The following discussion and analysis should be read together with our
consolidated financial statements and the related notes thereto included
elsewhere in this Annual Report. This discussion and other parts of this report
contain forward-looking statements reflecting our current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations,
intentions, and beliefs. See "Forward-Looking Statements" for a discussion of
the uncertainties, risks, and assumptions associated with these statements.
Actual results and the timing of events could differ materially from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
below and those discussed in the section entitled "Risk Factors" included
elsewhere in this Annual Report.
Overview
We are a biopharmaceutical company focused on discovering and developing
potential best-in-class medicines for serious and rare diseases. We target
under-competitive disease areas where marketed therapies often leave room for
improvements in efficacy, safety, and/or dosing convenience. We believe that
first-generation medicines rarely represent optimal solutions, especially in
rare disease areas, and that there is potential to develop differentiated,
best-in-class medicines that could lead to improved patient outcomes, reduced
side effects, improved quality of life, expanded market access, and augmented
market competition. Our business model is designed to identify and evaluate
product opportunities in disease areas where trial data establishes
proof-of-concept for a drug target in the clinic, but the competitive evolution
of the product life cycle management and number of entrants appears incomplete.
We intend to prioritize indications where a fast-follower and a potentially
differentiated drug candidate, or overall product profile, could create
significant medical benefit for patients. We are engineering medicines to
address unmet medical needs for patients and further advance drug innovation.
We are developing three product candidates, VRDN-001, VRDN-002 and VRDN-003,
that are being developed for intravenous or subcutaneous administration to treat
patients who suffer from thyroid eye disease ("TED"). Our most advanced program,
VRDN-001, is a differentiated humanized monoclonal antibody targeting IGF-1R
intravenously administered for the treatment of TED.
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Global Economic Considerations
The global macroeconomic environment is uncertain, and could be negatively
affected by, among other things, increased U.S. trade tariffs and trade disputes
with other countries, instability in the global capital and credit markets,
supply chain weaknesses, and instability in the geopolitical environment,
including as a result of the Russian invasion of Ukraine, the rising tensions
between China and Taiwan and other political tensions, and lingering effects of
the COVID-19 pandemic. Such challenges have caused, and may continue to cause,
recession fears, concerns regarding potential sanctions, rising interest rates,
foreign exchange volatility and inflationary pressures. At this time, we are
unable to quantify the potential effects of this economic instability on our
future operations.
Financial Operations Overview
Revenue
Our revenue has historically consisted primarily of up-front payments for
licenses, milestone payments, and payments for other research and development
services earned under license and collaboration agreements as well as for
amounts earned under certain grants we have been awarded.
In October 2020, we became party to a license agreement with Zenas BioPharma.
Since February 2021, we have entered into several letter agreements with Zenas
BioPharma in which we agreed to provide assistance to Zenas BioPharma with
certain development activities, including manufacturing (collectively with the
license agreement, the "Zenas Agreements"). Under the terms of the Zenas
Agreements, we granted Zenas BioPharma an exclusive license to develop,
manufacture, and commercialize certain IGF-1R directed antibody products for
non-oncology indications in the greater area of China in exchange for upfront
non-cash consideration and non-refundable milestone payments upon achieving
specific milestone events during the contract term. Zenas BioPharma announced
that it had obtained IND approval in China in July 2022. Under the license
agreement, we received a $1.0 million milestone payment from Zenas BioPharma.
Additionally, we are eligible to receive royalty payments based on a percentage
of the annual net sales of any licensed products sold on a country-by-country
basis in the greater area of China. The royalty percentage may vary based on
different tiers of annual net sales of the licensed products made. Zenas
BioPharma is obligated to make royalty payments to us for the royalty term in
the Zenas Agreements. In May 2022, we entered into a Manufacturing Development
and Supply Agreement with Zenas BioPharma to manufacture and supply, or have
manufactured and supplied, clinical drug product for development purposes.
