CINCOR PHARMA, INC. The following discussion of the financial condition and results of operations of
Overview
We are a clinical-stage biopharmaceutical company focused on developing our lead
clinical candidate, CIN-107, for the treatment of hypertension and other
cardio-renal diseases. CIN-107 is a highly selective, oral small molecule
inhibitor of aldosterone synthase, the enzyme responsible for the synthesis of
aldosterone in the adrenal gland. CIN-107 has been designed to use
differentiated mechanism of action, direct inhibition of aldosterone synthase
production, with the goal of providing an improved treatment for patients
suffering from hypertension, or high blood pressure. We are conducting multiple
Phase 2 clinical trials using CIN-107 in differing populations of patients, all
of whom are hypertensive. The most advanced of our trials, called BrigHtn, is
being conducted in patients whose blood pressure is not controlled despite
treatment with three or more antihypertensive agents, one of which must be a
diuretic; these patients are designated as having treatment resistant
hypertension, or rHTN. In
Since our inception in 2018, we have focused primarily on raising capital,
organizing and staffing our company, business planning, and acquiring and
progressing our lead product candidate, CIN-107, through clinical development
after in-licensing the compound from
On
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We do not have any product candidates approved for sale and have not generated
any revenue from product sales. From inception through
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for CIN-107 or any future product candidates, if ever. In addition, if we obtain regulatory approval for CIN-107 or any future product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when, needed, could have a negative effect on our business, results of operations and financial condition. If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
Roche License Agreement
In
Components of Results of Operations
Revenue
To date, we have not recognized any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for CIN-107 or any future product candidate is successful and results in regulatory approval, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our research and discovery efforts and the development of CIN-107 or any future product candidates. We expense research and development costs as incurred, which include:
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external research and development expenses incurred under arrangements with third parties, such as CROs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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costs related to acquiring, developing, and manufacturing clinical study material for our preclinical studies and clinical trials, including fees paid to contract manufacturing organizations, or CMOs;
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laboratory supplies and research materials;
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upfront, milestone and maintenance fees incurred under license, acquisition and other third-party agreements; and
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costs related to compliance with clinical regulatory requirements.
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and clinical sites and analyzing the progress
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of clinical trials or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
We track external research and development costs on a program-by-program basis. External costs include fees paid to consultants, contractors and vendors, including CMOs and CROs, in connection with our clinical activities. We currently only have one product development program, CIN-107.
Research and development activities will continue to be central to our business model. We anticipate that our research and development expenses will increase for the foreseeable future as we advance our product candidates through clinical trials, as well as acquire new product candidates. We also expect higher employee- related expenses, including higher stock-based compensation expenses, as well as higher consulting costs as we hire additional resources to support increasing development activity.
The successful development of CIN-107 or any future product candidate is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of CIN-107 or any future product candidate due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of CIN-107 or any future product candidate, if they are approved.
The duration, costs and timing of the clinical development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
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the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;
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the number and scope of clinical programs we decide to pursue;
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the uncertainties in clinical trial design and patient enrollment rates;
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establishing an appropriate safety and efficacy profile;
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successful enrollment in and completion of clinical trials;
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whether CIN-107 shows safety and efficacy in our clinical trials;
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the timing, receipt and terms of marketing approvals from applicable regulatory authorities;
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making arrangements with third-party CMOs for manufacturing;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for CIN-107 and any future product candidate;
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commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
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continued acceptable safety profile of the products following any regulatory approval.
A change in the outcome of any of these variables with respect to the
development of CIN-107 or any future product candidate would significantly
change the costs and timing associated with the development of those product
candidates. We may never succeed in achieving regulatory approval for any
product candidate. We may obtain unexpected results from our clinical trials. We
may elect to discontinue, delay or modify clinical trials of some product
candidates or focus on other product candidates. For example, if the
General and Administrative Expenses
General and administrative expenses consist primarily of compensation and employee-related costs for our finance, human resources and other administrative personnel, including salaries, benefits and other related costs, as well as expenses for outside professional services, including legal, accounting and audit services and other consulting fees, rent expense, other general administrative expenses, and stock-based compensation.
We expect our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates, potential commercialization efforts, and increased costs associated with being a public company. These increases will likely include additional costs related to the
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hiring of new personnel, including higher stock-based compensation expenses, and fees to outside consultants, as well as other related expenses. We also anticipate that we will incur significantly increased 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.
