CHECKMATE PHARMACEUTICALS, INC. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes thereto for the year endedDecember 31, 2020 included in our 2020 Annual Report on Form 10-K. This discussion and analysis and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q and in other filings with theSEC . Please also see the section entitled "Note Regarding Forward-Looking Statements" contained in the Quarterly Report on Form 10-Q. Overview We are a clinical-stage biotechnology company focused on developing and commercializing our proprietary technology to harness the power of the immune system to combat cancer. Our product candidate, vidutolimod (formerly CMP-001), is a differentiated Toll-like receptor 9 ("TLR9"), agonist delivered as a biologic virus-like particle ("VLP"), utilizing a CpG-A oligonucleotide as a key component. When injected into a tumor, vidutolimod is designed to trigger the body's innate immune system, thereby altering the tumor microenvironment and directing activated anti-tumor T cells to attack both the injected tumor and also tumors throughout the body. In a clinical trial of vidutolimod in combination with a systemic checkpoint inhibitor ("CPI"), in patients whose tumors were unresponsive or no longer responsive to a CPI, we have observed a best objective response rate ("ORR"), of 28% (27/98), including post-progression responders. We are evaluating vidutolimod across multiple tumor types in combination with other immunotherapy agents. Our founder,Art Krieg , first reported the discovery of immunostimulatory cytosine-phosphate-guanine ("CpG"), DNA in 1995, which, combined with the discovery of TLR9, led to the recognition that synthetic CpG-A oligonucleotides have the potential to stimulate the TLR9 receptor for therapeutic purposes. Our goal is to establish vidutolimod as a foundational immuno-oncology therapy that engages the innate immune system to fight cancer and improve outcomes for patients with a broad range of solid tumors. Since our inception, we have devoted substantially all of our efforts and financial resources to the research and development activities related to our technology and our vidutolimod program, and the administrative support for such activities including raising capital, business planning, undertaking pre-clinical studies and clinical trials and other support activities. We do not have any products approved for sale and have not generated any revenue from product sales or any other sources and do not expect to generate any revenue for the next several years. We have not yet successfully completed any registrational clinical trials, obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities. We have funded our operations to date primarily with proceeds from the sale of preferred stock, convertible debt and common stock. Since inception and throughSeptember 30, 2021 , we have received net cash proceeds of$241.7 million from sales of our preferred stock, convertible debt and common stock. We have incurred recurring losses and had negative operating cash flows since inception and our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of vidutolimod or any other products we acquire or develop. Our net losses were$28.3 million and$36.9 million for the years endedDecember 31, 2019 and 2020, respectively, and for the nine months endedSeptember 30, 2021 , our net loss was$48.1 million . As ofSeptember 30, 2021 , we had an accumulated deficit of$188.1 million . We expect to continue to incur significant expenses and to increase operating losses for at least the next several years. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we: • prepare for, initiate and conduct additional clinical trials and preclinical studies of vidutolimod, including, among others, our current Phase 2 trial in anti-PD-1
refractory melanoma, our current randomized Phase 2/3 trial in first-line
melanoma, our current Phase 2 proof of concept study in head and neck
squamous cell carcinoma, and our currently anticipated Phase 2 proof of
concept trial with patient cohorts in
anti-PD-1
naïve and
anti-PD-1refractory cutaneous squamous cell carcinoma and Merkel cell carcinoma;
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• conduct the necessary
scale-up
activities to support the potential commercialization of vidutolimod, if
approved;
• hire additional clinical and scientific personnel to support our ongoing
preclinical activities and clinical trials of vidutolimod and any other
product candidates we choose to develop;
• develop any future product candidates;
• seek marketing approval for vidutolimod and any other product candidates
that successfully complete clinical development;
• acquire or
in-license
additional product candidates;
• maintain compliance with applicable regulatory requirements;
• maintain, expand, protect and enforce our intellectual property portfolio;
• develop and expand our sales, marketing and distribution capabilities for
vidutolimod and any other product candidates for which we obtain
marketing approval;
• take precautionary measures to help minimize the risk of the coronavirus
or any other future pandemic to our employees and encounter continued
delays or interruptions related to current development activities, our
supply chain, or the third-parties on whom we rely due to the ongoing
COVID-19
pandemic;
• expand our infrastructure and facilities to accommodate the planned
growth of our employee base; and
• expand our operational, financial and management systems and increaseadministrative personnel, including to support our clinical development
