(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included in this Annual Report on Form 10-K. This discussion and analysis contain forward-looking statements, including statements regarding our intentions, plans, objections and expectations for our business. Forward-looking statements are based upon current beliefs, plans and expectations related to future events and our future financial performance and are subject to risks, uncertainties and assumptions. Our actual results and the timing of certain events could differ materially from those described in or implied by these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of this Annual Report on Form 10-K. See also the Special Note Regarding Forward-Looking Statements section of this Annual Report on Form 10-K.
This section includes a discussion of 2021 and 2020 items and a comparison of the fiscal years ended 2021 and 2020. For a discussion of 2019 items and a comparison of the fiscal years ended 2020 and 2019, refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the final prospectus for our IPO filed with the SEC on July 23, 2021.
We are a clinical-stage genome-editing biopharmaceutical company dedicated to developing transformative CRISPR therapies for patients with devastating diseases. We are advancing a pipeline of allogeneic, or off-the-shelf, CAR-T and CAR-NK cell therapies for the treatment of patients with hematologic malignancies and solid tumors. Our renowned founders, including a Nobel laureate, are pioneers in the field of CRISPR genome editing. Our CRISPR chRDNA technology has demonstrated superior specificity and high efficiency in preclinical studies and enables us to perform multiple, precise genomic edits, while maintaining genomic integrity.
We believe that our technology has broad potential to generate gene and cell therapies in oncology and in therapeutic areas beyond oncology. Potential applications include immune cell therapies, cell therapies derived from genome-edited iPSCs, and in vivo genome-edited therapies.
We are initially focused on advancing multiple proprietary allogeneic cell therapies for the treatment of both hematologic malignancies and solid tumors against cell surface targets for which autologous CAR-T cell therapeutics have previously demonstrated clinical proof of concept, including both CD19 and BCMA, and other targets. We use our chRDNA technology to enhance, or armor, our cell therapies with multiple strategies, such as checkpoint disruption and immune cloaking, to improve persistence of antitumor activity.
Since our founding in 2011, we have devoted substantially all of our resources to organizing and staffing, business planning, raising capital, developing our genome-editing platform technologies, developing our product candidates and building our pipeline, creating and maintaining our intellectual property portfolio, and establishing arrangements with third parties for the manufacture and testing of our product candidates. We do not have any products approved for commercial sale and have not generated any revenue from product sales. We have incurred net losses since commencement of our operations.
To date, we have primarily funded our operations through revenue from our license agreements, license and collaboration agreements, and a service agreement; the sale of shares of Intellia common stock that we received as consideration for the Intellia License Agreement; the sale of our convertible preferred stock in private placements; and proceeds from our IPO. In total, we received an aggregate of approximately $321.0 million in net proceeds from our IPO, after deducting underwriting discounts and commissions and offering expenses. In connection with the closing of our IPO, all outstanding shares of our convertible preferred stock automatically converted into 26,234,654 shares of our common stock.
Our net losses for the years ended December 31, 2021 and 2020 were $66.9 million and $34.3 million, respectively. Our net losses and operating losses may fluctuate from quarter to quarter and year to year depending primarily on the timing of our clinical trials and nonclinical studies and our other research and development expenses. In addition, we are incurring increased costs associated with operating as a public company, including legal, audit, and accounting fees; regulatory costs related to maintaining compliance with the rules and regulations of the SEC and Nasdaq; director and officer insurance premiums; costs for investor and
public relations activities; and other accompanying compliance and governance costs. We anticipate that our expenses will increase substantially if and as we:
We do not own or operate any manufacturing facilities and we outsource a substantial portion of our clinical trial studies to third parties. We use multiple CMOs to individually manufacture, under cGMP, chRDNA guides, Cas proteins, and AAV6 vectors used in the manufacture of our CAR-T cells as well as our CAR-NK cell therapy product candidates. We expect to rely on our CMOs for the manufacturing of our product candidates to expedite readiness for future clinical trials, and most of these CMOs have capabilities for commercial manufacturing. Additionally, we may decide to build our own manufacturing facility in the future to provide us greater flexibility and control over our clinical or commercial manufacturing needs.
