Replimune Group, Inc. 10-Q

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, 2023, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023. 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 Securities Exchange Commission, or 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 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 through our novel oncolytic immunotherapies. Our proprietary oncolytic immunotherapy product candidates are designed and 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 other approaches to inducing anti-tumor immunity, including personalized vaccine approaches. We believe that the bundling of multiple approaches for the treatment of cancer into single therapies will increase clinical efficacy and 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. Our proprietary RPx platform is based on a novel, engineered strain of herpes simplex virus 1, or HSV-1, backbone with payloads added to maximize immunogenic cell death and the induction of a systemic anti-tumor immune response. The RPx platform is intended to have unique dual local and systemic activity consisting of direct selective virus-mediated killing of the tumor resulting in the release of tumor-derived antigens and altering of the tumor microenvironment to ignite a strong and durable systemic response. Our product candidates are expected to be synergistic with most established and experimental cancer treatment modalities, and, with an attractive safety profile the RPx platform is expected to have the versatility to be developed alone or combined with a variety of other treatment options. We currently have three RPx product candidates in our development pipeline, RP1 (vusolimogene oderparepvec), our lead product candidate, RP2 and RP3. Although our fiscal year ends March 31 st , our programs and program updates are reported on a calendar year basis. 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 establishing a major skin cancer franchise. 24 Table of Conte nts Our leading clinical trial of RP1 is our IGNYTE trial, a multi-cohort Phase 1/2 clinical trial being conducted in collaboration with Bristol Myers Squibb Company, or BMS, under which BMS 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. The leading tumor specific cohort in the IGNYTE trial is our registration directed Phase 2 expansion cohort enrolling patients with anti-PD-1 failed cutaneous melanoma who are being treated with RP1 in combination with nivolumab. In December 2023, we reported the full data set of 156 patients (140 patients from the registration-directed expansion cohort and 16 anti-PD1 failed cutaneous melanoma patients from the prior phase 2 cohort) with an overall response rate (ORR) of 31.4% and a complete response rate (CR) of 12%. RP1 combined with nivolumab continues to be well-tolerated, with mainly Grade 1-2 “on target” side effects, observed. Following a Type C meeting with the U.S. Food and Drug Administration (FDA), a confirmatory study design concept consisting of a 2-arm randomized trial with physician’s choice of treatment as a comparator arm in anti-PD1 failed melanoma patients was agreed. The FDA requested that the Phase 3 confirmatory trial be underway at the time of a BLA submission under the accelerated approval pathway. The FDA also indicated that all patients should be followed for at least 12 months and have undergone central review by RECIST v1.1. A BLA submission for RP1 in combination with nivolumab in anti-PD1 failed melanoma is planned for 2H 2024. In our non-melanoma skin cancer, or NMSC, cohort of the IGNYTE clinical trial, we provided a data update in December 2023 from the first 30 patients with at least 6 months of follow up including patients with CSCC, Merkel cell carcinoma (MCC), basal cell carcinoma, and angiosarcoma in this cohort. The data showed that treatment with RP1 in combination with nivolumab led to an ORR of 30% which is consistent with data from the anti-PD1 failed melanoma cohort with approximately one-third of patients responding and 60% demonstrating clinical benefit. The combination of RP1 and nivolumab was well tolerated in this patient population with a safety profile consistent with the overall experience seen with this treatment regimen to date. Furthering development of our RP1 clinical candidate, we have open for enrollment a Phase 1b/2 clinical trial of single agent RP1 in solid organ transplant recipients with skin cancers, including CSCC, which is referred to herein as ARTACUS or the ARTACUS trial, which we believe to be potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients, including as a potential label expansion after an initial approval of RP1 in a different indication). We are currently enrolling up to 65 patients in the ARTACUS trial to assess the safety and efficacy of RP1 in liver, kidney, heart, lung, and hematopoietic cell transplant patients transplant recipients with skin cancers. In November 2023 we presented initial data from the ARTACUS clinical trial of RP1 monotherapy in solid organ transplant recipients with skin cancers at the Society for Immunotherapy of Cancer’s (SITC) 38th Annual Meeting. The data included 23 evaluable patients with CSCC (n=20) and Merkel cell carcinoma (n=3), demonstrating an ORR of 34.5% and a CR of 