PANDION THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled "Risk Factors," our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from our forward- looking statements.
Overview
We are a clinical stage biopharmaceutical company developing novel therapeutics designed to address the unmet needs of patients living with autoimmune diseases. We have combined a network-based conceptualization of the immune system, focused on its control nodes, with expertise in advanced protein engineering to develop our TALON (Therapeutic Autoimmune reguLatOry proteiN) drug design and discovery platform. Our TALON platform enables us to employ a modular approach to create a pipeline of product candidates using immunomodulatory effector modules that act at known control nodes within the immune network. We are also able to combine an effector module with a tissue-targeted tether module in a bifunctional format to guide delivery of the effector to a targeted tissue. Our lead product candidate, PT101, a combination of our interleukin-2, or IL-2, mutein effector module with a protein backbone, is designed to selectively expand regulatory T cells, or Treg cells, systemically, without activating proinflammatory cells, such as conventional T cells and natural killer, or NK, cells. We are initially developing PT101 for the treatment of patients with moderate-to-severe ulcerative colitis, or UC and have completed enrollment and dosing in a Phase 1a clinical trial of PT101 in healthy volunteers, with top-line data expected early 2021. We continue to develop and expand our library of effector and tether modules as part of our early stage research and discovery pipeline. Our early stage research includes a suite of PD-1 agonists in preclinical development. PD-1 is an inhibitory receptor that is naturally expressed by T cells following their activation. We plan to initiate investigational new drug, or IND, -enabling studies with our systemic PD-1 agonist, PT627, in the fourth quarter of this year and expect to enter IND-enabling preclinical studies for our GI/liver-tethered PD-1 agonist, PT001, in the first half of 2021. We were formed under the laws of theState of Delaware inSeptember 2016 as a corporation under the nameImmunotolerance, Inc. and began operations inJanuary 2017 . We changed our name toPandion Therapeutics, Inc. inJune 2017 . OnJanuary 1, 2019 , we completed a series of transactions in whichPandion Therapeutics, Inc. became a direct wholly owned subsidiary ofPandion Therapeutics Holdco LLC , orPandion LLC , aDelaware limited liability company, and all outstanding equity securities ofPandion Therapeutics, Inc. were canceled and converted on a one-for-one basis into equity securities ofPandion LLC .
On
• we converted from a
corporation by filing a certificate of conversion with the Secretary of
State of the
• we changed our name from
As part of the Conversion:
• holders of Series A preferred shares of
received one share of Series A preferred stock of Pandion Therapeutics,
Inc. for each Series A preferred share held immediately prior to the
Conversion;
• holders of Series A prime preferred shares of Pandion Therapeutics Holdco
LLC received one share of Series A prime preferred stock of Pandion
Therapeutics, Inc. for each Series A prime preferred share held immediately prior to the Conversion;
• holders of Series B preferred shares of
received one share of Series B preferred stock of Pandion Therapeutics,
Inc. for each Series B preferred share held immediately prior to the
Conversion;
• holders of common shares of
share of common stock of
held immediately prior to the Conversion;
• holders of outstanding incentive shares in Pandion Therapeutics Holdco
LLC, all of which were intended to constitute profits interests for
federal income tax purposes, received a number of shares of common stock
of
our board of directors immediately prior to the Conversion. Of the shares
of common stock issued in respect of incentive shares, 1,368,515 continue
to be subject to vesting in accordance with the vesting schedule
applicable to such incentive shares. Based on the determined fair value
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of $18.00 per common share, the incentive shares converted into an
aggregate of 1,504,586 shares of our common stock, and we granted options
to purchase an aggregate of 859,147 shares of our common stock.
In connection with the Conversion, Pandion Therapeutics, Inc. continues to hold
all property and assets of Pandion Therapeutics Holdco LLC and has assumed all
of the debts and obligations of Pandion Therapeutics Holdco LLC . On July 16,
2020 , Pandion LLC converted into a corporation by filing a certificate of
conversion with the Secretary of State of the State of Delaware and we changed
our name to Pandion Therapeutics, Inc. On the effective date of the Conversion,
the members of the board of directors of Pandion Therapeutics Holdco LLC became
the members of the board of directors of Pandion Therapeutics, Inc. and the
officers of Pandion Therapeutics Holdco LLC became the officers of Pandion
Therapeutics, Inc.
