CARISMA THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical information, some of the information contained in the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. You should review "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a late-stage clinical company that previously focused on advancing targeted fusion protein therapeutics ("TFPTs") for the treatment of patients with cancer.
Our most advanced product candidate, Vicineum, also known as VB4-845, is a
locally administered targeted fusion protein composed of an anti-epithelial cell
adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of
Pseudomonas exotoxin A for the treatment of non-muscle invasive bladder cancer
("NMIBC").
On July 15, 2022 , we made the strategic decision to voluntarily pause further
development of Vicineum in the United States . The decision was based on a
thorough reassessment of Vicineum following discussions with the United States
Food and Drug Administration ("FDA"), which had implications on the size,
timeline and costs of an additional Phase 3 clinical trial, which the FDA
previously confirmed would be required for a potential resubmission of a
biologics license application ("BLA") for Vicineum for the treatment of NMIBC.
As a result of this decision, we turned our primary focus to consummating a
strategic transaction with the goal of maximizing stockholder value.
Following an extensive process of evaluating strategic alternatives, including
identifying and reviewing potential candidates for a strategic transaction, on
September 20, 2022 , we, Seahawk Merger Sub, Inc. , a Delaware corporation and our
wholly-owned subsidiary ("Merger Sub"), and CARISMA Therapeutics Inc.
("Carisma"), entered into the Agreement and Plan of Merger and Reorganization
dated as of September 20, 2022 , as amended by the First Amendment thereto dated
as of December 29, 2022 and the Second Amendment thereto dated as of February
13, 2023 (the "Merger Agreement"), pursuant to which, among other things, and
subject to the satisfaction or waiver of certain conditions set forth in the
Merger Agreement, Merger Sub will merge with and into Carisma , with Carisma
continuing as our wholly-owned subsidiary and the surviving corporation of the
merger (the "Merger"). Our board of directors unanimously approved the Merger
Agreement and resolved to recommend that our stockholders approve the proposals
described in the Merger Agreement. If the Merger is completed, the business of
Carisma will continue as the business of the combined company.
We continue to believe that Vicineum has benefits for patients and healthcare
providers that can be maximized through a company with a larger infrastructure,
and as such, we are seeking a partner that can execute further development to
realize the full potential of Vicineum. As a result of such decision and our
subsequent decision to enter into the proposed Merger with Carisma , we no longer
plan to pursue regulatory approval of Vicineum for NMIBC in the European Union
(the "E.U.") and have started to wind down certain of our manufacturing
operations and business development partnerships. Additionally, we are seeking a
partner for the further development of Vicineum and have initiated a formal
process and engaged a financial advisor for the potential sale of Vicineum. If
the proposed Merger is consummated, the combined company does not expect to
pursue further development of Vicineum.
Anticipated Merger with
The Merger is expected to be completed during the first quarter of 2023. In connection with the Merger, we are seeking the approval of our stockholders to, among other things, (a) issue the shares of our common stock issuable in connection with the Merger pursuant to the rules ofThe Nasdaq Stock Market LLC ("Nasdaq"), and (b) amend our amended and restated Certificate of Incorporation to effect a reverse stock split of the outstanding shares of our common stock at a ratio of 1-for-20 (clauses (a) and (b), collectively, the "Sesen Bio Voting Proposals"). The special meeting of stockholders in which our stockholders will be asked to vote on the Sesen Bio Voting Proposals (the "Special Meeting") will be held onMarch 2, 2023 at10:00 a.m. Eastern Time . Consummation of the Merger is subject to certain closing conditions, including, among other things, (a) approval by our stockholders of the Sesen Bio Voting Proposals as described in the Merger Agreement, (b) approval byCarisma's stockholders of, among other things, the adoption of the Merger Agreement, (c) Nasdaq's approval of the listing of the shares of our common stock to be issued in connection with the Merger, (d) the effectiveness of a registration statement on Form S-4 to register the shares of our common stock to be issued in connection with the Merger, and (e) our having net cash as of closing of the Merger greater than or equal to$70.0 million . 27 -------------------------------------------------------------------------------- The Merger Agreement contains certain termination rights of each of us andCarisma . Upon termination of the Merger Agreement under specified circumstances, we may be required to payCarisma a termination fee of$7.6 million and/or reimburseCarisma's expenses up to a maximum of$1.75 million , andCarisma may be required to pay us a termination fee of$5.49 million and/or reimburse our expenses up to a maximum of$1.75 million . Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each then outstanding share ofCarisma common stock andCarisma preferred stock (including shares ofCarisma's common stock issued in connection with the pre-closing financing described below) will be converted into the right to receive a number of the shares of our common stock calculated in accordance with the Merger Agreement (the "Exchange Ratio"), and (b) each then outstandingCarisma stock option to purchaseCarisma's common stock will be assumed by us, subject to adjustment as set forth in the Merger Agreement. Concurrently with the execution and delivery of the Merger Agreement,Carisma entered into a subscription agreement with certain investors named therein, pursuant to which such investors have agreed, subject to the terms and conditions of such subscription agreement, to purchase prior to the consummation of the Merger shares ofCarisma's common stock for an aggregate purchase price of approximately$30.6 million (the "Carisma Pre-Closing Financing"). The consummation of the Carisma Pre-Closing Financing is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement. Shares ofCarisma's common stock issued pursuant to the Carisma Pre-Closing Financing will be converted into shares of our common stock in the Merger in accordance with the Exchange Ratio. At or prior to the effective time of the Merger, we will enter into a Contingent Value Rights Agreement (the "CVR Agreement") with a rights agent (the "Rights Agent") pursuant to which we intend to declare a dividend payable to our stockholders of record as of a date agreed to by us andCarisma prior to the effective time of the Merger with respect to the receipt of one contingent value right (each, a "CVR"), for each outstanding share of our common stock held by such stockholders on such date. Each CVR will represent the contractual right to receive (i) contingent cash payments upon the receipt by us of certain proceeds payable by Roche, if any, pursuant to the asset purchase agreement withF. Hoffmann-La Roche Ltd andHoffmann-La Roche Inc. (collectively, "Roche") (the "Roche Asset Purchase Agreement"), upon the achievement by Roche of a specified milestone set forth in the Roche Asset Purchase Agreement as well as (ii) proceeds from any sale of our legacy assets, including Vicineum, subject to certain customary deductions, including for expenses and taxes, in the event any sale occurs prior toMarch 31, 2027 . The contingent payments under the CVR Agreement, if they become due, will be payable to the Rights Agent for subsequent distribution to the holders of the CVRs. In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that any cash payment will be made or that any holders of CVRs will receive any amounts with respect thereto.
