP2, three have confirmed responses that are ongoing at between 8 to
11 months from the start of treatment (one complete response and two partial responses) and a further patient remains on study
with the response status continuing to be monitored. The objective responses were observed in patients with uveal melanoma, mucoepidermoid
carcinoma of the parotid, and esophageal cancer. A further patient with micro satellite (immune insensitive) colorectal cancer
remains on study and the response status continues to be monitored. The other five patients enrolled into the clinical trial and
treated with RP2 alone developed progressive disease. Adverse events were primarily Grade 1 or 2, including pyrexia, local inflammation,
and erythema, with few Grade 3 side effects being observed. There were no dose-limiting toxicities. The recommended Phase 2
dose was selected as up to 10 mL of 10 6 PFU/mL followed once every two weeks by multiple doses of 10 7 PFU/mL.
We have initiated enrollment in a combination
cohort with nivolumab of up to 30 patients to be dosed up to eight times at the Phase 2 dose level of RP2 in combination with
nivolumab from the second RP2 dose (240mg once every two weeks for four months from the second RP2 dose, followed by 480mg
once every four weeks for 20 months). Ten patients have been enrolled to date with no dose limiting toxicities, none having
been evaluated for efficacy to date.
Unless otherwise noted herein, clinical data contained herein
are provided as of October 15, 2020.
Financial overview
Since our inception, we have devoted substantially
all of our resources to developing our Immulytic platform, building our intellectual property portfolio, conducting research and
development of our product candidates, business planning, raising capital and providing general and administrative support for
our operations. To date, we have financed our operations primarily with proceeds from the sale of equity securities and to a lesser
extent the proceeds from the issuance of debt securities. We do not have any products approved for sale and have not generated
any revenue from product sales.
Since our initial public offering, or IPO,
on July 24 2018, we have raised an aggregate of approximately $569.2 million in net proceeds to fund our operations, of which $101.2
million was from our IPO, $463.6 million was from three separate follow-on offerings, or the Public Offerings, that we closed in
November 2019, June 2020 and October 2020, respectively, and $4.4 million was from at-the-market offerings. We sold 7,407,936 shares
of common stock in our IPO, an aggregate of 13,619,822 shares of our common stock and pre-funded warrants to purchase 5,284,238
shares of our common stock in the Public Offerings, and 287,559 shares of common stock through our at-the-market facility.
27
Funds affiliated with two separate institutional
investors hold all of our outstanding pre-funded warrants. Other than as set forth in Note 10 of our condensed consolidated financial
statements appearing elsewhere in this Quarterly Report, the shares of our common stock into which our outstanding pre-funded warrants
are exercisable are not included in the number of issued and outstanding shares of our common stock set forth in this Quarterly
Report.
In addition, on August 8, 2019, we entered
into a Loan and Security Agreement with Hercules Capital, Inc., or the Hercules Loan Agreement, pursuant to which we borrowed $10.0
million under a secured term loan facility in the amount of $30.0 million. The Hercules Loan Agreement was subsequently amended
on June 1, 2020, in order to, among other things, increase the secured term loan facility from $30.0 million to $40.0 million.
Since our inception, we have incurred significant
operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development
and eventual commercialization of one or more of our product candidates. Our net losses were $20.1 million and $11.1 million for
the three months ended September 30, 2020 and 2019, respectively and net losses of $37.6 million and $20.6 million for the six
months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $149.9
million. These losses have resulted primarily from costs incurred in connection with research and development activities and general
and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating
losses for at least the next several years.
We anticipate that our expenses and capital
requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical
activities and clinical trials of our product candidates, and if and as we:
● conduct our current and future clinical trials with RP1
and RP2;
● progress the clinical development of RP2 and preclinical
development of RP3;
● operate our own in-house manufacturing facility;
● seek to identify and develop additional product candidates;
● seek marketing approvals for any of our product candidates
that successfully complete clinical trials, if any;
● establish a sales, marketing and distribution infrastructure
to commercialize any products for which we may obtain marketing approval;
● until our planned manufacturing facility is fully validated,
continued manufacturing by third parties of larger quantities of our product candidates for clinical development;
● maintain, expand and protect our intellectual property
portfolio;
● hire and retain additional clinical, quality control,
scientific and general and administration personnel;
● acquire or in-license other drugs and technologies; and
● add operational, financial and management information
systems and personnel, including personnel to support our research and development programs, any future commercialization efforts
and operating as a public company.
We will not generate revenue from product
sales unless and until we successfully complete clinical development and obtain regulatory approval for RP1 or our other product
candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership
in any jurisdiction, we expect to incur significant expenses related to developing our internal commercialization capability to
support product sales, marketing, and distribution.