and commercialization efforts and our operations as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing and distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of vidutolimod or any of our future product candidates. OnAugust 11, 2020 , we completed our initial public offering ("IPO"), pursuant to which we issued and sold 5,000,000 shares of our common stock, at a price to the public of$15.00 per share. OnSeptember 3, 2020 , the underwriters of the IPO exercised a portion of their over-allotment option by purchasing an additional 109,861 shares from us at the IPO price. We received approximately$67.7 million in net proceeds, inclusive of the partial over-allotment exercise and after deducting underwriting discounts and commissions and other offering expenses payable by us. In connection with the IPO, onAugust 11, 2020 , all redeemable convertible preferred stock was converted into shares of common stock. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately 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. 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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. COVID-19 InMarch 2020 theWorld Health Organization declared the global novel coronavirus disease 2019 ("COVID-19") a pandemic. Although we have experienced some impact of the ongoing COVID-19 pandemic on our business and operations, including delays in initiation of study sites and enrolling patients, we cannot currently predict the scope and severity of any potential business shutdowns or disruptions or the resulting impact on future clinical trials. Certain of our ongoing clinical trials, which began before 2020, are nearing completion and have not been materially affected by the COVID-19 pandemic, and the schedules for the near-term manufacture of vidutolimod at our contract manufacturers have also been largely unaffected to date. Our clinical trials that commenced in 2020 have been adversely affected by the COVID-19 pandemic, resulting in patient enrollment delays throughSeptember 30, 2021 . We are continuing to monitor the latest developments regarding the COVID-19 pandemic, including the pace of vaccinations and the emergence of new and more contagious strains of the virus, and any resulting impact on our business, financial condition, results of operations and prospects. Any resulting financial impact cannot be reasonably estimated at this time and may have a material adverse impact on our business, financial condition and results of operations. 17 -------------------------------------------------------------------------------- Table of Contents Components of Our Results of Operations Revenue To date, we have not generated any revenue from any sources and do not expect to generate any revenue from the sale of products for the next several years. If our development efforts for vidutolimod or any future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. However, we cannot predict whether, when, or to what extent we will generate revenue from the commercialization and sale of vidutolimod or any future product candidates as we may never succeed in obtaining regulatory approval for any of our product candidates. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements, however there can be no assurance that we will be able to enter into any license or collaboration agreements. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities and the development of our VLP technology and our vidutolimod program and include: • expenses incurred in connection with the preclinical and clinical development of our technology and vidutolimod, including clinical trials under agreements with contract research organizations ("CROs"), clinical investigators and consultants;
• employee-related expenses, including salaries, benefits and travel and
stock-based compensation expense, for employees engaged in research and
development functions;
• the cost of contract manufacturing organizations ("CMOs"), thatmanufacture drug product for use in our preclinical studies and clinical
trials and perform analytical testing,
scale-up
and other services in connection with our development activities;
• costs related to compliance with regulatory requirements;
• payments made under third-party licensing agreements, such as the
exclusive license agreement we entered into with
(now Kuros Biosciences AG, or "Kuros") (the "Kuros License Agreement");
• facilities and other expenses, which include direct and allocated
expenses for facilities, insurance and supplies; and
• costs related to compliance with regulatory requirements.
We recognize external development costs based on an evaluation of the progress
to completion of specific tasks using information provided to us by our service
providers. This process involves reviewing open contracts, communicating with
our personnel to identify services that have been performed on our behalf and
estimating the level of service performed and the associated cost incurred for
the service when we have not yet been invoiced or otherwise notified of actual
costs. Any nonrefundable advance payments that we make for goods or services to
be received in the future for use in research and development activities are
recorded as prepaid expenses. Such amounts are expensed as the related goods are
delivered or the related services are performed, or until it is no longer
expected that the goods will be delivered or the services rendered.
