ONCORUS, INC. You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below and under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 10, 2021 . These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, the impact of the COVID-19 pandemic, business strategy, market size, potential growth opportunities, preclinical and clinical development activities, efficacy and safety profile of our product candidates, use of net proceeds from our offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "predict," "target," "intend," "could," "would," "should," "project," "plan," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Introduction
Our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying unaudited interim condensed 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 three and six months endedJune 30, 2021 to the three and six months endedJune 30, 2020 .
Liquidity and Capital Resources - An analysis of changes in our unaudited interim condensed 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 biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and deliver transgenes to stimulate multiple arms of the immune system against tumors. Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our oHSV Platform, which leverages the Herpes Simplex Virus-1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Utilizing this proprietary platform, we are engineering our product candidates, such as ONCR-177, to carry greater numbers of immunostimulatory transgenes than viral immunotherapies that are either currently approved or in clinical development. These transgenes are designed to drive strong systemic anti-tumor immunity to elicit tumor responses at injected and distant non-injected tumor sites, or abscopal activity. In addition, viruses from our oHSV Platform maintain full viral replication competency in tumors and are designed to be selectively attenuated in normal tissues. We believe this unique combination of features allows us to break the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. InJune 2020 , we initiated a Phase 1 clinical trial of ONCR-177 in several different tumor types. We are also developing a broad pipeline of product candidates that leverages our second platform, which we refer to as our Synthetic viral RNA Immunotherapy Platform, to enable repeat intravenous administration of viral immunotherapies in order to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung. 18
-------------------------------------------------------------------------------- Since inception, 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, including Series A-1 redeemable convertible preferred stock, or Series A-1, and Series B redeemable convertible preferred stock, or Series B, the initial public offering, or IPO, of our common stock and a follow-on public offering, or the Follow-on Offering, of our common stock. In 2019, we conducted a Series B financing, with the funding occurring in two tranches. We closed the first tranche of the Series B financing inAugust 2019 andNovember 2019 , raising$53.8 million of gross proceeds. InSeptember 2020 , we achieved the clinical development milestones that triggered the second and final tranche of the Series B financing, and as a result, we received an additional$35.8 million of gross proceeds. InOctober 2020 , we completed our IPO, in which we issued an aggregate of 6,557,991 shares of common stock for aggregate net proceeds of$88.3 million , after deducting underwriting discounts and commissions and offering expenses payable by us. Our shares of common stock began trading on the Nasdaq Global Market under the ticker symbol "ONCR" onOctober 2, 2020 . Upon closing of our IPO, all outstanding shares of Series A-1 and Series B converted into an aggregate of 14,951,554 shares of common stock. InFebruary 2021 , we completed the Follow-on Offering, in which we issued 3,000,000 shares of common stock for aggregate net proceeds of approximately$53.0 million , after deducting underwriting discounts and commissions and offering expenses of$4.0 million .
From inception through
Since inception, we have incurred significant operating losses. Our net losses were$28.2 million and$17.2 million for the six months endedJune 30, 2021 and 2020, respectively. As ofJune 30, 2021 , we had an accumulated deficit of$158.0 million . We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. 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
Recent Developments
InMay 2021 , we announced the nomination of our first Synthetic viral RNA, or vRNA, immunotherapy clinical candidates, ONCR-021 and ONCR-788. Our intravenous, or IV, administered approach involves encapsulating the genomes of RNA viruses known to kill cancer cells in a lipid nanoparticle, or LNP, creating a Synthetic vRNA immunotherapy. ONCR-021 encodes an optimized strain of Coxsackievirus A21, or CVA21, and ONCR-788 encodes for a modified version of theSeneca Valley Virus, or SVV. Both CVA21 and SVV have extensive clinical experience and favorable safety profiles when administered IV. We believe our Synthetic vRNA approach holds the potential for IV administration and avoids the challenge of neutralizing antibodies seen in previous approaches with IV-administered oncolytic viruses. We plan to investigate our novel Synthetic vRNA immunotherapies in multiple histologies including cancers of the lung both as monotherapy and in combination with immune checkpoint inhibitors and other cancer treatments. We