Viridian Therapeutics, Inc.\DE 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with our condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and related notes thereto for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on March 13, 2020. This discussion and other parts of this report contain forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs. See “Forward-Looking Statements” for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report. Overview We are a clinical-stage biopharmaceutical company discovering and developing proprietary RNA-targeted therapies with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need. We have three clinical-stage product candidates: cobomarsen, remlarsen, and MRG-110. We are developing cobomarsen for the treatment of patients with certain cancers that have elevated microRNA-155, or miR-155, including cutaneous T-cell lymphoma, or CTCL, and adult T-cell leukemia/lymphoma, or ATLL. Cobomarsen is an inhibitor of miR-155, which is found at abnormally high levels in malignant cells of several blood cancers. We are also developing remlarsen and MRG-229 for the potential treatment of patients with pathological fibrosis. Both remlarsen and MRG-229 are replacements for microRNA-29, or miR-29, which is found at abnormally low levels in a number of pathological fibrotic conditions, including cutaneous, cardiac, renal, hepatic, pulmonary and ocular fibrosis, as well as in systemic sclerosis. Remlarsen is our product candidate for local administration in cutaneous fibrosis and ocular fibrosis, while MRG-229 is our lead preclinical state compound for the potential systemic treatment of pulmonary, renal, and hepatic fibrosis. Finally, MRG-110, an inhibitor of microRNA-92, or miR-92, is our product candidate for the treatment of heart failure, wound healing, and other ischemic disease. We believe our experience in microRNA biology and chemistry, drug discovery, bioinformatics, translational medicine, and drug development allows us to identify and develop microRNA-targeted drugs that are designed to regulate gene pathways to return diseased tissues to a healthy state. We believe that our drug discovery and development strategy will enable us to progress our product candidates from preclinical discovery to confirmation of mechanism of action in humans quickly and efficiently. The elements of this strategy include identification of mechanistic biomarkers, in early-stage clinical trials to assess target engagement in humans, as well as monitoring outcomes in these early-stage clinical trials to help guide later clinical development. Recent Developments and Anticipated Milestones Cobomarsen is currently being evaluated for the potential treatment of patients with miR-155 elevated hematological malignancies, including CTCL and ATLL. • Cutaneous T-Cell Lymphoma (CTCL): As a result of the COVID-19 pandemic, we have seen an impact on clinical activities at some sites where the SOLAR trial is being conducted. However, with a majority of patients in the SOLAR trial continue to receive uninterrupted treatment and evaluation for clinical response, the impact has been limited to a small number of patients. As of July 17, 2020, 34 of the 37 CTCL patients are being followed for a response, and 32 have continued to receive uninterrupted treatment. • Adult T-Cell Leukemia/Lymphoma (ATLL): Based on the clinical data released earlier this year, during the second quarter of 2020, we requested a meeting with the FDA to discuss the development path for cobomarsen in ATLL and plan to meet with the FDA and receive guidance on our proposed clinical path in this indication before the end of 2020. MRG-229 is a miR-29 mimic, or replacement for miR-29, a microRNA that is found at abnormally low levels in a number of pathologic fibrotic conditions. Idiopathic Pulmonary Fibrosis (IPF): In June 2020, we hosted a key opinion leader (KOL) webcast to discuss the current and increasing unmet medical need in treating patients with IPF and reported additional preclinical rodent safety and in vitro human efficacy data for MRG-229. In summary, the latest preclinical observations were: 27 Table of Contents • Next-generation targeted miR-29 mimics demonstrated down-regulation of targeted genetic pathways and anti-fibrotic effects including decreased collagen secretion in diseased lung fibroblasts in vitro , highlighting functional activity in addition to molecular readouts. • Anti-fibrotic activity of next-generation miR-29 mimics in mouse bleomycin-induced pulmonary fibrosis was observed for both intravenous and subcutaneous routes of administration. • Next-generation targeted miR-29 mimics demonstrated efficacy in ex vivo profibrotic-induced human precision cut lung slices. • Exploratory toxicity studies in rodents showed that MRG-229 treatment resulted in no adverse effects on organ histology, hematology, clinical chemistries, coagulation, or urinalysis. Based on these results, we have initiated a non-human primate toxicology study and expect to report additional preclinical safety and efficacy data before the end of 2020. Financial Operations Overview Revenue Our revenue has historically consisted primarily of up-front payments for licenses, milestone payments, and payments for other research and development services earned under a license and collaboration agreement, or the Servier Collaboration Agreement, with Les Laboratoires