PARDES BIOSCIENCES, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2023 and with our audited financial statements and notes thereto contained in our Annual Report on Form 10-K for the year endedDecember 31, 2022 filed with theSecurities and Exchange Commission (SEC) onMarch 14, 2023 (2022 Form 10-K) and other filings we have made with theSEC . As discussed under the heading "Cautionary Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q. Actual results may differ materially from those described in or implied by any forward-looking statements.
Overview
We are a biopharmaceutical company that has been focused on discovering, developing and commercializing novel oral anti-viral therapeutics to improve the lives of patients suffering from life-threatening disease, with our first indication being COVID-19, which is the disease caused by infection with the severe acute respiratory syndrome coronavirus (SARS-CoV-2). In earlyApril 2023 , we announced topline results from our Phase 2 clinical trial to evaluate pomotrelvir (formerly known as PBI-0451) for the treatment of mild-to-moderate COVID-19 in test-positive, symptomatic, otherwise healthy, vaccinated adults without risk factors for developing severe disease. Based upon the topline results from the Phase 2 clinical trial, we decided to suspend further clinical development of pomotrelvir, winddown our research and development activities and initiate a review of a range of strategic alternatives that may include, but are not limited to, an acquisition, merger, business combination, or other transaction (the Restructuring Plan). There can be no assurance that this review process will result in us pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We do not intend to comment further unless or until our Board of Directors (the Board) has approved a definitive course of action, the review process is concluded, or it is determined that other disclosure is appropriate. In connection with the Restructuring Plan, inMarch 2023 , the Board approved a reduction in workforce (the RIF) to align operations with the changes in our corporate strategy and to reduce operating expenses. OnApril 3, 2023 , we notified our employees about the results of the Phase 2 clinical trial, the Restructuring Plan and the RIF. Under the RIF, we are reducing headcount by approximately 89% through a reduction in our workforce, all of which is anticipated to occur in the second quarter of 2023. As ofApril 30, 2023 , the workforce was reduced by 55%. As ofApril 30, 2023 , our preliminary cash, cash equivalents and short-term investments totaled approximately$168.2 million . The results for the quarter-to-date period are preliminary and are not necessarily indicative of the results that may be expected for the full quarter endingJune 30, 2023 or any other period. In addition, during the course of the preparation of our results for the three months endingJune 30, 2023 , additional adjustments to this preliminary estimated information may be identified. Any such adjustments may be material. Therefore, actual financial results that will be reflected in our Quarterly Report on Form 10-Q for the three months endedJune 30, 2023 when they are completed and publicly disclosed may differ from the preliminary results presented here. Pomotrelvir InSeptember 2022 , we initiated a Phase 2 double-blind, randomized study evaluating the antiviral activity, safety, and clinical efficacy of pomotrelvir compared with placebo in nonhospitalized, symptomatic, otherwise healthy adults with mild-to-moderate COVID-19 and a confirmed positive SARS-CoV-2 test. Participants were dosed orally twice-daily at 700 mg (2 x 350 mg tablets) with food for five days. InApril 2023 , we reported that pomotrelvir did not achieve the primary endpoint as measured by the proportion of participants below the limit of detection for infectious SARS-CoV-2 by infectious virus assay (IVA) on day three of treatment with pomotrelvir versus with placebo. Pomotrelvir did not demonstrate meaningful improvement over placebo in reduction from baseline of SARS-CoV-2 infectious virus titer by IVA or in the reduction from baseline or proportion achieving undetectable viral load by quantitative reverse transcriptase polymerase chain reaction measured from mid-turbinate swabs. The median time to alleviation of the 14U.S. Food and Drug Administration guidance-defined and 12 (excluding loss of taste and smell) targeted COVID-19 symptoms were eight days and seven days, respectively, in both pomotrelvir and placebo treated participants. The median time to alleviation of five key COVID-19 symptoms (cough, stuffy or runny nose, low energy or tiredness, sore throat, and feeling hot or feverish) was six days in both pomotrelvir and placebo treated participants with median times to resolution of each individual key symptom being two to five days and similar for pomotrelvir- and placebo-treated participants. There were no deaths and no participants experienced progression to severe COVID-19. There were no treatment emergent drug-related serious adverse events and no drug-related adverse events leading to study drug or study discontinuation in either treatment arm. Pomotrelvir was well tolerated, with drug-related nausea occurring in 3.1% of participants, which represented the only adverse event occurring in greater than 2% of pomotrelvir-treated participants. 11 -------------------------------------------------------------------------------- Based upon the topline data indicating difficulty in demonstrating a clinically meaningful benefit of treatment of SARS-CoV-2 infection in otherwise healthy nonhospitalized participants with COVID-19, we decided to suspend further development of pomotrelvir and winddown research and development activities. Impact of Macroeconomic Conditions Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including as a result of increases in inflation, rising interest rates and instability in the global banking system and geopolitical factors, including the ongoing conflict betweenRussia andUkraine and the responses thereto, and the effects of the COVID-19 pandemic. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside of our control and could exist for an extended period of time. As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business. For additional information, see the sections titled "Risk Factors" in the 2022 Form 10-K and in this Quarterly Report on Form 10-Q.
