KINNATE BIOPHARMA INC. Investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10Q. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors" included elsewhere in this report.
Overview
We are a clinical stage biopharmaceutical company focused on the discovery and
development of small molecule kinase inhibitors for difficult-to-treat,
genomically defined cancers. Our mission is to expand the reach of targeted
therapeutics by developing products that are designed to address significant
unmet need. Our Kinnate Discovery Engine, which starts with the identification
of an unmet need among validated oncogenic drivers, utilizes our deep expertise
in medicinal chemistry and the tailored ecosystems of our partners to develop
our targeted therapies. We focus our discovery and development efforts on three
patient populations: (1) those with cancers that harbor known oncogenic drivers
(gene alterations that cause cancers) with no currently available targeted
therapies, (2) those with genomically well-characterized tumors that have
intrinsic resistance to currently available treatments (non-responders), and (3)
those whose tumors have acquired resistance over the course of therapy to
currently available treatments. Our Kinnate Discovery Engine, together with the
biomarker-driven approach of our drug development strategy and our continual
translational research and early global expansion in development, may enable us
to develop drugs with an increased probability of clinical success while
reducing the cost and risk of drug development.
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Our most advanced product candidate is KIN-2787, which is a Rapidly Accelerated Fibrosarcoma (RAF) inhibitor we are developing for the treatment of patients with lung cancer, melanoma, and other solid tumors. Unlike currently available treatments that target only Class I B-Rapidly Accelerated Fibrosarcoma (BRAF) kinase alterations, we have designed KIN-2787 to target Class II and Class III BRAF alterations, where it would be a first-line targeted therapy, in addition to covering Class I BRAF alterations. InApril 2021 , we filed an IND for KIN-2787 with the FDA. InMay 2021 , the FDA cleared our IND for KIN-2787 and we initiated KN-8701, a Phase 1 clinical trial evaluating KIN-2787. We began dosing KIN-2787 in humans in the second half of 2021. In the second quarter of 2022, we initiated the combination portion of KN-8701 to study KIN-2787 in combination with binimetinib in patients with NRAS-mutant melanoma. In addition, in the second quarter of 2022, KIN-2787 was granted Orphan Drug Designation by the FDA for the treatment of stage IIb-IV melanoma. In the third quarter of 2022, KIN-2787 was granted Fast Track designation by the FDA for treatment of patients with BRAF Class II or III alteration-positive and/or NRAS mutation-positive stage IIb to IV malignant melanoma that is metastatic or unresectable. Additionally, we are evaluating KIN-3248, a Fibroblast Growth Factor Receptors (FGFR) inhibitor, for the treatment of patients with intrahepatic cholangiocarcinoma, a cancer of the bile ducts in the liver, and urothelial carcinoma, a cancer of the bladder lining as well as other solid tumors. KIN-3248 is designed to address clinically observed kinase domain mutations in FGFR2 and FGFR3 that drive resistance to current therapies. InJanuary 2022 , the FDA cleared our IND for KIN-3248 and in the first quarter of 2022 we initiated KN-4802, a Phase 1 clinical trial for KIN-3248. We began dosing KIN-3248 in humans in the second quarter of 2022. KIN-3248 has demonstrated proof of concept in preclinical models showing activity across both initial FGFR 2/3 genomic alterations and a broad range of common resistant variants that arise from first generation FGFR 2/3 targeted therapies. We are also advancing a number of other small molecule research programs, including a Cyclin-Dependent Kinase 12 (CDK12) inhibitor in our KIN004 program to target the treatment of ovarian carcinoma, triple-negative breast cancer and metastatic castration-resistant prostate cancer. InMay 2021 , we announced the closing of a Series A preferred stock financing of ourChina joint venture,Kinnjiu Biopharma Inc. (Kinnjiu), to enable the potential development and commercialization of certain targeted oncology product candidates acrossGreater China (People's Republic of China (PRC),Hong Kong ,Taiwan , andMacau ). Contributions from noncontrolling interest members totaled$35.0 million before issuance costs of$0.2 million . As ofSeptember 30, 2022 , we held an approximately 58% equity interest in Kinnjiu. In the third quarter of 2022, we announced that KN-8701, the Phase 1 clinical trial evaluating KIN-2787, was initiated inTaiwan by Kinnjiu. Since our inception in 2018, we have devoted substantially all of our resources to research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. We do not have any products approved for commercial sale, and we have not generated any revenue from product sales or other sources since inception. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates which we expect, if it ever occurs, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates. To date, we have financed our operations primarily through proceeds from the issuance of common stock (including our IPO) and private placements of our convertible preferred stock. As ofSeptember 30, 2022 , we had cash and cash equivalents and short-term and long-term investments of$262.1 million , exclusive of$26.5 million at Kinnjiu. Based on our current operating plan, we believe that our current cash and cash equivalents and short-term and long-term investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into mid-2024. -18-
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We have incurred significant losses since the commencement of our operations. Our consolidated net loss for the nine months endedSeptember 30, 2022 was$84.7 million , and we expect to continue to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates and any future product candidates from discovery through preclinical development and into clinical trials as we seek regulatory approval for these product candidates. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As ofSeptember 30, 2022 , we had an accumulated deficit of$227.8 million .
We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:
• advance our RAF and FGFR programs through clinical development;
• advance the development of our other small molecule research programs,
including our CDK12 inhibitor and next-generation programs for our product
candidates;
• expand our pipeline of product candidates through our own product discovery and
development efforts;
• seek to discover and develop additional product candidates;
• seek regulatory approvals for any product candidates that successfully complete
clinical trials;
• establish a sales, marketing and distribution infrastructure to commercialize
any approved product candidates and related additional commercial manufacturing
costs;
• implement operational, financial and management systems;
• attract, hire and retain additional clinical, scientific, management and
administrative personnel;
• maintain, expand, protect and enforce our intellectual property portfolio,
including patents, trade secrets and know how; and
• operate as a public company.
We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by continued worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities. -19-
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The global COVID-19 pandemic continues to evolve. The extent of the impact of the COVID-19 pandemic on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our development activities, ongoing and planned future clinical trial enrollment, current and future trial sites, clinical research organizations (CROs), contract manufacturing organizations (CMOs), and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to our employee travel and work processes, including having our employees work from home (which our employees did almost exclusively betweenMarch 2020 andJune 2021 ) and as part of a hybrid model both in our offices and also from home (which we are currently executing). Although some of the governmental orders and guidelines have terminated or are now less restrictive than when originally implemented, we continue to actively monitor the evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the ultimate extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change. We were incorporated in theState of Delaware inJanuary 2018 , and our principal executive offices are inSan Francisco, California . Our research and development team is primarily based inSan Diego, California , with a portion of our management team based inSan Francisco, California .
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue and we do not expect to generate any revenue from the sale of products or from other sources in the foreseeable future.
Operating Expenses Research and Development
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal expenses incurred in connection with the discovery and development of our product candidates.
External expenses include:
• expenses incurred in connection with the discovery, preclinical and clinical
development of our product candidates, including under agreements with third
parties, such as consultants and CROs;
• the cost of manufacturing compounds for use in our preclinical and clinical
studies, including under agreements with third parties, such as consultants and
CMOs; and
• costs associated with consultants for chemistry, manufacturing and controls,
development, regulatory, statistics and other services, including expenses for
technology and facilities.
Internal expenses include employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions.
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We expense research and development expenses in the periods in which they are incurred. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external expenses on the basis of lead programs and other programs. However, we do not track internal costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Product candidates in later stages of development generally have higher development costs than those in earlier stages. As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance our product candidates through preclinical studies into and through clinical trials, continue to discover and develop additional product candidates and expand our pipeline, maintain, expand, protect and enforce our intellectual property portfolio, and hire additional personnel. The successful development of our product candidates is highly uncertain, and we do not believe it is possible at this time to accurately project the nature, timing and estimated costs of the efforts necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. To the extent our product candidates continue to advance into clinical trials, as well as advance into larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. We are also unable to predict when, if ever, we will generate revenue from our product candidates to offset these expenses. Our expenditures on current and future preclinical and clinical programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to pursue;
• our ability to maintain our current research and development programs and to
establish new ones;
• establishing an appropriate safety profile with IND-enabling toxicology
studies;
• successful patient enrollment in, and the initiation and completion of,
clinical trials; • per-subject trial costs;
• the number of clinical trials required for regulatory approval;
• the countries in which the clinical trials are conducted;
• the length of time required to enroll eligible subjects and initiate clinical
trials;
• the number of subjects that participate in the clinical trials;
• the drop-out and discontinuation rate of subjects;
• potential additional safety monitoring requested by regulatory authorities;
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• the duration of subject participation in the clinical trials and follow-up;
• the successful completion of clinical trials with safety, tolerability and
efficacy profiles that are satisfactory to applicable regulatory authorities;
• the receipt of regulatory approvals from applicable regulatory authorities;
• the timing, receipt and terms of any marketing approvals and post-marketing
approval commitments from applicable regulatory authorities;
• the extent to which we establish collaborations, strategic partnerships or
other strategic arrangements with third parties, if any, and the performance of
any such third party;
• obtaining and retaining research and development personnel;
• establishing commercial manufacturing capabilities or making arrangements with
CMOs;
• development and timely delivery of commercial-grade drug formulations that can
be used in our ongoing and planned future clinical trials and for commercial
launch; and
• obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights.