In the future, we expect to continue to generate revenue from a combination of
license fees and other up-front payments, payments for research and development
services, milestone payments, product sales, and royalties in connection with
strategic alliances. We expect that any revenue we generate could fluctuate from
quarter to quarter as a result of the timing of our achievement of development
and commercial milestones, the timing and amount of payments relating to such
milestones, and the extent to which any of our product candidates are approved
and successfully commercialized by us or our strategic alliance collaborators,
if any. If we or our strategic alliance collaborators, if any, fail to develop
product candidates in a timely manner or to obtain regulatory approval for them,
then our ability to generate future revenue, and our results of operations and
financial position would be adversely affected.
Research and Development Expenses
Research and development expenses consist of costs incurred for the research and
development of our therapeutic programs and product candidates, which include:
•employee-related expenses, including salaries, severance, retention, benefits,
insurance, and share-based compensation expense;
•expenses incurred under agreements with clinical research organizations
("CROs"), investigative sites that conduct our clinical trials, and other
clinical trial-related vendors, and consultants;
•the costs of acquiring, developing, and manufacturing and testing clinical and
preclinical materials, including costs incurred under agreements with contract
manufacturing organizations ("CMOs");
•costs associated with non-clinical activities and regulatory operations;
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•license fees and milestone payments related to the acquisition and retention of
certain licensed technology and intellectual property rights; and
•facilities, depreciation, market research, and other expenses, which include
allocated expenses for rent and maintenance of facilities, depreciation of
leasehold improvements and equipment, and laboratory supplies.
We make non-refundable advance payments for goods and services that will be used
in future research and development activities. These payments are recorded as
expense in the period in which we receive or take ownership of the goods or when
the services are performed.
We record up-front and milestone payments to acquire and retain contractual
rights to in-licensed technology and intellectual property rights as research
and development expenses when incurred if there is uncertainty in our receiving
future economic benefit from the acquired contractual rights. We consider future
economic benefits from acquired contractual rights to licensed technology to be
uncertain until such a drug candidate is approved by the U.S. Food and Drug
Administration ("FDA") or when other significant risk factors are abated.
We expect that our research and development expenses will increase as we expand
our clinical development programs and initiate new clinical trials. The process
of conducting clinical trials and preclinical studies necessary to obtain
regulatory approval is costly and time consuming. We, or our strategic alliance
collaborators, if any, may never succeed in achieving marketing approval for any
of our product candidates. The probability of success for each product candidate
may be affected by numerous factors, including clinical data, preclinical data,
competition, manufacturability, and commercial viability of our product
candidates.
Successful development of future product candidates is highly uncertain and may
not result in approved products. Completion dates and completion costs can vary
significantly for each future product candidate and are difficult to predict. We
anticipate we will make determinations as to which programs to pursue and how
much funding to direct to each program on an ongoing basis in response to our
ability to maintain or enter into new strategic alliances with respect to each
program or potential product candidate, the scientific and clinical success of
each future product candidate, and ongoing assessments as to each future product
candidate's commercial potential. For example, upon receipt of topline data from
our planned proof of concept trial of VRDN-002 by the end of 2023, we expect to
determine which of VRDN-002 or VRDN-003 to advance into a pivotal Phase 3 trial
in the first half of 2024. We will need to raise additional capital and may seek
additional strategic alliances in the future in order to advance the various
clinical trials that are part of our clinical development program described
above.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
benefits, including share-based compensation, and severance and retention
benefits related to our finance, accounting, human resources, legal, business
development, and other support functions, professional fees for auditing, tax,
and legal services, as well as insurance, board of director compensation,
consulting, and other administrative expenses.
Other Income, net
Other income, net consists primarily of interest income, net of fees, and
various income items of a non-recurring nature. Interest expense consists of
cash and non-cash interest expense on our long-term debt. We earn interest
income from interest-bearing accounts, money market funds, and short-term
investments.
