What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 70 added, 58 removed, 209 unchanged (38% of the section changed)

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and its subsidiaries.

Throughout this document we refer to FYARRO (nab-sirolimus, sirolimus protein-bound particles for injectable suspension (albumin-bound)) as FYARRO in the context of commercialization for the treatment of advanced malignant perivascular epithelioid cell tumor (PEComa), investigational use, our clinical trials, regulatory matters such as orphan drug designation, our license agreement with Bristol-Myers Squibb Company and collaboration agreement with Mirati Therapeutics, Inc., all further discussed throughout this document.

Throughout this document we refer to FYARRO (nab-sirolimus, sirolimus protein-bound particles for injectable suspension (albumin-bound)) as FYARRO in the context of commercialization for the treatment of advanced malignant perivascular epithelioid cell tumor (PEComa), investigational use, our clinical trials, regulatory matters such as orphan drug designation, our license agreement with Bristol-Myers Squibb Company and our former agreements with Mirati Therapeutics, Inc.

and EOC Pharma (Hong Kong) Limited, all further discussed throughout this document.

We are a biopharmaceutical company focused on developing and commercializing precision therapies for cancers with alterations in the mTOR pathway, a key regulator of cell growth and cancer progression.

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Food and Drug Administration (the “FDA”) approved FYARRO sirolimus protein-bound particles for injectable suspension (albumin-bound) for the treatment of adult patients with locally advanced unresectable or metastatic malignant PEComa.

On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa and recognized net product sales of $5.4 million and $5.9 million for the three months ended March 31, 2024 and 2023, respectively.

On February 22, 2022, we launched FYARRO in the United States for treatment of advanced malignant PEComa and recognized net product sales of $6.2 million and $11.5 million for the three and six months ended June 30, 2024, respectively.

See “Results of Consolidated Operations” for further discussion of our results.

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The trial is expected to be completed by the end of 2024, with results anticipated in early 2025.

• Amendment of Fresenius Kabi Agreement .

Effective as of March 2024, we amended our Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as previously amended effective as of August 1, 2022 (collectively, the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”) to, among other things, extend the term of the Fresenius Agreement to July 31, 2024 (or such later date as may be agreed upon between the parties) and amend certain terms related to pricing, forecasting, compliance and our obligation to purchase certain minimum quantities of FYARRO from Fresenius Kabi.

Under the Fresenius Agreement, we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

• Termination of the Mirati Collaboration .

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We entered into the agreement with Mirati in October 2022 to evaluate the combination of Mirati’s adagrasib (KRAZATI ® ), a KRAS G12C selective inhibitor, and FYARRO in KRAS G12C mutant non-small cell lung cancer ("NSCLC") and other solid tumors.

The Phase 1/2 trial has been discontinued as we prioritize the evaluation of nab -sirolimus in Phase 2 trials for endometrioid endometrial cancer ("EEC") and in neuroendocrine tumors ("NETs") .

Enrollment in Phase 1/2 trial has been discontinued as we prioritize the evaluation of nab -sirolimus in Phase 2 trials for endometrioid endometrial cancer ("EEC") and in neuroendocrine tumors ("NETs") .

BMS License Agreement

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Under the BMS License Agreement, BMS is entitled to receive certain development milestone payments, royalties on net sales from licensed products under the agreement and any sublicense fees.

We recorded royalties on net product sales of $0.4 million during the three months ended March 31, 2024 and 2023, under the terms of this agreement.

No development payments related to milestones under this agreement were paid during the three months ended March 31, 2024.

During the three months ended June 30, 2024 and 2023, royalties on net product sales were $0.5 million and $0.5 million, respectively under the terms of this agreement.

During the six months ended June 30, 2024 and 2023, royalties on net product sales were $0.9 million and $0.9 million, respectively under the terms of this agreement.

No development payments related to milestones under this agreement were paid during the three and six months ended June 30, 2024.

See Note 7 to the condensed consolidated financial statements for more information about the BMS License Agreement.

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On June 27, 2022, we received written notice from EOC that EOC has elected to terminate the EOC License Agreement, effective immediately.

On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of

Commerce’s International Court of Arbitration against us.

The arbitration process is ongoing.

We intend to defend ourselves vigorously in this matter and pursue all relief to which we are entitled.

We are unable to estimate the possible loss or range of loss, therefore no amounts have been accrued as of March 31, 2024.

See Notes 7 and 12 to the condensed consolidated financial statements for more information about the EOC License Agreement, its termination and pending arbitration.

