FORTE BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. The known risks and uncertainties include, but are not limited to, those identified and described in detail under the caption "Risk Factors" and elsewhere in this Form 10-K.
Overview
GvHD is a complication that may occur after an allogeneic transplant and is where donor's T-cells attack the patient's healthy cells. There are 2 main types of GvHD - acute GvHD and chronic GvHD. The severity of symptoms range from mild to fatal. Acute GvHD usually occurs within 100 days of a transplant. Symptoms of the acute GvHD affect the skin, GI tract or liver. Chronic GvHD symptoms can occur any time after a transplant, but usually start within 2 years. Symptoms of chronic GvHD affect the skin, mouth, liver, lungs, GI tract, muscles or joints.There remains a significant unmet need for safe and effective therapies for GvHD.
Vitiligo is characterized by the loss of melanocytes which are cells that produce skin pigmentation and results in discolored patches appearing in the skin, hair and mucous membrane . Vitiligo is mediated primarily by natural killer cells ("NK cells") and cytotoxic T lymphocytes ("CD8+"). Current treatments include black box warnings. There remains a significant unmet need for safe and effective therapies for vitiligo.
AA is characterized by nonscaring, unpredictable and patchy hair loss generally on the scalp but also in other areas of the body as a result of immune cells attacking and damaging hair follicles. There remains a significant unmet need for safe and effective therapies for AA .
We had
In
Intellectual Property
In
55
--------------------------------------------------------------------------------
treatment of dermatological diseases and conditions. The Company terminated its
license agreement with DHHS effective
We own one US patent for administering a combination of Gram-positive and Gram-negative bacteria along with metabolites for treatment of a wide variety of skin conditions. The patent's estimated expiration date is 2039. This patent is not material to Forte's FB-102 program. We also own four pending US patent applications related to FB-102 program. The estimated expiration dates of these patents are 2043-2044.
COVID-19
The pandemic caused by an outbreak of a new strain of coronavirus, or COVID-19 and its variants, has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our operations. We are actively monitoring the impact of COVID-19 and the possible effects on our financial condition, liquidity, operations, suppliers, industry, and workforce. However, the full extent, consequences, and duration of the COVID-19 pandemic and the resulting impact on us cannot currently be predicted. We will continue to evaluate the impact that these events could have on our operations, financial position, results of operations and cash flows.
Components of Operating Results
Revenue
We have no products approved for commercial sale or in active development and have not generated any revenue from product sales. In the future, we may generate revenue from product sales, royalties on product sales, license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development costs consist primarily of salaries and benefits of research and development personnel and costs related to research activities, preclinical studies, clinical trials, drug manufacturing, and, in 2021, wind down costs incurred following the announcement of our unfavorable clinical trial results and the write-off of manufacturing property and equipment. Non-refundable advance payments for goods or services that will be used in future research and development activities are deferred and capitalized and are only expensed when the goods have been received or when the service has been performed rather than when the payment is made.
Drug manufacturing and clinical trial costs are a component of research and development expenses. The Company expenses costs for its drug manufacturing activities performed by Contract Manufacturing Organizations ("CMOs"), costs for its preclinical and clinical trial activities performed by Contract Research Organizations ("CROs") and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the percentage of completion and therefore the expense to be incurred.
We anticipate research and development expenses to continue to increase in the future as we develop our current lead product candidate, FB-102.
General and Administrative Expenses
General and administrative expenses consist primarily of professional fees such as legal, auditing, tax and business consulting services, personnel expenses and travel costs, costs associated with being a publicly traded company such as Sarbanes-Oxley compliance, accounting fees, and directors' and officers' liability insurance premiums. Our general and administrative expenses may increase due to increases in professional and advisory fees and as we build out our infrastructure to develop FB-102.
Other Expenses, net
Other expense, net, consists of net foreign exchange losses and franchise taxes, partially offset by interest earned on our cash and cash equivalents.
56
--------------------------------------------------------------------------------
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our consolidated financial statements have been prepared in accordance with
While our significant accounting policies are described in Note 2 of our consolidated financial statements included elsewhere in this Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our research and development expenses. This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us 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. We make estimates of our research and development expenses in our consolidated financial statements based on facts and circumstances known to us at that time. If our estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amounts actually incurred.
Stock-Based Compensation
We account for stock-based compensation arrangements with employees, directors and non-employees in accordance with Accounting Standards Codification ("ASC") 718, Stock Compensation. Stock-based awards issued by us have been primarily stock options and restricted stock units with time-based or performance-based vesting. ASC 718 requires the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based awards. To determine the grant-date fair value of stock options, we utilize the Black-Scholes option pricing model, which is impacted by the fair value of our common stock as well as other variables including, but not limited to, the expected term that stock-based awards will remain outstanding, expected common stock price volatility over the expected term of the stock-based awards, risk-free interest rates and expected dividends.
