ONCORUS, INC. The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with Part I, Item 1, "Business" and Item 8, 'Financial Statements and Supplementary Data." For information on risks and uncertainties related to our business that may make past performance not indicative of future results or cause actual results to differ materially from any forward-looking statements, see "Special Note Regarding Forward-Looking Statements," and Part I, Item 1A, 'Risk Factors."
Introduction
Our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
Overview - A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
Results of Operations - An analysis of our financial results comparing the year
ended
Liquidity and Capital Resources - An analysis of changes in our consolidated balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
Critical Accounting Policies and Significant Judgments and Estimates - A discussion of critical accounting policies and those that require us to make subjective estimates and judgments.
Overview
We are a preclinical-stage biopharmaceutical company focused the intravenous administration of self-amplifying RNA to transform outcomes for cancer patients. We believe that our product candidates have the potential to bring significant benefit to patients who are currently underserved by approved immuno-oncology therapies, including other viral immunotherapies and immune checkpoint inhibitors.
Our Self-Amplifying RNA Platform
Our self-amplifying RNA immunotherapy platform improves upon key characteristics of this therapeutic class to enhance systemic activity. Our approach involves encapsulating genomes of RNA viruses known to kill cancer cells within a lipid nanoparticle, or LNP, creating a selectively self-amplifying vRNA immunotherapy to be administered intravenously, or IV. We believe this approach has the potential to avoid the rapid immune clearance caused by neutralizing antibodies otherwise observed to date with IV-administered oncolytic viruses, which is thought to have limited the effectiveness of RNA viruses in the clinic. Once inside the tumor, the viral RNA genome is first amplified via transcription and then instructs tumor cells to synthesize proteins via translation that then self assemble into infectious virions, which thereafter causes an immunogenic tumor cell lysis before daughter virions infect nearby tumor cells.
Our two product candidates from our self-amplifying RNA platform are ONCR-021
and ONCR-788. ONCR-021, our lead product candidate, is an IV administered viral
RNA encoding an optimized genome of Coxsackievirus 21A, or CVA21, encapsulated
within an LNP. We plan to submit an investigational new drug application, or
IND, to the
Our HSV Platform
Our product candidate ONCR-177 is an intratumorally, or iTu, administered viral
immunotherapy based on our oncolytic HSV-1 platform, which leverages the Herpes
Simplex Virus type 1, or HSV-1, a virus which has been clinically proven to
effectively treat certain cancers. In
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Manufacturing
We plan to manufacture our product candidates at our manufacturing facility in
Financial
Since inception in 2015, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial, and manufacturing scale-up activities. We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our 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.
We have funded our operations primarily through the sale of redeemable
convertible preferred stock and from our initial public offering, or IPO, of our
common stock in 2020 and a follow-on public offering of common stock in 2021.
From inception through
At-the-Market Program
In
Loan Facility
On
The Loan Agreement contains a Subjective Acceleration Clause, or SAC, which
allows K2HV to accelerate the maturity of the Loan Agreement. Based upon our
significant operating losses as of
Since inception, we have incurred significant operating losses. Our net losses
were
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 material adverse effect on our business, results of operations and financial condition.
As of
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strategic transactions; however, we currently do not have any committed sources of additional capital at this time. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. 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 product candidates that we would otherwise prefer to develop and market ourselves. 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. See "Liquidity and Capital Resources." Our future viability is dependent on our ability to raise additional capital to finance our operations.
Impact of the COVID-19 Pandemic on Our Business
In response to the COVID-19 pandemic, we implemented a work-from-home policy
allowing employees who can work from home to do so. We have transitioned back to
in-office work for the majority of our employees. We have taken measures to
secure our research and development project activities, while work in
laboratories has been organized to reduce risk of COVID-19 transmission.
Business travel was previously suspended but is now becoming more frequent, and
online and teleconference technology continues to be used regularly. We continue
to monitor guidance from the
Components of Operating Results
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical and clinical studies under our research programs, which include:
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employee-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for our research and development personnel;
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costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;
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costs of manufacturing drug product and drug supply related to our current or future product candidates;
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costs of conducting preclinical studies and clinical trials of our product candidates;
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consulting and professional fees related to research and development activities, including stock-based compensation to non-employees;
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costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;
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costs related to compliance with clinical regulatory requirements;
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facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies; and
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fees for maintaining licenses and other amounts due under our third-party licensing agreements.