Also in connection with the Merger, we intend to declare a one-time
OnFebruary 13, 2023 , a group of our significant stockholders (the "Investor Group ") entered into a voting and support agreement with us andCarisma (the "Support Agreement") pursuant to which theInvestor Group agreed to vote, at the Special Meeting, any and all of their shares of our common stock in favor of the Merger and related matters, subject to the terms and conditions set forth in the Support Agreement. Our future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. In the event that we do not complete the Merger withCarisma , we may decide to pursue a dissolution underDelaware law. In a dissolution, there can be no assurances as to the amount or timing of available cash, if any, to distribute to our stockholders after paying our debts and other obligations and setting aside funds for reserves. Other Recent Events 2022 Restructuring Plan OnJuly 15, 2022 , we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following the decision to voluntarily pause further development of Vicineum inthe United States (the "2022 Restructuring Plan"). Execution of the 2022 Restructuring Plan is expected to be substantially completed in connection with the closing of the Merger, which is expected to occur in the first quarter of 2023. The 2022 Restructuring Plan includes an incremental reduction in our workforce as well as additional cost-saving initiatives intended to preserve capital during the pendency of the Merger and while we seek a potential partner for the further development of Vicineum. We also incurred one-time cash costs associated with the termination of certain contracts and all other activities under the 2022 Restructuring Plan. 2022 Retention Program OnAugust 28, 2022 , our board of directors and the compensation committee of the board of directors approved a retention program for certain employees pursuant to which we will provide a cash incentive designed to retain such employees (the 28 -------------------------------------------------------------------------------- "2022 Retention Program"). Pursuant to the 2022 Retention Program, certain of our employees, including certain executive officers other than our Chief Executive Officer, were to have received a cash bonus award, vesting in full upon the earlier of (a) the completion of a strategic transaction and (b) the termination of such employee without cause, subject to the employee's continued employment through that time. OnFebruary 7, 2023 , the compensation committee of the board of directors approved a modification to the 2022 Retention Program, such that the vesting of the retention bonus awards for employees, other than executive officers, will occur upon the earlier of (a)5:00 pm Eastern Time on the second business day following the date of the Special Meeting regardless of the results of the Special Meeting and (b) the termination of the Merger Agreement in accordance with its terms. The terms of the 2022 Retention Program for those executive officers participating in the 2022 Retention Program were not modified. Nasdaq Delisting Notice OnJanuary 25, 2023 , we were notified by theListing Qualifications Department (the "Staff") of Nasdaq that, based upon our non-compliance with the$1.00 bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Rule"), our common stock will be delisted from Nasdaq unless we timely request a hearing before aNasdaq Hearings Panel (the "Panel"). We requested a hearing before the Panel, which stayed any delisting action by the Staff and ensured our common stock remains listed and eligible for trading on Nasdaq pending a determination by the Panel. The hearing had been scheduled forMarch 16, 2023 . OnFebruary 24, 2023 , we received a determination from theNasdaq Office of General Counsel that the Panel granted us an exception from our non-compliance with the Bid Price Rule to complete the Merger byMarch 10, 2023 . Pursuant to Nasdaq Listing Rule 5110(a), we must demonstrate compliance with all initial listing requirements of Nasdaq upon the closing of the Merger. We are seeking approval for the Merger and the implementation of a reverse stock split of our common stock at the Special Meeting. In the event we fail to establish compliance with the initial listing standards byMarch 10, 2023 , our common stock will be delisted from Nasdaq, unless granted an additional exception by the Panel. As previously disclosed, onJanuary 24, 2022 , we received written notice from the Staff indicating that, based upon the closing bid price for our common stock for the previous 30 consecutive business days, we no longer satisfied the Bid Price Rule and, in accordance with the Nasdaq Listing Rules, were afforded an initial grace period of 180 calendar days, throughJuly 25, 2022 , and a second 180-calendar day period, throughJanuary 23, 2023 , to regain compliance with the Bid Price Rule. We did not regain compliance with the Bid Price Rule byJanuary 23, 2023 , which resulted in the Staff'sJanuary 25, 2023 , determination.
Sale of EBI-031 Legacy Technology to Roche
InJune 2016 , we entered into a license agreement with Roche (the "Roche License Agreement"), pursuant to which we granted Roche an exclusive, worldwide license, including the right to sublicense, to our patent rights and know-how related to our monoclonal antibody EBI-031 and all other IL-6 anti-IL antagonist monoclonal antibody technology owned by us (collectively, the "Roche Licensed Intellectual Property"). Under the Roche License Agreement, Roche was required to continue developing, at its cost, EBI-031 and any other product made from the Roche Licensed Intellectual Property that contains an IL-6 antagonist anti-IL monoclonal antibody and pursue ongoing patent prosecution, at its cost. At the time of entering into the Roche License Agreement, EBI-031, which was derived using our previous AMP-Rx platform, was in pre-clinical development as an intravitreal injection for diabetic macular edema and uveitis. OnJuly 15, 2022 , we entered into the Roche Asset Purchase Agreement pursuant to which Roche purchased all patent rights and know-how related to the monoclonal antibody EBI-031 and all other IL-6 antagonist monoclonal antibody technology owned by us for up to$70.0 million . As a result of the Roche Asset Purchase Agreement, the Roche License Agreement was terminated resulting in no further diligence, milestone, or royalty payment obligations under the Roche License Agreement. Pursuant to the Roche Asset Purchase Agreement, Roche made a$40.0 million payment to us upon execution of the Roche Asset Purchase Agreement. The Roche Asset Purchase Agreement also provides that Roche will make an additional$30.0 million payment to us upon Roche's initiation of a Phase 3 clinical trial with EBI-031 for a defined indication if initiated prior toDecember 31, 2026 . Additionally, in connection with the Merger, each CVR will represent the contractual right to receive contingent cash payments upon the receipt by us of certain proceeds payable by Roche, if any, pursuant to the Roche Asset Purchase Agreement, upon the achievement by Roche of a specified milestone set forth in the Roche Asset Purchase Agreement as well as proceeds from any sale of our legacy assets, including Vicineum.
Our Historical TFPT Platform
Our historical product candidates are based on our proprietary TFPT platform and
are focused on addressing areas of unmet medical need in cancer. Our novel TFPTs
have been designed to overcome the efficacy and safety challenges of existing
antibody drug conjugates and were being developed for both local and systemic
administration. Our TFPTs are single protein therapeutics composed of targeting
domains genetically fused via peptide linkers to cytotoxic protein payloads that
are produced through our proprietary recombinant one-step, microbial
manufacturing process. Our TFPT platform uses antibody
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fragments, which include Fabs, single chain variable domains ("scFvs"), and
non-covalent scFv dimers, derived from the domains of antibodies that confer
antigen recognition. We selected antibody fragments for our historical product
candidates depending upon the target therapeutic indication. We targeted tumor
cell surface antigens showing limited expression on normal cells and once bound,
is rapidly internalized into the targeted cancer cell. For local
administrations, we utilized an immunogenic cytotoxic protein payload designed
to both target cancer cells and promote a heightened local immune response
against the tumor. Our most advanced locally administered TFPT product candidate
was Vicineum, in development for the treatment of non-muscle invasive carcinoma
in situ ("CIS") of the bladder in patients previously treated with adequate or
less than adequate bacillus Calmette-Guérin ("BCG"). For systemic
administrations, we used deBouganin, a plant-derived, protein payload of reduced
immunogenic potential that we believe can be repeatedly administered via
infusion without the generation of an efficacy-limiting immune response against
the payload.