plan to file an investigational new drug, or IND, application for ONCR-021 in the first half of 2023 to enable clinical development for non-small cell lung cancer and other cancers such as hepatocellular carcinoma, clear cell renal cell carcinoma and melanoma, both as a single agent and in combination with immune checkpoint inhibitors. Following the IND filing for ONCR-021, we plan to file an IND for ONCR-788 to enable its development in small cell lung cancer, neuroendocrine prostate and other neuroendocrine cancers, both as a single agent and in combination with immune checkpoint inhibitors and other cancer treatments. In 19 -------------------------------------------------------------------------------- the process of developing ONCR-021 and ONCR-788, we also developed a proprietary LNP platform for delivery of large nucleic acids, with efficient endosomal escape. We plan to manufacture ONCR-021 and ONCR-788 at our 88,000 square foot manufacturing facility inAndover, Massachusetts . We plan to initiate process development activities at the facility in the second half of 2021 and we anticipate this facility will be fully operational in 2023. OnJune 17, 2021 , we announced the appointment ofEric Rubin , M.D. to our Board of Directors.Dr. Rubin brings toOncorus a 30-year academic and industry career in cancer drug development, including his oncology leadership roles at Merck, known as MSD outside ofthe United States andCanada , where he currently serves as Senior Vice President of Global Clinical Oncology. Beginning his oncology career in academia,Dr. Rubin served as a faculty member at theDana-Farber Cancer Institute and then as a senior leader of theCancer Institute of New Jersey , where he was Director of the Investigational Therapeutics Division. In 2008,Dr. Rubin was recruited to Merck to lead the clinical oncology development team. He is a co-chair of theCancer Steering Committee of theBiomarkers Consortium ,Foundation of the National Institute of Health , a member of theScience Policy and Governmental Affairs Committee for AACR , and was a member of theNational Cancer Moonshot Initiative/Blue Ribbon Panel Working Group on Expanding Clinical Trials . OnJuly 29, 2021 , we announced the appointment ofBarbara Yanni to our Board of Directors.Ms. Yanni has served on the Boards of multiple publicly and privately traded biopharmaceutical companies. She brings experience in corporate development, licensing and financial evaluation to the Company.Ms. Yanni was Vice President and Chief Licensing Officer at Merck & Co., fromNovember 2001 until her retirement inMarch 2014 . Prior to her role of Chief Licensing Officer,Ms. Yanni had various roles at Merck including in corporate development, financial evaluation, and tax.Ms. Yanni is an independent director currently on the boards of three public biotechnology companies: Trevena, Inc., Vaccinex, Inc., and Pharming Group N.V. She is also currently an independent director of Mesentech, a private biotechnology company. She previously served on the Board of Directors ofAkcea Therapeutics, Inc. , Abionyx Pharma andSymic Holdings, LLC .
Impact of the COVID-19 Pandemic on Our Business
InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic andthe United States declared a national emergency with respect to COVID-19. In response to the COVID-19 pandemic, a number of governmental orders and other public health guidance measures have been implemented across much ofthe United States , including in the locations of our office, clinical trial sites and third parties on whom we rely. We anticipate that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, we have implemented a work-from-home policy allowing employeeswho can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. 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. We expect to increase our employee presence in our offices in the coming months but we continue to monitor health guidance measures and may adjust our plans based upon the status of the pandemic at that time. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories could be delayed.
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, 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 in May 2021 , at which time we
began tracking their external research and development costs. External costs
include fees paid to consultants, contractors and vendors, including contract
manufacturing organizations, or CMOs, and clinical research organizations, or
CROs, in connection with our preclinical, clinical and manufacturing activities
and license milestone payments related to candidate development. We do not
allocate employee costs, costs associated with our discovery efforts, costs
incurred for laboratory supplies, and facilities, including depreciation, or
other indirect costs, to specific product development programs because these
costs are deployed across multiple product development programs and, as such,
are not separately classified.
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 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 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
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tax fees, recruiting costs, costs for consultants who we utilize to supplement
our personnel and insurance costs. We also include travel costs, facility and
office-related costs that are not included in research and development expenses,
as well as depreciation and amortization.