Our lead product candidate, PT101, is in Phase 1 clinical development and our
other product candidates and our discovery stage programs are in preclinical or
earlier stages of development. Our ability to generate revenue from product
sales sufficient to achieve profitability will depend heavily on the successful
development and eventual commercialization of one or more of our product
candidates. To date, our operations have been financed primarily through the
issuance of redeemable convertible preferred shares, a simple agreement for
future equity, or SAFE, convertible notes and a term loan and, most recently,
common stock in our initial public offering, or IPO. On July 21, 2020 , we
completed an IPO of our common stock and issued and sold 7,500,000 shares of
common stock at a public offering price of $18.00 per share, resulting in net
proceeds of $122.0 million after deducting underwriting discounts and
commissions and estimated offering expenses. In addition, on August 11, 2020 , we
issued and sold an additional 994,166 shares of our common stock at the public
offering price of $18.00 per share upon the partial exercise of the
underwriters' option to purchase additional shares of common stock and received
additional net proceeds of $16.6 million after deducting underwriting discounts
and commissions.
Since inception, we have had significant operating losses. Our net loss was
$21.9 million and $10.9 million for the years ended December 31, 2019 and 2018,
respectively, and our net loss was $26.9 million for the nine months ended
September 30, 2020 . As of September 30, 2020 , we had an accumulated deficit of
$74.8 million .
Cash used to fund operating expenses is impacted by the timing of when we pay
these expenses, as reflected in the change in our accounts payable and accrued
expenses. We expect to continue to incur net losses for the foreseeable future,
and we expect our research and development expenses, general and administrative
expenses, and capital expenditures will continue to increase. In particular, we
expect our expenses to increase as we continue our development of, and seek
regulatory approvals for, our product candidates, as well as hire additional
personnel, pay fees to outside consultants, lawyers and accountants, and incur
other increased costs associated with being a public company. In addition, if
and when, if ever, we seek and obtain regulatory approval to commercialize any
product candidate, we will also incur increased expenses in connection with
commercialization and marketing of any such product. Our net losses may
fluctuate significantly from quarter-to-quarter and year-to-year, depending on
the timing of our clinical trials and our expenditures on other research and
development activities.
Based upon our current operating plan, we believe that our existing cash and
cash equivalents of $232.3 million as of September 30, 2020 will be sufficient
to fund our operating expenses and capital expenditure requirements through the
first half of 2024. We have based this estimate on assumptions that may prove to
be wrong, and we could exhaust our available capital resources sooner than we
expect. To finance our operations beyond that point we will need to raise
additional capital, which cannot be assured.
To date, we have not had any products approved for sale and, therefore, have not
generated any product revenue. We do not expect to generate any revenues from
product sales unless and until we successfully complete development and obtain
regulatory approval for one or more of our product candidates. If we obtain
regulatory approval for any of our product candidates, we expect to incur
significant commercialization expenses related to product sales, marketing,
manufacturing and distribution. As a result, until such time, if ever, that we
can generate substantial product revenue, we expect to finance our cash needs
through equity offerings, debt financings or other capital sources, including
collaborations, licenses or similar arrangements. However, we may be unable to
raise additional funds or enter into such other arrangements when needed or on
favorable terms, if at all. 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, including our research and development
activities. If we are unable to raise capital, we will need to delay, reduce or
terminate planned activities to reduce costs.
In March 2020 , the World Health Organization declared the COVID-19 outbreak a
pandemic. To date, our financial condition and operations have not been
significantly impacted by the COVID-19 pandemic. However, we cannot at this time
predict the specific extent, duration, or full impact that the COVID-19 pandemic
will have on our financial condition and operations, including planned clinical
trials. The impact of the COVID-19 pandemic on our financial performance will
depend on future developments, including the duration and spread of the pandemic
and related governmental advisories and restrictions. These developments and the
impact of the
19
-------------------------------------------------------------------------------- COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results may be materially adversely affected.