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The
preparation of financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, and expenses. On an
ongoing basis, we evaluate these estimates and judgments. We base our estimates
on historical experience and on various assumptions that we believe to be
reasonable under the circumstances. These estimates and assumptions form the
basis for making judgments about the carrying values of assets and liabilities
and the recording of expenses that are not readily apparent from other sources.
Actual results may differ materially from these estimates. We believe that the
accounting policy discussed below is critical to understanding our historical
and future performance, as this policy relates to the more significant areas
involving our judgments and estimates.
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Clinical Trial and Preclinical Study Accruals
We make estimates of our accrued expenses as of each balance sheet date in our
consolidated financial statements based on certain facts and circumstances at
that time. Our accrued expenses for preclinical studies and clinical trials are
based on estimates of costs incurred for services provided by external service
providers and for other trial-related activities. The timing and amount of
expenses we incur through our external service providers depend on a number of
factors, such as site initiation, patient screening, enrollment, delivery of
reports, and other events. In accruing for these activities, we obtain
information from various sources and estimate the level of effort or expense
allocated to each period. Adjustments to our research and development expenses
may be necessary in future periods as our estimates change.
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
Year Ended
December 31,
2022 2021
(in thousands) Increase (Decrease)
Revenue $ 1,772 $ 2,963 $ (1,191)
Research and development expenses 100,894 56,886 44,008
General and administrative expenses 35,182 25,805 9,377
Other income (expense), net 4,430 315 4,115
Net loss $ (129,874) $ (79,413) $ (50,461)
Revenue
Revenue was $1.8 million for the year ended December 31, 2022, as compared to
$3.0 million for the year ended December 31, 2021. Revenue for both periods was
attributable to our collaboration agreement with Zenas BioPharma. The $1.2
million decrease in revenue is due to the timing of activities performed under
the collaboration agreement. During the year ended December 31, 2022, the
Company recognized $1.0 million upon Zenas BioPharma's achievement of a certain
development milestone.
Research and Development Expenses
Research and development expenses were $100.9 million during the year ended
December 31, 2022, compared to $56.9 million during the year ended December 31,
2021. The $44.0 million increase in research and development expenses is
primarily attributable to an increase of $8.9 million in clinical trial expenses
related to our lead product candidates, VRDN-001 and VRDN-002; an increase of
$8.7 million in costs associated with our preclinical programs; an increase of
$7.8 million in personnel related costs, including share-based compensation, due
to an increase in headcount; an increase of $7.6 million in milestone, license
and option fees due to milestone and upfront payments to ImmunoGen and Paragon
Therapeutics, Inc.; an increase of $6.5 million in chemistry, manufacturing and
controls costs; and an increase of $2.4 million in consulting expenses.
We expect our research and development expenses to increase as we work to
progress our clinical and preclinical programs.
General and Administrative Expenses
General and administrative expenses were $35.2 million during the year ended
December 31, 2022, compared to $25.8 million during the year ended December 31,
2021. The $9.4 million increase in general and administrative expenses is due
primarily to an increase of $6.0 million in personnel costs, including share
based compensation, due to an increase in headcount, as well as an increase of
$3.1 million in consulting, professional and license fees.
Other Income, net
Other income, net was $4.4 million during the year ended December 31, 2022
compared to $0.3 million during the year ended December 31, 2021. Other income,
net for the year ended December 31, 2022, is comprised of $4.9 million of
interest income earned on short-term investments as well as sub-lease income,
offset by $0.5 million in interest expense related to our Hercules
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Loan and Security Agreement. Other income, net for the year ended December 31,
2021, is comprised of interest income earned on short-term investments as well
as sub-lease income.
Liquidity and Capital Resources
We have funded our operations to date principally through proceeds received from
the sale of our common stock, our Series A Preferred Stock, our Series B
Preferred Stock and other equity securities, debt financings, license fees, and
reimbursements received under collaboration agreements. As of December 31, 2022,
we had $424.6 million in cash, cash equivalents, and short-term investments. We
expect that our current resources will enable us to fund our planned operations
into the second half of 2025.