21%. RP1 monotherapy was well tolerated in these patients and the safety profile was similar to that observed in our other RP1 clinical trials in patients who are not immune suppressed. No immune-mediated adverse events or evidence of allograft rejection were observed. As reported in December, our randomized, controlled Phase-2 clinical trial of RP1 with cutaneous squamous cell carcinoma, or CSCC, referred to as CERPASS or the CERPASS trial, under agreement with our partner Regeneron did not meet either of the two primary endpoints. RP1 in combination with cemiplimab increased the CRR versus cemiplimab alone (38.1% vs. 25%, p=0.040), which was just short of the required threshold for statistical significance in this study. Notably, among the 83 patients with locally advanced disease, the complete response rate in the RP1 plus cemiplimab group was 48.1% versus 22.6% in the cemiplimab only group. The ORR was comparable between the two study groups (52.5% for RP1 plus cemiplimab vs. 51.4% for cemiplimab alone, p=0.692). RP1 in com-bination with cemiplimab also increased duration of response (DOR) as compared to cemiplimab alone. The trial will continue as planned to assess DOR, progression free survival (PFS) and overall survival (OS) with greater maturity. We are also developing or have been 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, including traditionally less immune responsive tumor types. In addition to the expression of GALV-GP R(-) and human GM-CSF as in RP1, 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 immune co-stimulatory pathways through the additional expression of the ligands for CD40 and 4-1BBL, as well as anti-CTLA-4 and GALV-GP R(-), but without the expression of GM-CSF. We continue the development of our clinical candidate RP2 with a focus on establishing a rare cancer franchise. Notably, as previously reported, from our Phase-1 clinical trial of RP2 alone and in combination with nivolumab, we have seen durable responses from a monotherapy cohort in a variety of difficult to treat tumors as well as in combination with anti-PD1 and in particular in patients with uveal melanoma. In November 2023, we presented updated data from a cohort of metastatic uveal melanoma patients during a Plenary Session at the 20th Annual International Society for Melanoma Research Congress. The updated data showed RP2 led to an ORR of 29.4 percent (5 of 17 patients; one of the responding patients was treated with RP2 monotherapy and four of the responding patients were treated with RP2 combined with nivolumab), including responses in patients with liver, lung, and bone metastases. The median DOR at the data cutoff was 11.47 months (range of 2.78 to 21.22 with responses ongoing). Nearly all patients (15 of 17, 88.2%) in the study had progressed on or after immunotherapy with 12 of 17 patients (70.6%) having previously received both anti-PD1 and anti-CTLA-4 therapies, including four of the responding 25 Table of Conte nts patients. RP2 was generally well tolerated both as monotherapy and in combination with nivolumab with no additive adverse events observed. The most common grade 1 or 2 treatment related adverse events (TRAEs) overall in both cohorts were pyrexia, chills, fatigue, hypotension and pruritis. Six patients had grade 3 TRAEs, including two cases of hypotension. There were no grade 4 or 5 TRAEs. Based on the data in this population, planning is underway for a potentially registration enabling study of RP2 in advanced uveal melanoma. As previously announced, our RP2/3 development in squamous cell carcinoma of the head and neck (SCCHN) and colorectal cancer (CRC) have been discontinued, and the development program in hepatocellular carcinoma (HCC) has been limited to the 2L setting and will use RP2 rather than RP3. Although we have discontinued or are modifying these trials, we are continuing to treat patients who were already in screening or enrolled in these trials before the trials were discontinued. RP1, RP2 and RP3 are administered by direct injection into solid tumors, guided either visually or by ultrasound, computerized tomography 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. Financial Since our inception, we have devoted substantially all of our resources to developing our proprietary RPx 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 incurred significant operating losses and 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. 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. 