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 Securities and Exchange
Commission , or the SEC , and listing standards applicable to companies listed on
a national securities exchange, director and officer insurance premiums, and
investor relations costs. In addition, if we obtain regulatory approval for any
of our product candidates and do not enter into a third-party commercialization
collaboration, we expect to incur significant expenses related to building a
sales and marketing team to support product sales, marketing and distribution
activities.
Other Income (Expense)
Other income (expense) primarily includes changes in fair value of the Series B tranche rights and interest income, net.
Included in the terms of the Series B stock purchase agreement inAugust 2019 were tranche rights granted to the holders of the Series B. The tranche rights provided the Series B holders with the right to purchase additional shares of Series B in an additional tranche under certain events. The tranche rights met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the Series B. The tranche rights were initially recorded at fair value as a liability on our consolidated balance sheet. The tranche rights were subsequently re-measured at fair value at the end of each reporting period and at settlement, which occurred inSeptember 2020 , when the second and final tranche of the Series B financing closed. Changes in the fair value were recognized as a component of other income (expense) in the three and six months endedJune 30, 2020 .
Interest income primarily consists of interest income from our cash and cash equivalents.
Results of Operations
The following table summarizes our results of operations for the periods
indicated.
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, CHANGE JUNE 30, CHANGE
2021 2020 $ % 2021 2020 $ %
(in thousands, except percentages)
Operating expenses:
Research and
development $ 10,660 $ 6,741 $ 3,919 58 % $ 19,107 $ 12,633 $ 6,474 51 %
General and
administrative 4,889 2,007 2,882 144 % 9,111 4,059 5,052 124 %
Total operating
expenses 15,549 8,748 6,801 78 % 28,218 16,692 11,526 69 % Loss from operations (15,549 ) (8,748 ) (6,801 ) -78 %
(28,218 ) (16,692 ) (11,526 ) -69 % Total other income (expense), net
21 (626 ) 647 -103 % 27 (509 ) 536 -105 %
Net loss $ (15,528 ) $ (9,374 ) $ (6,154 ) -66 % $ (28,191 ) $ (17,201 ) $ (10,990 ) -64 %
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Three Months 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:
THREE MONTHS ENDED
JUNE 30,
2021 2020 CHANGE
(in thousands)
Direct external expenses by program
ONCR-177 $ 2,778 $ 2,773 $ 5
ONCR-021 468 - 468
ONCR-788 84 - 84
Platform development, early stage research
and unallocated
expenses:
Employee compensation and related 3,523 2,080
1,443
External research, development and consulting 732 663 69 Laboratory supplies 935 570 365 Facility-related 1,533 327 1,206 Other expenses 607 328 279 Total research and development$ 10,660 $ 6,741 $ 3,919
Research and development expenses increased from
? a$0.6 million increase in direct external expenses for our product candidates ONCR-021 and ONCR-788, which was attributable to pre-clinical development costs that were incurred subsequent to the candidate nominations inMay 2021 ; ? a$1.4 million increase in employee compensation costs, including salaries, bonus and employee benefits, due to increased headcount in 2021 as compared to 2020. Employee compensation costs also increased due to higher stock compensation expense from increased stock option grants to existing and new employees at higher share prices in 2021 compared to 2020; ? a$0.4 million increase in laboratory supplies driven by our increased headcount and activities; ? a$1.2 million increase in facility costs related to rent expense for our new manufacturing facility inAndover, Massachusetts for which we entered into the lease in late 2020; and ? a$0.3 million increase in other expenses primarily related to increased support costs related to our growth.