Components of Operating Results
Revenue
We have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in regulatory marketing approval, we may generate revenue in the future from product sales. However, we cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our product candidates, and we may never succeed in obtaining regulatory approval for, or commercializing, any of our product candidates. InOctober 2019 , we entered into a license and collaboration agreement, or the Astellas agreement, with Astellas Pharma Inc., or Astellas, to develop locally acting immunomodulators for autoimmune diseases of the pancreas. Under the terms of the Astellas agreement, we are responsible for the design and discovery of bifunctional product candidates based on our TALON platform, and Astellas will conduct preclinical, clinical and commercialization activities for any candidates developed in the collaboration. The initial research plan is focused on three tissue-selective tether targets in the pancreas. The primary indication for which we and Astellas are seeking to develop compounds is type 1 diabetes. We received an upfront payment of$10.0 million and have the right to receive research, development and regulatory milestone payments under the collaboration. We also have the right to receive tiered royalties on worldwide net sales of any commercial products developed under the collaboration.
We may also in the future enter into additional license or collaboration agreements for our product candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreement.
Operating Expenses: Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
• personnel costs, which include salaries, benefits and equity-based
compensation expense;
• expenses incurred under agreements with consultants and third-party
contract organizations that conduct research and development activities
on our behalf;
• costs related to sponsored research service agreements;
• costs related to production of preclinical and clinical materials,
including fees paid to contract manufacturers;
• laboratory and vendor expenses related to the execution of preclinical
studies and planned clinical trials; and
• laboratory supplies and equipment used for internal research and
development activities.
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 use our personnel and infrastructure resources across multiple research and
development programs directed toward identifying and developing product
candidates. Our direct research and development expenses are tracked on a
program-by-program basis and consist primarily of internal personnel costs and
external costs, such as fees paid to consultants, contractors and contract
research organizations, or CROs, in connection with our development activities.
We do not fully allocate costs to programs as many of our research and
development costs are indirect or are deployed across multiple programs.
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, advancing our programs and conducting 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.
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Because of the numerous risks and uncertainties associated with product
development and the current stage of development of our product candidates and
programs, we cannot reasonably estimate or know the nature, timing and estimated
costs necessary to complete the remainder of the development of our product
candidates or programs. 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:
• successfully completing preclinical studies and initiating clinical trials;
• successful enrollment and completion of clinical trials;
• data from our clinical program that support an acceptable risk-benefit
profile of our product candidates in the intended patient populations;
• any delays in our planned clinical trials as a result of the COVID-19
pandemic;
• acceptance by the
Medicines Agency ,Health Canada or other regulatory agencies of the investigational new drug applications, clinical trial applications or other regulatory filings for PT101 and future product candidates; • expanding and maintaining a workforce of experienced scientists and others to continue to develop our product candidates; • successfully applying for and receiving marketing approvals from applicable regulatory authorities;
• obtaining and maintaining intellectual property protection and regulatory
exclusivity for our product candidates;
• making arrangements with third-party manufacturers for, or establishing,
commercial manufacturing capabilities; and
• maintaining a continued acceptable safety profile of our products
following receipt of any marketing approvals.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase for the foreseeable future as we continue to implement our business strategy, which includes advancing PT101 through clinical development and other product candidates into clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific 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.
Operating Expenses: General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services and facility-related fees not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and equity-based compensation expense, for our personnel in executive, finance and accounting, business operations and other administrative functions. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These increases will likely include increases related to the hiring of additional personnel and legal, regulatory and other fees and services associated with maintaining compliance with Nasdaq listing rules andSEC requirements, director and officer insurance premiums and investor relations costs associated with being a public company. 21 --------------------------------------------------------------------------------
Other Income (Expense), Net
Our other income (expense), net is comprised of interest income earned on cash reserves in our operating account, interest expense principally on our term loan, and fair value adjustments on the JDRF convertible promissory note for which we have elected the fair value option of accounting.