Mirati Collaboration

On June 27, 2022, EOC filed a Request for Arbitration with the International Chamber of Commerce’s International Court of Arbitration against us.

The arbitration process is ongoing and we expect a decision in the second half of 2024.

We are defending ourselves vigorously in this matter and pursuing all relief to which we are entitled .

We are unable to estimate the possible loss or range of loss, and therefore no amounts have been accrued as of June 30, 2024.

S ee Notes 7 and 12 to the condensed consolidated financial statements for more information about the EOC License Agreement, its termination and pending arbitration.

Former Mirati Collaboration

In October 2022, we entered into a collaboration and supply agreement with Mirati to evaluate t he combination of Mirati’s adagrasib and FYARRO in KRAS G12C mutant NSCLC and other solid tumors.

In May 2024, we announced the mutually agreed upon termination of the collaboration and supply agreement with Mirati and the discontinuation of the Phase 1/2 study .

Under the terms of the agreement, Mirati was responsible for sponsoring and operating the Phase 1/2 study and we supplied study drug and jointly shared the cost of the study.

The primary objective of this multi-center, single-arm, open-label Phase 1/2 trial was to determine the optimal dose and recommended Phase 2 dose for the combination of adagrasib and FYARRO in patients with KRAS G12C- mutant solid tumors.

In addition, the study was intended to investigate the safety, tolerability and efficacy of adagrasib and FYARRO in combination in patients both with and without prior exposure to a KRAS G12C inhibitor.

The trial was built on preclinical data showing enhanced anti-tumor efficacy with the combination of adagrasib and FYARRO relative to either agent alone.

In May 2024, we announced the mutually agreed upon termination of the collaboration and supply agreement with Mirati.

Enrollment in the Phase 1/2 study has been closed and the study is winding down.

Under the terms of the agreement, Mirati was responsible for sponsoring and operating the Phase 1/2 study and we supplied study drug and jointly shared the cost of the study, which will continue during the winding down process.

Impact of Negative Global or National Events

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• We have built a cross-functional commercial team consisting of marketing, market access and commercial operations and will continue to strategically build our sales and our commercial infrastructure with capabilities designed to scale when necessary to support future commercial launches.

Expenses related to our commercialization of FYARRO, in cluding personnel expenses, sales support, and marketing are included in selling, general and administrative expenses for the three months ended March 31, 2024.

We expect these expenses to decrease, as compared to prior periods.

• We have built our research and development team and we expect our research and development costs will increase in 2024, relative to prior periods, as a result of significant expenses related to the PRECISION1 trial which was open to enrollment during the year ended December 31, 2023 and continued enrollment through the three months ended March 31, 2024, as well as our anticipated expenses related to clinical programs for FYARRO in EEC and in NETs.

• We have built our research and development team and we expect our research and development costs will increase in 2024, relative to prior periods, as a result of significant expenses related to the PRECISION1 trial which was open to enrollment during the year ended December 31, 2023 and continued enrollment through the three and six months ended June 30, 2024, as well as our anticipated expenses related to clinical programs for FYARRO in

EEC and in NETs.

We are currently enrolling patients in (i) a Phase 2 open-label, multi-institutional study to evaluate the efficacy and safety of the combination of FYARRO with letrozole for the treatment of advanced or recurrent EEC and (ii) a Phase 2 multicenter, open-label, single-arm trial to evaluate FYARRO in adult patients with functional or non-functional, well-differentiated, locally advanced unresectable or metastatic NETs of the GI tract, lung, or pancreas who have received ≤2 prior lines of therapy, excluding somatostatin analogs (SSTa).

• Under the BMS License Agreement, as described above, we expect to make a payment of $5.8 million to BMS no later than August 26, 2024.

• We anticipate that we will receive a decision in the EOC arbitration process in the second half of 2024.

If we are required under the decision to pay any amounts to EOC, then such amounts may increase, potentially significantly, our sales, general and administrative expenses in the second half of 2024

Liquidity and Capital Resources

As of March 31, 2024, we had $88.3 million of cash, cash equivalents and short-term investments.

As of June 30, 2024, we had $78.6 million of cash, cash equivalents and short-term investments.

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into the fourth quarter of 2025.

We have incurred net losses in each year since inception and as of March 31, 2024, we had an accumulated deficit of $287.3 million.

We have incurred net losses in each year since inception and as of June 30, 2024, we had an accumulated deficit of $301.8 million.

These losses have resulted principally from costs incurred in connection with research and development activities, selling, general and administrative costs associated with our operations, and costs associated with the Merger.