Components of Our Results of Operations
Revenue
We have not generated any revenue since inception and do not expect to generate any revenue in the near term, if ever. We are not currently developing any product candidates and we do not have any products approved for sale. If we decide to pursue any future product development efforts, we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for any future product candidate. In addition, if we obtain regulatory approval for any product candidate and to the extent that we engage in commercialization activities on our own, we expect we will incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities. Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the development of our potential product candidates. We expense research and development costs as incurred, which include:
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expenses incurred to conduct the necessary preclinical studies, nonclinical studies and clinical trials required to obtain regulatory approval;
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expenses incurred under agreements with contract research organizations (CROs) that are primarily engaged in the oversight and conduct of our drug discovery efforts and preclinical studies, clinical trials and contract manufacturing organizations (CMOs) that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs;
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other costs related to acquiring and manufacturing materials in connection with our drug discovery efforts and preclinical studies and clinical trial materials, including manufacturing validation batches, as well as investigative site and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions; and
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costs related to compliance with regulatory requirements.
We recognize research and development expenses as incurred. Any advance payments
that we make for goods or services to be received in the future for use in
research and development activities are recorded as prepaid expenses. Such
amounts are expensed as the related goods are delivered or the related services
are performed, or until it is no longer expected that the goods will be
delivered or the services rendered. We estimate and accrue for the value of
goods and services received from CROs, CMOs and other third parties each
reporting period based on an evaluation of the progress to completion of
specific tasks. This process involves reviewing open contracts and purchase
orders, communicating with our personnel and service providers to identify
services that have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the service when we have
not yet been invoiced or otherwise notified of actual costs.
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We do not allocate employee costs and overhead costs associated to specific
programs because these costs are deployed across multiple programs and, as such,
are not separately classified. We use internal resources to manage our research
and discovery as well as our preclinical, nonclinical, manufacturing and
clinical development activities. To date, substantially all of the research and
development costs incurred have been in connection with the development of our
lead product candidate, pomotrelvir.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information technology and administrative functions. General and administrative expenses also include insurance costs and professional fees for legal, patent, consulting, investor and public relations, pre-commercial planning, accounting and audit services. Our general and administrative costs are expensed as incurred. Income Taxes We have incurred net losses in every period since our inception and have not recorded anyU.S. federal or state income tax benefits for the losses, as they have been offset by valuation allowances.
Interest and Other Income, Net
Interest and other income, net consists primarily of interest income.
