Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report and the audited financial information and the notes thereto included in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission, or SEC, on March 11, 2025. This discussion and analysis contains forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future performance that involves risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, and expectations for our business. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q. See also the section titled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage global biopharmaceutical company committed to being a leader in the development and commercialization of transformative immunology-based therapies for patients in need. With the evolving understanding of the pathogenesis of autoimmune diseases, along with the expansion of promising immunology-based pharmacologic targets, we are building an immunology and inflammation (“I&I”) focused biopharmaceutical company. Our core business strategy combines disciplined product candidate acquisition with strategic deployment of internal expertise and effective use of external resources. We leverage our experienced executive management team and our established networks throughout the biopharmaceutical industry to identify, acquire and develop product candidates that we believe can provide superior clinical benefits to patients living with autoimmune diseases.
Our lead I&I product candidate, obexelimab, is a bifunctional monoclonal antibody designed to bind both CD19 and FcγRIIb, which are broadly present across B cell lineage, in order to inhibit the activity of cells that are implicated in many autoimmune diseases without depleting them. Based on existing clinical data generated to date, we believe that targeting B cell lineage via CD19 and FcγRIIb can inhibit B cells and has been shown to be well-tolerated.
We are developing obexelimab as a potential I&I franchise for patients in several autoimmune diseases, representing substantial commercial opportunities individually and in the aggregate. The first three indications we are pursuing include IgG4-RD through an ongoing registration-directed Phase 3 trial, and relapsing multiple sclerosis (“RMS”) and systemic lupus erythematosus (“SLE”) through ongoing Phase 2, double-blind, randomized, placebo-controlled trials, each of which are currently enrolling.
Beyond our lead product candidate, obexelimab, we have two other programs for the potential treatment of other I&I indications that we may continue to advance and ultimately commercialize with partners. These consist of ZB002 and ZB004. We retain global rights for both assets. In addition, we hold the development and commercialization rights to one regional program, ZB001, and related programs, which were exclusively sublicensed to a partner in China, as discussed below.
On September 16, 2024, we completed our initial public offering (“IPO”) in which we issued and sold an aggregate of 15,220,588 shares of our common stock, including 1,985,294 shares of common stock sold pursuant to the full exercise of the underwriter’s option to purchase additional shares, at a public offering price of $17.00 per share, for aggregate gross proceeds of $258.7 million. We received $234.3 million in net proceeds after deducting underwriting discounts, commissions and other offering expenses.
On October 21, 2024, we entered into the Novation Agreement with Tenacia, under which we transferred our rights and obligations under our agreements with Dianthus to Tenacia for ZB005. As partial consideration for the Tenacia Agreement, we received a non-creditable, non-refundable upfront fee of $5.0 million from Tenacia. In addition, we are eligible to receive up to $86.0 million upon the achievement of certain future regulatory and commercial milestones.
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On January 24, 2025, the Company entered into the Zai License Agreement, with Zai, under which the Company granted Zai an exclusive sublicense to develop and commercialize ZB001 and related programs in greater China. As partial consideration for the Zai License Agreement, the Company received an upfront fee of $10.0 million from Zai. In addition, the Company is eligible to receive up to $96.0 million upon the achievement of certain future development and commercial milestones and royalty percentage rates from the low to mid-single digits, net of pass-through obligations due to Viridian.
Since inception, our operations have focused on research and development activities with respect to our product candidates as described above, as well as raising capital, business planning, organizing and staffing our company, establishing our intellectual property portfolio, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. Through March 31, 2025, we have financed our operations primarily with the proceeds from the issuance of convertible preferred stock, our convertible notes, payments received under our license and collaboration agreements and from the sale of common stock in our IPO completed in September 2024.
