Vera Therapeutics, 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 condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and notes thereto and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus dated May 13, 2021 that forms a part of our Registration Statement on Form S-1, as amended (File No. 333-255492), as filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”), on May 17, 2021 (“Prospectus”). Forward-Looking Statements In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Overview We are a clinical stage biotechnology company focused on developing and commercializing transformative treatments for patients with serious immunological diseases. Our lead product candidate is atacicept, a fusion protein self-administered as a subcutaneous injection once weekly that blocks both B lymphocyte stimulator and a proliferation-inducing ligand (“APRIL”), which stimulate B cells and plasma cells to produce autoantibodies contributing to certain autoimmune diseases. We are conducting a Phase 2b clinical trial of atacicept in patients with immunoglobulin A nephropathy (“IgAN”), a disease with a high unmet medical need and no approved therapies. IgAN is a serious and progressive autoimmune disease of the kidney that is driven by the production of immunogenic galactose-deficient IgA1 (“Gd-IgA1”). IgAN patients with elevated Gd-IgA1 are at increased risk of kidney-related morbidity and mortality. As reported in a Phase 2a clinical trial of 16 patients conducted by Merck KGaA, Darmstadt, Germany, atacicept is the first molecule in development to demonstrate a 60% or greater reduction in plasma Gd-IgA1 in IgAN patients (75 mg dose, n=4 at 24 weeks), which we believe can be disease modifying. We initiated patient screening for our Phase 2b clinical trial in IgAN in the second quarter of 2021. In addition, we are evaluating additional diseases where atacicept’s reduction of autoantibodies may prove medically useful, including lupus nephritis (“LN”), a severe renal manifestation of systemic lupus erythematosus (“SLE”). Since our inception, we have devoted substantially all of our resources to our research and development efforts, pre-clinical studies, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates, which we expect, if they ever occur, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of our product candidates. 19 Table of Contents To date, we have funded our operations primarily through proceeds from the sale of shares of our Class A common stock, redeemable convertible preferred stock and convertible promissory notes. As of June 30, 2021, we had $91.6 million in cash and cash equivalents. In May 2021, we completed our initial public offering (“IPO”) and issued 5,002,500 shares of Class A common stock for net proceeds of approximately $48.4 million, after deducting underwriting discounts and commissions, and offering related expenses. We believe, based on our current operating plan, that our cash and cash equivalents as of June 30, 2021, will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. We have incurred significant operating losses since the commencement of our operations. Our net losses were $3.4 million and $3.6 million for the three months ended June 30, 2021 and 2020, respectively, and $8.2 million and $6.1 million for the six months ended June 30, 2021 and 2020, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidate, atacicept, and operate as a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of June 30, 2021, we had an accumulated deficit of $99.6 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses depends on the timing of when we pay these expenses, as reflected in the changes in our prepaid expense, accounts payable and other current liabilities balances. We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we: • continue our ongoing and planned research and development of our product candidate, atacicept, for the treatment of IgAN, LN and other indications; • conduct clinical trials and nonclinical studies for atacicept and any additional product candidates that we may pursue in the future; • seek to discover and develop additional product candidates and further expand our clinical product pipeline; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization; • establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs; • develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how; • acquire, develop or in-license other product candidates and technologies; • attract, hire and retain additional clinical, scientific, quality control, and manufacturing management and administrative personnel; • add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and • incur additional legal, accounting, investor relations and other expenses associated with operating as a public company. 20 Table of Contents We also expect to increase the size of our administrative function to support the growth of our business. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaborations, strategic partnerships, or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities. COVID-19 Pandemic Since it was reported to have surfaced in December 2019, a novel strain of coronavirus (COVID-19) has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and governments around the world, including in the United States, Europe and Asia, have implemented travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. To date, we have initiated some and may take additional temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. For the safety of our employees and their families, we have temporarily reduced the presence of our employees in our facilities. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and planned clinical trial and other development timelines, as well as on our industry and the healthcare system. As a result of the COVID-19 pandemic, or similar pandemics and outbreaks, we have and may in the future experience severe disruptions, including: • interruption of or delays in receiving products and supplies from the third parties we rely on to, among other things, manufacture components of our instruments, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, which may impair our ability to sell our products and consumables; • limitations on our business operations by the local, state, or federal government that could impact our ability to sell or deliver our instruments and consumables; • business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home, travel limitations, cybersecurity and data accessibility limits, or communication or mass transit disruptions; and • limitations on employee resources that would otherwise be focused on the conduct of our activities, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people. 21 Table of Contents Results of Operations Comparison of Three Months Ended June 30, 2021 and 2020 The following table summarizes our results of operations for the periods presented. THREE MONTHS ENDED JUNE 30, CHANGE (dollars in thousands) 2021 2020 AMOUNT % Operating expenses: Research and development $ 3,235 $ 1,954 $ 1,281 66 % General and administrative 2,614 1,219 1,395 114 % Total operating expenses 5,849 3,173 2,676 84 % Loss from operations (5,849 ) (3,173 ) (2,676 ) 84 % Other income (expense): Interest income 2 — 2 * Interest expense — (63 ) 63 * Gain on issuance of convertible notes — 1 (1 ) * Change in fair value of convertible notes — (369 ) 369 * Change in fair value of non-marketable equity securities (281 ) — (281 ) * Other income 2,691 — 2,691 * Total other income (expense) 2,412 (431 ) 2,843 660 % Net loss and comprehensive loss $ (3,437 ) $ (3,604 ) $ 167 5 % * Not meaningful Research and Development Expenses Research and development expenses represent a substantial portion of our operating expenses. Our research and development expenses consist primarily of direct and indirect expenses incurred in connection with the discovery and development of our product candidates. Since October 2020, we have been engaged in the development of atacicept. Research and development expenses are recorded as expense in the period they are incurred, and payments we make prior to the receipt of goods or services to be used in research and development efforts are deferred as prepaid expenses until the goods or services are received and used. The cost incurred in obtaining technology licenses, including initial and subsequent milestone payments incurred under our licensing agreements, are recorded as expense in the period in which they are incurred, as the licensed technology, method or process has no alternative future uses other than for our research and development activities. The following table summarizes our research and development expenses incurred during the respective periods. THREE MONTHS ENDED JUNE 30, CHANGE (dollars in thousands) 2021 2020 AMOUNT % Direct research and development expenses Consulting and contract research $ 2,213 $ 669 $ 1,544 231 % Internal laboratory expenses — 188 188 * Indirect research and development expenses Compensation and related benefits 1,022 658 364 55 % Facilities, depreciation and other — 439 (439 ) * Research and development expenses $ 3,235 $ 1,954 $ 1,281 66 % * Not meaningful 22 Table of Contents Research and development expenses increased by $1.3 million, or 66%, to $3.2 million in the three months ended June 30, 2021, from $2.0 million in the three months ended June 30, 2020. The increase was primarily due to an increase of $1.5 million in consulting and contract research expense resulting primarily from start-up expenses for the Phase 2b clinical trial of atacicept initiated during the period, and an increase of $0.4 million of compensation and related expense to employees resulting primarily from the market rates at which clinical development professionals are compensated compared to those for personnel conducting internal preclinical research. These were partially offset by decreases of $0.4 million for facilities, depreciation and other expenses, as a result of the vacating and sublease of our leased facilities in South San Francisco in November 2020, and a decrease of $0.2 million of internal research and development resulting from our ceasing of internal research in September 2020. General and Administrative General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive management, legal, finance, human resources, and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, and other general overhead costs to support our operations. General and administrative expenses are recorded as expense in the period they are incurred, and payments we make prior to the receipt of goods or services to be used for general and administrative purposes efforts are deferred as prepaid expenses until the goods or services are received and used. THREE MONTHS ENDED JUNE 30, CHANGE (dollars in thousands) 2021 2020 AMOUNT % General and administrative $ 2,614 $ 1,219 $ 1,395 114 % General and administrative expenses increased by $1.4 million, or 114%, to $2.6 million in the three months ended June 30, 2021, from $1.2 million in the three months ended June 30, 2020, due primarily to an increase of $0.4 million in insurance premium expense, an increase of $0.4 million in stock-based compensation and an increase of $0.3 million in legal expenses. Total Other Income (Expense) THREE MONTHS ENDED JUNE 30, CHANGE (dollars in thousands) 2021 2020 AMOUNT % Total other income (expense) 2,412 $ (431 ) 2,843 660 % Total other income increased by $2.8 million in total other income to $2.4 million total other income in the three months ended June 30, 2021, from $0.4 million other expense in the three months ended June 30, 2020, due to other income of $2.7 million recognized in the three months ended June 30, 2021, from the sale of assets to NeuBase. 