As a result, we will need additional funding
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 expect to finance our operations through a combination of equity offerings, debt financings, collaborations,
strategic alliances, and marketing, distribution, or licensing arrangements. We may be unable to raise additional funds or enter
into such other agreements or arrangements when needed on favorable 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 one or more of our product candidates.
28
Because of the numerous risks and uncertainties
associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses
or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not
become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be
unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of September 30, 2020, we had cash and
cash equivalents and short-term investments of $244.6 million. We believe that our existing cash and cash equivalents and
short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least 12 months
from the issuance of the consolidated financial statements included in this Quarterly Report.
See “—Liquidity and capital
resources” and “Risk factors—Risks related to our financial position and need for additional capital.”
The COVID-19 Pandemic
In December 2019, a novel strain of coronavirus,
which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. In March 2020, the World Health Organization
declared the COVID-19 outbreak a pandemic, which continues to spread throughout the U.S. and worldwide. We could be materially
and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other
public health crisis, such as the recent outbreak of COVID-19. We are continuing to monitor the global outbreak and spread of COVID-19
and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions
taken by governmental and health authorities to address the COVID-19 pandemic. The spread of COVID-19 has caused us to modify our
business practices, including implementing a global work from home policy for certain employees who are able to perform their duties
remotely and reducing travel. For those employees working from our facilities, including certain essential employees in our laboratory
and who perform manufacturing functions, and certain other employees as deemed essential from time to time, we have implemented
stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the
COVID-19 pandemic. We expect to continue to take actions as may be required or recommended by government authorities or as we determine
are in the best interests of our employees, the patients we serve and other business partners in light of COVID-19. The COVID-19
pandemic has delayed, and we expect it may continue to delay, the timing of patient enrollment and treatment in certain of our
ongoing clinical studies. For example, the enrollment of our clinical trial of RP1 in liver and kidney transplant patients with
CSCC, representing highly immunocompromised patient populations, has been slower than expected for reasons we attribute to the
COVID-19 pandemic. However, the extent of these delays is currently unknown and has and will likely continue to vary by clinical
study site and may be amplified as a result of the impacts of a “second wave” of the virus outbreak. In addition, we
may incur unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact
of COVID-19 on our business future results will largely depend on future developments, which are highly uncertain and cannot be
predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions
and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact
on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to
contain and treat the disease. See “Risk Factors—Our financial condition and results of operations could be adversely
affected by the recent novel coronavirus disease-2019, or COVID-19, outbreak.” in Part II, Item 1A of this Quarterly Report.
Components of our results of operations
Revenue
To date, we have not generated any revenue
from product sales as we do not have any approved products and do not expect to generate any revenue from the sale of products
in the near future. If our development efforts for RP1, RP2 or any other product candidates that we may develop in the future are
successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may
generate revenue in the future from a combination of product sales or payments from those collaborations or license agreements.
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Operating expenses
Our expenses since inception have consisted
solely of research and development costs and general and administrative costs.
Research and development expenses
Research and development expenses consist
primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates,
and include:
● expenses incurred under agreements with third parties, including clinical research organizations, or CROs, that conduct research,
preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture
our product candidates for use in our preclinical and clinical trials;
● salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and
development functions;
● costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
● costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
● costs related to compliance with regulatory requirements in connection with the development of our product candidates; and
● facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities
and other operating costs.
These
costs will be partially offset by our agreement with Regeneron related to our Phase 2 clinical
trial of RP1 in approximately 240 patients with CSCC clinical trial .
We expense research and development costs
as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using
information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements,
which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued
research and development expenses.
Our direct external research and development
expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and
CROs in connection with our preclinical and clinical development activities. We do not allocate personnel costs, costs associated
with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product
development programs because these costs are deployed across multiple product development programs and, as such, are not separately
classified. All non-employee costs associated with our manufacturing facility have been fully burdened to our RP1 program.