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The allowance for rebates is based on contracted or statutory discount rates and expected utilization by benefit plan participants.

Our estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product

Our estimates for expected utilization of rebates are based on utilization data received from the SDs and SP since product launch.

Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity.

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The SDs and SP charge back to us the difference between the price initially paid by the SDs and SP and the discounted price paid to the SDs and SP by these entities.

If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.

actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect product sales in the period of adjustment.

• Co-Payment Assistance:

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Income Tax Expense

During the three months ended March 31, 2024, and 2023, we recognized no income tax expense on the condensed consolidated statements of operations and comprehensive loss.

During the three and six months ended June 30, 2024 and 2023, we recognized no income tax expense on the condensed consolidated statements of operations and comprehensive loss.

Since our formation in 2011, we have not recorded any U.S.

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The following table presents the results of operations for the periods indicated (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Product sales, net $ 6,179 $ 6,202 $ 11,532 $ 12,069

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Net loss $ (14,583) $ (17,971) $ (32,872) $ (33,194)

Comparison of the Three Months Ended March 31, 2024 and 2023

Comparison of the Six Months Ended June 30, 2024 and 2023

Product Sales, Net

Our product sales, net consist of sales of FYARRO since its launch in the United States on February 22, 2022.

Product sales, net for the three months ended March 31, 2024 and 2023 were $5.4 million and $5.9 million, respectively.

The decrease of sales is a result of distributor ordering patterns and fewer new patient initiations than the historical average.

Product sales, net for the three months ended June 30, 2024 and 2023 were $6.2 million and $6.2 million, respectively.

For the six months ended June 30, 2024 and 2023, product sales, net were $11.5 million and $12.1 million, respectively.

The decrease of sales for the six months ended is a result of distributor ordering patterns and fewer new patient initiations than the historical average.

Operating Expenses

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023, were $10.6 million and $11.2 million, respectively.

The decrease of $0.6 million was largely driven by a reduction of $1.1 million in consulting expenses, $0.7 million in legal and other expenses, $0.1 million in commercial and marketing expense, offset by an increase of $1.3 million of personnel expenses primarily related to severance expense due to a workforce reduction primarily related to restructuring of our commercial, medical affairs, and corporate support functions.

Selling, general and administrative expenses for the three months ended June 30, 2024 and 2023 were $7.9 million and $11.8 million, respectively.

The $3.9 million decrease was primarily driven by a reduction of $1.3 million in commercial and marketing expense, $1.3 million in legal and other expenses, $1.0 million of personnel expenses, and $0.3 million of consulting and insurance expenses.

Selling, general and administrative expenses for the six months ended June 30, 2024 and 2023 were $18.5 million and $23.0 million, respectively.

The $4.5 million decrease was primarily driven by a reduction of $2.4 million of commercial and marketing expenses, $2.0 million of legal and other expenses, and $0.3 million of consulting and insurance expenses, offset by an increase of $0.2 million of personnel expense primarily related to severance expense.

Research and Development Expenses

The following table presents our research and development expenses for the periods indicated (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Personnel expenses $ 5,519 $ 6,616 $ 11,816 $ 12,434

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Total research and development expenses $ 13,093 $ 13,315 $ 26,686 $ 24,271

Research and development expenses for the three months ended March 31, 2024 and 2023 were $13.6 million and $11.0 million, respectively.

The increase of $2.6 million was driven by a $1.7 million increase in clinical development expenses primarily related to the PRECISION1 trial and $1.4 million in clinical drug product manufacturing, offset by a decrease of $0.5 million in headcount, consultants, and other expenses.

Research and development expenses for the three months ended June 30, 2024 and 2023 were $13.1 million and $13.3 million, respectively.

The decrease of $0.2 million was primarily driven by a $1.8 million decrease in headcount, consultants, and other expenses, offset by an increase of $1.2 million of clinical development expenses related to clinical programs for FYARRO in EEC and in NETs, and $0.4 million in clinical drug product manufacturing.

Research and development expenses for the six months ended June 30, 2024 and 2023 were $26.7 million and $24.3 million, respectively.

The $2.4 million increase was primarily driven by a $2.8 million increase in clinical development expenses related to the PRECISION1 trial and $1.9 million in clinical drug product manufacturing, offset by a decrease of $2.3 million in headcount, consultants, and other expenses.

Cost of Goods Sold

Cost of goods sold was $0.7 million and $0.5 million for the three months ended March 31, 2024, and 2023, respectively, primarily reflecting royalties incurred on product sold.