Servier and Institut de Recherches Servier, or collectively, Servier, for the research, development, and commercialization of RNA-targeting therapeutics in cardiovascular disease. We also recognize revenue for amounts received or receivable under certain grants we have been awarded. In August 2019, Servier terminated the Servier Collaboration Agreement effective in February 2020. We completed certain activities under the Servier Collaboration Agreement through the effective termination date in February 2020, which included finalizing two Phase 1 clinical trials of MRG-110, for which we previously reported data. The activities eligible for reimbursement under the Servier Collaboration Agreement are considered a research and development performance obligation and revenue was recognized through the termination date. In the future, we may generate revenue from a combination of license fees and other up-front payments, payments for research and development services, milestone payments, product sales, and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing of our achievement of preclinical, clinical, regulatory, and commercialization milestones, the timing and amount of payments relating to such milestones, and the extent to which any of our products are approved and successfully commercialized by us or our strategic alliance collaborators, if any. If our strategic alliance collaborators do not elect or otherwise agree to fund our development costs pursuant to our strategic alliance agreements, or we or our strategic alliance collaborators, if any, fail to develop product candidates in a timely manner or to obtain regulatory approval for them, then our ability to generate future revenue, and our results of operations and financial position would be adversely affected. Research and development expenses Research and development expenses consist of costs incurred for the research and development of our therapeutic programs and product candidates, which include: • employee-related expenses, including salaries, severance, retention, benefits, insurance, and share-based compensation expense; • expenses incurred under agreements with contract research organizations, or CROs, investigative sites that conduct our clinical trials, and other clinical trial-related vendors, and consultants; • the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with contract manufacturing organizations, or CMOs; • costs associated with non-clinical activities and regulatory operations; • license fees and milestone payments related to the acquisition and retention of certain licensed technology and intellectual property rights; and 28 Table of Contents • facilities, depreciation, market research, and other expenses, which include allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies. We make non-refundable advance payments for goods and services that will be used in future research and development activities. These payments are recorded as expense in the period in which we receive or take ownership of the goods or when the services are performed. We record up-front and milestone payments to acquire and retain contractual rights to in-licensed technology and intellectual property rights as research and development expenses when incurred if there is uncertainty in our receiving future economic benefit from the acquired contractual rights. We consider future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the FDA, or when other significant risk factors are abated. Our research and development expenses may increase for the foreseeable future as we continue to conduct our ongoing clinical trials, initiate new clinical trials, and advance our preclinical research programs. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming. We, or our strategic alliance collaborators, if any, may never succeed in achieving marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including clinical data, preclinical data, competition, manufacturability, and commercial viability of our product candidates. Successful development of future product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, and ongoing assessments as to each future product candidate’s commercial potential. We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs. General and administrative expenses General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our finance, accounting, human resources, legal, business development, and other support functions, professional fees for auditing, tax, and legal services, as well as insurance, board of director compensation, and other administrative expenses. Other income (expense) Other income (expense) consists primarily of interest income, interest expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts, money market funds, and short-term investments. Interest expense is comprised of interest incurred under our note payable. Critical Accounting Policies and Estimates This discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. We believe that the accounting policy discussed below is critical to understanding our historical and future performance, as this policy relates to the more significant areas involving our judgments and estimates. Clinical Trial and Preclinical Study Accruals We make estimates of our accrued expenses as of each balance sheet date in our condensed consolidated financial statements based on certain facts and circumstances