Results of Operations
Comparison of the Three Months Ended
The following sets forth our results of operations for the three months ended
Three Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Revenue $ 2,632 $ - $ 2,632 -
Operating expenses
Research and development 9,286 4,386 4,900 112 %
General and administrative 4,336 1,522 2,814 185 %
Total operating expenses 13,622 5,908 7,714 131 %
Loss from operations (10,990 ) (5,908 ) (5,082 ) 86 %
Other income (expense), net (242 ) 63 (305 ) (484 %)
Net loss $ (11,232 ) $ (5,845 ) $ (5,387 ) 92 %
Revenue
For the three months ended September 30, 2020 , we recognized $2.6 million in
revenue under the Astellas agreement. While the contractual term under the
Astellas agreement is five years, based on the research plan and budget agreed
to by the joint steering committee established under the Astellas agreement, we
initially estimate our research and development commitments will be completed by
the end of 2022. As of September 30, 2020 , we estimated a total transaction
price of $29.9 million , consisting of the fixed upfront payment of $10.0 million
and estimated research funding and reimbursement of external costs of
$19.9 million presently budgeted under the Astellas agreement to be incurred
through 2022. As of September 30, 2020 , we have no contract assets and have
short-term and long-term deferred revenues of $4.7 million and $4.1 million ,
respectively, which are presently estimated to be recognized through 2022. The
aggregate amount of the transaction price that remains unsatisfied as of
September 30, 2020 is estimated to be $22.4 million , of which we expect to
recognize $3.6 million in 2020, $9.0 million in 2021 and $9.8 million in 2022.
Research and Development Expenses
Research and development expenses were comprised of:
Three Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Personnel 2,615 $ 1,014 $ 1,601 158 %
Services 5,094 2,403 2,691 112 %
Facilities and equipment 691 301 390 130 %
Supplies 847 619 228 37 %
Other 39 49 (10 ) (20 %)Total research and development expenses $ 9,286 $
4,386$ 4,900 112 % 22
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Direct and allocated research and development expenses by program were comprised
of:
Three Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
PT101 $ 3,430 $ 1,499 $ 1,931 129 %
PT002 109 552 (443 ) (80 %)
PT627 697 - 697 -
PT001 437 616 (179 ) (29 %)
All other programs 1,292 754 538 71 %
Non-program specific and unallocated
research and
development expenses 3,321 965 2,356 244 %
Total research and development expenses $ 9,286 $
4,386$ 4,900 112 % Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance PT101 through clinical trials, including our Phase 1 clinical trial, and we continue to develop our other additional product candidates, PT002, PT627 and PT001, and seek to discover and develop additional product candidates. We have increased our headcount as our product pipeline has advanced.
Research and development expenses were
We initiated our Phase 1a clinical trial of PT101 inFebruary 2020 and completed enrollment and dosing inOctober 2020 . We have continued to advance our other product candidates and seek to discover and develop other programs. Personnel-related costs increased$1.6 million primarily related to our research and development headcount increasing from 22 employees as ofSeptember 30, 2019 , to 43 employees as ofSeptember 30, 2020 , including an increase of$0.6 million in non-cash equity-based compensation. Preclinical and consulting services and development activities outsourced to CROs increased an aggregate of$2.7 million across our programs. Our facility costs increased$0.4 million during the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 , commensurate with the expansion of our pipeline of research and development programs.
General and Administrative Expenses
General and administrative expenses to support our business activities were
comprised of:
Three Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Personnel $ 1,539 $ 757 $ 782 103 %
Professional services 1,535 624 911 146 %
Facilities and travel 212 91 121 133 %
Insurance 812 11 801 7,282 %
Other 238 39 199 510 %Total general and administrative expenses $ 4,336 $
1,522 $ 2,814 185 %
The increase in general and administrative expenses for the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019 was
primarily attributable to an increase of $0.9 million in third-party
professional services to support our in-house personnel in various aspects of
developing and supporting the business including human resources, information
technology, audit, tax, public relations, communications and other general and
administrative activities. It was also partially attributable to an increase of
$0.8 million in personnel costs from additions to general and administrative
employees, including an increase of $0.7 million in non-cash equity-based
compensation, and $0.8 million in additional insurance premiums associated with
being a public company.
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Other Income (Expense), Net
Our other income (expense), net was comprised of:
Three Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Interest income $ 9 $ 63 $ (54 ) (86 %)
Interest expense (251 ) - (251 ) -
Other income (expense), net $ (242 ) $ 63 $ (305 ) (484 %)
Our other income (expense) consists primarily of interest income earned on our
cash balance and interest expense and other costs related to our term loan,
which was repaid in
Comparison of the Nine Months Ended
The following sets forth our results of operations for the nine months endedSeptember 30, 2020 and 2019: Nine Months Ended September 30, Change 2020 2019 Dollar Percent (dollars in thousands) Revenue$ 6,588 $ -$ 6,588 - Operating expenses Research and development 25,088 14,405 10,683 74 % General and administrative 8,200 3,136 5,064 161 % Total operating expenses 33,288 17,541 15,747 90 % Loss from operations (26,700 ) (17,541 ) (9,159 ) 52 % Other income (expense), net (190 ) 207 (397 ) (192 %) Net loss$ (26,890 ) $ (17,334 ) $ (9,556 ) 55 % Revenue For the nine months endedSeptember 30, 2020 , we recognized$6.6 million in revenue under the Astellas agreement. While the contractual term under the Astellas agreement is five years, based on the research plan and budget agreed to by the joint steering committee established under the Astellas agreement, we initially estimate our research and development commitments will be completed by the end of 2022. As ofSeptember 30, 2020 , we estimated a total transaction price of$29.9 million , consisting of the fixed upfront payment of$10.0 million and estimated research funding and reimbursement of external costs of$19.9 million presently budgeted under the Astellas agreement to be incurred through 2022. As ofSeptember 30, 2020 , we have no contract assets and short-term and long-term deferred revenues of$4.7 million and$4.1 million , respectively, which is presently estimated to be recognized through 2022. The aggregate amount of the transaction price that remained unsatisfied as ofSeptember 30, 2020 is estimated to be$22.4 million , of which we expect to recognize$3.6 million in 2020,$9.0 million in 2021 and$9.8 million in 2022.
Research and Development Expenses
Research and development expenses were comprised of:
Nine Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Personnel $ 6,011 $ 2,647 $ 3,364 127 %
Services 14,448 8,803 5,645 64 %
Facilities and equipment 2,072 874 1,198 137 %
Supplies 2,262 2,001 261 13 %
Other 295 80 215 269 %
Total research and development expenses
74 %
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Direct and allocated research and development expenses by program were comprised
of:
Nine Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
PT101 $ 9,984 $ 7,246 $ 2,738 38 %
PT002 548 1,412 (864 ) (61 %)
PT627 1,612 - 1,612 -
PT001 1,332 1,868 (536 ) (29 %)
All other programs 4,007 1,577 2,430 154 %
Non-program specific and unallocated
research and
development expenses 7,605 2,302 5,303 230 %
Total research and development expenses
74 %
Research and development expenses were $25.1 million for the nine months ended
September 30, 2020 , compared to $14.4 million for the nine months ended
September 30, 2019 . The increase of $10.7 million was primarily due to higher
consulting services and development activities outsourced to Contract Research
Organizations.
Personnel-related costs increased $3.4 million primarily related to our research
and development headcount increasing from 22 employees as of September 30, 2019 ,
to 43 employees as of September 30, 2020 , including an increase of $0.6 million
in non-cash equity-based compensation. Preclinical and consulting services and
development activities outsourced to CROs increased an aggregate of $5.6 million
across our programs. Our facility costs increased $1.2 million during the nine
months ended September 30, 2020 as compared to the nine months ended
September 30, 2019 , commensurate with the expansion of our pipeline of research
and development programs.
General and Administrative Expenses
General and administrative expenses to support our business activities were
comprised of:
Nine Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Personnel $ 2,612 $ 1,341 $ 1,271 95 %
Professional services 3,866 1,409 2,457 174 %
Facilities and travel 564 300 264 88 %
Insurance 837 25 812 3,248 %
Other 321 61 260 426 %Total general and administrative expenses $ 8,200 $
3,136 $ 5,064 161 %
The increase in general and administrative expenses for the nine months ended
September 30, 2020 as compared to the nine months ended September 30, 2019 was
primarily attributable to an increase of $2.5 million in third-party
professional services to support our in-house personnel in various aspects of
developing and supporting the business including human resources, information
technology, audit, tax, public relations, communications and other general and
administrative activities. It was also partially attributable to an increase of
$1.3 million in personnel costs from additions to general and administrative
employees, including an increase of $0.9 million in non-cash equity-based
compensation, and $0.8 million in additional insurance premiums related to being
a public company.
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Other Income (Expense), Net
Our other income (expense), net was comprised of:
Nine Months Ended September 30, Change
2020 2019 Dollar Percent
(dollars in thousands)
Interest income $ 54 $ 207 $ (153 ) (74 %)
Interest expense (333 ) - (333 ) -
Fair value adjustments to convertible note 89 - 89 -
Other income (expense), net $ (190 ) $ 207 $ (397 ) (192 %)
Our other income (expense) consists primarily of interest income earned on our
cash balance and interest expense and other costs related to our term loan,
which was repaid in July 2020 . We have elected to account for the JDRF
convertible promissory note at fair value and recorded a gain of $89,000 in the
fair value of the convertible note for the nine months ended September 30, 2020 .
Liquidity and Capital Resources
Sources of Liquidity
InJuly 2020 , we completed our IPO and issued and sold 8,494,166 shares of common stock at a public offering price of$18.00 per share which includes 994,166 shares sold upon the partial exercise of the underwriters' option inAugust 2020 to purchase additional shares of common stock, resulting in aggregate net proceeds of$138.6 million after deducting underwriting discounts and commissions and offering costs of$14.3 million . Prior to our IPO, we financed our operations primarily through the sales of our preferred stock and preferred shares, the sale of the SAFE, issuances of convertible promissory notes, a term loan and payments received under our collaboration agreement with Astellas.. Since inception, we have had significant operating losses. Our net loss was$21.9 million and$10.9 million for the years endedDecember 31, 2019 and 2018, respectively, and our net loss was$26.9 million for the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , we had an accumulated deficit of$74.8 million and$232.3 million in cash and cash equivalents. InJune 2020 , we issued 20,116,868 additional Series B redeemable convertible preferred shares for gross proceeds of$42.0 million and incurred issuance costs of$136,000 . We also entered into the SAFE, pursuant to which we issued rights to one investor to receive shares of our capital stock for an aggregate purchase price of$6.0 million . Upon closing of our IPO inJuly 2020 , the SAFE converted, by its terms, into 333,333 shares of our common stock based on the initial public offering price of$18.00 per share. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Cash Flows
The following table summarizes our cash flows:
Nine Months Ended September 30,
2020 2019
(in thousands)
Net cash used in operating activities $ (23,821 ) $ (16,311 )
Net cash used in investing activities (2,005 ) (437 )
Net cash provided by financing activities 242,682 17,967
Net increase in cash, cash equivalents and restricted cash
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Cash used in operating activities of$23.8 million during the nine months endedSeptember 30, 2020 was attributable to our net loss of$26.9 million and a decrease of$1.6 million in our deferred revenue under the Astellas agreement, offset by a$2.7 million net increase in our working capital and non-cash charges of$2.0 million principally with respect to equity-based compensation and depreciation expense. Cash used in operating activities of$16.3 million during the nine months endedSeptember 30, 2019 was attributable to our net loss of$17.3 million , a$0.8 million net increase in our working capital and non-cash charges of$0.2 million principally with respect to equity-based compensation and depreciation expense.
Investing activities for all periods presented consist of purchases of property and equipment.
Net Cash Provided by Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2020 amounted to$242.7 million comprised of$138.6 million of aggregate net proceeds from the issuance of common stock in our IPO inJuly 2020 andAugust 2020 ,$81.6 million net proceeds from the sale and issuance of our Series B redeemable convertible preferred shares inMarch 2020 andJune 2020 ,$18.0 million net proceeds upon the third issuance of our Series A redeemable convertible preferred shares inFebruary 2020 and$6.0 million net proceeds from the SAFE inJune 2020 .