23 Table of Contents Liquidity and Capital Resources To date, we have funded our operations primarily through the issuance and sale of redeemable convertible preferred stock and convertible promissory notes, and net proceeds from our IPO. From our inception through June 30, 2021, we have raised aggregate net cash proceeds of $190.0 million from the issuance and sale of redeemable convertible preferred stock and convertible notes and our IPO. Since the date of our incorporation, we have not generated any revenue from product sales and have incurred substantial operating losses and negative cash flows from operations. We use our cash to fund operations, primarily to fund our research and development efforts, clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid assets. We anticipate that we will continue to incur net losses for the foreseeable future as we continue research and development activities of atacicept, hire additional staff, including clinical, operational, financial and management personnel, and incur additional expenses associated with operating as a public company. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our clinical development activities. We expect that our research and development and general and administrative costs will increase in connection with conducting additional clinical trials and clinical trials for our current and future research programs and product candidates, contracting with third parties to support nonclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources. On May 18, 2021, we completed our IPO. In connection with our IPO, we issued and sold 5,002,500 shares of Class A common stock, including 652,500 shares associated with the full exercise on May 20, 2021 of the underwriters’ option to purchase additional shares, at a price to the public of $11.00 per share, resulting in net proceeds to us of approximately $48.4 million, after deducting underwriting discounts and commissions and offering related expenses payable by us. All shares issued and sold were registered pursuant to a registration statement on Form S-1, as amended (File No. 333-255492), declared effective by the SEC on May 13, 2021. As of June 30, 2021, we had cash and cash equivalents balance of $91.6 million. We believe, based on our current operating plan, that our cash and cash equivalents as of June 30, 2021, will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. Cash Flows The following table summarizes our cash flows for the periods indicated. SIX MONTHS ENDED JUNE 30, (dollars in thousands) 2021 2020 Net cash used in operating activities $ (11,786 ) $ (4,980 ) Net cash provided by (used in) investing activities 796 (99 ) Net cash provided by financing activities 48,961 5,583 Net increase in cash, cash equivalents and restricted cash $ 37,971 $ 504 Operating Activities In the six months ended June 30, 2021, we used $11.8 million of cash in operating activities, attributable to a net loss of $8.2 million, a $2.7 million non-cash gain on sale of assets to NeuBase, and a $3.6 million increase in prepaid expenses and other current assets. 24 Table of Contents In the six months ended June 30, 2020, we used $5.0 million of cash in operating activities, attributable to a net loss of $6.1 million, partially offset by the non-cash expenses of $0.4 million resulting from a change in the fair value of convertible notes and an $0.4 million increase in accounts payable balances. Investing Activities In the six months ended June 30, 2021, our investing activities provided $0.8 million of cash resulting from the sale of assets to NeuBase. Financing Activities In the six months ended June 30, 2021, our financing activities provided $49.0 million of cash resulting from $51.2 million proceeds from our IPO, net of underwriting discounts and commissions, partially offset by the payment of $2.8 million of related offering costs during the period. In the six months ended June 30, 2020, our financing activities provided $5.6 million of cash resulting from the issuance of convertible notes payable that were subsequently converted into Series C redeemable convertible preferred stock later in 2020. Contractual Obligations During the six months ended June 30, 2021, there were no material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Prospectus. We enter into agreements in the normal course of business with various third parties for preclinical, clinical and other services. These contracts are generally cancellable without material penalty upon written notice. Payments associated with these agreements are not included in this table of contractual obligations. Off-Balance Sheet Arrangements Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Critical Accounting Policies and Significant Judgments and Estimates The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these unaudited condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the financial statements, as well as revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Use of Estimates” in the Prospectus and the notes to our unaudited condensed financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2021, there were no material changes to our critical accounting policies from those discussed in the Prospectus. 25 Table of Contents Emerging Growth Company Status We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) December 31, 2026.