at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred for services provided by external service providers and for other trial-related activities. The timing and amount of expenses we incur through our external service providers depend on a number of factors, such as site initiation, patient screening, enrollment, delivery of reports, and other events. In accruing for these activities, we obtain 29 Table of Contents information from various sources and estimate the level of effort or expense allocated to each period. Adjustments to our research and development expenses may be necessary in future periods as our estimates change. Results of Operations Comparison of the Three Months Ended June 30, 2020 and 2019 Three Months Ended June 30, 2020 2019 (in thousands) Revenue $ 168 $ 2,514 Research and development expenses 3,836 8,599 General and administrative expenses 2,706 2,857 Other income (expense), net (61) 46 Net loss $ (6,435) $ (8,896) Revenue Revenue decreased to $0.2 million during the three months ended June 30, 2020, from $2.5 million during the three months ended June 30, 2019. The decrease in revenue was primarily due to a decrease in research and development activities r eimbursable to us by Servier under the Servier Collaboration Agreement. Research and Development Expenses Research and development expenses were $3.8 million during the three months ended June 30, 2020, compared to $8.6 million during the three months ended June 30, 2019. The $4.8 million decrease in research and development expenses was primarily attributable to a decrease in clinical and related manufacturing development activities associated with the Phase 2 SOLAR clinical trial of cobomarsen, personnel-related costs, and other miscellaneous expenses during the second quarter of 2020. General and Administrative Expenses General and administrative expenses were $2.7 million during the three months ended June 30, 2020, compared to $2.9 million during the three months ended June 30, 2019. The decrease in general and administrative expenses was due primarily to decreased personnel-related costs, which were partially offset by increased legal costs during the second quarter of 2020. Results of Operations Comparison of the Six Months Ended June 30, 2020 and 2019 Six Months Ended June 30, 2020 2019 (in thousands) Revenue $ 996 $ 2,886 Research and development expenses 9,939 17,350 General and administrative expenses 5,429 6,214 Other income (expense), net (107) 153 Net loss $ (14,479) $ (20,525) Revenue Revenue was $1.0 million during the six months ended June 30, 2020, compared to $2.9 million during the six months ended June 30, 2019. The decrease in revenue was primarily due to a decrease in research and development activities r eimbursable to us by Servier under the Servier Collaboration Agreement. 30 Table of Contents Research and Development Expenses Research and development expenses were $9.9 million during the six months ended June 30, 2020, compared to $17.4 million during the six months ended June 30, 2019. The $7.5 million decrease in research and development expenses was primarily attributable to a decrease in clinical and related manufacturing development activities associated with the Phase 2 SOLAR clinical trial of cobomarsen, personnel-related costs, and other miscellaneous expenses during the six months ended June 30, 2020. General and Administrative Expenses General and administrative expenses were $5.4 million during the six months ended June 30, 2020, compared to $6.2 million during the six months ended June 30, 2019. The decrease in general and administrative expenses was due primarily to decreased personnel-related costs and legal costs, which were partially offset by increased other miscellaneous expenses during the six months ended June 30, 2020. Liquidity and Capital Resources We have funded our operations to date principally through proceeds received from the sale of our common stock and other equity securities, debt financings, and from amounts received under the Servier Collaboration Agreement. As of June 30, 2020, we had $30.6 million in cash and cash equivalents. Based on our current operating plans, we believe that our cash and cash equivalents will be sufficient to fund our operations for the period one year following the issuance of the accompanying condensed consolidated financial statements in this Quarterly Report. We expect that our current resources will be sufficient to fund our current operations into the third quarter of 2021. In March 2017, we entered into a Common Stock Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC, or Cowen, under which we may offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen as our sales agent. Cumulative net proceeds received from the sale of 2,846,449 shares of our common stock through July 31, 2020 were approximately $11.6 million, after giving effect to commissions to Cowen as sales agent and initial expenses for executing the “at the market offering.” In August 2018, we and the Leukemia and Lymphoma Society, Inc., or LLS, entered into a Common Stock Purchase Agreement, or the LLS Stock Purchase Agreement, for the sale of up to $5.0 million of shares of our common stock, or the LLS Offering, to LLS and its affiliates under the LLS Purchase Agreement. In October 2019, the LLS Stock Purchase Agreement was assigned to LLS TAP Miragen, LLC, or LLS TAP. Under the terms of the LLS