General and Administrative Expenses
THREE MONTHS ENDED
JUNE 30,
2021 2020 CHANGE
(in thousands)
Employee compensation and related $ 2,092 $ 831 $ 1,261
Professional service and consultant fees 2,273 845 1,428 Facility-related 98 126 (28 ) Other expenses 426 205 221
Total general and administrative expenses
General and administrative expenses increased from$2.0 million for the three months endedJune 30, 2020 to$4.9 million for the three months endedJune 30, 2021 . The increase of$2.9 million , or 144%, was primarily the result of: ? a$1.3 million increase in employee compensation costs primarily related to increased salaries and bonus, increased headcount associated with our growth and higher stock compensation expenses in 2021 compared to 2020, due to an increased number of stock options granted at higher share prices to existing and new employees; 23 -------------------------------------------------------------------------------- ? a$1.4 million increase in professional service and consultant fees primarily related to increased costs related to operating as a public company, including increased insurance expense, increased consultant costs to support our personnel and efforts and increased recruiting costs related to our headcount growth; and ? a$0.2 million increase in other expenses primarily related to increased support costs related to our growth. Other Income (Expense) Other income (expense) for the three months endedJune 30, 2021 improved by$0.6 million compared to the three months endedJune 30, 2020 . We recognized a$0.6 million loss associated with the change in fair value of the Series B tranche rights during the three months endedJune 30, 2020 . Since the Series B tranche rights were settled inSeptember 2020 , there was no loss recognized in the three months endedJune 30, 2021 .
Six Months 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:
SIX MONTHS ENDED
JUNE 30,
2021 2020 CHANGE
(in thousands)
Direct external expenses by program
ONCR-177 $ 4,408 $ 4,258 $ 150
ONCR-021 468 - 468
ONCR-788 84 - 84
Platform development, early stage research
and unallocated
expenses:
Employee compensation and related 6,534 4,039
2,495
External research, development and consulting 1,590 1,570
20
Laboratory supplies 1,860 1,348 512
Facility-related 3,055 685 2,370
Other expenses 1,108 733 375
Total research and development $ 19,107 $ 12,633 $ 6,474 Research and development expenses increased from
? a$0.2 million increase in direct external expenses for our product candidate ONCR-177, which was attributable to increased clinical trial costs associated with our Phase 1 trial of ONCR-177; ? a$0.6 million increase in direct external expenses for our product candidates ONCR-021 and ONCR-788, which was attributable to pre-clinical development costs that were incurred subsequent to the candidate nominations inMay 2021 ; ? a$2.5 million increase in employee compensation costs, including salaries, bonus and employee benefits, due to increased headcount in 2021 as compared to 2020. Employee compensation costs also increased due to higher stock compensation expense from increased stock option grants to existing and new employees at higher share prices in 2021 compared to 2020; ? a$0.5 million increase in laboratory supplies driven by our increased headcount and activities; ? a$2.4 million increase in facility costs related to rent expense for our new manufacturing facility inAndover, Massachusetts for which we entered into the lease in late 2020; and ? a$0.4 million increase in other expenses primarily related to increased support costs related to our growth. 24
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General and Administrative Expenses
SIX MONTHS
ENDED JUNE 30,
2021 2020 CHANGE
(in thousands)
Employee compensation and related $ 3,741 $ 1,678 $ 2,063 Professional service and consultant fees 4,362 1,670 2,692 Facility-related
206 245 (39 )
Other expenses 802 466 336
Total general and administrative expenses
General and administrative expenses increased from
? a$2.1 million increase in employee compensation costs primarily related to increased salaries and bonus, increased headcount associated with our growth and higher stock compensation expenses in 2021 compared to 2020, due to an increased number of stock options granted at higher share prices to existing and new employees; ? a$2.7 million increase in professional service and consultant fees primarily related to increased costs related to operating as a public company, including increased insurance expense, increased consultant costs to support our personnel and efforts and increased recruiting costs related to our headcount growth; and ? a$0.3 million increase in other expenses primarily related to increased support costs related to our growth. Other Income (Expense) Other income (expense) for the six months endedJune 30, 2021 improved by$0.5 million compared to the six months endedJune 30, 2020 . We recognized a$0.6 million loss associated with the change in fair value of the Series B tranche rights in the six months endedJune 30, 2020 . Since the Series B tranche rights were settled inSeptember 2020 , no loss was recognized in the six months endedJune 30, 2021 .
Liquidity and Capital Resources
Sources of Liquidity
From inception throughJune 30, 2021 , we funded our operations with gross proceeds of$306.3 million from sales of our redeemable convertible preferred stock, our IPO and our Follow-on Offering. As ofJune 30, 2021 , our cash and cash equivalents totaled$159.9 million . Cash Flows SIX MONTHS ENDED JUNE 30, 2021 2020 (in thousands) Net cash (used in) provided by: Operating activities$ (21,538 ) $ (15,623 ) Investing activities (2,177 ) (747 ) Financing activities 53,330 5
Net increase (decrease) in cash and cash equivalents
Operating Activities Net cash used in operating activities for the six months endedJune 30, 2021 was$21.5 million and was primarily related to our net loss for the period of$28.2 million , partially offset by non-cash charges consisting of depreciation and amortization of$0.8 million and stock-based compensation expense of$2.8 million . Our net cash used in operating activities also included a net source of cash of$3.0 million related to changes in operating assets and liabilities as follows: ? a net cash source of$2.1 million from changes in the operating lease liability and associated right-of-use asset due to the difference in the timing of rent expense compared to rent payments; 25 -------------------------------------------------------------------------------- ? a net cash source of$0.7 million from an increase in accounts payable as a result of overall expense growth and the timing of invoicing; and ? a net cash source of$0.2 million from a decrease in prepaid expenses and other current assets primarily due to a decrease in payments to vendors in advance of services being performed. Net cash used in operating activities for the six months endedJune 30, 2020 was$15.6 million and was primarily related to our net loss for the period of$17.2 million , partially offset by non-cash charges consisting of depreciation and amortization of$0.6 million , stock-based compensation expense of$0.6 million and the change in fair value of Series B tranche rights of$0.6 million . Our net cash used in operating activities also included a net use of cash of$0.3 million related to changes in operating assets and liabilities as follows: ? a net cash use of$0.9 million based on an increase in prepaid expenses and other current assets primarily due to increased payments to vendors in advance of services being performed; ? a net cash use of$0.4 million from changes in the operating lease liability and associated right-of-use asset due to the difference in the timing of rent expense compared to rent payments; and ? a net cash source of$1.0 million from an increase in accounts payable due to overall expense growth and the timing of invoices.
Investing Activities
Net cash used in investing activities for the six months endedJune 30, 2021 and 2020 was$2.2 million and$0.7 million , respectively. These investing activities were associated with leasehold improvements for ourAndover facility and the purchase of equipment. Financing Activities Net cash provided by financing activities for the six months endedJune 30, 2021 was$53.3 million and primarily consisted of net proceeds from our Follow-on Offering. Net cash from financing activities for the three months endedJune 30, 2020 was not significant. 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, 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. We also 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. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into late 2023. 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: ? the costs of conducting preclinical studies and clinical trials; ? the costs of manufacturing; ? the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for product candidates we may develop, if any; ? the costs, timing, and outcome of regulatory review of our product candidates; ? our ability to establish and maintain collaborations on favorable terms, if at all; ? the achievement of milestones or occurrence of other developments that trigger payments under any license or collaboration agreements we might have at such time; 26
-------------------------------------------------------------------------------- ? 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; ? the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; ? the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims; ? our headcount growth and associated costs as we expand our business operations and research and development activities; and ? the costs of operating as a public company.
Our cash and cash equivalents as of
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, ownership interests of stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our 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. If we raise funds through potential collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance withU.S. generally accepted accounting principles. The preparation of these unaudited interim condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of expenses during the reported periods. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates. There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 10, 2021 .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under
Contractual Obligations
As of
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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:
? we may present 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 our annual reports on Form 10-K filed with theSEC ; ? 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; ? we will avail ourselves of the exemption from complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board , or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis; ? we may provide reduced disclosure about our executive compensation arrangements in our proxy statements filed with theSEC ; and ? 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)December 31, 2025 , (ii) the last day of the fiscal year in which we have total annual gross revenues of$1.07 billion or more, (iii) the date on which we have issued more than$1 billion in non-convertible debt during the previous rolling three-year period, or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act. We are also a ''smaller reporting company,'' meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during our most recently completed fiscal year. We may continue to be a smaller reporting company for so long as (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue is less than$100 million during our most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . 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
Refer to Note 2 in the accompanying notes to our unaudited interim condensed
consolidated financial statements appearing elsewhere in this Quarterly Report
on Form 10-Q for a discussion of recent accounting pronouncements.
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