Amended and Restated Management Services Agreement with CinRx Pharma
In
Interest Income
Interest income consists primarily of interest income received on our cash and cash equivalents.
Change in Fair Value of Warrant Derivative Liabilities
The change in fair value of warrant derivative liabilities consists of the
change in fair value related to the three freestanding detachable stock purchase
warrants issued to Roche in connection with the Roche Agreement, which we
collectively refer to as the Roche Warrants. The first Roche Warrant, which was
issued in connection with our Series A redeemable convertible preferred stock
financing, was exercisable for 411,765 shares of our common stock. The second
Roche Warrant, issued in connection with our Series A redeemable convertible
preferred stock financing, was exercisable for 329,552 shares of our common
stock. The third Roche Warrant, issued in connection with our Series B
redeemable convertible preferred stock financing, was exercisable for 113,610
shares of our common stock. The Roche Warrants are collectively exercisable for
854,927 shares of our common stock at an exercise price of
The grant date fair value of the Roche Warrants are calculated using the Black Scholes valuation model. The valuation models used require the input of subjective assumptions, including assumptions about the expected life of the Roche Warrant, share price volatility and as a privately held company, the estimated fair value of our common stock. These assumptions used represent our best estimates at the time of issuance and in subsequent reporting periods, but the estimates involve inherent uncertainties and the application of our judgment.
Results of Operations
Comparison of Years Ended
The following table summarizes our results of operations for each of the years
presented:
For the Year Ended December 31,
2021 2020
Operating expenses:
Research and development $ 21,514,135 $ 19,162,036
General and administrative 20,996,997 1,963,409
Total operating expenses 42,511,132 21,125,445
Loss from operations 42,511,132 21,125,445
Other (income) expense:
Interest income (21,641 ) (36,728 )
Change in fair value of warrant
derivative liabilities 7,880,309 1,209,828
Total other expense 7,858,668 1,173,100
Net and comprehensive loss $ 50,369,800 $ 22,298,545
Research and Development Expenses
Research and development expenses for the year ended
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progression of several Phase 2 clinical trials, increased chemistry, manufacturing and controls spending and the addition of several important R&D full-time resources, partially offset by the completion of several Phase 1 and clinical pharmacology studies in 2020.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance into later stages of development and we continue to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. We will also incur increased expenses related to headcount to support our continued research activities and development of our product candidates.
General and Administrative Expenses
General and administrative expenses were
We anticipate that our general and administrative expenses will increase as we continue to build our infrastructure to operate as a stand-alone public company.
Interest Income
Interest income was
Change in Fair Value of Warrant Derivative Liabilities
The change in the fair value of the warrant derivative liabilities was
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not recognized any revenue and have incurred
operating losses and negative cash flows from our operations. We have not yet
commercialized any product and we do not expect to generate revenue from sales
of any products for several years, if at all. From inception through
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Cash Flows
Comparison of Years Ended
The following table summarizes our cash flows for each of the years presented:
For the Year Ended December 31,
2021 2020
Net cash used in operating activities
Operating Activities
We have historically experienced negative operating cash outflows as we continue clinical development of CIN-107. Our net cash used in operating activities primarily results from our net and comprehensive loss adjusted for non-cash expenses and changes in working capital components. Our primary uses of cash from operating activities are amounts due to CROs for the conduct of our clinical programs and employee-related expenditures for research and development, and general and administrative activities. Our cash flows from operating activities will continue to be affected by spending to advance and support our clinical development and other operating and general administrative activities.
For the year ended
For the year ended
Investing Activities
During the years ended
Financing Activities
Net cash provided by financing activities for the year ended
Funding Requirements
As of
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. We expect that our research and development and general and administrative costs will increase in connection with our planned clinical development activities. In addition, we expect to incur increased costs associated with operating as a public company.
If we receive regulatory approval for CIN-107, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates.
Our future capital requirements will depend on a number of factors, including:
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the costs of conducting preclinical studies and clinical trials;
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the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any;
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the costs, timing, and outcome of regulatory review of our product candidates;
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our ability to establish and maintain collaborations on favorable terms, if at all;
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the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time;
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the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
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the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;
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our headcount growth and associated costs as we expand our business operations and research and development activities;
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the costs of building out internal accounting, legal, compliance and other operational and administrative functions;
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the timing and size of any milestone payments required under our existing or future arrangements, including the Roche Agreement; and
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the costs of operating as a public company.