We have no products approved for commercial sale and have not generated any
revenue from product sales. Since our inception and through December 31, 2022,
we have generated an accumulated deficit of $488.2 million. Substantially all of
our operating losses resulted from expenses incurred in connection with our
research and development programs and from general and administrative costs
associated with our operations.
We will continue to require substantial additional capital to continue the
development of our product candidates, and potential commercialization
activities, and to fund our ongoing operations, including our clinical
development plan described above. The amount and timing of future funding
requirements will depend on many factors, including the pace and results of our
clinical development efforts, equity financings, securing additional license and
collaboration agreements, and issuing debt or other financing vehicles. Our
ability to secure capital is dependent upon a number of factors, including
success in developing our technology and product candidates. Failure to raise
capital as and when needed, on favorable terms or at all, would have a negative
impact on our financial condition and our ability to develop our product
candidates. Changing circumstances, such as changes in the scope and timing of
our clinical studies, may cause us to consume capital significantly faster or
slower than we currently anticipate. If we are unable to acquire additional
capital or resources, we will be required to modify our operational plans to
complete future milestones. We have based these estimates on assumptions that
may prove to be wrong, and we could exhaust our available financial resources
sooner than we currently anticipate. We may be forced to reduce our operating
expenses and raise additional funds to meet our working capital needs,
principally through the additional sales of our securities or debt financings or
entering into strategic collaborations.
Our material cash requirements include obligations as of December 31, 2022, as
well as resources required to fulfill our research and development activities
and the effects that such obligations and activities are expected to have on our
liquidity and cash flows in future periods. We expect that our operating losses
will fluctuate significantly from quarter to quarter and year to year due to
timing of our development activities and efforts to achieve regulatory approval.
If we raise additional funds through the issuance of debt, the obligations
related to such debt could be senior to rights of holders of our capital stock
and could contain covenants that may restrict our operations. Should additional
capital not be available to us in the near term, or not be available on
acceptable terms, we may be unable to realize value from our assets and
discharge our liabilities in the normal course of business, which may, among
other alternatives, cause us to further delay, substantially reduce, or
discontinue operational activities to conserve our cash resources.
Loan and Security Agreement with Hercules Capital, Inc.
On April 1, 2022, we entered into a loan and security agreement (the "Hercules
Loan and Security Agreement") among the Company, certain of our subsidiaries
from time to time party thereto (together with the Company, collectively, the
"Borrower"), Hercules Capital, Inc. ("Hercules") and certain other lenders party
thereto (the "Lenders"). Under the Hercules Loan and Security Agreement, the
Lenders provided us with access to a term loan with an aggregate principal
amount of up to $75.0 million, in four tranches (collectively the "Term Loan"),
consisting of: (1) an initial tranche of $25.0 million, available through June
15, 2023; (2) a second tranche of $10.0 million, subject to the achievement of
certain regulatory milestones, available through June 15, 2023; (3) a third
tranche of $15.0 million, subject to the achievement of certain regulatory
milestones, available through March 15, 2024; and (4) a fourth tranche of $25.0
million, subject to approval by the Lenders' investment committee(s), available
through December 15, 2024. The first tranche of $25.0 million will be available
to us through June 15, 2023. Upon signing we drew an initial principal amount of
$5.0 million.
The Term Loan bears interest at a floating per annum rate equal to the greater
of (1) 7.45% and (2) 4.2% above the Prime Rate, provided that the Term Loan
interest rate shall not exceed a per annum rate of 8.95%. Interest is payable
monthly in arrears on the first day of each month. Per the terms of the Hercules
Loan and Security Agreement, we were originally obligated to make interest-only
payments through April 1, 2024. However, upon the achievement of a development
milestone the interest-only
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period was extended to October 1, 2024. If additional development milestones are
met, the interest-only period will be extended to April 1, 2025 pursuant to a
second extension. We are required to repay the Term Loan amount in equal monthly
installments of the principal amount and interest between the end of the
interest-only period and the maturity date of October 1, 2026. In addition, we
are required to pay an end-of-term fee equal to 6% of the principal amount of
funded Term Loan Advances at maturity, which are being accreted as additional
interest expense over the term of the loan.