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 20, 2018, we have raised an aggregate of approximately $849.1 million in net proceeds to fund our operations, of which $101.2 million was from our IPO, $706.0 million was from four separate follow-on offerings, or the Public Offerings, that we closed in November 2019, June 2020, October 2020 and December 2022, respectively, and $41.9 million was from at-the-market offerings. We sold 7,407,936 shares of common stock in our IPO, an aggregate of 20,430,480 shares of our common stock and pre-funded warrants to purchase 9,484,238 shares of common stock in the Public Offerings, and 2,313,997 shares of common stock through our at-the-market facilities. Our net losses were $51.1 million and $39.7 million for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had an accumulated deficit of $646.2 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 fluctuate from period to period depending upon the Company's development programs and priorities. We expect to continue to incur costs in connection with our ongoing development activities, including further advancement of any preclinical activities and clinical trials of our product candidates across our platform, and if and as we: • conduct our current and future clinical trials with RP1, RP2 and RP3; • further preclinical development of our platform; • operate our 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; 26 Table of Conte nts • until our manufacturing facility is fully validated, continued limited manufacturing by third parties for clinical development; • maintain, expand, protect and defend our intellectual property portfolio; • hire and retain additional clinical, quality control, scientific and general and administration personnel; • acquire or in-license other drugs, technologies or intellectual property rights; 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. 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 December 31, 2023, we had cash and cash equivalents and short-term investments of $466.4 million. Based on our current operating plan, w e 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.” 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 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. 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 engaged in research and development functions, including their fees, stock-based compensation and related travel expenses; • the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; 27 Table of Conte nts • 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 may be partially offset by cost-sharing arrangements under collaboration agreements that we may enter from time to time. 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 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. Non-employee costs associated with our manufacturing facility including depreciation, amortization and facility costs are appropriately allocated to development programs based on the percentage of time spent per program. 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 as 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 our 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 maintain, expand, protect and defend 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; 28 Table of Conte nts • 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. 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 could 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. Selling, general and administrative expenses Selling, general and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate, commercial and business development and administrative functions. Selling, general and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, pre-commercial planning, 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 selling, general and administrative expenses will continue to increase in the future as we increase our selling, general and administrative headcount to support our continued research and development and pre-launch activities to prepare for 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 debt obligations Interest expense on debt obligations consists of the amortization of debt discount and cash paid for interest under the loan agreement with Hercules. Interest expense on finance lease liability Interest expense on finance lease liability consists of amortization of finance charges under our financing lease. Other (expense) income, net Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses. Income taxes 29 Table of Conte nts During the nine months ended December 31, 2023, the Company recorded an income tax provision of $0.5 million primarily due to forecasted U.S. taxable income for the year that is not fully offset by available net operating loss carryforwards. During the nine months ended December 31, 2022, the Company did not recorded any income tax provision due to losses incurred and based upon the weight of available evidence, that it is more likely than not that the Company's loses will not be realized. The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets both in the United States and United Kingdom, which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses, future reversals of existing taxable temporary differences, estimated future taxable income as well as prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. As a result, as of December 31, 2023 and March 31, 2023, the Company has recorded a full valuation allowance against its net deferred tax assets. Results of operations Comparison of the three months ended December 31, 2023 and 2022 The following chart summarizes our results of operations for the three months ended December 31, 2023 and 2022: Three Months Ended December 31, 2023 2022 Change (Amounts in thousands) Operating expenses: Research and development $ 42,847 $ 30,261 $ 12,586 Selling, general and administrative 13,693 11,369 2,324 Total operating expenses 56,540 41,630 14,910 Loss from operations (56,540) (41,630) (14,910) Other income (expense): Research