Research and development costs are expensed as incurred. Costs for certain 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 analyzing the progress of our preclinical and clinical studies 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
beginning, with respect to each program, upon our internal nomination of a
candidate in that program for further preclinical and clinical development. For
example, ONCR-021 and ONCR-788 were both nominated as candidates in
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The successful development of our product candidates 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 our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
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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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establishing an appropriate safety profile;
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successful enrollment in and completion of clinical trials;
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whether our product candidates show safety and efficacy in our clinical trials;
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receipt of marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
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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 our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence and continue clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.
General and Administrative Expenses
General and administrative expenses include salaries, bonuses, benefits and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees including legal fees relating to intellectual property and corporate matters, audit and tax fees, insurance costs, recruiting costs and costs for consultants who we utilize to supplement our personnel. General and administrative expenses also include travel costs, and facility, office-related costs and depreciation and amortization that are not included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the
future as our business expands to support expected growth in research and
development activities, including our future clinical programs. These increases
will likely include increased costs related to the hiring of additional
personnel and fees to outside service providers, among other expenses. We also
anticipate increased expenses associated with being a public company, including
costs for audit, legal, regulatory and tax-related services related to
compliance with the rules and regulations of the
Other Income (Expense)
Other income (expense) consists primarily of interest expense associated with our Loan Agreement with K2HV and interest income earned on our investments and cash equivalents.
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Results of Operations
The following table summarizes our results of operations for the periods
indicated.
YEAR ENDED DECEMBER 31, CHANGE
2022 2021 $ %
(in thousands, except percentages)
Operating expenses:
Research and development $ 54,744 $ 44,682 $ 10,062 23 %
General and administrative 21,793 20,136 1,657 8
Total operating expenses 76,537 64,818 11,719 18
Loss from operations (76,537 ) (64,818 ) (11,719 ) 18
Total other income (expense), net (885 ) 56 (941 ) (1,681 )
Net loss $ (77,422 ) $ (64,762 ) $ (12,660 ) 20 %
Year Ended
Research and Development Expenses
The table below summarizes our research and development expenses by product candidate or development program and unallocated research and development expenses for each of the periods presented:
YEAR ENDED DECEMBER 31,
2022 2021 CHANGE
(in thousands)
Direct external expenses by program:
ONCR-177 $ 9,548 $ 11,357 $ (1,809 )
ONCR-021 12,624 2,668 9,956
ONCR-788 114 831 (717 )
Platform development, early-stage research and
unallocated expenses:
Employee compensation and related 16,366 14,624 1,742
External research, development and consulting 1,261 2,209 (948 )
Laboratory supplies 2,639 3,698 (1,059 )
Facility-related 7,802 6,301 1,501
Other expenses 4,390 2,994 1,396
Total research and development $ 54,744 $ 44,682 $ 10,062 Research and development expenses increased from
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General and Administrative Expenses
YEAR ENDED DECEMBER 31,
2022 2021 CHANGE
(in thousands)
Employee compensation and related expenses
8,651 8,846 (195 )
Facility-related 1,186 529 657
Other expenses 1,575 2,050 (475 )
Total general and administrative expenses
General and administrative expenses increased from
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Other Income (Expense)
Other income (expense) for the year ended
Liquidity and Capital Resources
Sources of Liquidity
From inception through
Cash Flows
YEAR ENDED DECEMBER 31,
2022 2021
(in thousands)
Net cash (used in) provided by:
Operating activities $ (61,688 ) $ (49,824 )
Investing activities (33,008 ) (32,730 )
Financing activities 19,653 53,561
Net decrease in cash and cash equivalents
Operating Activities
Net cash used in operating activities for the year ended
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a source of cash of
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a net source of cash of
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a net source of cash of
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a net source of cash of
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a net use of cash of
Net cash used in operating activities for the year ended
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a net source of cash of
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a source of cash of
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a net source of cash of
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a net source of cash of
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a net use of cash of
Investing Activities
Net cash used in investing activities for the year ended
Financing Activities
Net cash provided by financing activities for the year ended
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, initiate clinical trials, build out our manufacturing facility and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
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As of
We plan to address the existence of substantial doubt through capital sources
such equity or debt financings as well as collaborations strategic alliances or
licensing arrangements with third parties; however, we do not currently have any
committed sources of additional capital at this time. Our cash, cash equivalents
and investments at
We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. 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 costs of manufacturing;
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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; and
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the costs of operating as a public company.