ATM Agreements
In September 2022, we entered into an Open Market Sale AgreementSM (the
"September 2022 ATM Agreement") with Jefferies, LLC ("Jeffries") pursuant to
which we may offer and sell shares of our common stock having an aggregate
offering price of up to $175.0 million from time to time at prices and on terms
to be determined by market conditions at the time of offering, with Jefferies
acting as the sales agent. Jefferies will receive a commission of 3.0% of the
gross proceeds of any shares of common stock sold under the September 2022 ATM
Agreement. As of December 31, 2022, 964,357 shares were sold under the September
2022 ATM Agreement at a weighted average price of $26.01 per share, for
aggregate net proceeds of approximately $24.2 million, including commissions to
Jefferies as a sales agent.
In November 2021, we entered into an Open Market Sale AgreementSM (the "November
2021 ATM Agreement") with Jefferies, pursuant to which we could offer and sell
shares of our common stock having an aggregate offering price of up to $75.0
million from time to time at prices and on terms to be determined by market
conditions at the time of offering, with Jefferies acting as sales agent. The
November 2021 ATM Agreement was terminated in connection with the September 2022
ATM Agreement. No shares were sold under the November 2021 ATM Agreement prior
to its termination.
In April 2021, we entered into an Open Market Sale AgreementSM (the "April 2021
ATM Agreement") with Jefferies pursuant to which we could offer and sell shares
of our common stock having an aggregate offering price of up to $50.0 million at
prices and on terms to be determined by market conditions at the time of
offering, with Jefferies acting as sales agent. Jefferies received a commission
equal to 3.0% of the gross sales proceeds of any common stock sold through
Jefferies under the April 2021 ATM Agreement. The April 2021 ATM Agreement was
terminated in connection with the November 2021 ATM Agreement. An aggregate of
2,551,269 shares of common stock were sold pursuant to the April 2021 ATM
Agreement prior to its termination, at a volume weighted-average price of $13.13
per share, for aggregate net proceeds of approximately $32.4 million, including
commissions to Jefferies as sales agent.
Underwritten Public Offerings
In August 2022, we entered into an underwriting agreement (the "2022
Underwriting Agreement") with Jefferies, SVB Securities LLC and Evercore Group
LLC relating to the offer and sale (the "2022 Offering") of 11,352,640 shares of
our common stock, which includes 1,725,000 shares of common stock issued in
connection with the exercise in full by the underwriters of their option to
purchase additional shares at a public offering price of $23.50 per share, and
28,084 shares of the Company's Series B Non-Voting Convertible Preferred Stock,
at a public offering price of $1,566.745 per share (collectively, the "2022
Public Offering"). The aggregate gross proceeds to us from the 2022 Public
Offering, including the exercise of the option, were approximately $311.0
million, before deducting underwriting discounts and commissions and other
offering expenses payable by us.
In September 2021, we entered into an underwriting agreement (the "2021
Underwriting Agreement") with Jeffries, SVB Leerink LLC and Evercore Group, LLC
for the sale and issuance of 7,344,543 shares of common stock, which include
1,159,089 shares of common stock issued in connection with the exercise in full
by the underwriters of their option to purchase additional shares at a public
offering price of $11.00 per share, and 23,126 shares of Series B Non-Voting
Convertible Preferred Stock at a public offering price of $733.37 per share (the
"2021 Public Offering"). Our aggregate gross proceeds from the 2021 Public
Offering, including the exercise of the option, were approximately $97.7
million, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
Purchase Agreements
In October 2020, we entered into a securities purchase agreement (the "Purchase
Agreement") with the purchasers named therein (the "Investors"). Pursuant to the
Purchase Agreement, we agreed to sell an aggregate of approximately 195,290
shares of Series A Preferred Stock for an aggregate purchase price of
approximately $91.0 million. Each share of Series A Preferred Stock is
convertible into 66.67 shares of our common stock, subject to specified
conditions. The powers, preferences, rights, qualifications, limitations, and
restrictions applicable to the Series A Preferred Stock are set forth in the
applicable certificate of designations. During the year ended December 31, 2021,
138,050 shares of Series A Preferred Stock were converted into 9,203,732 shares
of common stock.
