The following discussion and analysis and the unaudited interim financial
statements included in this Quarterly Report on Form 10-Q should be read in
conjunction with the financial statements and notes thereto for the year ended
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and planned clinical trials for our product candidates, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, if approved, the impact of the COVID-19 pandemic on our business, plans and objectives of management for future operations and future results of anticipated product development efforts, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "continue" "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target" or "will" or the negative of these terms or other similar expressions. These forward-looking statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including, without limitation, the risk factors described in Part II, Item 1A, "Risk Factors" of this Quarterly Report. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Overview
We are a clinical-stage biopharmaceutical company focused on developing and
commercializing novel vaccines. Our initial program, HIL-214, is a virus-like
particle (VLP) based vaccine candidate for the prevention of moderate-to-severe
acute gastroenteritis (AGE) caused by norovirus infection. It is estimated that
norovirus causes nearly 700 million cases of illness and more than 200,000
deaths worldwide per year, as well as significant additional economic and social
burden. To date, HIL-214 has been studied in nine clinical trials conducted by
Takeda and LigoCyte, which collectively generated safety data from more than
4,500 subjects and immunogenicity data from more than 2,200 subjects, including
safety and immunogenicity data from more than 800 pediatric subjects. A
randomized, placebo-controlled Phase 2b field efficacy trial enrolled 4,712
adult subjects, and HIL-214 was well tolerated and demonstrated clinical proof
of concept in preventing moderate-to-severe cases of AGE from norovirus
infection. In
We commenced our operations in 2019 and have devoted substantially all of our resources to date to organizing and staffing our company, business planning, raising capital, in-licensing intellectual property related to our initial vaccine candidate, HIL-214, preparing for and managing our clinical trials of HIL-214, and providing other general and administrative support for our operations. We have funded operations to date primarily through the issuance of convertible
19
--------------------------------------------------------------------------------
promissory notes, commercial bank debt and the sale of common stock in our
initial public offering (IPO) which closed in
We do not have any products approved for sale, have not generated any revenue
and have incurred net losses since our inception. As of
Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements through at least the next 12 months. We have never generated any revenue and do not expect to generate any revenue from product sales unless and until we successfully complete development of, and obtain regulatory approval for, HIL-214, which will not be for several years, if ever. Accordingly, until such time as we can generate significant revenue from sales of HIL-214, if ever, we expect to finance our cash needs through equity offerings, our existing Loan Agreement, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market vaccine candidates that we would otherwise prefer to develop and market ourselves.
The global COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including its impact on our clinical trial enrollment, trial sites, manufacturers, CROs and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of the COVID-19 pandemic, including the impact of new variants of the virus that causes COVID-19, or a similar health epidemic is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and most of our non-lab-based employees working remotely. We will continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.
Financial Operations Overview
Our financial statements include the accounts of
20
--------------------------------------------------------------------------------
License Agreement with Takeda
On
We paid Takeda upfront consideration consisting of 840,500 shares of our common
stock and a warrant to purchase 5,883,500 shares of our common stock (the Takeda
Warrant). We further agreed that, in the event that Takeda's fully-diluted
ownership, including the Takeda Warrant, represents less than a certain
specified percentage of our fully-diluted capitalization, including shares
issuable upon conversion of outstanding convertible promissory notes, calculated
immediately prior to the closing of our IPO, we will issue an additional warrant
to purchase shares of common stock such that Takeda would hold a certain
specified percentage of the fully-diluted capitalization immediately before the
closing of our IPO. This right expired in connection with our IPO and no
additional warrant was issued. We also paid Takeda
Transitional Services Agreement with Takeda
As contemplated by the Takeda License, on
Components of Results of Operations
Operating Expenses
Research and Development
During 2022 and 2021, our research and development expenses have been related to the development of HIL-214. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
•
salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts;
•
external research and development expenses incurred under agreements with CROs and consultants to conduct and support our planned clinical trials of HIL-214; and
•
costs related to manufacturing HIL-214 for our planned clinical trials.