Upfront payments under license agreements are expensed upon receipt of the
license, and any annual maintenance fees under license agreements are expensed
in the period in which they are incurred. Milestone payments under license
agreements are accrued and a corresponding expense is recognized in the period
in which the milestone is determined to be probable of achievement and the
related amount is reasonably estimable.
We do not track our research and development expenses by indication. Our direct
external research and development expenses consist primarily of external costs,
such as fees paid to CROs, CMOs, research/testing laboratories and outside
consultants in connection with our preclinical development, process development,
manufacturing and clinical development activities. Our direct research and
development expenses also include fees incurred under licensing agreements. We
do not allocate these costs to specific indications because they are deployed
across the entire the vidutolimod development program and, as such, are not
separately classified. We use internal resources primarily to manage our
preclinical development, outsourced clinical trials, process development,
manufacturing and clinical development activities. These employees work across
the entire the vidutolimod development program and, therefore, we do not track
their costs by indication.
18-------------------------------------------------------------------------------- Table of Contents Research and development activities are central to our business model. Product candidates in later stages of clinical development 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. As a result, we expect that our research and development expenses will continue to increase substantially over the next several years as we advance vidutolimod into later stages of clinical development toward potential regulatory approval, advance vidutolimod for additional indications, as well as conduct translational research efforts and other preclinical and clinical development, including submitting regulatory filings for any other product candidates we may acquire or develop. In addition to the expected increase in third-party costs, we expect our personnel costs, including costs associated with stock-based compensation, will also increase substantially in the future. In addition, as we advance vidutolimod into potentially registrational clinical trials and, subject to positive data and regulatory approvals, potentially commercialize vidutolimod, we expect to incur additional expenses from milestone and royalty payments related to the Kuros License Agreement. We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization of vidutolimod or any other product candidates we may acquire or develop. This is due to numerous factors, some of which are beyond our control, that are associated with the successful development and commercialization of vidutolimod and any other product candidates we may acquire or develop, including the following:
• the scope, progress, outcome and costs of our preclinical studies and
clinical trials for vidutolimod or any other product candidates we may
acquire or develop;
• making arrangements with third-party manufacturers for both clinical and
commercial supplies of vidutolimod or any other product candidates;
• successful patient enrollment in, and the initiation and completion of
clinical trials;
• raising additional funds necessary to complete clinical development and
the potential commercialization, of vidutolimod or any other product
candidates;
• receipt, timing and related terms of marketing approvals from applicable
regulatory authorities;
• the extent of any required post-marketing approval commitments to
applicable regulatory authorities;
• developing and implementing marketing and reimbursement strategies;
• establishing sales, marketing and distribution capabilities and launching
commercial sales of vidutolimod or any other products, if approved,
whether alone or in collaboration with others;
• acceptance of vidutolimod or any other products, if approved, by
patients, the medical community and third-party payors;
• effectively competing with other therapies and/or changes in standard of
care;
• obtaining and maintaining third-party coverage and adequate reimbursement;
• obtaining and maintaining patent, trade secret and other intellectual
property protection and regulatory exclusivity for our product
candidates;
• protecting and enforcing our rights in our intellectual property portfolio;
• significant and changing government regulations; and
• maintaining an acceptable tolerability profile of the products following
approval, if any.
A change in the outcome of any of these variables with respect to the
development of vidutolimod or any future product candidates would significantly
change the costs and timing associated with the development of that product
candidate. We may never succeed in obtaining regulatory approval for any product
candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits,
stock-based compensation and travel expense for personnel in executive, business
development, finance, human resources, legal and support functions. General and
administrative expenses also include direct and allocated facility-related costs
as well as insurance costs and professional fees for legal, patent, consulting,
accounting and audit services, investor and public relations services and
outsourced information technology services.
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We anticipate that our general and administrative expenses will continue to
increase in the future as we increase our headcount to support the continued
advancement of vidutolimod toward potential commercialization and the future
development of any other product candidates that we may pursue. We also
anticipate that we will continue to experience an increase in accounting, audit,
legal, regulatory, compliance and director and officer insurance costs as well
as investor and public relations expenses associated with operating as a public
company. Additionally, if we believe a regulatory approval of vidutolimod or any
other product candidate appears likely, we anticipate an increase in payroll and
other employee-related expenses as a result of our preparation for commercial
operations to market and sell that product candidate.