Vicineum for the treatment of NMIBC
We completed the follow-up stage of our single-arm, multi-center, open-label
Phase 3 clinical trial of Vicineum as a monotherapy in patients with
BCG-unresponsive NMIBC (the "VISTA Trial") in
The VISTA Trial completed enrollment inApril 2018 with a total of 133 patients. InDecember 2020 , we submitted our completed BLA for Vicineum for the treatment of BCG-unresponsive NMIBC to the FDA, which was accepted for filing by the FDA inFebruary 2021 . The FDA granted Priority Review for the BLA and set a target Prescription Drug User Fee Act date for a decision on the BLA ofAugust 18, 2021 . OnAugust 13, 2021 , we received a Complete Response Letter ("CRL") from the FDA indicating that the FDA had determined that it could not approve the BLA for Vicineum in its present form and provided recommendations specific to additional clinical/statistical data and analyses in addition to chemistry, manufacturing, and controls ("CMC") issues pertaining to a pre-approval inspection and product quality. OnAugust 20, 2021 , we withdrew our marketing authorization application ("MAA") to theEuropean Medicines Agency (the "EMA") for Vysyneum for the treatment of BCG-unresponsive NMIBC in order to pause our plans to pursue regulatory approval of Vysyneum in the E.U. until there was more clarity from the FDA on next steps for Vicineum inthe United States . Vysyneum is the proprietary brand name conditionally approved by the EMA for oportuzumab monatox in the E.U. InOctober 2021 , the EMA issued its Withdrawal Assessment Report relating to its MAA for Vysyneum, as is consistent with the EMA's standard practice when an MAA is withdrawn. The EMA Withdrawal Assessment Report reflected the initial assessment and corresponding questions from the EMA and identified major objections in the areas of quality, good clinical practice, efficacy, and safety. As a result of our decision onJuly 15, 2022 to pause further development of Vicineum inthe United States , we no longer plan to pursue regulatory approval of Vysyneum for NMIBC in the E.U. InOctober 2021 andDecember 2021 , we participated in a CMC Type A meeting and a Clinical Type A meeting, respectively, with the FDA to discuss issues raised in the CRL and design elements of an additional Phase 3 clinical trial for Vicineum, which the FDA confirmed would be required for a potential resubmission of a BLA. InMarch 2022 , we participated in a Type C meeting with the FDA. During the Type C meeting, the FDA agreed to a majority of our proposed protocol and statistical analysis plan design elements for an additional Phase 3 clinical trial. OnJuly 11, 2022 , we participated in a Type B meeting with the FDA to discuss outstanding items related to our proposed protocol and statistical analysis plan design elements for an additional Phase 3 clinical trial. As discussed above, onJuly 15, 2022 , we made the strategic decision to voluntarily pause further development of Vicineum inthe United States . If the Merger is consummated, the combined company does not expect to pursue further development of Vicineum.
Phase 3 Clinical Trial - VISTA Trial
In the third quarter of 2015, inthe United States andCanada , through our subsidiaryViventia Bio, Inc. , we commenced the VISTA Trial in patients with BCG-unresponsive NMIBC who had received adequate BCG and whose disease was-then BCG-unresponsive, and for whom the then-current standard of care was radical cystectomy. InNovember 2016 , the FDA issued draft guidance regarding appropriate clinical trial design for new drugs and biologics for BCG-unresponsive NMIBC, including the use of single-arm trials. The FDA finalized this guidance inFebruary 2018 and retained many of the recommendations from the 2016 draft guidance regarding clinical trial design, including the use of single-arm trials. We believe that our VISTA Trial design was consistent with these aspects of theFDA's guidance. InMay 2022 , we completed the follow up phase of the VISTA Trial. 30 --------------------------------------------------------------------------------
The primary and secondary endpoints for the VISTA Trial were as follows:
Dose 30 mg of Vicineum (in 50 mL of saline)
Total enrollment 133 patients, including 93 CIS patients whose disease is
BCG-unresponsive
Primary endpoints Complete response rate ("CRR") at 3months in patients with CIS (with
or without papillary disease) whose disease is BCG-unresponsive
Kaplan-Meier estimate of duration of response ("DoR") for
BCG-unresponsive CIS patients whoexperience a Complete Response
("CR") at 3 months (post-induction)
Patients with CIS were considered to have a CR if, at the time of any disease
status evaluation (per protocol every 13 weeks or any unscheduled evaluation),
there was no evidence of high-grade disease (CIS, high-grade Ta or any grade T1
disease) or disease progression (e.g., to muscle invasive disease). Low-grade
disease was not considered a treatment failure in these patients, and they could
remain on study treatment following TURBT.
Secondary endpoints Event-free survival in all patients
CRR at 6, 9, 12, 15, 18, 21 and 24 months in patients with CIS whose
disease is BCG-unresponsive
Time to cystectomy in all patients
Time to disease recurrence in papillary patients
Progression free survival (PFS) in all patients
Overall Survival (OS) in all patients
Safety and tolerability of Vicineum therapy in all patients
Exploratory endpoint To evaluate biomarkers that may beassociated with response or disease
progression or treatment failure, which may include, for example, EpCAM
status, tumor subtype morphology, furin levels in tumor cell endosomes,
presence of a glycosaminoglycan coat and presence of receptors that could
impede a host anti-tumor immune response, such as PD-L1.
The VISTA Trial completed enrollment inApril 2018 with a total of 133 patients across three cohorts based on histology and time to disease recurrence after adequate BCG treatment (under 2018 FDA guidance on treatment of NMIBC, adequate BCG is defined as at least one of the following (i) at least five of six doses of an initial induction course plus at least two of three doses of maintenance therapy or (ii) at least five of six doses of an initial induction course plus at least two of six doses of a second induction course): •Cohort 1 (n=86): Patients with CIS with or without papillary disease that were determined to be refractory or recurred within six months of their last course of adequate BCG;
•Cohort 2 (n=7): Patients with CIS with or without papillary disease that recurred after six months, but less than 11 months, after their last course of adequate BCG; and
•Cohort 3 (n=40): Patients with high-risk (Ta or T1) papillary disease without CIS that recurred within six months of their last course of adequate BCG.
As of the
Cohort 1 (n=86) Evaluable Population (n=82) Complete Response Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=82 39% (28%-50%)
6-months n=82 26% (17%-36%)
9-months n=82 20% (12%-30%)
12-months n=82 17% (10%-27%)
*Response-evaluable population includes any mITT patient who completed the
induction phase.
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Cohort 2 (n=7) Evaluable Population (n=7) Complete Response Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=7 57% (18%-90%)
6-months n=7 57% (18%-90%)
9-months n=7 43% (10%-82%)
12-months n=7 14% (0%-58%)
*Response-evaluable population includes any mITT patient who completed the
induction phase.
Pooled Cohorts 1 and 2 (n=93) Evaluable Population (n=89) Complete Response
Rate, for CIS:
Time Point Evaluable Patients* Complete Response Rate
(95% Confidence Interval)
3-months n=89 40% (30%-51%)
6-months n=89 28% (19%-39%)
9-months n=89 21% (13%-31%)
12-months n=89 17% (10%-26%)
*Response-evaluable population includes any mITT patient who completed the
induction phase.Phase 3 Pooled Complete Response Rate vs. Phase 2 Pooled Complete Response Rate:
Time Point Phase 3 Pooled CRR (95% Confidence Phase 2 Pooled CRR (95% Confidence
Interval) Interval)
3-months 40% (30%-51%) 40% (26%-56%)
6-months 28% (19%-39%) 27% (15%-42%)
9-months 21% (13%-31%) 18% (8%-32%)
12-months 17% (10%-26%) 16% (7%-30%)
Cohort 3 (n=40) Evaluable Population (n=38) Recurrence-Free Rate†:
Time Point Evaluable Patients* Recurrence-Free Rate
(95% Confidence Interval)
3-months n=38 71% (54%-85%)
6-months n=38 58% (41%-74%)
9-months n=38 45% (29%-62%)
12-months n=38 42% (26%-59%)
†Recurrence-free rate is defined as the percentage of patients that are
recurrence-free at the given assessment time point.*Response-evaluable population includes any mITT patient who completed the
induction phase.
Duration of Response: The median DoR for patients in Cohort 1 and Cohort 2
combined (n=93) was 287 days (95% CI, 154-NE), using the Kaplan-Meier method.
Additional ad hoc analysis of pooled data for all patients with CIS (Cohorts 1
and 2, n=93) showed that among patients who achieved a complete response at 3
months, 52% remained disease-free for a total of 12 months or longer after
starting treatment, using the Kaplan-Meier method. DoR is defined as the time
from first occurrence of complete response to documentation of treatment failure
or death.