The table below summarizes our research
and development expenses by product candidate or development program for each of the periods presented:
30
Three Months Ended
Six Months Ended
September 30,
September 30,
2020
2019
2020
2019
(Amounts in thousands)
Direct research and development expenses by program:
RP1
$ 7,451
$ 3,324
$ 13,448
$ 6,385
RP2 & RP3
638
$ 237
881
430
RP3
Unallocated research and development expenses:
Personnel related (including stock-based compensation)
5,164
3,294
10,225
6,380
Other
797
1,313
1,653
2,430
Total research and development expenses
$ 14,050
$ 8,168
$ 26,207
$ 15,625
Research and development activities are
central to our business model. Product candidates in later stages of clinical development generally have higher development costs
than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical
trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue
enrollment and initiate additional clinical trials and continue to discover and develop additional product candidates. The successful
development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties
associated with product development and commercialization, including the following:
● the scope, rate of progress, expense and results of our ongoing clinical trials, as well future clinical trials or other product
candidates and other research and development activities that we may conduct;
● the number and scope of preclinical and clinical programs we decide to pursue;
● our ability to maintain our current research and development programs and to establish new ones;
● uncertainties in clinical trial design;
● the rate of enrollment in clinical trials;
● the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the
FDA or any comparable foreign regulatory authority;
● the receipt of regulatory approvals from applicable regulatory authorities;
● our success in operating a manufacturing facility, or securing manufacturing supply through relationships with third parties;
● our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States
and internationally;
● our ability to protect our rights in our intellectual property portfolio;
● the commercialization of our product candidates, if and when approved;
● the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors;
● our ability to successfully develop our product candidates for use in combination with third-party products or product candidates;
● negative developments in the field of immuno-oncology;
● competition with other products; and
● significant and changing government regulation and regulatory guidance.
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A change in the outcome of any of these
variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated
with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct
clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate,
or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant
additional financial resources and time on the completion of clinical development. We may never succeed in obtaining regulatory
approval for any of our product candidates.
General and administrative expenses
General and administrative expenses consist
primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate
and business development and administrative functions. General and administrative expenses also include professional fees for legal,
patent, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include direct
depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative
expenses will increase in the future as we increase our general and administrative headcount to support our continued research
and development and potential commercialization of our product candidates. We also expect to continue to incur increased expenses,
including accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing
and SEC requirements; director and officer insurance costs; and investor and public relations costs.
Other income (expense), net
Research and development incentives
Research and development incentives consists
of reimbursements of research and development expenditures. We participate, through our subsidiary in the United Kingdom, in the
research and development program provided by the United Kingdom tax relief program, such that a percentage of up to 14.5% of our
qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected
as other income.
Investment income
Investment income consists of income earned
on our cash and cash equivalents and short-term investments.
Interest expense on finance lease liability
Interest expense on finance lease liability
consists of amortization of finance charges under our financing lease.
Interest expense on debt obligations
Interest expense on debt obligations consists
of the amortization of debt discount and cash paid for interest under the term loan facility with Hercules Capital, Inc., or our
Term Loan Facility.
Other income (expense), net
Other income (expense), net consists primarily
of realized and unrealized foreign currency transaction gains and losses.
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Income taxes
Since our inception and through September
30, 2020, we have not recorded any income tax benefits for the net losses we incurred in each jurisdiction in which we operate,
as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss
carryforwards will not be realized.
Results of operations
Comparison of the three months ended September 30, 2020
and 2019
The following table summarizes our results
of operations for the three months ended September 30, 2020 and 2019:
Three Months Ended
September 30,
2020
2019
Change
(Amounts in thousands)
Operating expenses:
Research and development
$ 14,050
$ 8,168
$ 5,882
General and administrative
5,613
4,074
1,539
Total operating expenses
19,663
12,242
7,421
Loss from operations
(19,663 )
(12,242 )
(7,421 )
Other income (expense):
Research and development incentives
755
620
135
Investment income
178
567
(389 )
Interest expense on finance lease liability
(562 )
(195 )
(367 )
Interest expense on debt obligations
(286 )
-
(286 )
Other income
(517 )
111
(628 )
Total other income (expense), net
(432 )
1,103
(1,535 )
Net loss
$ (20,095 )
$ (11,139 )
$ (8,956 )
Research and development expenses
The following table summarizes our current research and development
expenses for the three months ended September 30, 2020 and 2019:
Three Months Ended
September 30,
2020
2019
Change
(Amounts in thousands)
Direct research and development expenses by program:
RP1
7,451
$ 3,324
$ 4,127
RP2 & RP3
638
237
$ 401
Unallocated research and development expenses:
Personnel related (including stock-based compensation)
5,165
3,294
1,871
Other
796
1,313
(517 )
Total research and development expenses
$ 14,050
$ 8,168
$ 5,882
Research and development expenses for
the three months ended September 30, 2020 were $14.1 million, compared to $8.2 million for the three months
ended September 30, 2019. The increase of $5.9 million was due primarily to an increase of approximately $4.1
million in direct research costs associated with RP1, an approximately $1.4 million increase in our unallocated research and
development costs, and an increase of approximately $0.4 million in direct research costs associated with RP2 and RP3. The
increase in RP1 costs was due primarily to an increase in clinical trial costs in the three months ended September 30,
2020 associated with our ongoing clinical trials as well as costs associated with operations of our new manufacturing
facility for RP1 clinical trial supplies. The increase in costs associated with RP2 and RP3 are primarily associated with the
continued clinical trial development of these product candidates.