We have incurred significant operating losses and negative cash flows since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net losses for the three months ended March 31, 2025 and 2024, were $33.6 million and $27.8 million, respectively. As of March 31, 2025, we had an accumulated deficit of $421.0 million. We expect to continue to incur significant and increasing losses for the foreseeable future. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
● continue clinical development of obexelimab and our other programs;
● advance our obexelimab program and our other product candidates through preclinical development and clinical trials;
● identify additional product candidates and acquire rights from third parties to those product candidates through licenses or acquisitions and conduct development activities, including preclinical studies and clinical trials;
● make royalty, milestone or other payments under current, and any future, license or collaboration agreements;
● procure the manufacturing of preclinical, clinical and commercial supply of our current or any future product candidates;
● seek marketing regulatory approvals for our current or any future product candidates that successfully complete clinical trials;
● commercialize our current or any future product candidates, if approved;
● take steps toward our goal of being an integrated biopharma company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure;
● continue to develop, maintain and defend our intellectual property portfolio, including against third-party interference, infringement and other intellectual property claims, if any;
● seek to attract, hire and retain qualified clinical, scientific, operations and management personnel;
● add and maintain operational, financial and information management systems;
● attempt to address any competing therapies and market developments;
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● experience delays in our preclinical studies, clinical trials or regulatory approval for our current or any future product candidates, including with respect to failed studies, inconclusive results, safety issues or other regulatory challenges;
● establish agreements with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”); and
● incur additional costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with an exchange listing and the SEC requirements, director and officer insurance premiums and investor relations costs.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate, and we cannot assure investors that we will ever generate significant revenue or profits. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. We expect to continue to incur significant losses for the foreseeable future as we continue to advance the development of our product candidates and incur additional costs associated with being a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical studies and expenditures related to our research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued research and development and other current liabilities.
We will need to continue to raise substantial additional capital to support our continuing operations and pursue our growth strategy as a public company. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other capital sources, which could include collaborations with other companies, or other strategic transactions and licensing agreements. We may be unable to obtain financing on acceptable terms, or at all, and we may be unable to enter into collaborations or other arrangements. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, prospects, results of operations, and financial condition, including requiring us to have to delay, reduce or eliminate product development or future commercialization efforts, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves.
As there are numerous risks and uncertainties associated with development of I&I therapeutics, we are unable to 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. We will need to generate significant revenue to achieve profitability, and we may never do so. 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 March 31, 2025, we had $314.2 million in cash, cash equivalents and investments. We believe that our cash, cash equivalents and investments as of March 31, 2025 will be sufficient to fund our operations and capital expenditure requirements into the fourth quarter of 2026. We have based this estimate on our current assumptions, which may prove to be wrong, and we may exhaust our available capital resources sooner than we expect. See section titled “Liquidity and Capital Resources”.
Significant Risks and Uncertainties
The current geopolitical, trade, regulatory and economic environment, including, but not limited to the imposition of new tariffs or increases in tariff rates and other trade measures, may materially affect our business and operating results by increasing the costs of our clinical trial materials and supplies, which in turn increase our overhead costs. Additionally, the ongoing recession risk together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term and, as a result could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Such economic conditions could increase our operating costs, including our labor costs and research and development costs. For example, we import drug products and other
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components from and into China for use in the manufacturing process and in our clinical studies, and such components and products are subject to tariffs, which we anticipate will result in increased costs. Our operating and labor costs and research and development costs may also be negatively impacted due to supply chain constraints, global geopolitical tensions, worsening macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital.
Additionally, we are subject to other challenges and risk specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the clinical stage biopharmaceutical industry.
Components of Our Results of Operations
Revenue
To date, we have no product candidates approved for commercial sale in any country, and we have not generated any revenues from the sale of products. Our revenue has been derived from collaboration arrangements and license fees.
License and Collaboration Revenue
License and collaboration revenue is generated from our BMS Agreement, our Tenacia Agreement and our Zai License Agreement.
Pursuant to the BMS Agreement, we sublicensed the rights to develop and commercialize obexelimab in Japan, South Korea, Taiwan, Singapore, Hong Kong and Australia (the “BMS Territory”). We retain exclusive rights to commercialize the licensed products containing obexelimab outside of the BMS Territory. The revenue recognized to date pursuant to this arrangement relates to the license of obexelimab and the related technology transfer, which was recognized upon delivery of the license. This arrangement includes the participation by BMS in certain joint global studies of obexelimab in accordance with the terms of the BMS Agreement, in which BMS will reimburse us for its share of the related study costs. Such reimbursements will be classified as a reduction to research and development expense in the period such costs are incurred. We will recognize development and regulatory milestones defined in the BMS Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur.