We have conducted additional analyses for secondary endpoints. These additional data include the following:
•Time to Cystectomy: Across all 133 patients treated with Vicineum in the VISTA
Trial, greater than 75% of all patients are estimated to remain cystectomy-free
at 3 years, using the Kaplan-Meier method. Additional ad hoc analysis showed
that approximately 88% of responders are estimated to remain cystectomy-free at
3 years. Time to cystectomy is defined as the time from the date of first dose
of study treatment to surgical bladder removal. The first 2018 FDA guidance on
treatment of BCG-unresponsive NMIBC patients states that the goal of therapy in
such patients is to avoid cystectomy. Therefore, time to cystectomy is a key
secondary endpoint in the VISTA Trial.
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•Time to Disease Recurrence: High-grade papillary (Ta or T1) NMIBC is associated
with high rates of progression and recurrence. The median time to disease
recurrence for patients in Cohort 3 (n=40) was 402 days (95% CI, 170-NE), using
the Kaplan-Meier method. Time to disease recurrence is defined as the time from
the date of the first dose of study treatment to the first occurrence of
treatment failure or death on or prior to treatment discontinuation.
•Progression-Free Survival ("PFS"): 90% of all 133 patients treated with
Vicineum in the VISTA Trial are estimated to remain progression-free for 2 years
or greater, using the Kaplan-Meier method. PFS is defined as the time from the
date of first dose of study treatment to the first occurrence of disease
progression (e.g., T2 or more advanced disease) or death on or prior to
treatment discontinuation.
•Event-Free Survival: 29% of all 133 patients treated with Vicineum in the VISTA
Trial are estimated to remain event-free at 12 months, using the Kaplan-Meier
method. Event-free survival is defined as the time from the date of first dose
of study treatment to the first occurrence of disease recurrence, progression or
death on or prior to treatment discontinuation.
•Overall Survival ("OS"): 96% of all 133 patients treated with Vicineum in the
VISTA Trial are estimated to have an OS of 2 years or greater, using the
Kaplan-Meier method. OS is defined as the time from the date of first dose of
study treatment to death from any cause.
Data is as of the May 29, 2019 data cut from the Phase III VISTA Trial. The
clinical data shown are based on the data submitted in the BLA on December 18,
2020 . Final numbers are pending. On August 13, 2021 , the FDA issued a CRL for
the BLA that included requests for additional clinical and statistical data.
Safety Results
As of theMay 29, 2019 data cutoff date, in patients across all cohorts (n=133) of our Phase 3 VISTA Trial of Vicineum for the treatment of BCG-unresponsive NMIBC, 88% experienced at least one adverse event, with 95% of adverse events being Grade 1 or 2. The most commonly reported treatment-related adverse events were dysuria (14%), hematuria (13%) and urinary tract infection (12%), all of which are consistent with the profile of bladder cancer patients and the use of catheterization for treatment delivery. These adverse events were determined by the clinical investigators to be manageable and reversible, and only four patients (3%) discontinued treatment due to an adverse event. Serious adverse events, regardless of treatment attribution, were reported in 14% of patients. There were four treatment-related serious adverse events reported in three patients including acute kidney injury (Grade 3), pyrexia (Grade 2), cholestatic hepatitis (Grade 4) and renal failure (Grade 5 or death). There were no age-related increases in adverse events observed in the VISTA Trial.
Components of Our Results of Operations
License Revenue
License revenue consists of revenue recognized pursuant to our former commercialization partnership agreements, including the exclusive license agreement entered into withQilu Pharmaceutical, Co., Ltd. ("Qilu") (the "Qilu License Agreement") and an asset purchase agreement, which is assessed under ASC Topic 606, Revenue ("ASC 606").
Research and Development
Research and development expenses consist primarily of costs incurred for the development of Vicineum for the treatment of non-muscle invasive CIS of the bladder in patients previously treated with adequate or less than adequate BCG, which include:
•employee-related expenses, including salaries, benefits, travel and share-based compensation expense;
•expenses incurred under agreements with contract research organizations ("CROs") and investigative sites that conduct our clinical trials;
•expenses associated with developing manufacturing capabilities;
•expenses associated with transferring manufacturing capabilities to contract manufacturing organizations ("CMOs") for commercial-scale production;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies;
•expenses associated with regulatory activities; and
•expenses associated with license milestone fees.
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 and data provided to us by our vendors and our
clinical sites.
We allocate direct research and development expenses, consisting principally of
external costs, such as fees paid to investigators, consultants, central
laboratories and CROs in connection with our clinical trials, costs related to
manufacturing or
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purchasing clinical trial materials and technology transfer and license
milestone fees, to specific product programs. We do not allocate employee and
contractor-related costs, costs associated with our platform and facility
expenses, including depreciation or other indirect costs, to specific product
programs because these costs may be deployed across multiple product programs
under research and development and, as such, are separately classified. The
table below provides research and development expenses incurred for Vicineum for
the treatment of BCG-unresponsive NMIBC and other expenses by category. On July
15, 2022 , we made the strategic decision to voluntarily pause further
development of Vicineum in the United States .
We did not allocate research and development expenses to any other specific product program during the periods presented (in thousands):
Year ended December 31,
2022 2021 2020
Programs:
Vicineum for the treatment of NMIBC $ 29,947 $ 15,110 $ 22,234
Total direct program expenses 29,947 15,110 22,234
Personnel and other expenses:
Employee and contractor-related expenses 7,584 8,977 5,775
Platform-related lab expenses 100 172 303
Facility expenses 478 524 442
Other expenses 485 529 437
Total personnel and other expenses 8,647 10,202 6,957
Total Research and Development $ 38,594 $ 25,312 $ 29,191
General and Administrative
General and administrative expenses consist primarily of salaries and related
costs for personnel, including share-based compensation and benefits, in
executive, operational, finance, business development and human resource
functions. Other general and administrative expenses include facility-related
costs, professional fees for legal, insurance, investment banking fees, patent,
consulting and accounting services, pre-commercial United States market research
and pre-launch market readiness for the potential commercial launch of Vicineum.
Restructuring Charge
OnJuly 15, 2022 , we approved the 2022 Restructuring Plan to reduce operating expenses and better align our workforce with the needs of our business following the decision to voluntarily pause further development of Vicineum inthe United States . Execution of the 2022 Restructuring Plan is expected to be substantially completed in connection with the closing of the Merger, which is expected to occur during the first quarter of 2023. The 2022 Restructuring Plan includes an incremental reduction in our workforce as well as additional cost-saving initiatives intended to preserve capital during the pendency of the Merger and while we seek a potential partner for the further development of Vicineum. We also incurred one-time cash costs associated with the termination of certain contracts and all other activities under the 2022 Restructuring Plan. Restructuring costs related to the Restructuring Plan were recorded in operating expenses in our Consolidated Statements of Operations and Comprehensive Loss. OnAugust 30, 2021 , we approved a restructuring plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC (the "2021 Restructuring Plan"). The 2021 Restructuring Plan included a reduction in our workforce by 18 positions (or approximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum. Restructuring costs related to the 2021 Restructuring Plan were recorded in operating expenses in our Consolidated Statements of Operations and Comprehensive Loss.
Intangibles Impairment Charge
Our intangible assets consist of indefinite-lived, acquired in-process research
and development ("IPR&D") worldwide product rights to Vicineum as a result of
the acquisition of Viventia in 2016. IPR&D assets acquired in a business
combination are considered indefinite-lived until the completion or abandonment
of the associated research and development efforts. We recognize an impairment
loss when and to the extent that the estimated fair value of an intangible asset
is less than its carrying value. In addition, on a quarterly basis, we perform a
qualitative review of our business operations to determine whether events
34
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or changes in circumstances have occurred which could indicate that the carrying
value of our intangible assets was not recoverable. If an impairment indicator
is identified, an interim impairment assessment is performed. The fair value of
the acquired intangible assets for the United States and E.U. rights of Vicineum
is determined using a risk-adjusted discounted cash flow approach, which
includes probability adjustments for projected revenues and operating expenses
based on the success rates assigned to each stage of development for each
geographical region as well as discount rates applied to the projected cash
flows.