33
The increase in unallocated research and
development expenses reflected an increase of $1.9 million in personnel-related costs, including stock-based compensation of $0.5
million, partially offset by a decrease of $0.5 million in other costs. The increase in personnel-related costs largely reflected
the hiring of additional personnel in our research and development functions as we expanded the development plan in multiple indications.
Personnel related costs for the three months ended September 30, 2020 and 2019 included stock-based compensation expense of $1.3
million and $0.8 million, respectively. Other costs decreased primarily due to our focus on the potential registrational studies
associated with our RP1 development plan with multiple cohorts.
General and administrative expenses
General and administrative expenses were
$5.6 million for the three months ended September 30, 2020, compared to $4.1 million for the three months ended
September 30, 2019. The increase of $1.5 million primarily reflected increases of $1.0 million in personnel related costs,
including stock-based compensation of $0.5 million, and increases of $0.6 million in facility and other variable costs. The increase
in personnel related costs was due to the hiring of additional personnel in our general and administrative functions as we expanded
our operations in the United States. The increase in facility and other variable costs was due primarily to an increase in costs
associated with our directors and officers insurance.
Total other income (expense), net
Other income (expense) was $(0.4) million
for the three months ended September 30, 2020, compared to $1.1 million for the three months ended September 30, 2019. The
decrease of $1.5 million was primarily attributable to a $0.4 million increase in interest related to our finance lease liability,
a $0.3 million increase in interest expense on debt obligations related to our Term Loan Facility, a $0.6 decrease in other income
due primarily to the changes in foreign exchange rates of the Great British Pounds to United States Dollar and a $0.4 million decrease
in investment income due to fluctuations in the rate of return on investments, partially offset by a $0.1 million increase in research
and development incentives.
Comparison of the six months ended September 30,
2020 and 2019
The following table summarizes our results
of operations for the six months ended September 30, 2020 and 2019:
Six Months Ended
September 30,
2020
2019
Change
(Amounts in thousands)
Operating expenses:
Research and development
$ 26,207
$ 15,625
$ 10,582
General and administrative
11,289
7,524
3,765
Total operating expenses
37,496
23,149
14,347
Loss from operations
(37,496 )
(23,149 )
(14,347 )
Other income (expense):
Research and development incentives
1,441
1,241
200
Investment income
705
1,254
(549 )
Interest expense on finance lease liability
(1,123 )
(195 )
(928 )
Interest expense on debt obligations
(570 )
-
(570 )
Other income
(545 )
202
(747 )
Total other income (expense), net
(92 )
2,502
(2,594 )
Net loss
$ (37,588 )
$ (20,647 )
$ (16,941 )
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Research and development expenses
The following table summarizes our current research and development
expenses for the six months ended September 30, 2020 and 2019:
Six Months Ended
September 30,
2020
2019
Change
(Amounts in thousands)
Direct research and development expenses by program:
RP1
13,448
$ 6,385
$ 7,063
RP2 & RP3
881
$ 430
$ 451
Unallocated research and development expenses:
Personnel related (including stock-based compensation)
10,225
6,380
3,845
Other
1,653
2,430
(777 )
Total research and development expenses
$ 26,207
$ 15,625
$ 10,582
Research and development expenses for the
six months ended September 30, 2020 were $26.2 million, compared to $15.6 million for the six months ended September 30,
2019. The increase of $10.6 million was due primarily to an increase of approximately $7.1 million in direct research costs
associated with RP1, an approximately $3.1 million increase in our unallocated research and development costs and an increase of
approximately $0.5 million in direct research costs associated with RP2 and RP3. The increase in RP1 costs was due primarily to
an increase in clinical trial costs in the six months ended September 30, 2020 associated with our ongoing clinical trials
as well as costs associated with operations of our new manufacturing facility for RP1 clinical trial supplies. The increase in
costs associated with RP2 and RP3 is primarily associated with the continued clinical trial development of these product candidates.
The increase in unallocated research and
development expenses reflected an increase of $3.8 million in personnel-related costs, including stock-based compensation of $0.6
million, partially offset by a decrease of $0.8 million in other costs. The increase in personnel-related costs largely reflected
the hiring of additional personnel in our research and development functions as we expanded the development plan in multiple indications.
Personnel related costs for the six months ended September 30, 2020 and 2019 included stock-based compensation expense of $2.3
million and $1.7 million, respectively. Other costs decreased primarily due to our focus on the potential registrational studies
associated with our RP1 development plan with multiple cohorts.