Cost of goods sold for the three months ended June 30, 2024 and 2023 was $0.8 million and $0.7 million, respectively.

Cost of goods sold for the six months ended June 30, 2024 and 2023 was $1.4 million and $1.2 million , respectively.

The increase of cost of goods sold of $0.1 million and $0.2 million for the three and six months ended June 30, 2024 compared to the same period in 2023 was primarily driven by an increase of costs incurred on sales of FYARRO and costs to manufacture and prepare the product for sale.

Other Income (Expense), Net

Other income, net for the three months ended March 31, 2024 was $1.2 million, compared to other expense, net of $1.6 million for the three months ended March 31, 2023 .

The change was primarily driven by a decrease in short-term investments held during the three months ended March 31, 2024, compared to the three months ended March 31, 2023 .

Other income, net for the three months ended June 30, 2024 was $1.0 million , compared to other income, net of $1.6 million for the three months ended June 30, 2023 .

The change was primarily driven by a decrease in short-term investments held during the three months ended June 30, 2024, compared to the three months ended June 30, 2023 .

Other income, net for the six months ended June 30, 2024 was $2.2 million , compared to other income, net of $3.2 million for the six months ended June 30, 2023 .

The change was primarily driven by a decrease in short-term investments held during the six months ended June 30, 2024, compared to the six months ended June 30, 2023 .

Liquidity and Capital Resources

As of March 31, 2024 we had $88.3 million of cash, cash equivalents and short-term investments.

As of June 30, 2024 we had $78.6 million of cash, cash equivalents and short-term investments.

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will enable us to conduct our planned operations into the fourth quarter of 2025.

We have incurred net losses in each year since inception and as of March 31, 2024, we had an accumulated deficit of $287.3 million.

Our net losses were $18.3 million and $15.2 million for the three months ended March 31, 2024 and 2023, respectively.

We have incurred net losses in each year since inception and as of June 30, 2024, we had an accumulated deficit of $301.8 million.

Our net losses were $14.6 million and $18.0 million for the three months ended June 30, 2024 and 2023, respectively, and $32.9 million and $33.2 million for the six months ended June 30, 2024 and 2023, respectively.

These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations.

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We will pay Cowen 3.0% of the aggregate gross proceeds from each sale of shares of common stock under the Sales Agreement.

As of March 31, 2024, no shares of common stock had been sold under the Sales Agreement.

As of June 30, 2024, no shares of common stock had been sold under the Sales Agreement.

The shares of our common stock to be offered and sold under the Sales Agreement will be issued and sold pursuant to our shelf registration statement on the Form S-3 (File No.

333-277018) (the “Shelf Registration Statement”), which was filed with the SEC on February 12, 2024 and which became effective April 30, 2024.

No securities have yet been sold under the

Shelf Registration Statement.

No securities have yet been sold under the Shelf Registration Statement.

We filed a prospectus supplement with the SEC on May 3, 2024 in connection with the offer and sale of the shares pursuant to the Sales Agreement.

The prospectus supplement offers up to an aggregate of $13.5 million in shares of our common stock.

We will be required to file another prospectus supplement in the event we want to offer more than $13.5 million in shares of our common stock in accordance with the Sales Agreement.

The Shelf Registration Statement allows us to sell from time to time up to $150.0 million of common stock, preferred stock, debt securities, warrants, or units comprised of any combination of these securities, for our own account in one or more offerings and is intended to provide us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs.

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The 2022 PIPE Financing closed on September 26, 2022.

Aggregated net proceeds, after deducting certain expenses incurred of $0.3 million related to the issuance of the shares were $72.2 million.

Aggregate net proceeds, after deducting certain expenses incurred of $0.3 million related to the issuance of the shares, were $72.2 million.

The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities $ (28,810) $ (38,068)

Net cash provided by investing activities 6,984 66,890

Net cash (used in) provided by financing activities (10) 8

Net decrease in cash, cash equivalents and restricted cash $ (9,108) $ (4,973)

Net cash provided by financing activities 77 321

Net (decrease) increase in cash, cash equivalents and restricted cash $ (21,749) $ 29,143

Operating Activities

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Our cash flows from operating activities will continue to be affected by spending to advance and support FYARRO in additional indications in the clinic and other operating and general administrative activities, including operating as a public company.