Change in Fair Value of Contingent Consideration
In connection with the acquisition of all outstanding capital stock ofViventia Bio, Inc. inSeptember 2016 , we recorded contingent consideration pertaining to the amounts potentially payable to Viventia's shareholders pursuant to the terms of the Share Purchase Agreement among us, Viventia and the other signatories thereto and are based on regulatory approval in certain markets and future revenue levels. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized in earnings (or loss) for the period.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on cash, cash equivalents and marketable securities and, to a lesser extent, any gains or losses on foreign exchange.
Benefit (Provision) for Income Taxes
Benefit for income taxes is driven by the intangible impairment charge, changing
the value of deferred tax liabilities. Provision for income taxes consists of
income taxes incurred to non-US jurisdictions pursuant to our former OUS
business development partnership agreements, including the Qilu License
Agreement.
35
--------------------------------------------------------------------------------Our Results of Operations
Comparison of the Years ended
Year Ended December 31, Increase/(Decrease)
2022 2021 Dollars Percentage
(in thousands, except percentages)
Revenue:
License and related revenue $ 40,000 $ 26,544 $ 13,456 51 %
Total revenue 40,000 26,544 13,456 51 %
Operating expenses:
Research and development $ 38,594 $ 25,312 $ 13,282 52 %
General and administrative 39,787 29,393 10,394 35 %
Restructuring charge 11,764 5,528 6,236 113 %
Intangibles impairment charge 27,764 31,700 (3,936) (12) %Change in fair value of contingent consideration (52,000)
(56,840) 4,840 (9) %
Total operating expenses 65,909 35,093 30,816 88 %
Loss from Operations (25,909) (8,549) (17,360) 203 %
Other income (expense):
Interest income 1,854 17 1,837 10,806 %
Other income (expense), net 296 (77) 373 (484) %
Net Loss Before Taxes (23,759) (8,609) (15,150) 176 %
Benefit from income taxes 3,875 8,273 (4,398) (53) %
Net Loss After Taxes $ (19,884) $ (336) $ (19,548) 5,818 %
License Revenue
Revenue for the year ended December 31, 2022 was $40.0 million , which was due to
the execution of the Roche Asset Purchase Agreement for EBI-031 and all other
IL-6 antagonist monoclonal antibody technology. Revenue for the year ended
December 31, 2021 was $26.5 million , primarily due to the $20.0 million
milestone achieved pursuant to the Roche License Agreement upon initiating a
Phase II clinical trial, $5.0 million related to the Qilu License Agreement
(achievement of the Investigational New Drug application milestone, clinical
supply revenue, and license revenue for additional purchase price due to the
recovery of VAT), and $1.5 million upfront milestone revenue achieved pursuant
to the exclusive license agreement with Hikma Pharmaceuticals LLC (the "Hikma
License Agreement").
Research and Development
Research and development expenses were $38.6 million for the year ended December
31, 2022 , compared to $25.3 million for the year ended December 31, 2021 . The
increase of $13.3 million was primarily driven by the expense of prepaid
balances related to consumables and manufacturing reservations as the balances
were deemed to have no future value due to the strategic decision to voluntarily
pause further development of Vicineum in the United States ($25.2 million ).
Additionally, employee-related compensation increased, primarily due to the
retention programs implemented in the fourth quarter of 2021 and third quarter
of 2022 ($1.0 million ). The increase was partially offset by decreased costs
associated with manufacturing ($8.9 million ), clinical and manufacturing related
consulting fees ($2.3 million ) and other individually immaterial research and
development costs ($0.2 million ), driven by the strategic decision to
voluntarily pause further development of Vicineum in the United States in the
third quarter of 2022. Additionally, one-time regulatory milestone payments
($1.5 million ) related to the filing of the BLA to the FDA for Vicineum and MAA
to the EMA for Vysyneum were made in 2021.
General and Administrative
General and administrative expenses were$39.8 million for the year endedDecember 31, 2022 , compared to$29.4 million for the year endedDecember 31, 2021 . The increase of$10.4 million was primarily due to an increase in legal expense ($13.1 million ) driven by the settlements of the securities and derivative litigation net of insurance recovery ($8.2 million ) and our 36 -------------------------------------------------------------------------------- assessment of strategic alternatives ($3.8 million ). Additionally, legal fees for securities and derivative litigation counseling ($0.6 million ), general business counseling ($0.3 million ), and other legal expenses ($0.2 million ) increased. We also incurred$1.2 million in connection with the fairness opinions related to the proposed Merger and increased other individually immaterial expenses of ($0.2 million ). This was partially offset by decreases in marketing and commercial expenses ($4.1 million ), driven by preparation for the commercial launch of Vicineum prior to the issuance of the CRL inAugust 2021 .
Restructuring Charge
OnJuly 15, 2022 , we approved the 2022 Restructuring Plan to reduce operating expenses and better align our workforce with the needs of our business following the decision to voluntarily pause further development of Vicineum inthe United States . Execution of the 2022 Restructuring Plan is expected to be substantially completed in connection with the closing of the Merger withCarisma , which is expected to occur during the first quarter of 2023. The 2022 Restructuring Plan includes an incremental reduction in our workforce as well as additional cost-saving initiatives intended to preserve capital during the pendency of the Merger withCarisma and while we seek a potential partner for the further development of Vicineum. We also incurred one-time cash costs associated with the termination of certain contracts and all other activities under the 2022 Restructuring Plan. OnAugust 30, 2021 , we approved the 2021 Restructuring Plan to reduce operating expenses and better align our workforce with the needs of our business following receipt of the CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. The 2021 Restructuring Plan included a reduction in our workforce by 18 positions (or approximately 35% of our workforce) as well as additional cost-saving initiatives intended to preserve capital while we continue development of Vicineum. Restructuring expenses were$11.8 million for the year endedDecember 31, 2022 , compared to$5.5 million for the year endedDecember 31, 2021 . The expense for the year endedDecember 31, 2022 consisted of severance and other employee-related costs ($7.0 million ) and termination of certain contracts and other associated costs ($4.8 million ) following the decision to pause further development of Vicineum inthe United States . The expense for the year endedDecember 31, 2021 consisted of severance and other employee-related costs ($2.8 million ) and termination of certain contracts ($2.7 million ) following the receipt of the CRL inAugust 2021 .
Intangibles Impairment Charge
Intangibles impairment charge was
During the second quarter of 2022, we observed an evolution of the current market treatment paradigm in NMIBC, with substantial uptake of intravesical chemotherapy (monotherapy and combination therapy) during the ongoing BCG shortage. We also experienced a sustained decline in our share price and a resulting decrease in our market capitalization. OnJuly 15, 2022 we made the strategic decision to voluntarily pause further development inthe United States of Vicineum and are seeking a partner for the further development of Vicineum. The decision was based on a thorough reassessment of Vicineum, which included the incremental development timeline and associated costs for an additional Phase 3 clinical trial for the treatment of NMIBC, following discussions with the FDA and the updated market data obtained through market research during the ongoing BCG shortage. We identified these changes as potential impairment indicators and performed a quantitative impairment analysis for our intangible asset of Vicineum E.U. rights. As a result of the impairment test, we concluded that the carrying value of our intangible asset of Vicineum E.U. rights of$14.7 million andGoodwill of$13.1 million were fully impaired and written off during the second quarter of 2022. InAugust 2021 , we received a CRL from the FDA regarding the BLA for Vicineum for the treatment of BCG-unresponsive NMIBC. As a result, an impairment analysis was conducted, which concluded that the carrying value of our intangible asset of Vicineum United States rights of$31.7 million was fully impaired during the third quarter of 2021.