and development incentives 415 607 (192) Investment income 5,686 2,675 3,011 Interest expense on finance lease liability (540) (548) 8 Interest expense on debt obligations (1,012) (941) (71) Other income 1,344 147 1,197 Total other income (expense), net 5,893 1,940 3,953 Loss before income taxes $ (50,647) $ (39,690) $ (10,957) Income tax provision $ 473 $ — $ 473 Net loss $ (51,120) $ (39,690) $ (11,430) Research and development expenses Research and development expenses for the three months ended December 31, 2023 were $42.8 million, compared to $30.3 million for the three months ended December 31, 2022. The following table summarizes our research and development expenses for the three months ended December 31, 2023 and 2022: 30 Table of Conte nts Three Months Ended December 31, 2023 2022 Change Direct research and development expenses by program: RP1 12,525 10,176 2,349 RP2 2,308 588 1,720 RP3 3,100 2,516 584 Unallocated research and development expenses: — Personnel related (including stock-based compensation) 19,994 13,048 6,946 Other 4,920 3,933 987 Total research and development expenses $ 42,847 $ 30,261 $ 12,586 The increase in our direct research and development expenses is primarily driven by increases in the number of clinical trial sites and patient enrollment in all of our clinical trials as compared the prior year, with CRO and investigator costs increasing by approximately $4.2 million vs. the prior year. In addition, during the third quarter of fiscal year 2024, the costs for RP1 increased vs. the prior year as the Company focused on conducting the primary analysis and preparing for a potential BLA filing for CERPASS as well as the initial full data presentation for IGNYTE and an updated data presentation on the ARTACUS trial. The Company continued to ramp up activities to develop RP2, specifically as it related to metastatic uveal melanoma patients. The increase of $7.9 million in our unallocated expenses was due to a $6.9 million increase in personnel-related costs and $1.0 million increase in other expenses. The increase in personnel-related costs included a $5.8 million increase in payroll and fringe benefits and a stock-based compensation increase of $1.2 million. The increase in personnel-related costs largely reflected the hiring of additional personnel in our research and development functions as we continue to expand the development plan in multiple indications. Personnel related costs for the three months ended December 31, 2023 and 2022 included stock-based compensation expense of $3.8 million and $2.6 million, respectively. Furthermore, the change in other expenses is primarily driven by an increase of approximately $0.4 million in other outside services, a $0.4 million increase in other variable costs, a $0.3 million increase in conferences and exhibitions and a $0.1 million net increase in operating and lab supplies during the quarter as compared to the prior year. These costs are somewhat offset by a decrease in consulting costs of approximately $0.2 million and a decrease of approximately $0.1 million in recruiting costs. These changes are in line with increased overall clinical development costs and clinical trial activities. Selling, general and administrative expenses Selling, general and administrative expenses were $13.7 million for the three months ended December 31, 2023, compared to $11.4 million for the three months ended December 31, 2022. The increase of $2.3 million is primarily the result of an increase of $1.1 million in personnel related costs and an increase of $1.0 million in payroll and fringe benefits. The increase in personnel related costs was driven by the continued hiring of additional personnel in our selling, general and administrative functions, focusing on additional pre-launch planning and initial build of the Company's commercial infrastructure. Additionally, there is a net increase of $0.8 million in sales and marketing and other variable costs, which is driven by external spend increases in building and preparation for sales and marketing programs, and market research. Total other income (expense), net Other income (expense), net was $5.9 million for the three months ended December 31, 2023, compared to a net income of $1.9 million for the three months ended December 31, 2022. The net change of $4.0 million is primarily attributable to an increase in investment income of $3.0 million as a result of higher interest rates during the quarter, as well as a decrease in expense of $1.2 million in the current year compared to the prior year due to exchange rate fluctuations related to the changes in foreign exchange rates of the British Pound Sterling to the United States Dollar, specifically on intercompany and other non-functional currency transactions. Income tax provision The income tax provision for the nine months ended December 31, 2023 and December 31, 2022, was $0.5 million and $0.0 million, respectively. The income tax provision booked during the nine months ended December 31, 2023 is primarily due to forecasted U.S. taxable income for the year that is not fully offset by available net operating loss carryforwards. 