Results of Operations
Comparison of the three months ended
The following table sets forth our results of operations for the periods
presented (in thousands):
Three Months Ended March 31,
2023 2022 Change
Operating expenses:
Research and development $ 12,980 $ 13,199 $ (219 )
General and administrative 6,829 8,226 (1,397 )
Total operating expenses 19,809 21,425 (1,616 )
Interest and other income
(expense), net 2,004 (15 ) 2,019
Net loss $ (17,805 ) $ (21,440 ) $ 3,635
Research and Development Expenses
The following table summarizes the components of research and development expenses for the periods presented (in thousands):
Three Months Ended March 31,
2023 2022 Change
External costs:
Pomotrelvir $ 9,431 $ 7,814 $ 1,617
Next generation and discovery programs - 2,850 (2,850 )
Total external costs 9,431 10,664 (1,233 )
Internal costs:
Salaries and benefits 2,685 1,820 865
Stock-based compensation 705 463 242
Other unallocated costs 159 252 (93 )
Total internal costs 3,549 2,535 1,014
Total research and development expenses $ 12,980 $ 13,199 $ (219 )
Research and development expenses were $13.0 million for the three months ended
March 31, 2023 , compared to $13.2 million for the three months ended March 31,
2022 , a decrease of $0.2 million . The decrease was primarily driven by the
suspension of next generation and discovery programs while we advanced
pomotrelvir, offset by higher pomotrelvir costs and personnel costs, including
stock-based compensation. As a result of our decision to suspend clinical
development of pomotrelvir and winddown all research and development
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--------------------------------------------------------------------------------activities, we anticipate that our research and development expenses, excluding costs associated with the RIF, will decrease in the near term pending any decision related to our review of strategic alternatives.
General and Administrative Expenses
General and administrative expenses were$6.8 million for the three months endedMarch 31, 2023 , compared to$8.2 million for the three months endedMarch 31, 2022 , a decrease of$1.4 million . The decrease was primarily due to decreases in professional fees related to legal fees and pre-commercial planning. We anticipate that our general and administrative expenses, excluding costs associated with the RIF, will continue to decrease in the near term as we decrease our headcount, pursuant to the RIF. Additionally, depending on the outcome of our ongoing strategic alternative review process, including the extent to which we identify and enter into any potential strategic transaction, there may be an increase in general and administrative expenses in the future.
Interest and Other Income (Expense), Net
Interest and other income, net was$2.0 million for the three months endedMarch 31, 2023 compared to a nominal amount of interest and other expense for the three months endedMarch 31, 2022 , an increase of approximately$2.0 million . The increase was due to higher interest rates.
Liquidity and Capital Resources
Sources of Liquidity and Capital
Since inception, we have not generated any revenue from any product sales or any other sources and have incurred operating losses and negative cash flows from our operations. ThroughMarch 31, 2023 , we have primarily funded our operations with gross cash proceeds of$44.5 million from sales of preferred stock and net proceeds of approximately$257.5 million in connection with the Business Combination and thePIPE Investment . See Note 1, Description of Business - Business Combination, to the condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. OnJanuary 12, 2023 , we filed a shelf registration statement on Form S-3, which was declared effective by theU.S. Securities and Exchange Commission onJanuary 20, 2023 (2023 Shelf). The 2023 Shelf covers the offering, issuance and sale by us of up to an aggregate of$200.0 million of our common stock, preferred stock, debt securities, warrants to purchase our common stock, preferred stock or debt securities, subscription rights to purchase our common stock, preferred stock or debt securities and/or units consisting of some or all of these securities. In connection with the 2023 Shelf, we entered into a Sales Agreement, datedJanuary 11, 2023 , withSVB Securities LLC (Sales Agent), pursuant to which we may offer and sell up to$50.0 million of our common stock, from time to time at our sole discretion, through the Sales Agent, in "at-the-market" offerings under the 2023 Shelf. As ofMarch 31, 2023 , we had cash, cash equivalents and short-term investments of$172.2 million and an accumulated deficit of$166.0 million . We believe that our existing cash resources will be sufficient for at least the next 12 months to allow us to fund current planned operations. Cash and cash equivalents are comprised of cash on deposit, money market funds and government agency securities. We have cash deposits with regulated financial institutions, which may from time to time exceed the insurance provided on such deposits. CRO and CMO Agreements 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. In connection with the suspension of the Phase 2 clinical trial and the winding down of our research and development activities, we are terminating or modifying substantially all of our agreements with CMOs and CROs. Such contracts are generally cancellable by us for convenience with a specified amount of notice. However, we may be subject to certain termination fees or winddown costs upon termination of these agreements. The amount of the cancellation or termination fees vary and are based on the timing of the cancellation or termination and the specific terms of the applicable agreement and are not capable of being estimated in good faith at this time. The Company expects to recognize substantially all of the charges related to the Restructuring Plan in the second quarter of 2023. During the periods presented, we did not have, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources. 14 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Three Months Ended March 31,
2023 2022
Net cash used in operating activities
14,413 -
Net cash used in financing activities -
(397 )
Net decrease in cash and cash equivalents
Operating Activities During the three months endedMarch 31, 2023 , net cash used in operating activities consisted of a net loss of$17.8 million , net accretion of discounts on available-for-sale securities of$1.4 million and a decrease of$9.0 million in accounts payable and accrued expenses, partially offset by a non-cash charge of$2.3 million related to stock-based compensation expense.