Our existing cash and cash equivalents and investments will not be sufficient to complete development of ONCR-021 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial product revenues, 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, the ownership interests of existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of common stockholders. Additional 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.
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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 and as 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. Further, if we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them.
Critical Accounting Policies and Significant Judgments and Estimates
This Management's Discussion and Analysis of Financial Condition and Results of
Operations is based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in
We define our critical accounting policies as those accounting principles that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following are the critical accounting policies used in the preparation of our consolidated financial statements that require significant estimates and judgments.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. 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 or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.
The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development 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. 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 research and development expense.
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 balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and directors based on the fair value of the award on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award.
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Determination of the Fair Value of Equity-Based Awards
Prior to the IPO, because there was no public market for our common stock as a private company, our board of directors determined the fair value of common stock by considering a number of objective and subjective factors, including having contemporaneous and retrospective valuations of our equity performed by a third-party valuation specialist, valuations of comparable peer public companies, sales of redeemable convertible preferred stock, operating and financial performance, the lack of liquidity of our common stock, and general and industry-specific economic outlook. Following our IPO, the closing sale price per share of our common stock as reported on The Nasdaq Global Market on the date of grant is used to determine the fair value of our share-based awards.
We estimate the fair value of stock option awards granted using the
Black-Scholes option-pricing model, which uses as inputs the fair value of our
common stock and subjective assumptions we make, including expected stock price
volatility, the expected term of the award, the risk-free interest rate, and
expected dividends. Due to the lack of an extended trading history of our common
stock and a lack of company-specific historical and implied volatility data, we
base the estimate of expected stock price volatility on the historical
volatility of a representative group of publicly traded companies for which
historical information is available. The historical volatility is generally
calculated based on a period of time commensurate with the expected term
assumption. We use the simplified method to calculate the expected term for
options granted to employees and directors. We utilize this method as we do not
have sufficient historical exercise data to provide a reasonable basis upon
which to estimate the expected term. For options granted to non-employees, we
utilize the contractual term. The risk-free interest rate is based on a
We determine the fair value of restricted common stock awards based on the fair value of our common stock on the date of grant.
Contractual Obligations
The following table summarizes our significant contractual obligations as ofDecember 31, 2022 : LESS THAN 1 TO 3 3 TO 5 MORE THAN AS OF DECEMBER 31, 2022 TOTAL 1 YEAR YEARS YEARS 5 YEARS Operating lease obligations$ 82,861 $ 4,850 $ 10,140 $ 10,757 $ 57,114 Total$ 82,861 $ 4,850 $ 10,140 $ 10,757 $ 57,114
We have an operating lease for approximately 33,518 square feet (the "Pod 4
Portion"), approximately 54,666 square feet (the "Pod 5 Portion"), and
approximately 17,150 square feet ("Pod 3 Portion") of a manufacturing facility
located in
We were also party to an operating lease in
We enter into agreements in the normal course of business with vendors for preclinical and clinical studies, preclinical and clinical supply and manufacturing services, professional consultants for expert advice, and other vendors for other services for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts do not contain any minimum purchase commitments and are cancelable at any time by us, generally upon 30 days prior written notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
In addition, we have entered into license and royalty agreements for intellectual property with certain parties. Such arrangements require ongoing payments, including payments upon achieving certain development, regulatory and commercial milestones, receipt of sublicense income, as well as royalties on commercial sales. Payments under these arrangements are expensed as incurred and are recorded as research and development expenses. We paid amounts under such agreements at the time of execution and pay annual fees. Upon the dosing of patients in our Phase 1 clinical trial for ONCR-177, certain payments came due. We have not included the annual license fee payments in the table of contractual obligations above because the license agreements are cancelable by us and
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therefore, we believe that our non-cancelable obligations under these agreements are not material. We have not included potential royalties or milestone obligations in the table above because they are contingent upon the occurrence of future events and the timing and likelihood of such potential obligations are not known with certainty.
Please also refer to Note 11, Leases and Note 12, Commitments and Contingencies for further discussion about our contractual obligations.
Emerging Growth Company 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 report;
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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 will provide 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 of the date of our initial public offering 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.
Recent Accounting Pronouncements
Other than as disclosed in Note 2 to our audited consolidated 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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