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In December 2019, we entered into a common stock purchase agreement (the "Aspire
Stock Purchase Agreement") with Aspire Capital Fund, LLC ("Aspire Capital"),
which provides that, subject to the terms, conditions, and limitations set forth
therein, Aspire Capital is committed to purchase up to an aggregate of $20.0
million of shares of our common stock over the 30-month term of the Aspire Stock
Purchase Agreement. Upon execution of the Aspire Stock Purchase Agreement, we
sold to Aspire Capital 106,564 shares of common stock at $9.38 per share for
proceeds of $1.0 million as the Initial Purchase Shares (as defined in the
Aspire Stock Purchase Agreement). During the year ended December 31, 2020, we
sold to Aspire Capital 412,187 shares of our common stock at a weighted-average
price of $21.35 per share for aggregate net proceeds of $8.8 million. As of
December 31, 2022, we have the ability to sell an additional $10.2 million of
shares of our common stock to Aspire Capital.
Summarized cash flows for the year ended December 31, 2022 and 2021 are as
follows:
Year Ended
December 31,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ (93,838) $ (54,581)
Investing activities (115,126) (74,292)
Financing activities 322,244 125,275
Total $ 113,280 $ (3,598)
Operating Activities
Net cash used in operating activities was $93.8 million for the year ended
December 31, 2022, and primarily consisted of a net loss of $129.9 million,
adjusted for non-cash items of $20.1 million (primarily share-based compensation
of $19.8 million) and working capital adjustments of $16.0 million.
Net cash used in operating activities was $54.6 million for the year ended
December 31, 2021, and primarily consisted of a net loss of $79.4 million,
adjusted for non-cash items of $23.1 million (primarily share-based compensation
of $14.5 million and a $7.5 million non-cash charge related to the issuance of
common stock as payment for licensing fees to Xencor, Inc.) and working capital
adjustments of $1.7 million.
Investing Activities
Net cash used in investing activities was $115.1 million during the year ended
December 31, 2022. Net cash used in investing activities in 2022 primarily
consisted of net purchases of investments of $114.3 million and property and
equipment purchases of $0.8 million.
Net cash used in investing activities was $74.3 million during the year ended
December 31, 2021. Net cash used in investing activities in 2021 primarily
consisted of net purchases of investments of $74.0 million and property and
equipment purchases of $0.3 million.
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Financing Activities
Net cash provided by financing activities was $322.2 million for the year ended
December 31, 2022. Net cash provided by financing activities in 2022 was
primarily driven by net proceeds of $313.8 million in net proceeds from the 2022
Public Offering and the September 2022 ATM Agreement, $4.6 million in net
proceeds from the Hercules Loan and Security Agreement, as well as $2.8 million
in proceeds from the exercise of stock options, $0.9 million in proceeds from
the exercise of warrants and $0.2 million in proceeds from the issuance of
common stock under our employee stock purchase plan.
Net cash provided by financing activities was $125.3 million for the year ended
December 31, 2021. Net cash provided by financing activities in 2021 was
primarily driven by net proceeds of $107.3 million from the sale of common stock
in 2021 through the 2021 Public Offering and the April 2021 ATM Agreement, $15.7
million in net proceeds from the sale of our Series B Preferred Stock, $1.3
million from the exercise of common stock warrants, and $1.0 million in proceeds
from employee stock option exercises.
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