For the three months ended March 31, 2024 , cash used in operating activities was $19.7 million and resulted from (i) our net loss of $18.3 million, (ii) a $4.8 million net increase in our operating assets and liabilities, primarily driven by a decrease in accounts payable and accrued liabilities and a decrease in prepaid expenses and other current assets, accounts receivable, and inventory, and (iii) $3.4 million in non-cash adjustments, which were primarily related share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

For the three months ended March 31, 2023 , cash used in operating activities was $21.3 million and resulted from (i) our net loss of $15.2 million, and (ii) a $7.8 million net increase in our operating assets and liabilities, primarily driven by an increase in accounts receivable, prepaid expenses, inventory and a decrease in accounts payable and accrued liabilities, and other non-current assets, offset by net non-cash adjustments totaling $1.7 million, which was primarily related to share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

For the six months ended June 30, 2024 , cash used in operating activities was $28.8 million and resulted from (i) our net loss of $32.9 million, (ii) a $1.9 million net increase in our operating assets and liabilities, primarily driven by a decrease in accounts payable and accrued liabilities and a decrease in prepaid expenses and other current assets and inventory, and (iii) $6.0 million in non-cash adjustments, which were primarily related to share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

For the six months ended June 30, 2023 , cash used in operating activities was $38.1 million and resulted from (i) our net loss of $33.2 million , (ii) a $9.0 million net increase in our operating assets and liabilities, primarily driven by a decrease in accounts payable and accrued liabilities and a decrease in prepaid expenses and other current assets, offset by an increase in accounts receivable and inventory, and (iii) $4.1 million in non-cash adjustments, which were primarily related to share based compensation, discount amortization on short-term investments, lease expense, depreciation and amortization.

Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 related to maturities of short-term investments of $18.9 million, offset by purchases of short-term investments of $7.6 million and fixed assets of $0.7 million.

Cash provided by investing activities for the three months ended March 31, 2023 related to maturities of short-term investments of $40.8 million, offset by purchases of short-term investments of $23.1 million and fixed assets of $1.4 million.

Cash provided by investing activities for the six months ended June 30, 2024 was $7.0 million related to maturities of short-term investments of $34.8 million, offset by purchases of short-term investments of $26.6 million and fixed assets of $1.3 million.

Cash provided by investing activities for the six months ended June 30, 2023 was $66.9 million related to maturities of short-term investments of $92.0 million, offset by purchases of short-term investments of $23.1 million and fixed assets of $2.1 million.

Financing Activities

Cash used in financing activities for the three months ended March 31, 2024 related to the deferred offering costs.

Cash provided by financing activities for the three months ended March 31, 2023 related to the exercise of stock options.

Cash provided by financing activities for the six months ended June 30, 2024 was $0.1 million and related to the purchase of common stock under the employee stock purchase plan offset by financing costs related to the Sales Agreement.

Cash provided by financing activities for the six months ended June 30, 2023 was $0.3 million and related to the purchase of common stock under the employee stock purchase plan and exercise of stock options offset by financing costs related to the Sales Agreement.

Contractual Obligations and Commitments

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Rent expense is being recorded on a straight-line basis.

Rent expense related to the Pacific Palisades and Morristown leases was $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023 , respectively .

Rent expense related to the Pacific Palisades and Morristown leases was $0.1 million for the three months ended June 30, 2024 and 2023, $0.2 million for the six months ended June 30, 2024 and 2023.

See Note 6 to the condensed consolidated financial statements for details related to future lease payments.

In January 2022, we entered into the Fresenius Agreement with Fresenius Kabi, pursuant to which Fresenius Kabi will manufacture FYARRO for us and we will purchase FYARRO as a finished drug product from Fresenius Kabi, on a purchase order basis.

In January 2022, we entered into a Negotiated Purchase Order Terms and Conditions for Clinical and Commercial Product, as amended effective as of August 1, 2022, March 31, 2024, and July 31, 2024 (the “Fresenius Agreement”) with Fresenius Kabi, LLC (“Fresenius Kabi”), pursuant to which Fresenius Kabi manufactures FYARRO for us and we purchase FYARRO as a finished drug product from Fresenius Kabi, on a purchase order basis.

The Fresenius Agreement contains specific activities such as non-cancellable commitments, minimum purchase commitments, or binding annual forecasts.

Under the Fresenius Agreement, which is effective through July 31, 2024 (or such later date as may be agreed between the parties in writing), we may purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

Under the Fresenius Agreement, which is effective through September 30, 2024, we purchase FYARRO for either clinical or commercial purposes for use in the United States and Canada.

We also have contracts with various organizations to conduct research and development activities, including clinical trial organizations to manage clinical trial activities and manufacturing companies to manufacture the drug product used in the clinical trials.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis