You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 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 Annual Report.
Overview
We are a biotechnology company developing a portfolio of novel and proprietary MGDs. MGDs are small molecule drugs that employ the body's natural protein destruction mechanisms to selectively degrade therapeutically relevant proteins. MGDs work by inducing the engagement of defined surfaces identified on target proteins by an E3 ligase, such as cereblon. We have developed a proprietary and industry-leading protein degradation platform, called QuEENTM, to enable our unique, target-centric, MGD discovery and development and our rational design of MGD products. We believe our small molecule MGDs may give us significant advantages over existing therapeutic modalities, including other protein degradation approaches. We prioritize our product development on therapeutic targets backed by strong biological and genetic rationale with the goal of discovering and developing novel medicines.
Liquidity
To date, we have financed our operations primarily through the issuance and sale
of convertible promissory notes and our convertible preferred stock to outside
investors in private equity financings, our initial public offering and
at-the-market offerings. From our inception through the date hereof, we raised
an aggregate of
Business effects of COVID-19
The COVID-19 pandemic has presented a substantial public health and economic
challenge around the world and has affected, and may continue to affect our
employees, patients, communities and business operations, as well as the
For additional information on the various risks posed by the COVID-19 pandemic, please read the section entitled "Risk Factors" in this Annual Report.
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Components of operating results
Research and development expenses
Our research and development expenses include:
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expenses incurred under agreements with consultants, third-party service providers that conduct research and development activities on our behalf;
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personnel costs, which include salaries, benefits, pension and stock-based compensation;
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laboratory and vendor expenses related to the execution of preclinical and clinical studies;
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laboratory supplies and materials used for internal research and development activities; and
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facilities and equipment costs.
Most of our research and development expenses have been related to the development of our QuEENTM platform and advancement of our GSPT1 program, advancement of our disclosed and undisclosed programs including for CDK2, NEK7, VAV1, and multiple sickle cell disease, or SCD targets. We have not reported program costs since our inception because we have not historically tracked or recorded our research and development expenses on a program-by-program basis. We use our personnel and infrastructure resources across the breadth of our research and development activities, which are directed toward identifying and developing product candidates.
We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as we advance our programs and conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects, the costs of related clinical development costs or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and administrative expenses
Our general and administrative expenses consist primarily of personnel costs and
other expenses for outside professional services, including legal fees relating
to patent and corporate matters, professional fees for accounting, auditing, tax
and administrative consulting services, insurance costs and other operating
costs. We expect our general and administrative expenses to increase over the
next several years to support our continued research and development activities,
manufacturing activities, and the potential commercialization of our product
candidates and development of commercial infrastructure. We also anticipate our
general and administrative costs will increase and with respect to the hiring of
additional personnel, fees to outside consultants, lawyers and accountants, and
increased costs associated with being a public company, such as expenses related
to services associated with maintaining compliance with Nasdaq listing rules and
Non-operating income and (expense)
Our non-operating income and (expense) includes (i) interest earned on our
investments, including principally
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Results of operations for the years ended
The following sets forth our results of operations:
Year ended December 31, (in thousands) 2022 2021 Dollar change Operating expenses: Research and development$ 85,061 $ 57,155 $ 27,906 General and administrative 27,323 15,727 11,596 Total operating expenses 112,384 72,882 39,502 Loss from operations (112,384 ) (72,882 ) (39,502 ) Other income (expense) 3,883 (1,076 ) 4,959 Net loss$ (108,501 ) $ (73,958 ) $ (34,543 )
Research and development expenses
Research and development expenses were comprised of:
Year ended December 31, (in thousands) 2022 2021 Dollar change
External research and development services
27,386 18,254 9,132 Laboratory and related expenses 7,433 6,032 1,401 Facility costs and other expenses 14,868 6,647 8,221 Research and development expenses$ 85,061 $ 57,155 $ 27,906
As of
Most of our research and development expenses have been related to the
development of our QuEENTM platform, advancement of our GSPT1 program, including
IND-enabling work for MRT-2359, and the advancement of our disclosed and
undisclosed programs, including for CDK2, NEK7, VAV1, multiple SCD targets, and
other discovery efforts. The increase for the year ended
General and administrative expenses
General and administrative expenses to support our business activities were comprised of: Year ended December 31, (in thousands) 2022 2021 Dollar change Personnel costs$ 15,387 $ 9,484 $ 5,903 Professional services 4,467 2,761 1,706 Facility costs and other expenses 7,469 3,482 3,987
General and administrative expenses
As of
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Other expenses, net
Other income (expense), net was comprised of:
Year ended December 31, (in thousands) 2022 2021 Interest income, net$ 3,764 $ 46 Foreign currency exchange gain (loss), net 10 (162 ) Gain on disposal of fixed assets 109 - Changes in fair value of preferred stock tranche obligations, net - (960 ) Other income (expense)$ 3,883 $ (1,076 )
The increase in interest and other income for the year ended
Foreign exchange gains on transactions of our Swiss subsidiary denominated in
currency other than the
Liquidity and capital resources
Overview
Due to our significant research and development expenditures, we have generated operating losses since our inception. We have funded our operations primarily through the sale of convertible preferred stock and common stock.