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates. General and Administrative General and administrative expenses consist of salaries and benefits, travel and stock-based compensation expense for personnel in executive, human resources, finance and administrative functions; professional fees for legal, patent, consulting, accounting and audit services; and expenses for technology and facilities. We expense general and administrative expenses in the periods in which they are incurred. We expect that our general and administrative expenses will increase over the next several years as we hire additional personnel to support the continued research and development of our programs and growth of our business. We also expect to continue to incur increased expenses as a result of operating as a public company, including expenses related to accounting, audit, legal, regulatory, compliance with the rules and regulations of theSEC , Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), and those of the Nasdaq Global Select Market or any other national securities exchange on which our securities are traded, director and officer insurance, investor and public relations, and other administrative and professional services.
Other Income, Net
Other Income, Net
Other income, net primarily consists of interest income generated from our cash equivalents in interest-bearing money market accounts and short-term and long-term investments.
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Results of Operations
Comparison of Three and Nine Months Ended
The following table summarizes our results of operations for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 Change 2022 2021 Change
(in thousands) (in thousands)
Operating expenses:
Research and development
$ 23,548 $ 18,729
$ 47,637 $ 15,325
General and administrative 7,824 6,073 1,751 22,875 16,215 6,660
Total operating expenses 31,372 24,802 6,570 85,837 63,852 21,985
Loss from operations (31,372 ) (24,802 ) (6,570 ) (85,837 ) (63,852 ) (21,985 )
Other income, net 635 100 535 1,129 248 881
Net loss (30,737 ) (24,702 ) (6,035 ) (84,708 ) (63,604 ) (21,104 )Net loss attributable to redeemable convertible noncontrolling interests
- - - - - -
Net loss attributable to Kinnate $ (30,737 ) $ (24,702 ) $ (6,035 ) $ (84,708 ) $ (63,604 ) $ (21,104 ) Research and Development Expenses
The following table summarizes our research and development expenses incurred during the periods indicated:
Three Months Ended September 30, Increase Nine Months Ended September 30, Increase
2022 2021 (Decrease) 2022 2021 (Decrease)
(in thousands) (in thousands)
External expenses:
RAF $ 6,230 $ 6,245 $ (15 ) $ 16,312 $ 16,750 $ (438 )
FGFR 3,491 3,015 476 9,598 8,754 844
Other programs and other unallocated costs 4,589 3,142 1,447 12,161 6,726 5,435
Total external expenses 14,310 12,402 1,908 38,071 32,230 5,841
Internal expenses 9,238 6,327 2,911 24,891 15,407 9,484
Total research and development expenses
Research and development expenses were$23.5 million for the three months endedSeptember 30, 2022 compared to$18.7 million for the three months endedSeptember 30, 2021 , an increase of$4.8 million . The increase was primarily attributable to an increase of$0.5 million in external expenses for our FGFR program given the increased activity as this program advanced into the clinic, an increase of$1.4 million in external expenses for non-lead programs reflecting increased spend in early-stage pipeline research, as well as an increase of$2.9 million in internal research and development expenses as a result of a significant increase in research and development personnel and higher stock-based compensation. Research and development expenses included$0.9 million incurred at Kinnjiu during the three months endedSeptember 30, 2022 compared to$0.2 million during the three months endedSeptember 31 . 2021 as the entity began operations in the second quarter of 2021. For the nine months endedSeptember 30, 2022 , research and development expenses were$63.0 million compared to$47.6 million for the same period in 2021, an increase of$15.3 million . Similar to the three months endedSeptember 30, 2022 , the increase was primarily driven by an increase of$0.8 million in external expenses for our FGFR program given the increased activity as this program advanced into the clinic, an increase of$5.4 million in external expenses for non-lead programs reflecting increased spend in early-stage pipeline research, as well as an increase of$9.5 million in internal research and development expenses as a result of a significant increase in research and development personnel and higher stock-based compensation. These increases were partially offset by a decrease of$0.4 million in our RAF program attributable to decreased manufacturing activity and pre-clinical research costs during 2022. Research and development expenses included$2.5 million incurred at Kinnjiu during the nine months endedSeptember 30, 2022 compared to$0.2 million during the nine months endedSeptember 30, 2021 . We expect research and development expenses to continue to increase through the end of 2022 due to higher external costs and increasing headcount in connection with advancing our RAF, FGFR and other programs into later stages of development. -23-
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General and Administrative Expenses
General and administrative expenses were$7.8 million for the three months endedSeptember 30, 2022 compared to$6.1 million for the three months endedSeptember 30, 2021 , an increase of$1.7 million . For the nine months endedSeptember 30, 2022 , general and administrative expenses were$22.9 million compared to$16.2 million for the same period in 2021, an increase of$6.7 million . These increases were primarily driven by an increase in headcount, higher stock-based compensation and increased consulting and professional services expenses. We expect general and administrative expenses to continue to be similar to these levels through the end of 2022.