Change in Fair Value of Contingent Consideration
The non-cash change in fair value of contingent consideration was a gain of$52.0 million for the year endedDecember 31, 2022 , compared to gain of$56.8 million for the year endedDecember 31, 2021 . The change in the fair value of contingent consideration of$52.0 million for the year endedDecember 31, 2022 was driven by our strategic decision to voluntarily pause further development of Vicineum inthe United States and our conclusion that we no longer expect to owe any future earnout and milestone payments. The decision was based on a thorough reassessment of Vicineum following discussions with the FDA, which had implications for the size, timeline and costs for an additional Phase 3 clinical trial for the treatment of NMIBC. Additionally, during the second quarter of 2022, we observed an evolution of the current market treatment paradigm in NMIBC, with substantial uptake of intravesical chemotherapy (monotherapy and combination therapy) during the ongoing BCG shortage. We continue to believe that Vicineum has benefits for patients and healthcare providers that can be maximized through a company with a larger infrastructure, and as such, are seeking a partner that can execute further development to realize the full potential of Vicineum. We expect that any partner who acquires Vicineum from us will be obligated to make any payments to the former shareholders of Viventia under the Share Purchase Agreement. 37 -------------------------------------------------------------------------------- The change in fair value of contingent consideration was a gain of$56.8 million for the year endedDecember 31, 2021 . This was primarily driven by the receipt of a CRL inAugust 2021 , in which the FDA determined that it could not approve the BLA for Vicineum in its present form. Due to the inherent uncertainty in the path forward for Vicineum at the time, we reassessed the underlying assumptions used to develop the revenue projections upon which the fair value of its contingent consideration is based. The most significant and impactful assumptions in our revenue projection models are timing of product launch and possibility of success ("POS"); we expected delays in the start of commercialization and estimated lower POS as a direct result of the CRL. We anticipated needing to conduct an additional clinical trial, which would lead to delays in the start of commercialization globally. We had assessed a range of commercialization timeline assumptions and applied a probability to each outcome based on management's best estimate. In addition, we assumed a lower POS in achieving certain clinical and regulatory milestones in the range of approximately 45% to 55% globally. The milestone payments constitute debt-like obligations, and the high-yield debt index rate applied to the milestones in order to determine the estimated fair value was 8.0% as ofDecember 31, 2021 . The discount rate applied to the 2% earnout payment due on then-forecasted Vicineum revenues was derived from our estimated weighted average cost of capital ("WACC"), and this WACC-derived discount rate was 9.3% as ofDecember 31, 2021 .
Interest income
Interest income was$1.9 million for the year endedDecember 31, 2022 , compared to de minimis for the year endedDecember 31, 2021 . The increase was primarily due to higher yield earned on our investment account during 2022.
Benefit from Income Taxes
For the year endedDecember 31, 2022 , we recorded a benefit from income taxes of$3.9 million . In the second quarter of 2022, we determined that the fair value of the Vicineum E.U. in-process research and development asset was zero, which resulted in an impairment charge of$14.7 million . In connection with this impairment charge, in the second quarter of 2022, we wrote-down the associated deferred tax liability by$3.9 million as a benefit. For the year endedDecember 31, 2021 , we recorded a benefit from income taxes of$8.3 million . In the third quarter of 2021, we determined that the fair value of the Vicineum United States in-process research and development asset was zero, which resulted in an impairment charge of$31.7 million . In connection with this impairment charge, in the third quarter of 2021, we wrote-down the associated deferred tax liability by$8.6 million as a benefit. Please refer to Note 9, "Intangibles andGoodwill ," in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K for further information regarding the impairment charge.
Comparison of the years ended
For a comparison of our results of operations for the years endedDecember 31, 2021 and 2020, see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theUnited States Securities and Exchange Commission ("SEC") onFebruary 28, 2022 .
Liquidity and Capital Resources
Overview
As ofDecember 31, 2022 , we had cash, cash equivalents, and marketable securities of$166.9 million , net working capital of$158.2 million and an accumulated deficit of$336.1 million . We incurred positive cash flows from operating activities of$24.9 million for the year endedDecember 31, 2022 and negative cash flows from operating activities of$68.9 million and$30.8 million for the years endedDecember 31, 2021 and 2020, respectively. We believe that, based on the wind down of our operations and financial forecasts, our cash, cash equivalents, and marketable securities of$166.9 million as ofDecember 31, 2022 , are sufficient to fund operations for at least twelve months from the date of this Form 10-K filing,February 28, 2023 . Following an extensive process of evaluating strategic alternatives, including identifying and reviewing potential candidates for a strategic transaction, onSeptember 20, 2022 , we entered into the Merger Agreement withCarisma and Merger Sub, pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and intoCarisma , withCarisma continuing as our wholly-owned subsidiary and the surviving corporation of the Merger. Our board of directors unanimously approved the Merger Agreement and resolved to recommend that our stockholders approve the proposals described in the Merger Agreement. If the Merger is completed, the business ofCarisma will continue as the business of the combined company. The Merger is expected to be completed during the first quarter of 2023. Consummation of the Merger is subject to certain closing conditions, including, among other things, (a) approval by our stockholders of the proposals described in the Merger Agreement, (b) approval byCarisma's stockholders of, among other things, the adoption of the Merger Agreement, (c) Nasdaq's approval of the listing of the shares of our common stock to be issued in connection with the Merger, (d) the effectiveness of a registration statement on Form S-4 to register the shares of our common stock to be issued in connection with the Merger, and (e) our having net cash as of closing of the Merger greater than or equal to$70.0 million . 38 -------------------------------------------------------------------------------- The Merger Agreement contains certain termination rights of each of us andCarisma . Upon termination of the Merger Agreement under specified circumstances, we may be required to payCarisma a termination fee of$7.6 million and/or reimburseCarisma's expenses up to a maximum of$1.75 million , andCarisma may be required to pay us a termination fee of$5.49 million and/or reimburse our expenses up to a maximum of$1.75 million . Our future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. In the event that we do not complete the Merger withCarisma , we may continue to explore strategic alternatives, including, without limitation, a dissolution of our company. Since our inception, we have received no revenue from sales of our products, and we anticipate that operating losses will continue for the foreseeable future. We have financed our operations to date primarily through private placements of our common stock, preferred stock, common stock warrants and convertible bridge notes, venture debt borrowings, our IPO, follow-on public offerings, sales effected in ATM offerings, our former OUS business development partnerships and license agreements, sale of assets, and, to a lesser extent, from a collaboration. We have entered into an Open Market Sale Agreement withJefferies LLC ("Jefferies") datedNovember 29, 2019 , as amended by Amendment No. 1 datedOctober 30, 2020 , Amendment No. 2 datedFebruary 17, 2021 and Amendment No. 3, datedJune 1, 2021 (as amended, the "Sale Agreement"), under which we may issue and sell shares of our common stock, par value$0.001 per share from time to time through Jefferies (the "ATM Offering"). In June andJuly 2021 , we filed prospectus supplements with theSEC in connection with the offer and sale of up to an aggregate of$200.0 million of our common stock pursuant to the Sale Agreement of which$97.8 million of common shares remain available for future issuance as ofDecember 31, 2022 . Sales of common stock under the Sale Agreement are made by any method that is deemed to be an ATM offering as defined in Rule 415(a)(4) of the Securities Act of 1933, including but not limited to sales made directly on or through theNasdaq Stock Market or any other existing trading market for our common stock. We may sell shares of our common stock efficiently from time to time but have no obligation to sell any of our common stock and may at any time suspend offers under the Sale Agreement or terminate the Sale Agreement. Subject to the terms and conditions of the Sale Agreement, Jefferies will use its commercially reasonable efforts to sell common stock from time to time, as the sales agent, based upon our instructions, which include a prohibition on sales below a minimum price set by us from time to time. We have provided Jefferies with customary indemnification rights, and Jefferies is entitled to a commission at a fixed rate equal to 3.0% of the gross proceeds for each sale of common stock under the Sale Agreement. We did not sell any shares of common stock pursuant to the Sale Agreement during the year endedDecember 31, 2022 . We raised$175.0 million of net proceeds from the sale of 56.9 million shares of common stock at a weighted-average price of$3.17 per share during the year endedDecember 31, 2021 . Share issue costs, including sales agent commissions, related to the ATM Offering totaled$5.4 million for the year endedDecember 31, 2021 . Funding Requirements
Our future funding requirements will depend on the outcome of the proposed
Merger with
We are subject to a number of risks similar to other clinical companies that have determined to focus primarily on pursuing a strategic transaction, including, but not limited to, those which are described under Part I Item 1A. Risk Factors of this Annual Report on Form 10-K.