Cash provided by financing activities for the nine months ended
Loan and Security Agreement
InNovember 2019 , we entered into a secured term loan facility withSilicon Valley Bank in the amount of$10.0 million , or the Term Loan Facility, with an initial advance of$2.0 million . A second advance of$4.0 million was available to be drawn prior toJune 30, 2020 and a third advance of$4.0 million was available to be drawn based upon the achievement of certain events prior toJune 30, 2020 . The loans under the Term Loan Facility bear interest at the greater of (i) the prime rate less 1% and (ii) 4.25%. In response to the financial impact of the COVID-19 pandemic, inApril 2020 the lender extended monthly interest-only payments on the outstanding term loan throughNovember 2021 and the final maturity date on the term loan toMay 2024 . The Term Loan Facility is collateralized by a first priority perfected security interest in all of our tangible and intangible property, with the exception of our intellectual property, and by a negative pledge on our intellectual property. InJuly 2020 , we repaid the$2.0 million of principal outstanding under the Term Loan Facility and, in connection with such repayment, the facility was terminated pursuant to its terms. We have no further payment obligations under the Term Loan Facility and no amounts under the secured term loan facility are available for borrowing. 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 our cash and cash equivalents of$232.3 million as ofSeptember 30, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements through the first half of 2024. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. 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 currently have no credit facility or committed sources of capital. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or 27 -------------------------------------------------------------------------------- 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:
• the progress, costs and results of our Phase 1a clinical trial of PT101;
• the scope, progress, results and costs of discovery research, preclinical
development, laboratory testing and clinical trials for our product
candidates, including our planned Phase 1b/2a clinical trial of PT101;
• the number of, and development requirements for, other product candidates
that we pursue;
• the costs, timing and outcome of regulatory review of our product candidates;
• our ability to enter into contract manufacturing arrangements for supply
of active pharmaceutical ingredient and manufacture of our product
candidates and the terms of such arrangements;
• the success of our collaboration with Astellas;
• our ability to establish and maintain strategic collaborations, licensing
or other arrangements and the financial terms of such arrangements;
• the payment or receipt of milestones and receipt of other
collaboration-based revenues, if any;
• the costs and timing of any future commercialization activities,including product manufacturing, sales, marketing and distribution, for
any of our product candidates for which we may receive marketing
approval;
• the amount and timing of revenue, if any, received from commercial sales
of our product candidates for which we receive marketing approval;
• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property and
proprietary rights and defending any intellectual property-related
claims;
• the extent to which we acquire or in-license other products, product
candidates, technologies or data referencing rights;
• the impacts of the COVID-19 pandemic;
• the ability to receive additional non-dilutive funding, including grants
from organizations and foundations; and
• the costs of operating as a public company.
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. 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 financial statements, which have been prepared in
accordance with generally accepted accounting principles, or GAAP. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported expenses incurred during the reporting
periods. Our estimates are based on our historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. 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.
28
--------------------------------------------------------------------------------Significant Accounting Policies
Our significant accounting policies are disclosed in our audited financial statements for the year endedDecember 31, 2019 and the related notes included in our final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with theSEC onJuly 17, 2020 . Since the date of such financial statements, there have been no material changes to our significant accounting policies [other than those described in Note 2 of the notes to our unaudited consolidated and condensed financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recently Adopted Accounting Pronouncements
Refer to Note 2 of the notes to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.
Contractual Obligations and Commitments
InJuly 2020 , we repaid the$2.0 million of principal outstanding under the Term Loan and, in connection with such repayment, the facility was terminated pursuant to its terms. We have no further payment obligations under the Term Loan and no amounts under the secured term loan facility are available for borrowing. There have been no other material changes in our contractual obligations and commitments during the three months endedSeptember 30, 2020 from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments" in our final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with theSEC onJuly 17, 2020 .
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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