General and administrative expenses
General and administrative expenses were
$11.3 million for the six months ended September 30, 2020, compared to $7.5 million for the six months ended September 30,
2019. The increase of $3.8 million primarily reflected increases of $2.0 million in personnel related costs, including stock-based
compensation of $1.0 million,, increases of $1.3 million in facility and other variable costs and increases of $0.5 million in
professional fees. The increase in personnel related costs was due to the hiring of additional personnel in our general and administrative
functions as we expanded our operations in the United States. The increase in professional fees was due to costs associated with
increased spending to build out our information technology capabilities as well legal and accounting fees related to ongoing business
operations and enhancements to the internal control environment. The increase in facility and other variable costs was due primarily
to an increase in costs associated with our directors and officers insurance.
Total other income (expense), net
Other income (expense) was
$(0.1) million for the six months ended September 30, 2020, compared to $2.5 million for the six months ended
September 30, 2019. The decrease of $2.6 million was primarily attributable to a $0.9 million increase in interest
related to our finance lease liability, a $0.6 million increase in interest expense on debt obligations related to our Term
Loan Facility, a $0.7 decrease in other income due primarily to the changes in foreign exchange rates of the Great British
Pounds to United States Dollar and a $0.5 million decrease in investment income due to fluctuations in the rate of return on
investments, partially offset by a $0.2 million increase in research and development incentives.
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Liquidity and capital resources
Since our inception, we have not generated
any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have
not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and
we do not expect to generate revenue from sales of any products for the foreseeable future, if at all.
Sources of liquidity
To date, we have financed our operations
primarily with proceeds from the sale of equity securities and, to a lesser extent, proceeds from the issuance of debt securities.
Through September 30, 2020, we had received gross proceeds of approximately $419.0 million from our sales of equity instruments
and $10.0 million from the issuance of debt. As of September 30, 2020, we had cash and cash equivalents and short-term investments
of $244.6 million.
On July 24, 2018, we completed our
IPO and issued and sold 6,700,000 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds
of $93.5 million after deducting underwriting discounts and commissions but before deducting offering costs. On July 30,
2018, we issued and sold an additional 707,936 shares of our common stock at the IPO price of $15.00 per share pursuant to the
underwriters’ partial exercise of their option to purchase additional shares of our common stock, resulting in additional
net proceeds of $9.9 million after deducting discounts and commissions but before deducting other offering expenses. On November
18, 2019, we closed a registered public offering for the issuance and sale of (i) 3,678,031 shares of our common stock at a public
offering price of $13.61 per share and (ii) pre-funded warrants to purchase 2,200,000 shares of our common stock at a purchase
price of $13.6099 per pre-funded warrant, the public offering price per share of the common stock less the $0.0001 per share exercise
price of each pre-funded warrant. On December 13, 2019, we sold 838,530 shares of our common stock at the public offering price
in connection with the underwriters’ partial exercise of an option to purchase additional shares of our common stock. We
received aggregate net proceeds of approximately $85.6 million after deducting underwriting discounts, commissions and other offering
expenses of approximately $5.8 million. On June 12, 2020, we closed another public offering for the issuance and sale of (x) 2,826,088
shares of our common stock at a public offering price of $23.00 per share and (y) pre-funded warrants to purchase 1,521,738 shares
of our common stock at a purchase price of $22.9999 per pre-funded warrant, the public offering price per share of common stock
less the $0.0001 per share exercise price of each pre-funded warrant. On June 29, 2020 we sold 652,173 shares of our common stock
to the underwriters at the public offering price in connection with the underwriters’ full exercise of their option to purchase
additional shares of our common stock. We received aggregate net proceeds of approximately $107.8 million after deducting underwriting
discounts, commissions and other offering expenses of approximately $7.2 million.
In addition to registered public equity
offerings, we also established an at-the-market offering program pursuant to a sales agreement that we entered into with SVB Leerink
LLC, or the Agent, on August 8, 2019, or the 2019 Sales Agreement. Under the 2019 Sales Agreement, and prior to its amendment in
June 2020, we could sell from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock. In
June 2020, we amended the 2019 Sales Agreement to reduce the aggregate offering amount thereunder from $75.0 million to $30.0 million
We sold 287,559 shares of our common stock under the 2019 Sales Agreement for net proceeds of approximately $4.4 million. On August
11, 2020, in connection with our entry into separate sales agreement with the Agent, or the 2020 Sales Agreement, we and the Agent
mutually agreed to terminate the 2019 Sales Agreement. Under the 2020 Sales Agreement, and prior to its amendment in October 2020,
we could sell from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock. In October 2020,
we amended the 2020 Sales Agreement to reduce the aggregate offering amount thereunder from $75.0 million to $62.5 million. We
have not sold any shares of our common stock under the 2020 Sales Agreement.