The net proceeds from our recent IPO, together with our existing cash and cash equivalents, may not be sufficient to commercialize CIN-107 or any other product candidate. Accordingly, we may be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.
If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
License Agreement Obligations
License agreement obligations relate to the Roche Agreement that we entered into
with Roche in
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We are currently unable to estimate the timing or likelihood of achieving these clinical and commercial milestones or generating future product sales. See the section titled "Item 1.Business-License Agreement with Roche" elsewhere in this Annual Report on Form 10-K as well as Note 4 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of our license agreement with Roche.
Purchase and Other Obligations
In the normal course of business, we enter into contracts with CROs and other third parties for conducting research and development activities, preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. The scope of the services under these contracts can be modified and provide for termination on notice, and therefore are cancellable contracts.
Critical Accounting Policies and Significant Judgments and Estimates
This management's discussion and analysis is based on our financial statements,
which have been prepared in accordance with
On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the financial statements prospectively from the date of change in estimates.
While our accounting policies are described in more detail in the notes to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates. See Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.
As part of the process of preparing our financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, 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 the actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our prepaid and accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at the time. We confirm the accuracy of estimates with the service providers and make adjustments if necessary. Examples of estimated prepaid and accrued research and development expenses include expenses for:
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CROs in connection with clinical studies;
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investigative sites in connection with clinical studies;
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vendors in connection with preclinical development activities; and
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vendors related to product manufacturing, development and distribution of clinical materials.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. The scope of services under these contracts can be modified and some of the agreements may be cancelled by either party upon written notice. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may
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report amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates and amounts actually incurred.
Warrant Derivative Instruments including Determination of the Fair Value of Underlying Common Stock
We account for derivatives, specifically freestanding detachable stock purchase warrants, in accordance with Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging. This guidance establishes accounting and reporting principles for derivative instruments, including certain derivative instruments embedded in other contracts. The Roche Warrants which are discussed previously are valued using the Black Scholes valuation model. The Black Scholes valuation was determined using assumptions that are subjective and require significant judgement and estimation by management, including the fair value of our common stock, as discussed below. Other assumptions include the risk-free rate, expected volatility, term and dividend yield, if applicable. The risk-free rate assumption was based on observed yields from governmental zero-coupon bonds. The expected volatility assumption was based on historical volatilities of a group of comparable industry companies whose stock prices are publicly available. The peer group was developed based on companies in the therapeutics and pharmaceutical industries.
Determination of the Fair Value of Common Stock
As there was no public market for our common stock through
In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each reporting date, which may be a date later than the most recent third-party valuation date, including:
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the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each reporting date;
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the progress of our research and development programs, including the status of ongoing and planned clinical trials;
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our stage of development and our business strategy;
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external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;
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our financial position, including cash on hand, and our historical and forecasted performance and operating results;
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the lack of an active public market for our common stock and our preferred stock;
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the likelihood of achieving a liquidity event or a sale of our company in light of prevailing market conditions; and
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the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our analysis and related statement of operations and comprehensive loss impact could be materially different.
Following the closing of the IPO on
Stock-Based Compensation
The Company accounts for its stock-based compensation awards in accordance with ASC Topic 718, Compensation - Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the condensed statements of operations and comprehensive loss based on their fair values. The Company's stock-based awards are subject only to service-based vesting conditions. The Company estimates the fair value of its stock-based awards using the Black-Scholes option pricing model, which requires the input
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of assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk-free interest rate, and (d) expected dividends.
Due to the lack of a public market for the trading of the Company's common stock
as of
The Company uses the simplified method, as prescribed by the
Compensation expense related to awards is calculated on a straight-line basis by recognizing the grant date fair value over the requisite service period of the award, which is generally the vesting term.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an "emerging growth company," or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.
As an EGC, we may also take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
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we are presenting only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10-K;
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we will avail ourselves of the exemption from providing an auditor's attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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we will avail ourselves of the exemption from complying with any requirement
that may be adopted by the
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we are providing reduced disclosure about our executive compensation arrangements; and
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we will not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.
We will remain an EGC until the earliest of (i)
We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates plus the proposed aggregate amount of gross
proceeds to us as a result of our IPO is less than
If we are a smaller reporting company at the time we cease to be an EGC, 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 EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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Recently Issued and Adopted Accounting Pronouncements
Other than as disclosed in Note 2 to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we do not expect that any recently issued accounting standards will have a material impact on our financial statements or will otherwise apply to our operations.
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