NUVALENT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. For a detailed discussion on our business environment, please read Item 1. Business, included in this Annual Report. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical stage biopharmaceutical company focused on creating precisely targeted therapies for patients with cancer. We leverage our team's deep expertise in chemistry and structure-based drug design to develop innovative small molecules that are designed with the aim to overcome the limitations of existing therapies for "clinically proven" kinase targets.
Limitations faced by currently available kinase inhibitors can include (i) kinase resistance, or the emergence of new mutations in the kinase target that can enable resistance to existing therapies, (ii) kinase selectivity, or the potential for existing therapies to inhibit other structurally similar kinase targets and lead to off-target adverse events, and (iii) limited brain penetrance, or the ability for the therapy to treat disease that has spread or metastasized to the brain. By prioritizing target selectivity, we believe our drug candidates have the potential to overcome resistance, avoid dose-limiting off-target adverse events, address brain metastases, and drive more durable responses. This may result in the potential to drive deeper, more durable responses with minimal adverse events, and we believe these potential benefits may support opportunities for clinical utility earlier in the treatment paradigm.
NVL-520
Our first lead product candidate, NVL-520, is being developed for patients with ROS1-positive NSCLC. NVL-520 is a novel ROS1-selective inhibitor designed with the aim to address the clinical challenges of emergent treatment resistance, CNS-related adverse events, and brain metastases that may limit the use of currently available ROS1 TKIs. Our ARROS-1 clinical trial is a first-in-human Phase 1/2, multicenter, open-label, dose-escalation and expansion study evaluating NVL-520 as an oral monotherapy in patients with advanced ROS1-positive NSCLC and other solid tumors.
Dosing was initiated in the Phase 1 portion of the ARROS-1 clinical trial in
The planned Phase 2 portion of the clinical trial is designed to evaluate the overall activity of NVL-520 at RP2D in patients with advanced ROS1-positive NSCLC and other solid tumors, examining several specific cohorts of patients based on the prior anti-cancer therapies that such patients have received. Phase 2 cohorts have been designed to support potential registration in kinase inhibitor naïve or previously treated ROS1-positive NSCLC patients.
NVL-655
Our second lead product candidate, NVL-655, is being developed for patients with ALK-positive NSCLC. NVL-655 is a brain-penetrant ALK-selective inhibitor designed with the aim to address the clinical challenges of emergent treatment resistance, CNS-related adverse events, and brain metastases that may limit the use of first-, second-, and third-generation ALK inhibitors. Preclinical data has shown that NVL-655 was brain-penetrant, inhibited wild-type ALK fusions, remained active in the presence of mutations conferring resistance to approved and investigational ALK inhibitors, and displayed strong selectivity for both wild-type ALK and its resistance variants as compared to the structurally related TRKB, thereby indicating the potential to minimize off-target TRKB-related CNS adverse events.
Our ALKOVE-1 clinical trial is a first-in-human Phase 1/2, multicenter,
open-label, dose-escalation and expansion study evaluating NVL-655 as an oral
monotherapy in patients with advanced ALK-positive NSCLC and other solid tumors.
In
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The planned Phase 2 portion of the clinical trial is designed to evaluate the preliminary activity of NVL-655 at the RP2D in a limited number of patients with advanced ALK-positive NSCLC and other solid tumors, examining several specific cohorts of patients based on the prior anti-cancer therapies that such patients have received. The Phase 2 cohorts are designed with the intent to expand cohort size, as data emerge and in collaboration with the FDA, into potentially registrational cohorts for the treatment of previously treated patients with ALK-positive NSCLC.
Other Candidates and Discovery Programs
Our newest product candidate, NVL-330, is a brain-penetrant HER2-selective inhibitor designed with the aim to address the combined medical need of treating tumors driven by HER2ex20, treating brain metastases, and avoiding treatment-limiting adverse events including due to off-target inhibition of wild-type EGFR. Preclinical data has shown that NVL-330 potently inhibited HER2ex20 in cell-based assays, was brain penetrant, and was highly selective for HER2ex20 over the structurally related wild-type EGFR. IND-enabling studies are ongoing for this program.
We have prioritized a number of additional small molecule research programs following an assessment of medical need designed with the aim to address emerging compound resistance mutations, including a program for ALK IXDN mutations. Research for these programs is ongoing.
