The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. The following discussion and analysis and other parts of this Annual Report on Form 10-K contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biotechnology company focused on the development of CYT-0851, an oral investigational drug candidate that inhibits monocarboxylate transporters.
CYT-0851 is an investigational monocarboxylate transporter inhibitor, or MCT inhibitor, initially evaluated in a phase 1/2 study to treat patients with hematologic malignancies and solid tumors as a monotherapy and in combination with standard of care therapies. Inhibiting MCT function in glycolytic cancer cells leads to an accumulation of intracellular lactate that impairs glycolysis and inhibits tumor cell growth, making MCTs an attractive target for cancer therapy.
In
We also continue to evaluate CYT-0851 in combination with gemcitabine in phase 1
dose-escalation cohorts, and we expect to disclose preliminary results from
these cohorts in mid-2023. In
Since our inception in 2012, we have focused primarily on organizing and
staffing our company, business planning, raising capital, establishing our
intellectual property portfolio and performing research and development of novel
therapeutics. We do not have any drug candidates approved for sale and have not
generated any revenue from product sales. Since our inception, we have funded
our operations primarily with proceeds from the sale of redeemable convertible
preferred stock and have raised an aggregate of approximately
We have incurred significant operating losses since inception, including net
losses of
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continue the research and development of CYT-0851;
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initiate and conduct additional preclinical studies and clinical trials for CYT-0851;
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further develop and refine the manufacturing processes for our drug candidates;
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seek regulatory approvals and pursue commercialization for any of our drug candidates that successfully complete clinical trials;
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obtain, maintain, protect and enforce our intellectual property portfolio; and
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experience delays or encounter issues with any of the above.
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our drug candidates, if ever. If we obtain regulatory approval for any of our drug candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
As of
Components of results of operations
Revenue
To date, we have not generated any revenue from product sales. If our development efforts for our drug candidates and preclinical programs are successful and result in regulatory approval, we may generate revenue in the future from product sales.
Operating expenses
Research and development expenses
Research and development expenses consist primarily of costs incurred in connection with the preclinical and clinical development and manufacture of our drug candidates, and include:
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personnel-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for individuals involved in research and development activities;
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external research and development expenses incurred under agreements with CROs as well as investigative sites and consultants that conduct our clinical trials and other scientific development services;
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costs incurred under agreements with CMOs for developing and manufacturing material for our preclinical studies and clinical trials;
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costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
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costs related to compliance with regulatory requirements;
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costs of laboratory supplies and acquiring, developing and manufacturing study materials; and
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facilities and other allocated expenses, which include direct and allocated expenses for rent, insurance and other operating costs.
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
A significant portion of our research and development costs have been external costs, which we tracked on a program-by-program basis after a clinical drug candidate was identified. Our internal research and development costs are primarily personnel-related costs, internal lab costs and other indirect costs. The majority of our external research and development expenses to date have been incurred in connection with CYT-0851.
We do not allocate employee costs, costs associated with our discovery efforts, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not
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separately classified. We use internal resources and third-party consultants primarily to conduct our research and discovery activities as well as for managing our process development, manufacturing and clinical development activities.
We cannot reasonably estimate or know the nature, timing and estimated costs of
the efforts that will be necessary to complete the development and
commercialization of our future drug candidates. Our level of costs may be
highly variable on a quarterly basis. However, we generally expect research and
development expenses to decrease in the near-term compared to prior periods due
to the strategic prioritization of CYT-0851 development and the corresponding
deferral of other research and development activities and the reduction in
headcount announced in
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the scope, rate of progress and expenses of our ongoing research activities and clinical trials and other research and development activities;
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successful patient enrollment in, and the initiation and completion of, clinical trials;
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establishing an appropriate safety profile;
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whether our drug 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, maintaining, protecting and enforcing patent and trade secret protection and regulatory exclusivity for our drug candidates;
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commercializing drug 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.
Any changes in the outcome of any of these variables with respect to the development of our drug candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these drug candidates. We may never succeed in achieving regulatory approval for any of our drug candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some drug candidates or focus on others. 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 planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that drug candidate.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, insurance costs, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
Other income (expense) Interest income
Other income (expense) primarily consists of interest income earned on cash equivalents that generate interest on a monthly basis.
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Results of operations
Comparison of the years ended
The following table summarizes our results of operations:
Years ended December 31, (in thousands) 2022 2021 Change Operating expenses: Research and development$ 34,624 $ 30,959 $ 3,665 General and administrative 13,546 11,300 2,246 Total operating expenses 48,170 42,259 5,911 Loss from operations (48,170 ) (42,259 ) (5,911 ) Other income (expense): Other income (expense) 2,109 133 1,976 Total other income (expense) 2,109 133 1,976 Net loss$ (46,061 ) $ (42,126 ) $ (3,935 )
Research and development expenses
The following table summarizes our research and development costs for each of the periods presented:
Years ended December 31, (in thousands) 2022 2021 Change Direct research and development expenses by program: MCT inhibitor programs$ 14,943 $ 18,105 $ (3,162 ) Unallocated research and development expenses: Personnel expenses (including stock-based compensation) 11,850 8,285 3,565 Other expenses 7,831 4,569 3,262
Total research and development expenses
Research and development expenses were
•
a
•
a
•
a
General and administrative expenses
General and administrative expenses were
•
a
•
a
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Total other income
Total other income was
Liquidity and capital resources
Sources of liquidity
Since our inception, we have not recognized any product revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any products for several years, if at all.
We have funded our operations primarily with proceeds from the sale of
redeemable convertible preferred stock and the sale of common stock in
connection with the completion of the IPO. From inception through
Funding requirements
As of
We expect to incur significant expenses and operating losses for the foreseeable
future as we advance CYT-0851 through clinical development, seek regulatory
approval and pursue commercialization of any approved drug candidates. We expect
our operating expenses to decrease in the near-term compared to prior periods
due to the strategic prioritization of CYT-0851 development and the
corresponding deferral of other research and development activities and the
reduction in headcount announced in
Because of the numerous risks and uncertainties associated with research, development and commercialization of our drug candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
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the continuation, timing, costs, progress and results of our planned clinical trials of CYT-0851;
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the scope, progress, results and costs of our program and development of any additional drug candidates that we may pursue;
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the development requirements of other drug candidates that we may pursue;
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the outcome, timing and cost of meeting regulatory requirements established by the FDA and other regulatory authorities;
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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our drug candidates for which we receive marketing approval;
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the cost of expanding, maintaining, protecting and enforcing our intellectual property portfolio, including filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our drug candidates;
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the extent to which we in-license or acquire rights to other products, drug candidates or technologies;
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the extent to which the impact of COVID-19 or other pandemics may delay the development of our drug candidates;
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•
the ongoing costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves.
Cash flows
The following table summarizes our cash flows for each of the periods presented:
Years ended December 31, (in thousands) 2022 2021 Net cash used in operating activities$ (42,532 ) $ (36,032 ) Net cash used in investing activities (312 ) (1,189 ) Net cash provided by financing activities 242 216,006 Net increase (decrease) in cash, cash equivalents and restricted cash$ (42,602 ) $ 178,785 Operating activities
Net cash used in operating activities for the year ended
•
an increase in net loss of
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a decrease in the net change in our net operating assets and liabilities of
•
offset by an increase in non-cash charges of
Investing activities
Net cash used in investing activities was
Financing activities
Net cash provided by financing activities was
Net cash provided by financing activities was
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Purchase and other obligations
We enter into contracts in the normal course of business with CROs and other third-party vendors for clinical trials and testing and manufacturing services. Most contracts do not contain minimum purchase commitments and are cancellable by us upon written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service provided up to one year after the date of cancellation.
Critical Accounting Policies and Significant Judgments and Estimates
Our 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 generally accepted accounting principles in
While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, 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 as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel and vendors 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.
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 account for all share-based compensation awards granted as stock-based compensation expense at fair value. Our share-based payments include stock options and grants of common stock, restricted for vesting conditions. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
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The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected share price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. Since there is limited historical data of our share price on the public market, we determined the volatility for awards granted based on an analysis of reported data for a group of guideline companies that issued options with substantially similar terms. The expected term of our stock options granted to employees has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. The expected volatility has been determined using a weighted-average of the historical volatility measures of this group of guideline companies.
The risk-free interest rate is determined by reference to the
Determination of the fair value of common stock
As there was no public market for our common stock prior to our IPO, the
estimated fair value of our common stock prior to the IPO was determined by our
board of directors considering the valuations of our company's enterprise value
prepared by a third-party valuation firm, and in accordance with the guidance
outlined in the
In addition to considering the results of the third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date prior to the IPO, which may have been a date later than the most recent third-party valuation date, including:
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the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;
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the progress of our research and development efforts, including the status of preclinical studies and ongoing and planned clinical trials for our MCT inhibitor programs;
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the lack of liquidity of our equity as a private company;
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our stage of development and business strategy and the material risks related to our business and industry;
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the achievement of enterprise milestones;
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the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;
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any external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;
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the likelihood of achieving a liquidity event for the holders of our preferred stock and common stock, such as an IPO, or a sale of our company, given prevailing market conditions; and
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the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
There are significant judgments and estimates inherent in these valuations. The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different. Following the IPO, the fair value of our common stock is determined based on the quoted market price of our common stock.
Recent accounting pronouncements
See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
Emerging growth 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 of 1933, as amended, 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 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 have elected to 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 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;
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we may avail ourselves of the exemption from providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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we may avail ourselves of the exemption from complying with any requirement that
may be adopted by the
•
we may provide reduced disclosure about our executive compensation arrangements; and
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we may 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) the last day of the fiscal year
following the fifth anniversary of the completion of our IPO, (ii) the last day
of the fiscal year in which we have total annual gross revenues of
We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates is less than
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