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of HIL-214. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of HIL-214 or any future vaccine candidates due to the inherently
21
--------------------------------------------------------------------------------
unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast whether HIL-214 or any future vaccine candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future development costs may vary significantly based on factors such as:
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
the countries in which the trials are conducted;
•
the length of time required to enroll eligible subjects;
•
the number of subjects that participate in the trials;
•
the number of doses evaluated in the trials;
•
the costs and timing of manufacturing HIL-214 and placebo for use in our trials;
•
the drop-out or discontinuation rates of clinical trial subjects;
•
potential additional safety monitoring requested by regulatory agencies;
•
the duration of subject participation in the trials and follow-up;
•
the phase of development of the vaccine candidate;
•
the impact of any interruptions to our operations or to those of the third parties with whom we work due to the ongoing COVID-19 pandemic; and
•
the safety, purity, potency, immunogenicity and efficacy of the vaccine candidate.
In-process research and development expenses for the nine months ended
General and Administrative
General and administrative expenses consist of salaries and employee-related
costs for personnel in executive, finance and other administrative functions,
legal fees relating to intellectual property and corporate matters, and
professional fees for accounting, auditing and consulting services. We
anticipate that our general and administrative expenses will increase
substantially in the future to support our research and development activities,
pre-commercial preparation activities for HIL-214 and, if any vaccine candidate
receives marketing approval, commercialization activities. We also anticipate
increased expenses related to audit, legal, regulatory, and tax-related services
associated with maintaining compliance with exchange listing and
Interest Income
Interest income consists of interest on money market funds.
Interest Expense
Interest expense consists of interest on our outstanding convertible promissory notes and our term loan facility.
22
--------------------------------------------------------------------------------
Change in Fair Value of Warrant Liabilities
In connection with the Takeda License, we issued the Takeda Warrant and Takeda Warrant Right (together, the Takeda Warrants). The Takeda Warrants are accounted for as liabilities as they do not meet all the conditions for equity classification due to (i) insufficient authorized shares for the Takeda Warrant and (ii) the Takeda Warrant Right is not indexed to our own stock. We adjusted the carrying value of our warrant liabilities to their estimated fair value at each reporting date, with any change in fair value of the warrant liabilities recorded as an increase or decrease to change in fair value of warrant liabilities in the condensed consolidated statements of operations.
The Takeda Warrant, which became exercisable upon our IPO, is for the purchase
of 5,883,500 shares of our common stock at an exercise price of
Change in Fair Value of Convertible Promissory Notes
We issued convertible promissory notes in 2019, 2020 and 2021 for which we have elected the fair value option. We adjusted the carrying value of our convertible promissory notes to their estimated fair value at each reporting date, with any change in fair value of the convertible promissory notes recorded as an increase or decrease to change in fair value of convertible promissory notes in our condensed consolidated statements of operations. All outstanding convertible promissory notes and related accrued interest converted into shares of our common stock immediately prior to the closing of our IPO.
Prior to our IPO, the fair value of our convertible promissory notes has been estimated using a scenario-based analysis that estimated the fair value of the convertible promissory notes based on the probability-weighted present value of expected future investment returns, considering possible outcomes available to the noteholders, including various IPO, settlement, equity financing, corporate transactions and dissolution scenarios. The conversion date fair value of the convertible promissory notes was reclassified to stockholders' equity using our publicly traded closing price on the date the convertible promissory notes were converted to common stock.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods indicated (in thousands): Three Months Ended September 30, 2022 2021 Change Operating expenses: Research and development$ 13,315 $ 896 $ 12,419 In-process research and development - 37,666 (37,666 ) General and administrative 4,577 1,113 3,464 Total operating expenses 17,892 39,675 (21,783 ) Loss from operations (17,892 ) (39,675 ) 21,783 Other income (expense): Interest income 1,317 - 1,317 Interest expense (205 ) (717 ) 512 Change in fair value of convertible promissory notes - (875 ) 875 Change in fair value of warrant liabilities - (20,598 ) 20,598 Other income (expense) (25 ) (3 ) (22 ) Total other income (expense) 1,087 (22,193 ) 23,280 Net loss$ (16,805 ) $ (61,868 ) $ 45,063
Research and development expenses. Research and development expenses were
23
--------------------------------------------------------------------------------
stock-based compensation expense,
General and administrative expenses. General and administrative expenses were
Other income (expense). Other income of
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the periods indicated (in thousands): Nine Months Ended September 30, 2022 2021 Change Operating expenses: Research and development$ 28,352 $ 1,623 $ 26,729 In-process research and development 2,500 37,666 (35,166 ) General and administrative 11,162 3,064 8,098 Total operating expenses 42,014 42,353 (339 ) Loss from operations (42,014 ) (42,353 ) 339 Other income (expense): Interest income 1,657 - 1,657 Interest expense (3,157 ) (734 ) (2,423 ) Change in fair value of convertible promissory notes (51,469 ) (1,392 ) (50,077 ) Change in fair value of warrant liabilities (43,575 ) (20,598 ) (22,977 ) Other income (expense) (63 ) (4 ) (59 ) Total other income (expense) (96,607 ) (22,728 ) (73,879 ) Net loss$ (138,621 ) $ (65,081 ) $ (73,540 )