Interest Income
Interest income consists of interest earned on our cash, cash equivalent and
available-for-sale
investments balances. We expect that our interest income will fluctuate based on
prevailing interest rates, our ability to raise additional funds as well as the
amount of expenditures for our clinical development of vidutolimod and ongoing
business operations.
Income Taxes
There were no provisions for income taxes for the three and nine months ended
September 30, 2021 and 2020 because we have historically incurred operating
losses and we maintain a full valuation allowance against our net deferred tax
assets.
Results of operations
Comparison of the three months ("Q3") and nine months ("Q3 YTD") ended
September 30, 2021 and 2020
The following table summarizes our results of operations for the three and nine
months ended September 30, 2021 and 2020:
Three months ended Nine months ended
September 30, Increase September 30, Increase
2021 2020 (Decrease) 2021 2020 (Decrease)
(unaudited,
in
thousands)
Operating expenses:
Research and development $ 11,375 $ 6,673 $
4,702
3,605 3,160 445 11,498 6,465 5,033
Total operating expenses 14,980 9,833 5,147 48,116 25,927 22,189
Loss from operations (14,980 ) (9,833 ) 5,147 (48,116 ) (25,927 ) 22,189 Total other income (expense), net 14
4 10 52 (51 ) 103
Net loss $ (14,966 ) $ (9,829 ) $ 5,137 $ (48,064 ) $ (25,978 ) $ 22,086
Research and Development Expenses
Research and development expenses were $11.4 million in Q3 2021 compared to
$6.7 million in the same quarter of 2020. The increase of approximately
$4.7 million was primarily related to higher clinical costs of $3.4 million
associated ongoing trials, higher contract manufacturing of $0.8 million related
to producing vidutolimod, higher personnel and consulting costs of $0.3 million
as well as stock-based compensation expense of $0.1 million associated with
increased staffing.
Research and development expenses were $36.6 million in Q3 YTD 2021 compared to
$19.5 million for the same period of 2020, an increase of $17.2 million . The
increase was due to combined milestones payments of $6.0 million to Kuros which
became payable upon the Company initiating dosing of patients in trials which
triggered Phase 2 and Phase 3 milestone payments. Also contributing to the
increase was increased clinical trials costs of $5.9 million and outsourced
contract manufacturing costs of $3.2 million related to greater activity in our
ongoing clinical trials, as well as additional personnel and consulting costs of
$1.0 million and stock-based compensation costs of $1.1 million associated with
increased staffing.
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General and Administrative Expenses
General and administrative expenses were $3.6 million in Q3 2021 compared to
$3.2 million in the same quarter of 2020. The increase of $0.4 million was
primarily comprised of an increase in directors and officers insurance of
$0.3 million associated with being a public company for all of Q3 2021 compared
to only a portion of Q3 2020 and an increase in stock-based compensation
expenses of $0.5 million related primarily to stock options granted after our
IPO. These increases were partially offset by
one-time
consulting costs of $0.4 million incurred in Q3 2020 associated with the IPO and
a reduction in personnel recruiting costs of $0.1 million for hires in 2020.
General and administrative expenses were $11.5 million in Q3 YTD 2021 compared
$6.5 million in the same period of 2020, an increase of $5.0 million . The
increase is primarily due to expanding our infrastructure to support being a
publicly traded company and included increases in directors and officers
insurance of $2.0 million , stock-based compensation of $2.0 million , personnel
and consulting expense of $0.2 million and professional fees for legal and
accounting of $0.3 million .
Other income (expense), net
Other income (expense), net in the three and nine month periods of 2021 included
interest income, which for Q3 YTD 2021 was partially offset by losses on the
sale of
available-for-sale
investments.
Other income (expense), net in the three and nine month periods of 2020 included
interest income, which for Q3 YTD 2020 was more than offset by the change in the
fair value change of the convertible loan notes we issued to certain investors
in April 2020 (the "Convertible Loan Notes") by $0.1 million , primarily related
to the accrued interest earned on the Convertible Loan Notes prior to conversion
upon the sale of Series C preferred stock in June 2020 , slightly offset by
interest income.