Pursuant to the Tenacia Agreement, we transferred our rights, title, interest, liabilities, duties and obligations under the Option and License Agreements with Dianthus to Tenacia for ZB005. The revenue recognized to date pursuant to this arrangement relates to the novation of the ZB005 license, asset transfer and technology transfer, which was recognized upon delivery of the license, related assets and technology transfer. We will recognize development and regulatory milestones as defined in the Tenacia Agreement when the achievement of the underlying milestone events is deemed probable, which is expected to be upon achievement. Sales milestones and royalties on future sales will be recognized in the period the related sales occur.
Pursuant to the Zai License Agreement, we granted Zai an exclusive sublicense to develop and commercialize ZB001 and related programs in greater China. As partial consideration for the Zai License Agreement, we received an upfront fee of $10.0 million from Zai. In addition, we are eligible to receive up to $96.0 million upon the achievement of certain future development and commercial milestones and royalty percentage rates from the low to mid-single digits, net of pass-through obligations due to Viridian.
For a more detailed description of these agreements, see Note 7, License and Collaboration Revenue, to our condensed consolidated financial statements in this Quarterly Report.
Operating Expenses
Our operating expenses consist of (i) research and development expenses, and (ii) general and administrative expenses.
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Research and Development Expenses
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the preclinical and clinical development of obexelimab, ZB002, ZB004, ZB001 and ZB005 and include:
Direct Costs:
● external research and development expenses incurred under agreements with CROs and consultants that conduct our clinical studies and other scientific development services;
● costs incurred under agreements with CMOs for manufacturing material for our preclinical studies and clinical trials;
● costs to obtain and maintain licenses to intellectual property, and related future payments should milestones described in those agreements be achieved; and
● costs related to compliance with regulatory requirements.
Indirect Costs:
● employee-related expenses including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development activities; and
● costs of outside consultants, including their fees, stock-based compensation and related travel expenses.
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 vendors or our estimate of the level of service that has been performed at each reporting date. Payments for these external development activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid expenses or accrued expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
A significant portion of our research and development costs have been external costs, which we track on an individual product candidate basis after a clinical product candidate has been identified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Our internal research and development costs are primarily personnel-related costs and other indirect costs. We do not track internal costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.
Where we share costs with our collaboration partners, such as in our BMS Agreement, research and development expenses may include cost sharing reimbursements from our partner.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance clinical trials for our product candidates, pursue additional indications, continue to develop additional product candidates, expand our headcount and maintain, expand and enforce our intellectual property portfolio. We also expect our manufacturing costs to increase with our CMOs as we scale up our processes for commercial manufacturing. Product candidates in later stages of clinical development will 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 and additional manufacturing activities. There are numerous factors associated with
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the successful development and commercialization of any product candidates we may develop, including the safety and efficacy of our product candidates, investment in our clinical programs, manufacturing capability and competition with other products, and future commercial and regulatory factors beyond our control that will impact our clinical development program and plans.
The successful development of our current product candidates, or any product candidates we may develop in the future is highly uncertain. Therefore, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of our product candidates, if approved, and any other product candidates that we may develop. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of any current or future product candidate, if approved. This is due to the numerous risks and uncertainties associated with product development, including the uncertainty of:
● the scope, timing and progress of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● 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 programs;
● the timing of and successful patient enrollment in, and the initiation and completion of, clinical trials;
● the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (“FDA”), or any comparable foreign regulatory authority;
● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
● our ability to establish new licensing or collaboration arrangements;
● the performance of our future collaborators, if any;
● our ability to establish and maintain arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● development and timely delivery of commercial-grade drug formulations that can be used in our planned clinical trials and for commercialization;
● obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
● our ability to hire additional personnel and consultants as our business grows, including additional executive officers and clinical development, regulatory, chemistry, manufacturing, and controls (“CMC”), quality and commercial personnel;
● commercializing product candidates, if approved, whether alone or in collaboration with others;
● the costs and timing of establishing or securing sales and marketing capabilities for our product candidates if approved;
● the imposition of new laws and regulations, including those relating to labor conditions and safety standards, information and data transfer, imports, duties, taxes, and other charges on imports, as well as trade restrictions and restrictions on currency exchange or the transfer of funds, particularly new or increased tariffs imposed on imports, and as a result supply-related costs, from countries where our suppliers operate, as well as tariffs that impact the biopharmaceutical industry generally;
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● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; and
● maintaining a continued acceptable safety profile of the product candidates following approval.