Research and development expenses. Research and development expenses were
In-process research and development expenses. We had
General and administrative expenses. General and administrative expenses were
Other income (expense). Other expense of
24
--------------------------------------------------------------------------------
Takeda Warrant,
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future as we continue the development and potential
commercialization of HIL-214. We have funded our operations to date primarily
through the issuance of convertible promissory notes, the net proceeds raised
from our IPO and borrowings under our term loan facility. As of
Term Loan Facility
On
The Term Loans bear (a) cash interest at a floating rate of the higher of (i)
the
The Loan Agreement contains certain customary affirmative and negative covenants and events of default. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding our operating accounts. The negative covenants include, among others, limitations on our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies or businesses, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements, including the Takeda License, or enter into various specified transactions. Upon the occurrence of an event of default, subject to any specified cure periods, all amounts owed by us would begin to bear interest at a rate that is 4.00% above the rate effective immediately before the event of default and may be declared immediately due and payable by Hercules, as collateral agent.
As of
25
--------------------------------------------------------------------------------
Convertible Promissory Note Financings
From inception to
On
Funding Requirements
Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements through at least the next 12 months. In particular, we expect the net proceeds from our IPO will allow us to complete enrollment and dosing in our Phase 2b NEST-IN1 study, technical transfer and manufacturing readiness for producing clinical trial supply for a Phase 3 study, and will be used for working capital and other general corporate purposes, which may include the hiring of additional personnel, capital expenditures and the costs of operating as a public company. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing vaccine candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•
the initiation, type, number, scope, results, costs and timing of, our planned clinical trials of HIL-214 and preclinical studies or clinical trials of other potential vaccine candidates we may choose to pursue in the future, including any modifications to clinical development plans based on feedback that we may receive from regulatory authorities;
•
the costs and timing of manufacturing for HIL-214 and placebo to be used in our planned clinical trials, as well as commercial scale manufacturing, if any vaccine candidate is approved;
•
the costs, timing and outcome of regulatory meetings and reviews of HIL-214 or any future vaccine candidates;
•
any delays and cost increases that may result from the COVID-19 pandemic;
•
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
•
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
•
the costs associated with hiring additional personnel and consultants as our business grows, including additional officers and clinical development and commercial personnel;
•
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
•
the timing and amount of the milestone, royalty or other payments we must make to Takeda and any future licensors;
•
the costs and timing of establishing or securing sales and marketing capabilities if HIL-214 or future vaccine candidates are approved;
•
our ability to receive recommendations from the ACIP or other foreign NITAGs, and achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
•
vaccine recipients' willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; and
•
costs associated with any products or technologies that we may in-license or acquire.
26
--------------------------------------------------------------------------------
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, the Loan Agreement, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, intellectual property, future revenue streams, research programs or vaccine candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our vaccine candidates even if we would otherwise prefer to develop and market such vaccine candidates ourselves.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
Nine Months Ended September 30, 2022 2021 Net cash provided by (used in): Operating activities$ (43,472 ) $ (3,101 ) Investing activities (2,685 ) (2,778 ) Financing activities 215,282 135,001
Net increase in cash and cash equivalents
Operating Activities
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities of
Financing Activities
Net cash provided by financing activities of
Contractual Obligations and Commitments
Operating Leases
27
--------------------------------------------------------------------------------
In
As of
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in
As of
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act), we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest of (i) the last day
of the fiscal year following the fifth anniversary of the consummation of our
IPO, (ii) the last day of the fiscal year in which we have total annual gross
revenue of at least
We are also a smaller reporting company as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting
common stock held by non-affiliates is less than
28
--------------------------------------------------------------------------------
Recent Accounting Pronouncements
See Item 1 of Part I, "Notes to Condensed Consolidated Financial Statements - Note 1 - Organization, Basis of Presentation and Summary of Significant Accounting Policies" of this Quarterly Report.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements, as defined in the
rules and regulations of the
© Edgar Online, source