Since commencing significant operations in 2018, we have focused substantially all of our efforts and financial resources on research and development activities for our programs, including NVL-520, NVL-655 and NVL-330, establishing and maintaining our intellectual property portfolio, organizing and staffing our company, business planning, raising capital, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated revenue from product sales or any other source.
Prior to our IPO, we funded our operations primarily with proceeds from the
sales of convertible preferred stock, the issuance of convertible notes (which
converted to convertible preferred stock in 2018) and debt financing from
stockholders (which was settled in convertible preferred stock in
Since our inception, we have incurred significant operating losses. Our ability
to generate product revenue sufficient to achieve profitability will depend
heavily on the successful development and eventual commercialization of our
product candidates. We reported net losses of
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continue to advance our parallel lead programs, NVL-520 and NVL-655, in clinical development;
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continue to advance our more recently nominated program, NVL-330, in preclinical development;
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advance the development of our discovery programs;
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expand our pipeline of product candidates through our own product discovery and development efforts;
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seek to discover and develop additional product candidates;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
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implement operational, financial and management systems;
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attract, hire and retain additional clinical, scientific, management and administrative personnel;
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maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how;
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acquire or in-license other product candidates and technologies; and
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operate as a public company.
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We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, we expect to continue to incur additional costs associated with operating 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, 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. Our
ability to raise additional funds may be adversely impacted by general economic
conditions, both inside and outside the
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.
We believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2025. Our existing cash, cash equivalents and marketable securities will not be sufficient to fund any of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the development and commercialization of our product candidates. See "-Liquidity and Capital Resources."
The global COVID-19 pandemic and other significant geopolitical factors,
including the ongoing military conflict between
Components of Our Results of Operations
Operating expenses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include:
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personnel-related costs, including salaries, benefits and stock-based compensation expense, for employees engaged in research and development functions;
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expenses incurred in connection with our research programs, including under agreements with third parties, such as consultants, contractors and CROs; and
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the cost of developing and scaling our manufacturing process and manufacturing drug substance and drug product for use in our research and preclinical and clinical studies, including under agreements with third parties, such as consultants, contractors and CMOs.
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We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. Costs incurred prior to nominating a development candidate are included in discovery programs. We do not allocate employee costs, costs associated with our discovery efforts, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and, as such, are not separately classified.
We expect that our research and development expenses will increase substantially as we continue to advance NVL-520 and NVL-655 in clinical development, advance NVL-330 in preclinical development, and expand our discovery, research and preclinical activities in the near term and in the future. Although we are currently enrolling patients in the Phase 1 portions of our ARROS-1 and ALKOVE-1 clinical trials, at this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
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the timing and progress of development activities relating to NVL-520, NVL-655, NVL-330 and any future product candidates from our discovery programs, including any additional costs that may result from delays in enrollment or other factors;
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the number and scope of preclinical and clinical programs we decide to pursue;
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our ability to maintain our current research and development programs and to establish new ones;
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establishing an appropriate safety profile with IND-enabling toxicology studies;
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successful patient enrollment in, and the initiation and completion of, clinical trials;
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the number of trials required for regulatory approval;
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the countries in which the trials are conducted;
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the length of time required to enroll eligible subjects and initial clinical trials;
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the number of subjects that participate in the trials and per subject trial costs;
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potential additional safety monitoring requested by regulatory authorities;
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the duration of subject participation in the trials and follow-up;
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the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to applicable regulatory authorities;
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the receipt of approvals from applicable regulatory authorities;
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the timing, receipt and terms of any marketing approvals and post-marketing approval commitments from applicable regulatory authorities;
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the extent to which we establish collaborations, strategic partnerships or other strategic arrangements with third parties, if any, and the performance of any such third party;
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establishing commercial manufacturing capabilities or making arrangements with CMOs;
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development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; and
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights.
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
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General and administrative expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations and accounting and audit services. We anticipate that 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. We also anticipate that we will continue to incur 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.