31 Table of Conte nts Comparison of the nine months ended December 31, 2023 and 2022 The following chart summarizes our results of operations for the nine months ended December 31, 2023 and 2022: Nine Months Ended December 31, 2023 2022 Change (Amounts in thousands) Operating expenses: Research and development $ 132,384 $ 88,573 $ 43,811 Selling, general and administrative 43,633 35,512 8,121 Total operating expenses 176,017 124,085 51,932 Loss from operations (176,017) (124,085) (51,932) Other income (expense): Research and development incentives 1,251 2,032 (781) Investment income 17,922 4,130 13,792 Interest expense on finance lease liability (1,626) (1,650) 24 Interest expense on debt obligations (3,083) (941) (2,142) Other income (expense) 1,307 (4,531) 5,838 Total other income (expense), net 15,771 (960) 16,731 Loss before income taxes (160,246) (125,045) (35,201) Income tax provision 473 — 473 Net loss $ (160,719) $ (125,045) $ (35,674) Research and development expenses Nine Months Ended December 31, 2023 2022 Change Direct research and development expenses by program: RP1 41,444 25,669 15,775 RP2 6,489 3,008 3,481 RP3 11,196 10,006 1,190 Unallocated research and development expenses: — Personnel related (including stock-based compensation) 58,698 38,048 20,650 Other 14,557 11,842 2,715 Total research and development expenses $ 132,384 $ 88,573 $ 43,811 Research and development expenses for the nine months ended December 31, 2023 were $132.4 million, compared to $88.6 million for the nine months ended December 31, 2022. The increase of $43.8 million was due to an increase of approximately $20.4 million in direct research costs related to our ongoing clinical trials and increased patient enrollment for RP1, RP2 and RP3, including an increase of approximately $14.6 million in the areas of CRO costs, investigator costs, and RP1 imaging costs. In addition, the costs for RP1 increased vs. the prior year as the Company prepared the primary analysis and preparations for a potential BLA filing for CERPASS as well as the initial full data presentation for IGNYTE and an updated data presentation on the ARTACUS trial. The Company also continued to ramp up activities to develop RP2 and RP3 throughout the nine months ended December 31, 2023 as compared to the prior year. In addition, there is an increase of approximately $23.4 million in unallocated research and development costs, mainly attributable to a $20.7 million increase in personnel-related costs, including a $16.9 million increase in payroll and fringe benefits and a stock-based compensation increase of $3.8 million. 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 nine months ended December 31, 2023 and 2022 included stock-based compensation expense of $11.5 million and $7.7 million, respectively. 32 Table of Conte nts Selling, general and administrative expenses Selling, general and administrative expenses were $43.6 million for the nine months ended December 31, 2023, compared to $35.5 million for the nine months ended December 31, 2022. The increase of $8.1 million is primarily the result of an increase of $4.9 million in personnel related costs, including a stock-based compensation increase of $1.2 million, and an increase of $3.7 million in payroll and fringe benefits. The increase in personnel related costs was driven by the continued hiring of personnel within our selling, general and administrative functions, specifically focusing on commercial planning and building of the Company's initial commercial infrastructure. Personnel related costs for the nine months ended December 31, 2023 and 2022 included stock-based compensation expense of $14.7 million and $13.5 million, respectively. Total other income (expense), net Other income (expense) was $15.8 million for the nine months ended December 31, 2023, compared to $(1.0) million for the nine months ended December 31, 2022. The net change of $16.7 million is primarily attributable to an increase in investment income of approximately $13.8 million as a result of higher interest rates during the first half of the year as compared to the prior year, as well as a decrease in expense of approximately $5.8 million compared to the prior year due to exchange rate fluctuations related to the changes in foreign exchange rates of the British Pound Sterling to the United States Dollar. These increases in income are partially offset by approximately $2.1 million in expense for debt obligations related to the Hercules Loan Agreement which we entered in the third quarter of the prior year. Income tax provision The income tax provision for the nine months ended December 31, 2023 was $0.5 million compared to $0.0 million for the nine months ended December 31, 2022. The income tax provision booked during the nine months ended December 31, 2023 is primarily related to the Company's interest income in the United States. 