Any changes in the outcome of any of these variables with respect to the development of our current product candidates or any future product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently anticipate would be required for the completion of clinical development, or if we experience significant delays in enrollment in any clinical trials following the FDA’s acceptance and clearance of an Investigational New Drug Application (“IND”), we could be required to expend significant additional financial resources and time to complete clinical development than we currently expect. We may never obtain regulatory approval for any product candidates that we develop.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation expenses for personnel in executive, finance, accounting, human resources and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting and other professional services, and expenses for rent, insurance and other operating costs not otherwise classified as research and development expenses.
We anticipate that our general and administrative expenses will increase in the next few years as we increase our headcount to support our continued research and development activities of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with the rules and regulations of the SEC, listing standards applicable to companies listed on a national securities exchange, director and officer insurance costs, and investor and public relations costs. In addition, if we obtain regulatory approval for our current product candidates or any product candidates we may develop in the future and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities. We will also incur pre-commercialization expenses to facilitate commercial readiness, if a product candidate is approved.
Total Other Income (Expense), Net
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income generated from cash equivalents and investments and realized and unrealized gains and losses on foreign currency transactions.
Income Taxes
Since our inception, we have not recorded income tax benefits for any of our deferred tax assets, including the net operating losses (“NOLs”) incurred or the research and development tax credits generated in each year, as we have concluded that it is more likely than not that these deferred tax assets will not be realized.
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Results of Operations
Comparison of the Three Months Ended March 31, 2025 and 2024
The following table summarizes our results of operations for each of the periods presented (in thousands):
Three Months Ended March 31,
2025
2024
Increase (Decrease)
Revenue:
License and collaboration revenue
$
10,000
$
—
$
10,000
Total revenue
10,000
—
10,000
Operating expenses:
Research and development
$
34,915
$
22,645
$
12,270
General and administrative
12,415
4,933
7,482
Total operating expenses
47,330
27,578
19,752
Loss from operations
(37,330)
(27,578)
(9,752)
Other income (expense), net:
Fair value adjustments to convertible notes
—
(694)
694
Other income, net
3,552
472
3,080
Total other income (expense), net
3,552
(222)
3,774
Loss before income taxes
(33,778)
(27,800)
(5,978)
Income tax benefit
205
—
205
Net loss
$
(33,573)
$
(27,800)
$
(5,773)
Revenue
We recognized license and collaboration revenue of $10.0 million for the three months ended March 31, 2025, related to the one-time non-refundable upfront cash payment under the Zai License Agreement that was recognized upon delivery of the license and related technology transfer. We did not recognize any license and collaboration revenue during the three months ended March 31, 2024.