Other Income, Net
Other income, net was$0.6 million for the three months endedSeptember 30, 2022 compared to$0.1 million for the three months endedSeptember 30, 2021 , an increase of$0.5 million . For the nine months endedSeptember 30, 2022 , other income, net was$1.1 million compared to$0.2 million for the same period in 2021, an increase of$0.9 million . These increases were primarily driven by a higher average investment balance during both the three and nine months endedSeptember 30, 2022 compared to the same prior year periods, as our excess cash was more fully invested, as well as a significant increase in interest rates during 2022.
Liquidity and Capital Resources
Sources of Liquidity
OnDecember 7, 2020 , we completed our IPO. In connection with our IPO, we issued and sold 13,800,000 shares of our common stock at a price to the public of$20.00 per share resulting in gross proceeds of$276.0 million before deducting underwriting discounts and commissions and other offering expenses. Additionally, inJanuary 2022 , we filed a shelf registration with theSEC on Form S-3ASR (File No. 333-261970). The shelf registration statement included a prospectus supplement for an at-the-market offering (ATM Offering) to sell up to an aggregate of$150.0 million of shares of our common stock that may be issued and sold from time to time under a sales agreement withSVB Leerink LLC . To date, no shares have been issued and sold pursuant to the ATM Offering. InMarch 2022 , we filed certain post-effective amendments to the Form S-3ASR for the purpose of, among other things, converting the registration statement to the proper submission type for a non-automatic shelf registration statement and providing that the base prospectus included in the registration statement covers the offering, sale and issuance by us of up to$350.0 million in the aggregate of the securities identified in the registration statement in one or more offerings. The$150.0 million of common stock that may be offered, issued and sold in the ATM Offering is included in the$350.0 million of securities that may be offered, issued and sold by us under the base prospectus. Prior to our IPO, we funded our operations primarily through private placements of our convertible preferred stock with aggregate gross proceeds of$191.6 million .
Our primary uses of cash to date have been to fund our research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
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Future Funding Requirements
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, that will occur. Until such time as we can generate significant revenue from product sales, if ever, we will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. We expect our expenses to increase significantly in connection with our ongoing activities as described in greater detail below. We are subject to all the risks incident in the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect our expenses to increase significantly, as we:
• advance our RAF and FGFR programs through clinical development;
• advance the development of our other small molecule research programs,
including our CDK12 inhibitor;
• expand our pipeline of product candidates through our own product discovery and
development efforts;
• seek to discover and develop additional product candidates;
• seek regulatory approvals for any product candidates that successfully complete
clinical trials;
• establish a sales, marketing and distribution infrastructure to commercialize
any approved product candidates and related additional commercial manufacturing
costs;
• implement operational, financial and management systems;
• attract, hire and retain additional clinical, scientific, management and
administrative personnel;
• maintain, expand, protect and enforce our intellectual property portfolio,
including patents, trade secrets and know how; and
• operate as a public company.