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 borrowing under a secured loan facility. Through December 31, 2023, we had received net proceeds of $935.9 million through the sale of shares of common stock and pre-funded warrants exercisable for common stock in public offerings and at-the-market offerings, as well as net $42.8 million from our incurrence of debt under the term loan agreement with Hercules. As of December 31, 2023, we had cash and cash equivalents and short-term investments of $466.4 million. Cash flows The following table summarizes our cash flows for each of the periods presented: Nine Months Ended December 31, 2023 2023 2022 (Amounts in thousands) Net cash used in operating activities $ (139,301) $ (95,254) Net cash provided by investing activities 74,000 (119,750) Net cash provided by financing activities 16,413 311,380 Effect of exchange rate changes on cash and cash equivalents (30) 4,343 Net decrease in cash and cash equivalents $ (48,918) $ 100,719 Operating activities 33 Table of Conte nts During the nine months ended December 31, 2023, net cash used in operating activities was $139.3 million, primarily resulting from our net loss of $160.2 million, partially offset by non-cash charges of $18.1 million, which primarily consist of stock-based compensation expense of $26.2 million, somewhat offset by net amortization of premiums and discounts on short-term investments of $9.5 million, and an increase in cash of $3.0 million related to changes in our operating assets and liabilities. Changes in our operating assets and liabilities for the nine months ended December 31, 2023 consisted primarily of a $6.1 million increase in accrued expenses and other current liabilities, a $2.2 million increase in prepaid expenses and other current assets, a net $1.8 million change in operating and financing right-of-use assets and lease liabilities, a $1.5 million decrease in accounts payable, and a $1.2 million increase in research and development incentives receivable from the United Kingdom government due to the timing and amount of our qualifying expenditures. During the nine months ended December 31, 2022, net cash used in operating activities was $95.3 million, primarily resulting from our net loss of $125.0 million, partially offset by non-cash charges of $21.6 million, primarily consisting of stock-based compensation expense of $21.2 million, and an increase in cash of $8.2 million related to changes in our operating assets and liabilities. Changes in our operating assets and liabilities for the nine months ended December 31, 2022 consisted primarily of a $5.6 million increase in accrued expenses and other current liabilities, a $0.8 million decrease in research and development incentives receivable from the United Kingdom government due to the timing and amount of our qualifying expenditures, a net $1.8 million change in operating and financing right-of-use assets and lease liabilities, a $0.4 million decrease in accounts payable, as well as a $0.4 million increase in prepaid expenses and other current assets. Investing activities During the nine months ended December 31, 2023, net cash provided by investing activities was $74.0 million, consisting of $459.0 million in proceeds from sales and maturities of short-term investments, partially offset by $381.1 million in purchases of available for sale securities, and $3.9 million in purchases of property, plant and equipment and capitalized software. During the nine months ended December 31, 2022, net cash used in investing activities was $119.8 million, consisting of $433.9 million in purchases of available for sale securities, partially offset by $316.2 million in proceeds from sales and maturities of short-term investments, and $2.0 million in purchases of property, plant and equipment. Financing Activities During the nine months ended December 31, 2023, net cash provided by financing activities was $16.4 million, consisting primarily of $15.0 million in proceeds from long-term debt, as well as $1.8 million in proceeds from the exercise of stock options. During the nine months ended December 31, 2022, net cash provided by financing activities was $311.4 million, consisting primarily of $150.1 million in proceeds from the issuance of common stock, $92.8 million from the issuance of pre-funded warrants to purchase common stock, $37.4 million from the issuance of common stock through sales under our at-the-market facilities, $30.0 million in proceeds from the issuance of debt under the Hercules Loan Agreement, as well as approximately $3.2 million in proceeds from the exercise of stock options. 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: • conduct our current and future clinical trials with RP1, RP2 and RP3; • further preclinical development of our RPx platform; • operate, qualify and maintain our in-house manufacturing facility and qualify and maintain our product candidates made therein for use in our clinical trials; • seek to identify and develop additional product candidates; • seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any; 34 Table of Conte nts • 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 limited manufacturing by third parties for clinical development. • maintain, expand, protect and defend our intellectual property portfolio; • hire and retain additional clinical, quality control, scientific and general and administration personnel; • acquire or in-license other drugs, technologies or third-party intellectual property; 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 December 31, 2023, we had cash and cash equivalents and short-term investments of $466.4 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of December 31, 2023, will enable us to fund operations into the second half of 2026. 