Research and Development Expenses
The following table summarizes our research and development expenses for each of the periods presented (in thousands):
Three Months Ended March 31,
2025
2024
Increase (Decrease)
Direct research and development expenses by program:
Obexelimab
$
23,491
$
12,295
$
11,196
Other programs (ZB002 & ZB004)
203
894
(691)
Partnered regional programs (ZB001 & ZB005)
99
1,588
(1,489)
Unallocated research and development expenses:
Personnel expenses (including stock-based compensation)
10,779
7,563
3,216
Other expenses
343
305
38
Total research and development expenses
$
34,915
$
22,645
$
12,270
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Research and development expenses were $34.9 million for the three months ended March 31, 2025, compared to $22.6 million for the three months ended March 31, 2024. The increase of $12.3 million was primarily attributable to the following:
● a $11.2 million increase in costs related to the development of obexelimab, our lead product candidate, driven by a $7.4 million increase in clinical trial costs and a $3.6 million increase in manufacturing costs for clinical trial materials;
● a $1.5 million decrease in costs related to our partnered regional programs, including a $0.9 million decrease related to ZB005, largely driven by a decrease in clinical activities and a $0.6 million decrease related to ZB001 as the ongoing clinical studies were out licensed; and
● a $3.2 million increase in personnel costs, including a $1.9 million increase in salary and benefit related expense, primarily due to an increase in headcount, a $1.2 million increase in stock-based compensation expense, and a $0.1 million increase in external contractor expense and other personnel costs.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for each of the periods presented (in thousands):
Three Months Ended March 31,
2025
2024
Increase (Decrease)
Personnel related expenses (including stock-based compensation)
$
8,349
$
2,890
$
5,459
Legal and professional fees
2,153
1,175
978
Facilities
902
507
395
Other expenses
1,011
361
650
Total general and administrative expenses
$
12,415
$
4,933
$
7,482
General and administrative expenses were $12.4 million for the three months ended March 31,2025, compared to $4.9 million for the three months ended March 31,2025. The increase of $7.5 million was primarily attributable to the following:
•
a $5.5 million increase in personnel costs, including a $3.3 million increase in stock-based compensation expense, a $1.8 million increase in salary and benefit related expense, primarily due to an increase in headcount, personnel associated with pre-commercialization activities, and a $0.5 million increase in recruiting expense;
•
a 1.0 million increase in professional fees, including legal, audit and tax expenses, primarily attributable to operating as a public company; and
•
a $1.0 million increase in facilities and other expenses, is primarily attributable to facility, insurance and other variable costs related to operating as a public company.
Total Other Income (Expense), Net
For the three months ended March 31, 2025, total other income (expense), increased from the comparable period in the prior year primarily due to interest income as a result of higher cash, cash equivalents and investments.
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Liquidity and Capital Resources
Overview
We have incurred significant operating losses since inception. We have not yet commercialized any product candidates, and we do not expect to generate revenue from sales of any product candidates or from other sources for several years, if at all. As of March 31, 2025, we had $314.2 million in cash, cash equivalents, and investments and we had an accumulated deficit of $421.0 million. Through March 31, 2025, we have funded our operations primarily with gross proceeds of $358.0 million through the sale and issuance of our preferred stock, our convertible notes, as well as $65.0 million through our BMS Agreement, Tenacia Agreement and Zai Agreement, and most recently, from the sale of common stock in our IPO for which we received $234.3 million in net proceeds, after deducting underwriting discounts, commissions and other offering expenses.
Future Funding Requirements:
We believe that our available cash, cash equivalents and investments, as of March 31, 2025, are sufficient to fund our operations and capital expenditure requirements for at least the next 12 months from the filing of this Quarterly Report. We estimate that our existing cash, cash equivalents and investments will be sufficient to fund our projected operations and capital expenditure requirements into the fourth quarter of 2026. Our primary uses of capital are, and we expect to continue to be, compensation and related expenses, third-party clinical research and development services, manufacturing costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.
Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
● the scope, timing, progress results and costs of our ongoing obexelimab clinical studies and other research and development activities associated with the development of our other and future product candidates;
● the costs, timing and outcome of regulatory review of product candidates;
● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, for any product candidates for which we receive marketing approval;
● the costs of establishing and maintaining arrangements with third-party manufacturers for the commercial supply of products that receive marketing approval, if any;
● the costs and timing of manufacturing for obexelimab and other product candidates, including commercial manufacturing at sufficient scale, if any product candidate is approved, including as a result of inflation, any supply chain issues or component shortages;
● the revenue, if any, received from commercial sale of our products, should any product candidates receive marketing approval;
● the cash requirements of any future acquisitions or discovery of product candidates;
● the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth;
● the cost of implementing operational, financial and management systems;
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● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
● our ability to establish and maintain collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all;
● our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
● the timing, receipt and amount of sales of, or milestone payments related to or royalties on, current or future product candidates, if any; and
● the costs associated with operating as a public company, including legal, accounting or other expenses in operating our business.