Other income (expense)
Change in fair value of preferred stock tranche rights
Pursuant to the terms of our Series A Preferred Stock Purchase Agreement, we
provided investors with the right and obligation to participate in subsequent
closings of Series A convertible preferred stock upon the achievement of certain
strategic milestones or as determined by the Series A investors (the Series A
Tranche Rights). These Series A Tranche Rights met the definition of a
freestanding financial instrument as the Series A Tranche Rights were legally
detachable and separately exercisable from the Series A convertible preferred
stock. The Series A Tranche Rights were initially classified as a liability on
our consolidated balance sheet that we remeasured to fair value at each
reporting date, and we recognized changes in fair value of the Series A Tranche
Rights as a component of other income (expense) in our consolidated statements
of operations and comprehensive loss. All Series A Tranche Rights were settled
by
Interest income and other income, net
Interest income and other income, net, consists of interest income, interest expense and other income (expense) unrelated to our core operations.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 Change (in thousands) Operating expenses: Research and development$ 63,731 $ 35,559 $ 28,172 General and administrative 22,377 10,258 12,119 Total operating expenses 86,108 45,817 40,291 Loss from operations (86,108 ) (45,817 ) (40,291 ) Other income (expense): Change in fair value of preferred stock tranche rights - (635 ) 635 Interest income and other income, net 4,254 114 4,140 Total other income (expense), net 4,254 (521 ) 4,775 Net loss$ (81,854 ) $ (46,338 ) $ (35,516 )
Research and development expenses
Year Ended December 31,
2022 2021 Change
(in thousands)
Direct research and development expenses
by program:
NVL-520 $ 22,249 $ 11,411 $ 10,838
NVL-655 10,149 7,302 2,847
NVL-330 2,463 - 2,463
Discovery programs 9,833 7,388 2,445
Unallocated research and development
expenses:
Personnel-related (including stock-based
compensation) 17,383 8,067 9,316
Other 1,654 1,391 263
Total research and development expenses
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Research and development expenses were
General and administrative expenses
Year Ended December 31,
2022 2021 Change
(in thousands)
Personnel-related (including stock-based
compensation) $ 12,316 $ 5,131 $ 7,185
Professional and consultant fees 4,599 3,095 1,504
Insurance and other 5,462 2,032 3,430
Total general and administrative expenses
General and administrative expenses were
Other income (expense)
Change in fair value of preferred stock tranche rights
The change in the fair value of the Series A Tranche Rights for the year ended
Interest income and other income, net
Interest income and other income, net consisted primarily of interest income of
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. 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 the foreseeable
future, if at all. Through
On
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Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year Ended December 31,
2022 2021
(in thousands)
Net cash used in operating activities
(10,665 ) (220,028 )
Net cash provided by financing activities 248,916 318,222
Net increase in cash and cash equivalents
Operating activities
During the year ended
During the year ended
Changes in accounts payable, accrued expenses and other current liabilities, prepaid expenses and other current assets and other assets were generally due to growth in our business, the advancement of our research and development programs and the timing of vendor invoicing and payments.
Investing activities
During the year ended
During the year ended
Financing activities
During the year ended
During the year ended
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Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical and clinical activities and clinical trials for our product candidates in development. In addition, we expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
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the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our discovery programs and product candidates, including the advancement of NVL-520, NVL-655 and NVL-330 throughout clinical development;
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the clinical development plans we establish for our product candidates, including NVL-520, NVL-655 and NVL-330;
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the number and characteristics of product candidates that we discover and develop through our product discovery and research efforts;
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the terms of any collaboration agreements we may choose to pursue;
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the outcome, timing and cost of meeting regulatory requirements established by the FDA, the EMA and other comparable foreign regulatory authorities;
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
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the effect of competing technological and market developments;
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the cost and timing of completion of commercial-scale outsourced manufacturing activities; and
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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 on our own.
As of
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, the ownership interest of our common stockholders will 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 preferred 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 acquisitions or capital expenditures or declaring dividends. 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 technologies, 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 lease certain office space in
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Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of services performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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vendors in connection with preclinical development activities;
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CROs in connection with preclinical and clinical studies and testing; and
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CMOs in connection with the process development and scale up activities and the production of materials.
We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and CMOs that conduct services and supply materials. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. 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 the estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. While the majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met, some require advance payments. 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 expense. We record these as prepaid expenses on our consolidated balance sheet.
Stock-based compensation
We measure compensation expense for stock-based awards to employees, non-employees and directors based on the fair value on the date of grant. We measure fair value on the date of grant using the Black-Scholes option-pricing model for stock options with service-based vesting. We measure fair value on the date of grant for restricted common stock awards using the difference between the purchase price per share of the award, if any, and the fair value of the Company's common stock. Compensation expense for the awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line method to record the expense of awards with only service-based vesting conditions. We account for forfeitures of stock-based awards as they occur.
We classify stock-based compensation expense in our consolidated statements of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements included in this Annual Report.
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