During the three months ended
Investing Activities
During the three months endedMarch 31, 2023 , net cash provided by investing activities consisted of$30.2 million from the sale and maturities of available-for-sale securities, offset by$15.8 million in purchases of available-for-sale securities. There were no investing activities during the three months endedMarch 31, 2022 .
Financing Activities
During the three months ended
Funding Requirements
We expect our operating expenses to decrease significantly beginning in the second half of 2023 following ourMarch 2023 decision to implement the Restructuring Plan and the RIF. However, we may not realize, in full or in part, the anticipated benefits and savings in operating expenses from these decisions due to unforeseen difficulties, delays or unexpected costs. As a result, our future expenses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the outcome of our strategic process and depending on whether we decide to pursue any future product development efforts. Based on our current operating plan, we expect our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of filing this Quarterly Report on Form 10-Q. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect. Moreover, our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process, including to the extent we identify and enter into any potential strategic transaction.
If we decide to pursue any future product development efforts, our future funding requirements will depend on, and could increase significantly as a result of, many factors, including:
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whether we realize the anticipated cost savings in connection with the RIF and the Restructuring Plan;
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our ability to consummate a strategic transaction and the nature and type of such a transaction
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our ability to bring any product candidates through preclinical and clinical development, and the timing and scope of these research and development activities;
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the costs of obtaining clinical and commercial supplies for any product candidates we may develop;
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our ability to successfully commercialize any product candidates we may develop;
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the manufacturing, selling and marketing costs associated with any product candidates we may develop, including the cost and timing of establishing our sales and marketing capabilities;
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the amount and timing of sales and other revenues from any product candidates we may develop, including the sales price and the availability of adequate third-party reimbursement;
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the time and cost necessary to respond to technological and market developments;
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the extent to which we may acquire or in-license other product candidates and technologies;
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our ability to attract, hire and retain qualified personnel;
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the costs of maintaining, expanding and protecting our intellectual property portfolio; and
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the costs associated with operating as a public company and maintaining
compliance with exchange listing and
A change in the outcome of any of these or other variables with respect to the development of any product candidate we may develop in the future could significantly change the costs and timing associated with the development of that product candidate. Further, our need for additional funds is heavily dependent on the outcome of our ongoing assessment of strategic options and our ability to consummate a strategic transaction. Until such time, if ever, as we can generate substantial product revenues, and subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction, we expect to finance our cash needs through a combination of cash-on-hand, equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of such stockholders. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research program or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate any product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited condensed financial statements in conformity withU.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. If these estimates differ significantly from actual results, the impact to the unaudited condensed financial statements may be material. There have been no material changes in our critical accounting policies and estimates from those disclosed in our 2022 Form 10-K for the fiscal year endedDecember 31, 2022 . Please refer to Part II, Item 7 of our 2022 Form 10-K for a discussion of our critical accounting policies and significant judgments and estimates.
Recent Accounting Pronouncements
We have not adopted any significant accounting policies sinceDecember 31, 2022 . Upon evaluation of recently issued accounting pronouncements, we do not believe any will have a material impact on our condensed financial statements or related financial statement disclosures.
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