Liquidity and capital resources
Overview
We have funded our operations to date primarily with proceeds from the sale of
preferred stock, convertible debt and common stock. Since inception and through
September 30, 2021 , we have received net cash proceeds of $241.7 million from
sales of our preferred stock, convertible debt and common stock. In April 2020 ,
we received $10.0 million from the issuance of Convertible Loan Notes and in
June 2020 , we received $74.6 million in additional net proceeds from the sale of
Series C preferred stock. The Convertible Loan Notes were converted into shares
of Series C preferred stock in June 2020 .
As noted above, in August 2020 , we completed an IPO in which we received net
proceeds of approximately $67.7 million , inclusive of the partial exercise of
the over-allotment exercise and after deducting underwriting discounts and
commissions and other offering expenses payable by us. In connection with the
IPO, all outstanding shares of our redeemable preferred stock were converted to
common stock.
We have not yet commercialized any of our product candidates and we do not
expect to generate revenue from sales of any product candidates for several
years, if at all. As of September 30, 2021 , we had cash, cash equivalents and
available-for-sale
investments of $80.8 million .
We believe that the net proceeds from the IPO, together with our existing cash,
cash equivalents and
available-for-sale
investments as of September 30, 2021 , will enable us to fund our operating
expenses and capital expenditure requirements through the end of 2022. We have
based this estimate on assumptions that may prove to be wrong, and we could
exhaust our available capital resources sooner than we expect. Our future
viability beyond that point is dependent on our ability to raise additional
capital to finance our operations.
On September 7, 2021 , we filed a shelf registration statement on Form
S-3
(File
No. 333-259353)
with the SEC , which was declared effective by the SEC on September 15, 2021 (the
"Shelf Registration Statement"). Under the Shelf Registration Statement, we may
offer and sell, from time to time, various securities in an aggregate amount of
up to $150 million . In connection with filing the Registration Statement, we
entered into an Open Market Sale Agreement
SM
(the "2021 Sales Agreement"), with Jefferies LLC ("Jefferies"), pursuant to
which we may offer and sell, from time to time, shares of our common stock
having an aggregate offering of up to $50.0 million through Jefferies as our
sales agent. We will pay the sales agent a commission of 3% of the gross
proceeds of any sales made pursuant to the 2021 Sales Agreement. As of
September 30, 2021 , no shares of common stock have been sold and no net proceeds
have been received by the Company pursuant to the 2021 Sales Agreement.
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Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine months ended September 30, Increase
2021 2020 (Decrease)
( in thousands)
Net cash used in operating activities $ (43,718 ) $ (27,418 ) $ 16,300
Net cash provided by investing
activities 54,337 - 54,337
Net cash provided by (used in) financing
activities (180 ) 160,573 (160,753 )
Net increase in cash, cash equivalents and restricted cash 10,439$ 133,155 $ (122,716 ) Operating Activities During Q3 YTD 2021, net cash used in operating activities was$43.7 million , primarily resulting from of our net loss of$48.1 million and cash used in working capital of$0.4 million , which was partially offset by non-cash charges of$4.7 million . During Q3 YTD 2020, net cash used in operating activities was$27.4 million , primarily resulting from our net loss of$26.0 million and cash used in operating activities of$2.6 million , partially offset by non-cash charges of$1.1 million . Investing Activities Net cash provided by investing activities of$54.3 million during Q3 YTD 2021 reflects net liquidations of the Company's available-for-sale investments of$55.0 million to fund current and future operating activities, partially offset by purchases of machinery and equipment of$0.7 million . Financing Activities Net cash used in financing activities in Q3 YTD 2021 was$0.2 million and consisted of cash paid for deferred offering costs partially offset by proceeds from the exercise of stock options. Net cash provided by financing activities in Q3 YTD 2020 was$160.6 million and consisted of the net proceeds from our IPO of$68.0 million , the issuance of Series B preferred stock and Series C preferred stock of$82.5 million and the proceeds from the issuance of convertible loan notes of$10.0 million . Funding Requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for vidutolimod and any other product candidates that we may develop or acquire in the future. In addition, we have incurred, and expect to incur, additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures will depend largely on:
• the initiation, progress, timing, costs and results of current and future
preclinical studies and clinical trials for vidutolimod and any other
product candidates we may develop or acquire in the future;
• the cost and timing of the manufacture of additional clinical trialmaterials and the completion of commercial-scale outsourced manufacturing
activities;
• the costs to seek regulatory approvals for any product candidates that
successfully complete clinical trials;
• the extent to which we experience delays or interruptions to preclinical
studies and clinical trials, to our third-party service providers on whom
we rely, or to our supply chain due to the ongoing
COVID-19
pandemic;