In
As of
Cash flows
The following table summarizes our cash flows for the periods indicated:
Year ended December 31, (in thousands) 2022 2021 Net cash (used in) provided by: Operating activities$ (92,466 ) $ (59,363 ) Investing activities (219,219 ) (9,653 ) Financing activities 20,466 377,562 Net (decrease) increase in cash, cash equivalents and restricted cash$ (291,219 ) $ 308,546 Operating activities
During the year ended
During the year ended
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Investing activities
Cash used in investing activities of
For the year ended
Financing activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Funding requirements
Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research, manufacturing and development services, costs relating to the build-out of our headquarters, laboratories and manufacturing facility, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, manufacturing costs, legal and other regulatory expenses and general overhead costs.
Based upon our current operating plan, we believe that the existing cash, cash
equivalents, restricted cash, and marketable securities of
We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders, will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the scope, progress, results and costs of researching, developing and manufacturing our current product candidates or any future product candidates, and conducting preclinical studies and clinical trials;
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the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our lead product candidates or any future product candidates;
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the number and characteristics of any additional product candidates we develop or acquire;
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the cost of manufacturing our lead product candidate or any future product candidates and any products we successfully commercialize, including costs associated with building-out our manufacturing capabilities;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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the timing, receipt and amount of sales of any future approved or cleared products, if any; and
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the impact of global economic and political developments, the COVID-19 pandemic and the corresponding responses of businesses and governments.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Critical accounting policies and significant judgments and estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Research and development expense and accruals
We record research and development expenses to operations as incurred. Research and development expenses represent costs incurred by us for development of our technology platform and the discovery and development of our product candidates and include: employee-related expenses, including salaries, benefits and non-cash stock-based compensation expense; external research and development expenses incurred under arrangements with third parties, including preclinical testing organizations, non-profit institutions and consultants; and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.
As part of the process of preparing financial statements, we are required to estimate and accrue expenses. We estimate costs of research and development activities conducted by service providers. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. If the costs have been prepaid, this expense reduces the prepaid expenses in the balance sheet, and if not yet invoiced, the costs are included in accrued expenses in the balance sheet. We classify such prepaid assets as current or non-current assets based on our estimates of the timing of when the goods or services will be realized or consumed. These costs are a significant component of our research and development expenses.
We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established third-party service providers. We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued expense balance in each reporting period. As actual costs become known, we adjust our estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our
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accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from external third-party service providers. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than our estimates.
We have and may continue to enter into license agreements to access and utilize certain technology. We evaluate if the license agreement is an acquisition of an asset or a business. To date none of our license agreements have been considered to be an acquisition of a business. For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments made before product approval, are immediately recognized as research and development expense when due, provided there is no alternative future use of the rights in other research and development projects.
Stock-based compensation
We account for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees and directors based on estimated grant-date fair values. We use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period, and estimate the fair value of share-based awards to employees and directors using the Black-Scholes option-pricing valuation model. The Black-Scholes model requires the input of subjective assumptions, including fair value of common stock, expected term, expected volatility, risk-free interest rate and expected dividends, which are described in greater detail below.
Fair Value of Common Stock-Prior to the IPO, as there was no public market for
our common stock, the board of directors determined the fair value of our common
stock by taking into consideration, among other things, timely valuations of our
common stock prepared by an unrelated third-party valuation firm in accordance
with the guidance provided by the
Expected Term-The expected term of the options represents the average period the stock options are expected to remain outstanding. As we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term of options granted is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.
Expected Volatility- Since we have only recently become a public company and have only a limited trading history for our common stock, the expected volatility was estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. We selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and, where applicable, with historical share price information sufficient to meet the expected life of our stock-based awards. We will continue to apply this process until enough historical information regarding the volatility of our own stock price becomes available.
Risk-Free Interest Rate-The risk-free interest rate is based on the yield of
zero-coupon
Expected Dividends-The expected dividends assumption is based on our expectation of not paying dividends in the foreseeable future; therefore, we used an expected dividend yield of zero.
Recently issued and adopted accounting pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to our consolidated financial statements appearing elsewhere in this Annual Report for a discussion of recent accounting pronouncements.
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Contractual obligations and commitments
License agreement
In
In consideration for the rights granted under the License Agreement, we issued
an aggregate of 1,132,984 common shares to CRT, the ICR and affiliated founding
scientists pursuant to the Formation and Investment Agreement for an aggregate
purchase price of
Under the Collaboration Agreement, we may be obligated to make certain milestone
payments for achieving specific clinical progression events for certain
products, solely to the extent such products are subject to the Collaboration
Agreement. If owed, these milestones would aggregate up to
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