We will incur substantial expenses if and as we:
•address our ongoing litigation related to the Merger;
•maintain and protect our intellectual property portfolio;
•reduce our personnel and incur related severance and employee-related costs;
•explore, evaluate and pursue any strategic alternatives if the Merger is not completed.
Our future capital requirements will depend on many factors, including:
•the outcome and the timing of the proposed Merger with
•the outcome and timing of any pending or future litigation involving us or our business;
•the costs and timing of maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and
•our obligation to make milestone, royalty, and other payments to third-party licensors under our licensing agreements.
Until such time, if ever, as we can generate substantial revenues, we expect to
finance our cash needs through a combination of equity offerings, debt
financings, or government or other third-party funding. To the extent that we
raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of existing stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of existing stockholders. Debt financing, if
available, may involve agreements that include liens or other restrictive
covenants limiting our ability to take specific actions, such as incurring
additional debt, making capital expenditures, or declaring dividends. If we are
unable to raise
39
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additional funds when needed, we may be required to delay, limit, reduce or
terminate our assessment of strategic alternatives. If we do not successfully
consummate the proposed Merger with Carisma , our board of directors may decide
to explore other strategic alternatives, including, without limitation, a
dissolution of our company.
Contractual and Other Obligations
For information related to our cash requirements from known contractual and other obligations, see the description of Contingent Consideration in Note 5. "Fair Value Measure and Financial Instruments," as well as the description of our leases in Note 8 "Property and Equipment," and the description of our license agreement and collaborations in Note 18, "License Agreements," in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K. Cash Flows
The following table sets forth a summary of our cash flows for the years ended
Year
ended
2022 2021 2020
Net Cash Provided by (Used in) Operating Activities
(53,969) (4) (8)
Net Cash Provided by Financing Activities 1 176,129 38,113
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash
$ (29,073)
Net cash provided by operating activities was$24.9 million for the year endedDecember 31, 2022 and consisted primarily of a net loss of$19.9 million , adjusted for non-cash items including a decrease in the fair value of contingent consideration ($52.0 million ), intangible impairment charge of ($27.8 million ), share-based compensation ($6.9 million ), and a net increase in operating assets and liabilities ($63.0 million ). Net cash used in operating activities was$68.9 million for the year endedDecember 31, 2021 and consisted primarily of a net loss of$0.3 million , which includes$26.5 million of revenue recognized pursuant to the Roche License Agreement upon Roche initiating a Phase II clinical trial, achievement of the IND milestone inChina pursuant to the Qilu License Agreement, clinical supply revenue resulting from the delivery of drug product to Qilu, our former OUS partner forGreater China , and license revenue for additional purchase price due to the recovery of VAT by our former OUS business development partner forGreater China , adjusted for non-cash items, including share-based compensation of$5.1 million , a decrease in the fair value of contingent consideration of$56.8 million , impairment charge of$31.7 million and a net decrease in operating assets and liabilities of$48.6 million . Net cash used in operating activities was$30.8 million for the year endedDecember 31, 2020 and consisted primarily of a net loss of$22.4 million , adjusted for non-cash items, including share-based compensation of$1.8 million , a change in the fair value of contingent consideration of$11.2 million and a net decrease in operating assets and liabilities of$0.9 million .
Net cash used in investing activities was
Net cash used in investing activities consisted of de minimis purchases and
sales of property and equipment during the years ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities was de minimis for the year ended
Net cash provided by financing activities was$176.1 million for the year endedDecember 31, 2021 and consisted of$175.0 million net proceeds from the sale of common stock under the ATM Offering and$1.1 million in proceeds from the exercise of common stock warrants. Net cash provided by financing activities was$38.1 million for the year endedDecember 31, 2020 and consisted of$38.0 million net proceeds from the sale of common stock under the ATM Offering and$0.1 million in proceeds from the exercise of common stock warrants. 40 --------------------------------------------------------------------------------
Critical Accounting Policies and Use of Estimates
The preparation of our consolidated financial statements in accordance with GAAP and the rules and regulations of theSEC require the use of estimates and assumptions, based on complex judgments considered reasonable, and affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Our critical accounting policies are those policies which involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Management has determined that our most critical accounting policies are those relating to the fair value of indefinite-lived intangible assets, goodwill; contingent consideration; revenue recognition; development and regulatory milestone payments and other costs; and research and development costs.
Fair Value of Indefinite-Lived Intangible Assets
Our intangible assets consisted of indefinite-lived, acquired in-process
research and development ("IPR&D") worldwide product rights to Vicineum as a
result of the acquisition of Viventia in 2016. IPR&D assets acquired in a
business combination are considered indefinite-lived until the completion or
abandonment of the associated research and development efforts.
Indefinite-lived intangible assets are quantitatively tested for impairment at
least annually during the fourth quarter of the fiscal year, or more often if
indicators of impairment are present. Impairment testing of indefinite-lived
intangible assets requires management to estimate the future discounted cash
flows of an asset using assumptions believed to be reasonable, but which are
unpredictable and inherently uncertain. Actual future cash flows may differ from
the estimates used in impairment testing. We recognize an impairment loss when
and to the extent that the estimated fair value of an intangible asset is less
than its carrying value. In addition, on a quarterly basis, we perform a
qualitative review of our business operations to determine whether events or
changes in circumstances have occurred which could indicate that the carrying
value of our intangible assets was not recoverable. If an impairment indicator
is identified, an interim impairment assessment is performed.
During the second quarter of 2022, we observed an evolution of the current
market treatment paradigm in NMIBC, with substantial uptake of intravesical
chemotherapy (monotherapy and combination therapy) during the ongoing BCG
shortage. We have also experienced a sustained decline in share price and a
resulting decrease in our market capitalization. On July 15, 2022 , we made the
strategic decision to voluntarily pause further development of Vicineum in the
United States . The decision was based on a thorough reassessment of Vicineum
following discussions with the FDA, which had implications on the size,
timeline, and costs of an additional Phase 3 clinical trial for the treatment of
NMIBC Management updated the discounted cash flow model using the market
participant approach and considered preliminary terms of potential partnering
deal to conclude the fair value of our intangible asset of Vicineum E.U. rights.