Stock Purchase Agreement, we may raise up to approximately $5.0 million in gross proceeds by selling shares of our common stock to LLS and its affiliates, including LLS TAP, in up to five separate closings upon the achievement of specified development milestones. Since the initial closing in August 2018, we issued 757,351 shares of our common stock to LLS under the LLS Stock Purchase Agreement for net proceeds of $1.4 million. As a result of the modifications of the SOLAR trial we announced in December 2019, we do not anticipate meeting the milestones under the LLS Stock Purchase Agreement and as such, do not expect we will receive the remaining proceeds available under the LLS Stock Purchase Agreement unless the agreement is amended, which we can provide no assurances will occur. In December 2019, we entered into a common stock purchase agreement, or the Aspire Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, subject to the terms, conditions, and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of shares of our common stock over the 30-month term of the Aspire Agreement. Upon execution of the Aspire Agreement, we sold to Aspire Capital 1,598,465 shares of common stock at $0.63 per share for proceeds of $1.0 million as the Initial Purchase Shares. In January 2020, we sold to Aspire Capital 2,200,000 shares our common stock at a weighted-average price of $1.84 per share for proceeds of $4.1 million. In July 2020, we sold to Aspire Capital an additional 3,532,806 shares of our common stock at a weighted-average price of $1.25 for proceeds of $4.4 million. After giving effect to these sales, we may sell an additional $10.5 million to Aspire Capital. Under the Aspire Agreement, we have the right, in our sole discretion, on any trading day selected by us, and within certain specified limitations, to present Aspire Capital with a purchase notice, directing Aspire Capital (as principal) to purchase up to 200,000 shares of our common stock per business day, up to $20.0 million of our common stock, in the aggregate and inclusive of the Initial Purchase Shares and subsequent purchases, including those sold in July 2020, at a per share price equal to the lesser of (i) the lowest sale price of our common stock on the purchase date or (ii) the average of the three lowest closing sale prices for our common stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date. We also have the right to require Aspire Capital to purchase up to an additional 30% of the trading volume of the shares for the next business day at a purchase price, or the VWAP Purchase Price, equal to the lesser of: (i) the closing sale price of the shares on the purchase date, or (ii) ninety-seven percent (97%) of the next business day’s volume weighted average price, or each such purchase, a VWAP 31 Table of Contents Purchase. We have the right, in our sole discretion, to determine a maximum number of shares and set a minimum market price threshold for each VWAP Purchase. We can only require a VWAP Purchase if we have also submitted a regular purchase on the notice date for the VWAP Purchase. There are no limits on the number of VWAP purchases that we may require. In consideration for entering into the Aspire Agreement, concurrently with the execution of the Aspire Agreement, we issued to Aspire Capital 959,079 shares of our common stock. In February 2020, we entered into an underwriting agreement, or the 2020 Underwriting Agreement with Oppenheimer & Co. Inc., as sole underwriter, or the Underwriter, relating to our 2020 public offering, or the 2020 Public Offering. Pursuant to the 2020 Underwriting Agreement, the Underwriter purchased 15,000,000 shares of our common stock and warrants to purchase 7,500,000 shares of our common stock. Each whole warrant has an exercise price of $1.10 per share, was exercisable immediately and expires on the fifth anniversary of the date of issuance. Though the shares of common stock and warrants were sold together as a fixed combination, each consisting of one share of our common stock and one-half warrant, with each whole warrant exercisable to purchase one whole share of our common stock, the shares of our common stock and warrants were issued separately and were immediately separable upon issuance. The combined price to the public in the 2020 Public Offering for each share of common stock and accompanying one-half warrant was $1.00, which resulted in approximately $13.9 million of net proceeds to us after deducting underwriting commissions and discounts and other estimated offering expenses payable by us and excluding the proceeds, if any, from the exercise of the warrants. In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. We cannot predict what the long-term effects of this pandemic and the resulting economic disruptions may have on our liquidity and results of operations. The extent of the effect of the COVID-19 pandemic on our liquidity and results of operations will depend on a number of future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. The COVID-19 pandemic may make it more difficult for us to enroll patients in any future clinical trials or cause us to further delay enrollment or announcement of results from our ongoing clinical trials. The economic uncertainty surrounding the COVID-19 pandemic may also dramatically reduce our ability to secure debt or equity financing necessary to support our operations. We