Our debt financing is conducted
entirely under the Hercules Loan Agreement, pursuant to which we borrowed $10.0 million of a maximum of $30.0 million. On
June 1, 2020, we amended the Hercules Loan Agreement to, among other things, increase the secured term loan facility from
$30.0 million to $40.0 million by adding a fourth advance of up to $10.0 million which may be borrowed between July 1, 2021
and December 15, 2021.
36
Cash flows
The following table summarizes our cash
flows for each of the periods presented:
Six Months Ended
September
30,
2020
2019
(Amounts in thousands)
Net cash used in operating activities
$ (32,269 )
$ (33,555 )
Net cash provided by (used in) investing activities
(93,924 )
52,135
Net cash provided by financing activities
109,479
9,768
Effect of exchange rate changes on cash and cash equivalents
540
(304 )
Net increase (decrease) in cash and cash equivalents
$ (16,174 )
$ 28,044
Operating activities
During the six months ended September 30,
2020, net cash used in operating activities was $32.3 million, primarily resulting from our net loss of $37.6 million
and net cash used by changes in our operating assets and liabilities of $1.3 million, partially offset by non-cash charges
of $6.6 million. Net cash used by our changes in our operating assets and liabilities for the six months ended September 30,
2020 consisted primarily of a $1.4 million increase in research and development incentive receivables, partially from the United
Kingdom government due to the timing and amount of our qualifying expenditures, $1.9 million increase in prepaid expenses and other
current assets and $1.2 million decrease in accounts payable, partially offset by $2.0 million increase in accrued expenses and
other current liabilities and $1.2 million net decrease related to ASC 842 (including changes in operating lease liabilities, operating
lease, right-of-use asset and financing lease, right-of-use asset). The changes in accounts payable were primarily due to the timing
of vendor invoicing and payments.
During the six months ended September 30,
2019, net cash used in operating activities was $33.6 million, primarily resulting from our net loss of $20.6 million and net cash
used by changes in our operating assets and liabilities of $15.9 million, partially offset by net non- cash charges of $2.9 million.
Net cash used by changes in our operating assets and liabilities for the six months ended September 30, 2019 consisted primarily
of a $12.0 million increase in long-term prepaid rent, a $2.1 million increase in prepaid expenses and other current assets, a
$1.2 million increase in research and development incentives receivable, partially from the United Kingdom government due to the
timing and amount of our qualifying expenditures and a $0.9 million decrease in accounts payable, partially offset by a $0.7 million
increase in accrued expenses and other current liabilities and $0.1 million net decrease related to ASC 842 (including changes
in operating lease liabilities, operating lease, right-of-use asset and financing lease, right-of-use asset) and . The changes
in accounts payable were primarily due to the timing of vendor invoicing and payments.
Investing activities
During the six months ended September 30,
2020, net cash used in investing activities was $93.9 million, consisting of $196.5 million in purchases of available for sale
securities and $1.0 million in purchases of property, plant and equipment, partially offset by $103.6 million in proceeds from
sales and maturities of short-term investments.
37
During
the six months ended September 30, 2019, net cash provided by investing activities was $52.1 million, consisting of $83.9 million
in proceeds from sales and maturities of short-term investments, partially offset by $30.6 million in purchases of available for
sale securities and $1.1 million in purchases of property, plant and equipment.
Financing Activities
During the six months ended September 30,
2020, net cash provided by financing activities was $109.5 million, consisting of $74.9 million from the issuance of common stock
and $32.9 million in net proceeds from the issuance of pre-funded warrants to purchase common stock, in each case, in connection
with our follow-on public offering in June 2020, $1.8 million in proceeds from the exercise of stock options.
During the six months ended September 30,
2019, net cash provided by financing activities was $9.8 million, consisting of $10.0 million in proceeds from the long-term debt
and $0.1 million in proceeds from the exercise of stock options, partially offset by $0.4 million in payments of issuance costs
Hercules Loan Agreement
On August 8, 2019 and as amended on June
1, 2020, we and certain of our affiliates entered into the Hercules Loan Agreement with Hercules Capital, Inc., which, provided
for aggregate borrowings of up to $40.0 million in the form of term loans. We borrowed $10.0 million at closing under
the Hercules Loan Agreement. We may borrow the unused $30.0 million available under the Term Loan Facility in three separate advances.
The second advance of up to $10.0 million may be borrowed between October 1, 2020 and December 15, 2020, the third advance of up
to $10.0 million may be borrowed between July 1, 2020 and June 30, 2021 and the fourth advance of up to $10.0 million may be borrowed
between July 1, 2021 and December 15, 2021. The fourth advance is subject to the achievement of certain borrowing milestones, as
defined in the agreement. In the event that we do not draw on the second advance or if the Term Loan Facility is terminated prior
to a draw of the second advance, we are required to pay Hercules a one-time facility charge fee of $0.1 million on the earliest
of (i) December 16, 2020 or (ii) the date we prepay the outstanding obligations under the Term Loan Facility.