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• the need to hire additional clinical, quality assurance, quality control
and other scientific personnel
• the number and characteristics of product candidates that we develop or may
in-license;
• the outcome, timing and cost of meeting and maintaining compliance with
regulatory requirements established by the
Administration (the "FDA"), the
other comparable foreign regulatory authorities;
• the cost of filing, prosecuting, defending and enforcing our patent
claims and other intellectual property rights;
• the terms of any collaboration agreements we may choose to enter into;
• the cost associated with the expansion of our operational, financial and
management systems and increased personnel, including personnel to
support our operations as a public company; and
• the cost of establishing sales, marketing and distribution capabilities
for any product candidates for which we may receive regulatory approval
in regions where we choose to commercialize our products, if approved, on
our own.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs or product 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 or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual obligations and other commitments We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. The amount and timing of such payments are not known. We have also entered into license and collaboration agreements with third parties, which are in the normal course of business. We have not included future payments under these agreements since obligations under these agreements are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales. Pursuant to the Kuros License Agreement, we are required to make payments to Kuros for each product that achieves certain development and regulatory milestones. We are obligated to make up to$56.0 million in milestone payments to Kuros related to vidutolimod. We are also required to pay royalties on sales of future products, if any. As ofSeptember 30, 2021 , we have incurred license fees and milestone payments totaling$8.3 million pursuant to the Kuros License Agreement. These payments are comprised of (i) a license fee of$1.0 million which was recognized in research and development expense in 2015, (ii)$1.0 million milestone payment in connection with the dosing of the first patient in our first Phase 1 clinical trial, which was recognized in research and development expense in 2016, (iii) a$0.3 million license amendment fee in connection with the signing of the second amendment to the Kuros License Agreement, which was recognized in research and development expense in 2018, (iv) a$2.0 million milestone payment in connection with the dosing of the first patient in the Phase 2/3 first-line melanoma trial for vidutolimod, which we recognized inMarch 2021 and (v) a$4.0 million milestone payment in connection with the dosing in a Phase 2 trial intended to assess the efficacy and safety of vidutolimod in combination with nivolumab for the treatment of patients with anti-PD-1 refractory melanoma and to potentially support a Biologics License Application ("BLA") and marketing approval of vidutolimod, which we recognized inMay 2021 . Future milestone payments will be due upon filing for regulatory approval in each ofthe United States ,Europe and the Far East and for ultimate approval in each of those regions. We do not currently have any long-term leases. We rent our office space inCambridge, Massachusetts based on a month-to-month license agreement with the landlord. 23 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Significant Judgments and Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our unaudited condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations- Critical Accounting Policies and Use of Estimates" in our 2020 Annual Report on Form 10-K. There have been no changes to the critical accounting policies during the nine months endedSeptember 30, 2021 . Off-balance sheet arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSecurities and Exchange Commission . Recent accounting pronouncements A description of recently issued and recently adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Emerging Growth Company and Smaller Reporting Company Status The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not "opt out" of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting 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. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2012, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We would cease to be an emerging growth company upon the earliest of: (1) the last day of the fiscal year ending after the fifth anniversary of our initial public offering; (2) the last day of the fiscal year in which we have more than$1.07 billion in annual revenue; (3) the last day of the fiscal year in which we qualify as a "large accelerated filer," with at least$700.0 million of equity securities held by non-affiliates as of the priorJune 30th ; or (4) the issuance, in any three-year period, by our company of more than$1.0 billion in non-convertible debt securities held by non-affiliates. We are also a "smaller reporting company" and we may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that (i) the market value of our stock held by non-affiliates is more than$250 million or (ii) our annual revenue was more than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is more than$700 million measured on the last business day of our second fiscal quarter. 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. 24
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