are unable to currently estimate the financial effect of the pandemic. If the pandemic continues to be a severe worldwide crisis, it could have a material adverse effect on our business, results of operations, financial condition, and cash flows. We have no products approved for commercial sale and have not generated any revenue from product sales. Since our inception and through June 30, 2020, we have generated an accumulated deficit of $182.7 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities. Accordingly, we will need substantial additional capital to continue to fund our operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of our clinical development efforts, equity financings, securing additional license and collaboration agreements, and issuing debt or other financing vehicles. Our ability to secure capital is dependent upon a number of factors, including success in developing our technology and product candidates. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. If we are unable to acquire additional capital or resources, we will be required to modify our operational plans to complete future milestones. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate. We may be forced to reduce our operating expenses and raise additional funds to meet our working capital needs, principally through the additional sales of our securities or debt financings or entering into strategic collaborations. We expect to incur significant expenses and increased operating losses for at least the next several years as we continue the clinical development of, and seek regulatory approval for, our product candidates. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval. If we raise additional funds through the issuance of debt, the obligations related to such debt could be senior to rights of holders of our capital stock and could contain covenants that may restrict our operations. Should additional capital not be available to us in the near term, or not be available on acceptable terms, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business, which may, among other alternatives, cause us to further delay, substantially reduce, or discontinue operational activities to conserve our cash resources. 32 Table of Contents Cost Restructuring Plan In August 2019 we began implementing two phases of a cost restructuring plan to streamline the organization, reduce costs, and direct resources to advance cobomarsen and miR-29 mimics, including remlarsen and MRG-229, while reducing investments in new discovery research. The restructuring plan identified approximately 44 positions for elimination, or approximately 50% of our then total workforce. The eliminated positions were primarily related to research and development and corresponding project, general, and administrative support. Through June 30, 2020, we had recorded cumulative restructuring expense of approximately $2.3 million and we expect to incur approximately $0.1 million in additional restructuring expense, primarily related to retention, during the remainder of 2020. Summarized cash flows for the six months ended June 30, 2020 and 2019 are as follows: Six Months Ended June 30, 2020 2019 (in thousands) Net cash provided by (used in): Operating activities $ (15,248) $ (18,983) Investing activities 2,001 10,205 Financing activities 18,983 179 Total $ 5,736 $ (8,599) Operating Activities Net cash used in operating activities was $15.2 million for the six months ended June 30, 2020, compared to $19.0 million for the six months ended June 30, 2019. The $3.8 million decrease in the six months ended June 30, 2020 was primarily the result of a $6.0 million decrease in net loss, partially offset by a $2.0 million decrease in payments of current liabilities and receipts associated with accounts receivable and prepaid expenses and other assets and a $0.2 million decrease in non-cash expenses during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Investing Activities Net cash provided by investing activities was $2.0 million during the six months ended June 30, 2020 compared to $10.2 million during the six months ended June 30, 2019. The change in cash flow from investing activities was driven primarily by a $37.0 million decrease in the related maturities of short-term investments and a $28.7 million decrease in purchases of short-term investments during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Financing Activities Net cash provided by financing activities was $19.0 million for the six months ended June 30, 2020, compared to $0.2 million during the six months ended June 30, 2019. During the six months ended June 30, 2020, we received net proceeds from the sale of our common stock and warrants in a public offering of $13.9 million. Additionally, during the six months ended June 30, 2020, compared to the same period in 2019, we received higher net proceeds from other sales or issuances of common stock by $4.2 million, we received higher proceeds from notes payable by $1.7 million, and we made higher payments of principal of a notes payable by $1.0 million. Contractual Obligations and Commitments As of June 30, 2020, we had no material commitments other than the liabilities reflected and commitments disclosed in our condensed consolidated financial statements. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. 33 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.