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. 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 three months ended December 31, 2023, 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, 2023, which was filed with the SEC on May 18, 2023. Collaborations 35 Table of Conte nts BMS In February 2018, we entered into a Clinical Trial Collaboration and Supply Agreement with 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 (x) in the event of an uncured material breach by the other party, (y) in the event the other party is insolvent or in bankruptcy proceedings or (z) 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. In April 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 In May 2018, we entered into a Master Clinical Trial Collaboration and Supply Agreement with 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, agreed in June 2018, 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. 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 an agreed study plan will be split equally. In July 2022, Regeneron informed the Company that the costs of the study have reached the initial budget for the initial study plan of June 2018 and that Regeneron's reimbursement of CERPASS study costs to the Company have completed in the period ending June 30, 2022 in relation to the initial study budget. As a result of this notice from, and the ongoing communications with, Regeneron, we have not recorded any cost-sharing reimbursements from Regeneron in prepaid expenses and other current assets in the consolidated balance sheet or as an offset to research and development expense within the consolidated statement of operations since Regeneron informed us that Regeneron’s reimbursement of CERPASS study costs have completed. The Company does not expect any further reimbursements from Regeneron related to the initial study plan of June 2018. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature. The agreement also contains certain time-based 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. 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 and 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 (ii) in the event of a material breach. Roche In December 2022, we announced entering into a Master Clinical Trial Collaboration and Supply Agreement with Roche in relation to our RP2 and RP3 programs in colorectal cancer, or CRC, and hepatocellular carcinoma, or HCC. Under the 36 Table of Conte nts agreement, the companies will collaborate in two 30 patient cohort signal finding studies in third-line, or 3L, CRC and in two 15 patient cohort signal finding studies in second-line, or 2L, HCC. Under the terms of the agreement, the companies will share costs and Roche will supply its currently approved drugs, atezolizumab and bevacizumab for 2L HCC and 3L CRC combined with RP3. Roche will also supply atezolizumab and bevacizumab for 2L HCC and 3L CRC combined with RP2. We have retained the responsibility of operating the clinical trials as well as retaining all the rights to the development and commercialization of our product candidates. The agreement may be terminated by either party upon sixty (60) days prior written notice to the other party. We are in discussions with Roche about revising these agreements following our changes to our RP2 and RP3 development plans. Incyte In July 2023, we entered into a Clinical Trial Collaboration and Supply Agreement with Incyte Corporation, or Incyte. Under the agreement, the companies will collaborate in a signal finding study in which Incyte will initiate and sponsor a clinical trial of INCB99280 (oral PD-L1 inhibitor) and RP1 in approximately 40 patients with unresectable, high risk CSCC in the neoadjuvant setting. Under the terms of the agreement, we will supply Incyte with RP1 for the study and share costs of the study equally with Incyte. The agreement may be terminated by either party upon (i) a material breach not reasonably cured within thirty (30) days; (ii) the discontinuation of development of its clinical drug candidate; (iii) the unethical or illegal business practices of the other party; or (iv) if the parties have not agreed on the protocol or budget within ninety (90) days of the effective date of the agreement. In addition, the Company may terminate the agreement upon the inappropriate or unsafe use of the RP1 product candidate. Critical accounting policies 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. 37 Table of Conte nts 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 issue stock-based awards to employees, directors, consultants and non-employees in the form of stock options and restricted stock units. We measure such stock-based awards in accordance with ASC 718, Compensation — Stock Compensation, which requires all stock-based awards to be recognized in the consolidated statements of operations and comprehensive loss based on their fair value on the date of the grant and the related compensation expense for those awards is recognized 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 10 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. 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. 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.