We concluded that the carrying value of our intangible asset of Vicineum E.U.
rights of $14.7 million was fully impaired as of June 30, 2022 and was reduced
to zero in the second quarter of 2022.
In August 2021 , we received a CRL from the FDA regarding the BLA for Vicineum
for the treatment of NMIBC, our lead product candidate. In the CRL, the FDA
determined that it could not approve the BLA for Vicineum in its present form
and provided recommendations specific to additional clinical/statistical data
and analyses in addition to CMC issues pertaining to a recent pre-approval
inspection and product quality. Given the inherent uncertainty in the
development plans for Vicineum as a result of the CRL and our withdrawal of the
MAA, an impairment analysis was conducted in the third quarter of 2021, which
concluded that the carrying value of our intangible asset of Vicineum United
States rights was fully impaired as of September 30, 2021 . The $31.7 million of
impairment charges were due to delays in the expected start of commercialization
and lower probabilities of success, combined with higher operating expenses
expected to be incurred prior to commercialization, resulting in lower expected
future cash flows estimated in the United States market.
Goodwill on our consolidated balance sheets is the result of our acquisition of Viventia inSeptember 2016 and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets acquired under the acquisition method of accounting.Goodwill is not amortized; rather than recording periodic amortization, goodwill is quantitatively tested for impairment at least annually during the fourth quarter of the fiscal year, or more often if indicators of impairment are present. Impairment testing of goodwill requires management to estimate the future discounted cash flows of a reporting unit using assumptions believed to be reasonable, but which are unpredictable and inherently uncertain. Actual future cash flows may differ from the estimates used in impairment testing. If the fair value of the equity of a reporting unit exceeds the reporting unit's carrying value, including goodwill, then goodwill is considered not to be impaired. We recognize a goodwill impairment when and to the extent that the fair value of the equity of a reporting unit is less than the reporting unit's carrying value, including goodwill. We have only one reporting unit. In addition, on a quarterly basis, we perform a qualitative review of our business operations to determine whether events or changes in circumstances have occurred which could have a material adverse effect on the estimated fair value of each reporting unit and thus indicate a potential impairment of the goodwill carrying value. If an impairment indicator is identified, an interim impairment assessment is performed. 41 -------------------------------------------------------------------------------- During the second quarter of 2022, we observed continued trends in our market capitalization as compared to the carrying value of our single reporting unit as well as changes in certain assumptions in the fair value of the business including market share, size, length and cost of a clinical trial, and time to potential market launch. We identified these changes as potential impairment indicators and performed a quantitative impairment analysis in advance of our typical annual assessment date ofOctober 1, 2022 . We reassessed the underlying assumptions used to develop our revenue projections, which were then used as significant inputs to determine the fair value of equity. We updated our revenue forecast models based on further expected launch delays in bothUnited States and OUS regions. We also recently observed an evolution of the current treatment paradigm in NMIBC, with substantial uptake of intravesical chemotherapy (monotherapy and combination therapy) during the ongoing BCG shortage resulting in lower projected peak market share for Vicineum. We also considered other factors including the preliminary valuations of strategic alternatives during the fair value assessment. As a result of the interim impairment test, we concluded that the carrying value of our goodwill of$13.1 million was fully impaired as ofJune 30, 2022 . Contingent Consideration Contingent consideration on our consolidated balance sheets is the result of our acquisition of Viventia inSeptember 2016 and represents the discounted present value of future commercial launch milestones and net sales royalties due to the former shareholders of Viventia pursuant to the Share Purchase Agreement. For additional information on how contingent consideration has changed over the relevant period, see Note 1. "Description of Business," in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K . Contingent consideration is measured at its estimated fair value on a recurring basis at each reporting period, with fluctuations in value resulting in a non-cash charge to earnings (or loss) during the period. The estimated fair value measurement is based on significant unobservable inputs (Level 3 within the fair value hierarchy), including internally developed financial forecasts, probabilities of success and timing of certain milestone events and achievements, which are unpredictable and inherently uncertain. Actual future cash flows may differ from the assumptions used to estimate the fair value of contingent consideration. The valuation of contingent consideration requires the use of significant assumptions and judgments, which management believes are consistent with those that would be made by a market participant. Management reviews its assumptions and judgments on an ongoing basis as additional market and other data is obtained, and any future changes in the assumptions and judgments utilized by management may cause the estimated fair value of contingent consideration to fluctuate materially, resulting in earnings volatility. The estimated fair value of our contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales were expected to be achieved through 2033, the level of commercial sales of Vicineum then-forecasted forthe United States ,Europe ,Japan ,China , and other potential markets. Earnouts were determined using an earnout rate of 2% on all commercial net sales of Vicineum throughDecember 2033 . The discount rate applied to the 2% earnout was derived from our estimated weighted-average cost of capital, which was 9.3% as ofDecember 31, 2021 . Milestone payments constitute debt-like obligations, and therefore a high-yield debt index rate was applied to the milestones in order to determine the estimated fair value. This index rate was 8.0% as ofDecember 31, 2021 . OnJuly 15, 2022 , we made the strategic decision to voluntarily pause further development of Vicineum inthe United States . The decision was based on a thorough reassessment of Vicineum following discussions with the FDA, which had implications on the size, timeline, and costs of an additional Phase 3 clinical trial for the treatment of NMIBC. We continue to believe that Vicineum has benefits for patients and healthcare providers that can be maximized through a company with a larger infrastructure, and as such, we are seeking a partner for the further development of Vicineum. Accordingly, during the second quarter of 2022, we concluded that we are no longer expected to pay related milestone and earnout payments to the former shareholders of Viventia, with the exception of the potential 2% earnout payment related to theGreater China region since those territory rights had been out-licensed. We and Qilu were in the process of negotiating a termination of the Qilu License Agreement, which was terminated onDecember 23, 2022 . Accordingly, as ofSeptember 30, 2022 , we concluded that we no longer expected to owe any future earnout payments related to theGreater China region and reduced our remaining$1.8 million of contingent consideration liabilities to zero as ofSeptember 30, 2022 .
Development and Regulatory Milestones and Other Payments
At the inception of an arrangement that includes development milestone payments,
we evaluate whether the development milestones are considered probable of being
reached and estimate the amount to be included in the transaction price using
the most likely amount method. If it is probable that a significant revenue
reversal would not occur, the associated development milestone value is included
in the transaction price. Development milestone payments that are not within our
control or the licensee's control, such as regulatory approvals, are not
considered probable of being achieved until those approvals are received. For
payments pursuant to sales milestones and royalty payments, we will not
recognize revenue until the subsequent sale of a licensed product occurs. For
arrangements with more than one performance obligation, the milestones are
generally allocated entirely to the license performance obligation, as (1) the
terms of milestone and royalty payments relate specifically to the license and
(2) allocating milestones and royalties to the license performance obligation is
consistent with the overall
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--------------------------------------------------------------------------------allocation objective, because management's estimate of milestones and royalties approximates the standalone selling price of the license.
Research and Development Costs
Research and development activities are expensed in the period incurred. Research and development expenses consist of both internal and external costs associated with all basic research activities, clinical development activities and technical efforts required to develop a product candidate. Internal research and development consist primarily of personnel costs, including salaries, benefits and share-based compensation, facilities leases, research-related overhead, pre-approval regulatory and clinical trial costs, manufacturing and other contracted services, license fees and other external costs. In certain circumstances, we are required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are recorded as prepaid assets and expensed when the activity has been performed or when the goods have been received.
Recently Issued Accounting Standards
Recently issued accounting standards are discussed in Note 4. "Recent Accounting Pronouncements," in our consolidated financial statements, which begin on page F-1 of this Annual Report on Form 10-K.
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