For stock-based awards with time-based vesting which includes stock options and restricted stock units, stock-based compensation is recognized over the period during which an awardee is required to provide services in exchange for the stock-based award, known as the requisite service period (usually the vesting period), on a straight-line basis. For time-based stock awards, stock-based compensation expense is recognized based on the fair value determined on the date of grant. For stock-based awards with performance-based vesting, the fair value of the award is recognized as expense when the achievement of the associated performance criteria becomes probable.
The Company has an employee stock purchase plan ("ESPP"). The fair value of each purchase under the ESPP is estimated at the beginning of the offering period using the Black-Scholes option pricing model.
Estimates of the fair value of stock-based awards as of the grant date using the Black-Scholes option pricing model are affected by assumptions regarding a number of variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. The volatility input is subjective and generally requires significant analysis and judgment to develop and involves inherent uncertainties and the application of significant judgment. If we use significantly different assumptions or estimates, our equity-based compensation could be materially different.
These inputs are:
Expected term - The expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method which is based on the mid-point between the vesting period and the end of the contractual term. We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock-based awards.
57
--------------------------------------------------------------------------------
Expected volatility - Due to the Company's limited trading of its common stock and lack of company-specific historical or implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies in the life sciences industry whose shares are publicly traded. The Company selects the peer group based on comparable characteristics, including development stage, product pipeline, and market capitalization. The Company computes historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until sufficient amount of historical information regarding the volatility of its own stock price becomes available.
Risk-Free Interest Rate - The risk-free interest rate is based on the
Expected Dividend - We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we use an expected dividend yield of zero.
We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.
Results of Operations
Comparison of the Years Ended
The following tables summarize our results of operations for the years ended
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 5,594 $ 13,853 $ (8,259 )
General and administrative 8,302 7,633 669
Total operating expenses 13,896 21,486 (7,590 )
Other income (expenses), net 17 (222 ) 239
Net Loss $ (13,879 ) $ (21,708 ) $ (7,829 ) Research and Development Expenses
Research and development expenses were
While research and development expenses decreased for the year ended
General and Administrative Expenses
General and administrative expenses were
Our general and administrative expenses may increase in the future due to increases in professional and advisory fees as we build out our infrastructure to develop FB-102.
58
--------------------------------------------------------------------------------
Other Income (Expenses), net
The change in other income (expenses), net for the year ended
Liquidity and Capital Resources
We have no products approved for commercial sale and have not generated any
revenue from product sales or out-licenses. We have never been profitable and
have incurred operating losses in each year since inception. Our net loss was
approximately
In
We are not obligated to sell any shares under the ATM Facility. The ATM Facility
may be terminated at any time upon ten days' prior notice, or at any time in
certain circumstances, including the occurrence of a material adverse effect on
us. We agreed to pay the sales agent a commission equal to 3.0% of the gross
proceeds from the sales of shares under the ATM Facility and has agreed to
provide the sales agent with customary indemnification and contribution rights.
We issued 6.1 million shares of common stock for gross proceeds of approximately
We had cash and cash equivalents of approximately
Future Capital Requirements
We have not generated any revenue from product sales or from out-licensing. We do not know when, or if, we will generate any revenue. We expect to incur ongoing losses as we develop our current lead product candidate, FB-102, which has potentially broad application for autoimmune indications such as graft-vs-host disease, vitiligo and alopecia areata. FB-102 is in preclinical development. Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
•the initiation and progress of preclinical studies and any clinical trials for our product candidates;
•the terms and timing of any strategic alliance, licensing and other arrangements that we may establish;
•the number of programs we pursue;
•the outcome, timing and cost of regulatory approvals;
•the cost and timing of hiring new employees to support our continued growth;
59
--------------------------------------------------------------------------------
•the costs involved in patent filing, prosecution, and enforcement; and
•the costs and timing of having clinical supplies of our product candidates manufactured.
If we raise additional funds by issuing equity securities, our stockholders may
experience dilution. Any future debt financing may impose upon us covenants that
restrict our operations, including limitations on our ability to incur liens or
additional debt, pay dividends, repurchase our common stock, make certain
investments and engage in certain merger, consolidation or asset sale
transactions. Any equity or debt financing may contain terms that are not
favorable to us or our stockholders. In addition, our ability to raise
additional funds may be adversely impacted by potential worsening global
economic conditions and the recent disruptions to, and volatility in, the credit
and financial markets in
See "Risk Factors" for additional risks associated with our substantial capital requirements.
Summary Consolidated Statements of Cash Flows
The following table sets forth the primary sources and uses of cash for the
years ended
Year Ended December 31,
2022 2021
Net cash (used in) provided by:
Operating activities $ (8,185 ) $ (16,677 )
Financing activities 7,241 (44 )
Net decrease in cash $ (944 ) $ (16,721 )
Operating Activities
Net cash used in operating activities for the year ended
Net cash used in operating activities for the year ended
Financing Activities
Net cash provided by financing activities for the year ended
Net cash used in financing activities was
Indemnification
As permitted under
Contractual Obligations
See Note 4 to the Consolidated Financial Statements included elsewhere in this Form 10-K.
60
--------------------------------------------------------------------------------
© Edgar Online, source