A change in the outcome of any of these or other variables with respect to the development of obexelimab or any other product candidate could significantly change the costs and timing associated with our operating plans. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
We have no products approved for commercial sale and have not generated any product revenues from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financing and additional funding from licenses, strategic alliances and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity.
We have incurred losses and cumulative negative cash flows from operations since our inception. We anticipate that we will continue to incur significant losses for at least the next several years. We expect our research and development, and general and administrative expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of the sale of our equity, debt financings, or other sources, including potential collaborations. To the extent that we raise capital through the future sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we enter into debt financing arrangements, if available, they may involve restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, which could adversely impact our ability to conduct our business.
If we raise additional funds through licenses, strategic alliances or collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or drug 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 when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
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Cash Flows
The following table provides information regarding our cash flows for each of the periods presented (in thousands):
Three Months Ended March 31,
2025
2024
Net cash used in operating activities
$
(37,051)
$
(19,102)
Net cash used in investing activities
(86,274)
(22)
Net cash provided by (used in) financing activities
99
(614)
Effect of exchange rate changes on cash and restricted cash
(52)
36
Net decrease in cash, cash equivalents and restricted cash
$
(123,278)
$
(19,702)
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2025 was $37.1 million, and was primarily due to our net loss of $33.6 million, partially offset by $5.4 million of stock-based compensation expense, $2.9 million increase in accounts payable, a $0.4 million increase in prepaid expenses and other assets and a $11.2 million decrease in accrued expenses. The net decrease in accounts payable and accrued expenses was primarily due to the timing of vendor payments.
Net cash used in operating activities for the three months ended March 31, 2024 was $19.1 million, and was primarily due to our net loss of $27.8 million, partially offset by a $3.4 million increase in accounts payable, a $1.8 million increase in prepaid expenses and other assets, a $1.5 million increase in other current liabilities, $0.9 million of stock-based compensation expense, $0.7 million increase in the fair value of our BMS Note Liability and a $0.3 million increase in accrued expenses. The increase in accrued expenses and accounts payable was primarily due to an increase in research and development expenses, while the increase in prepaid expenses and other assets was primarily due to the timing of vendor payments.
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2025 was $86.3 million and consisted primarily of proceeds from sales and maturities of investments of $12.9 million, offset by purchases of investments of $99.1 million.
Net cash used in investing activities for the three months ended March 31, 2024 was less than $0.1 million and consisted of purchases of property and equipment.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2025 was $0.1 million, resulting from $0.1 million of proceeds received from the exercise of stock options.
Net cash used in financing activities for the three months ended March 31, 2024 was $0.6 million, resulting from a $0.7 million in payment of offering costs, partially offset by less than $0.1 million of proceeds received from the exercise of stock options.
Material Cash Requirements for Known Contractual and Other Obligations
During the three months ended March 31, 2025, 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 fiscal year ended December 31, 2024.
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Critical Accounting Policies and Significant Judgments and Estimates
Management’s discussion and analysis of our 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 (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make judgements, assumptions and estimates that may affect the reported amounts of assets and liabilities, equity, and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reported periods. On an ongoing basis, we evaluate our judgments, assumptions and estimates in light of changes in circumstances, facts and experiences. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be 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. Actual results may differ from these estimates under different assumptions or conditions. The effects of material revisions in estimates, if any, will be reflected in the condensed consolidated financial statements prospectively from the date of change in estimates.
There have been no material changes to our critical accounting policies from those described under our “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Recent 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, Summary of Significant Accounting Policies , in this Quarterly Report on Form 10-Q.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold nonbinding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We may take advantage of these exemptions until December 31, 2029 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.235 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least twelve months and have filed one Annual Report on Form 10-K) or we issue more than $1.0 billion of nonconvertible debt securities over a three year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions.
In addition, the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”) provides that, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates following the IPO is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller
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reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. We may continue to be a smaller reporting company until the fiscal year following the determination that we no longer meet the requirements necessary to be considered a smaller reporting company.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.