In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our common stock, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts. -25-
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Based on our current operating plan, we believe that our current cash and cash equivalents and investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into mid-2024. We have based our projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:
• the scope, timing, progress, results and costs of researching and developing
our product candidates, and conducting preclinical studies and clinical trials;
• the scope, timing, progress, results and costs of researching and developing
other product candidates that we may pursue;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs of future activities, including product sales, medical affairs,
marketing, manufacturing and distribution, for any of our product candidates
for which we receive marketing approval;
• the costs of manufacturing commercial-grade products and sufficient inventory
to support commercial launch;
• the revenue, if any, received from commercial sale of our products, should any
of our product candidates receive marketing approval;
• the cost and timing of attracting, hiring and retaining skilled personnel to
support our operations and continued growth;
• the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims;
• our ability to establish and maintain collaborations, strategic partnerships or
marketing, distribution, licensing or other strategic arrangements with third
parties on favorable terms, if at all;
• the extent to which we acquire or in-license other product candidates and
technologies, if any;
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• the timing, receipt and amount of sales of, or milestone payments related to or
royalties on, our current or future product candidates, if any; and
• the costs associated with operating as a public company.
A change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. We lease office space inSan Diego, California andSan Francisco, California . InJune 2021 , we entered into an agreement to lease 8,088 rentable square feet of office space located inSan Diego, California (SD Lease) for a period of five years and four months with a lease commencement date ofMarch 2022 . Additionally, we have an option to extend the SD Lease for an additional five years at the end of the initial term. InAugust 2021 , we entered into an agreement to lease 5,698 rentable square feet of office space located inSan Francisco, California (SF Lease) for an initial term that commenced onJanuary 1, 2022 and expiresJune 30, 2026 . Additionally, we have an option to extend the SF Lease for an additional three years at the end of the initial term. As ofSeptember 30, 2022 , we have$1.0 million and$3.4 million in current and long-term operating lease liabilities, respectively. In addition, we have entered into agreements in the normal course of business with certain vendors for the provision of goods and services, which includes manufacturing services with CMOs and development services with CROs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement. These obligations and commitments are not separately presented.
Cash Flows
The following table sets forth the primary sources and uses of cash for the
periods indicated:
Nine Months Ended September 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (65,286 ) $ (48,542 )
Net cash used in investing activities (24,397 ) (182,912 )
Net cash provided by financing activities 967 35,680
Effect of exchange rate changes on cash and cash equivalents (2 ) -
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
Net cash used in operating activities during the nine months endedSeptember 30, 2022 was$65.3 million . This consisted of our consolidated net loss of$84.7 million offset by a net increase in working capital of$3.4 million , primarily due to increases in accounts payable and accrued expenses and operating lease right-of-use assets and liabilities and a decrease in prepaid expenses and other assets, net of stock compensation expense of$14.6 million , depreciation expense of$0.4 million and amortization/accretion of investments of$1.0 million . -27-
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Net cash used in operating activities during the nine months endedSeptember 30, 2021 was$48.5 million . This consisted of our consolidated net loss of$63.6 million offset by a net increase in working capital of$2.8 million , primarily due to an increase in accounts payable and accrued expenses partially offset by an increase in prepaid expenses and other assets, net of stock compensation expense of$10.7 million and amortization/accretion of investments of$1.4 million . Investing Activities Net cash used in investing activities during the nine months endedSeptember 30, 2022 was$24.4 million and related primarily to purchases of short-term and long-term investments totaling$131.1 million partially offset by the sales and maturities of short-term and long-term investments totaling$109.3 million . Additionally, purchases of property and equipment totaled$2.6 million during the nine months endedSeptember 30, 2022 . Net cash used in investing activities during the nine months endedSeptember 30, 2021 was$182.9 million and related primarily to purchases of short-term and long-term investments totaling$216.6 million partially offset by the sales and maturities of short-term and long-term investments totaling$33.8 million .
Financing Activities
Net cash provided by financing activities during the nine months endedSeptember 30, 2022 was$1.0 million , which consisted of proceeds from the issuance of common stock upon stock option exercises and under our employee stock purchase plan of$0.6 million and$0.4 million , respectively. Net cash provided by financing activities during the nine months endedSeptember 30, 2021 was$35.7 million . This consisted of contributions from noncontrolling interest owners of$34.9 million , net of offering costs, proceeds from the issuance of common stock upon stock option exercises of$0.3 million and proceeds from the issuance of common stock under our employee stock purchase plan of$0.5 million .
Off-Balance Sheet Arrangements
We currently do not have, and did not have during the periods presented, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on a periodic basis. Our actual results may differ from these estimates. -28-
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Our critical accounting policies and estimates are described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10K filed with theSEC onMarch 28, 2022 and the notes to the financial statements appearing elsewhere in this Quarterly Report on Form 10Q. During the three and nine months endedSeptember 30, 2022 , there were no material changes to our critical accounting policies and estimates from those discussed in our Annual Report on Form 10K filed with theSEC onMarch 28, 2022 .
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