Borrowings under the Hercules Loan Agreement
bear interest at a rate per annum equal to the greater of either (i) the prime rate as reported in The Wall Street Journal
plus 2.75%, and (ii) 8.75%. Under the Hercules Loan Agreement, we were required to make monthly interest-only payments through
September 1, 2022, and are required to make equal monthly payments of principal, plus accrued interest, from October 1, 2022 through
August 1, 2023. As of September 30, 2020, the outstanding principal amount under the Hercules Loan Agreement was $10.0 million.
The term of the Hercules Loan Agreement is four years, ending August 1, 2023.
We may voluntarily prepay all, but not less
than all, of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee, which ranges from 1%
to 3% of the outstanding principal. A final payment of 4.95% of the aggregate amount of any advances made under the Hercules Loan
Agreement.
The Term Loan Facility is secured by substantially
all of our assets, excluding our intellectual property, and subject to certain exceptions and exclusions. The Hercules Loan Agreement
contains customary affirmative and negative covenants, including restrictions on our ability to pay dividends, incur debt, grant
liens, make acquisitions, make loans, dissolving, and entering into leases and asset sales, but does not contain any financial
covenants.
Funding requirements
Our plan of operation is to continue implementing
our business strategy, continue research and development of RP1 and our other product candidates and continue to expand our research
pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection
with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates
and if and as we:
38
● conduct our current and future clinical trials with RP1
and RP2;
● progress the clinical development of RP2 and preclinical
development of RP3;
● operate our own in-house manufacturing facility;
● seek to identify and develop additional product candidates;
● seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any;
● establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing
approval;
● until our planned manufacturing facility is fully validated, continued manufacturing by third parties of larger quantities
of our product candidates for clinical development;
● maintain, expand and protect our intellectual property portfolio;
● acquire or in-license other drugs and technologies; and
● add operational, financial and management information systems and personnel, including personnel to support our research and
development programs, any future commercialization efforts and operations as a public company.
As of September 30, 2020, we had cash and
cash equivalents and short-term investments of $244.6 million. We believe that the net proceeds from our offering in October 2020,
together with our existing cash, cash equivalents and short-term investments as of September 30, 2020, will enable us to fund our
overall operations into the second half of 2024. We have based these estimates on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties
associated with the development of RP1 and other product candidates and programs, and because the extent to which we may enter
into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing
and amounts of increased capital outlays and operating expenses associated with completing the research and development of our
product candidates. Our future capital requirements will depend on many factors, including those described in this section and
above under “—Operating expenses—Research and development expenses.”
Developing novel biopharmaceutical products,
including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years
to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates
or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, our product candidates,
if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of therapies that
we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional
funds to achieve our business objectives.
Adequate additional funds may not be available
to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise
additional capital through the sale of our equity or convertible debt securities, our shareholders’ interest may be diluted,
and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely
affect the rights of our common stockholder. Additional debt or preferred equity financing, if available, may involve agreements
that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt adversely impact
our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest.
39
If we raise additional funds through collaborations,
strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology,
future revenue streams, research programs, or product 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 collaborations, strategic alliances or licensing arrangements
with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or
any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to
develop and market ourselves.
Contractual obligations and commitments
During the six months ended September 30,
2020, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in
our Annual Report on Form 10-K for the year ended March 31, 2020, which was filed with the Securities and Exchange Commission
on June 3, 2020.
Collaborations
BMS
On February 26, 2018, we entered into
a Clinical Trial Collaboration and Supply Agreement with Bristol-Myers Squibb Company, or BMS. Pursuant to the agreement, BMS is
providing to us, at no cost, nivolumab, its anti-PD-1 therapy, for use in combination with RP1 in our ongoing Phase 1/2 clinical
trial. Under the agreement, we will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS
granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property
to use nivolumab in the clinical trial and has agreed to supply nivolumab, at no cost to us, for use in the clinical trial. Both
parties will own the study data produced in the clinical trial, other than study data related solely to nivolumab, which will belong
solely to BMS, or study data related solely to RP1, which will belong solely to us. In January 2020, this agreement was expanded
to cover an additional cohort of 125 patients with anti-PD-1 failed melanoma.
Unless earlier terminated, the agreement
will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been
delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical
trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (i) in
the event of an uncured material breach by the other party, (ii) in the event the other party is insolvent or in bankruptcy
proceedings or (iii) for safety reasons. Upon termination, the licenses granted to us to use nivolumab in the clinical trial
will terminate. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of
this nature.
On
April 12, 2019, we entered into a separate agreement with BMS on terms similar
to the terms set forth in the agreement described above, pursuant to which BMS will provide, at no cost to us, nivolumab for use
in our Phase 1 clinical trial of RP2 in combination with nivolumab.
Regeneron
On May 29, 2018, we entered into a
Master Clinical Trial Collaboration and Supply Agreement with Regeneron Pharmaceuticals, Inc., or Regeneron. Pursuant to the
agreement we agreed to undertake one or more clinical trials with Regeneron for the administration of our product candidates in
combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron, across multiple solid tumor types, the first of which
is our ongoing Phase 2 clinical trial testing RP1 in combination with cemiplimab versus cemiplimab alone in patients with
CSCC. Each clinical trial will be conducted pursuant to an agreed study plan which, among other things, will identify the name
of the sponsor and which party will manage the particular study, and include the protocol, the budget and a schedule of clinical
obligations. The first study plan related to the Phase 2 clinical trial in CSCC has been agreed.
40
Pursuant to the terms of the
agreement, each party granted the other party a non-exclusive license of their respective intellectual property and agreed to
contribute the necessary resources needed to fulfill their respective obligations, in each case, under the terms of agreed
study plans. Development costs of a particular clinical trial will be split equally. The agreement contains representations,
warranties, undertakings and indemnities customary for a transaction of this nature. The agreement also contains certain
covenants that restrict us from entering into a third-party arrangement with respect to the use of our product candidates in
combination with an anti-PD-1 therapy and that restrict Regeneron from entering into a third-party arrangement with respect
to the use of cemiplimab in combination with an HSV-1 virus, in each case, for the treatment of a tumor type that is the
subject of a clinical trial to which the covenants apply. Unless otherwise mutually agreed in a future study plan, these
covenants are only applicable to our ongoing Phase 2 clinical trial in CSCC, and expire upon the one-year anniversary of
the commencement of the applicable study plan.
The agreement may be terminated by either
party if (i) there is no active study plan for which a final study report has not been completed, (ii) the parties have
not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final
study report or (iii) in the event of a material breach.
Critical accounting policies and significant judgments and
estimates
Our management’s discussion and analysis
of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements
and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities,
costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our
estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results
may differ from these estimates under different assumptions or conditions.
While our significant accounting policies
are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report,
we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation
of our consolidated financial statements.
Accrued research and
development expenses
As part of the process of preparing our
consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves
reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on
our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet
been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed,
on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates
of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances
known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
● CROs in connection with performing research activities and conducting preclinical studies and clinical trials on our behalf;
● CMOs in connection with the production of preclinical and clinical trial materials;
● investigative sites or other service providers in connection with clinical trials;
● vendors in connection with preclinical and clinical development activities; and
● vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
41
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 CMOs 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. 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. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion
of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the
level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies
from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates
to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative
to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low
in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and
development expenses.
Stock-based compensation
We measure stock-based awards granted to
employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards
over the requisite service period, which is generally the vesting period of the respective award. We have to date only issued stock-based
awards with service-based vesting conditions and record the expense for these awards using the straight-line method. The fair value
of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs
based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free
interest rate for a period that approximates the expected term of the option, and our expected dividend yield. See Note 9
to our consolidated financial statements appearing elsewhere in this Quarterly Report for more information. Forfeitures are accounted
for as they occur. The fair value of each stock-based award is estimated on the date of grant based on the fair value of our common
stock on that same date.
Prior to the adoption of ASC 2018-07 on
April 1, 2019, for stock-based awards granted to consultants and non-employees, we recognize compensation expense over the period
during which services are rendered by such non-employees and consultants until completed. At the end of each financial reporting
period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our
common stock and updated assumption inputs in the Black-Scholes option pricing model.
After the adoption of ASC 2018-07, for stock-based
awards granted to consultants and non-employees, we measure stock-based these awards based on their fair value on the date of the
grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period
of the respective award. We have to date only issued stock-based awards with service-based vesting conditions and record the expense
for these awards using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock
price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term
of the option, and our expected dividend yield.
We classify stock-based compensation expense
in our consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified
or in which the award recipient’s service payments are classified.
Off-balance sheet arrangements
We did not have any off-balance sheet arrangements
during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations
of the SEC.
42
Recently issued accounting pronouncements
A description of recently issued accounting
pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our
consolidated financial statements appearing elsewhere in this Quarterly Report.
Emerging growth company status
As an “emerging growth company,”
the Jumpstart Our Business Startups Act of 2012 permits us to take advantage of an extended transition period to comply with new
or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.
We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting
standards when they are required to be adopted by public companies that are not emerging growth companies.
Item
3. Quantitative and qualitative disclosures about market risks
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.