Because of the numerous risks and uncertainties associated with therapeutic product development, we may never achieve profitability and, unless and until we are able to develop and commercialize our product candidates, we will need to continue to raise additional capital. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through public or private equity or debt financings, collaborations, strategic alliances, and licensing arrangements with third parties. There are no assurances that we will be successful in obtaining an adequate level of financing to support our business plans when needed on acceptable terms, or at all. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise capital as and when needed or on attractive terms, we may have to significantly delay, reduce, or discontinue the development and commercialization of our product candidates or scale back or terminate our pursuit of new in-licenses and acquisitions.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has caused governments worldwide to implement measures to slow the spread of the outbreak through travel restrictions, business shutdowns, and other measures. In response to the COVID-19 pandemic, starting on March 17, 2020, our entire workforce began working remotely pursuant to state, county, and city requirements. Since May 2020, we have gradually brought back on site all of our research employees whose work must be performed in the lab, and most of our non-research
employees are currently working partially remotely and partially on site. At this point in time, we do not know if or when we will bring our off-site functions back on site full-time. We have experienced no significant workforce reduction as a result of the COVID-19 pandemic.
The COVID-19 pandemic did have an impact on our supply chain in the early months of the pandemic. For example, we experienced delays in receiving healthy donor cells used in the manufacture of our CB-010 product candidate. These issues were largely resolved in 2021 and we are currently receiving adequate supplies of donor cells; however, we could face similar obstacles in the future. Although vaccines are now being distributed and administered across many parts of the world, new variants of the virus have emerged, and may continue to emerge, that are more contagious. As a result of future developments in the COVID-19 pandemic, we and our CMOs, CROs, clinical trial sites, and other third-party vendors may face disruptions that could delay or otherwise affect our ability to initiate and complete preclinical studies or clinical trials.
Since the start of the COVID-19 pandemic, we have been and will continue to be focused on the safety of our employees. In response to the COVID-19 pandemic, we have instituted on-site protocols and procedures in accordance with guidance provided by the Centers for Disease Control and the State of California and regulations and guidelines promulgated by the County of Alameda and the City of Berkeley. As of January 1, 2022, all of our employees were required to be fully vaccinated against COVID-19 as a condition of employment with us. Individuals who are unable to be vaccinated, due to a religious belief or disability that prevents them from being vaccinated, can request a reasonable accommodation.
In May 2020, we received a Paycheck Protection Plan ("PPP") loan from the Small Business Administration (the "SBA") in the amount of $1.6 million (the "PPP Loan"), which we used exclusively to pay employees' salaries. In December 2020, we submitted an application to have our PPP Loan forgiven and, on May 22, 2021, our PPP Loan was forgiven in full by the SBA.
To the extent the COVID-19 pandemic adversely affects our business prospects, financial condition, and results of operation, it may also have the effect of exacerbating many of the other risks described or referenced in the Risk Factors section in Item 1A of this Annual Report on Form 10-K, such as those relating to the timing and results of our planned and future clinical trials and our financing needs.
Components of Results of Operations
Licensing and Collaboration Revenue
We have not generated any revenue from product sales to date and do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval and commercialization, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates if we succeed in obtaining regulatory approval for these product candidates.
To date, all of our revenue consists of licensing and collaboration revenue earned from collaboration and/or licensing agreements entered into with third parties, including related parties. Under these agreements, we license rights to certain intellectual property controlled by us. The terms of these arrangements typically include payments to us of one or more of the following: nonrefundable, upfront license fees or exclusivity fees; annual maintenance fees; regulatory and/or commercial milestone payments; research and development payments; and royalties on the net sales of products and/or services. Each of these payments results in licensing and collaboration revenue. Revenue under such licensing and collaboration agreements was $9.6 million and $12.4 million for the years ended December 31, 2021 and 2020, respectively. See Note 4 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
For the foreseeable future we expect substantially all of our revenue will be generated from licensing and collaboration agreements.
Research and Development Expenses
Our research and development expenses consist of internal and external expenses incurred in connection with the development of our product candidates, development of our platform technologies, and our in-licensing and assignment agreements.
External costs include:
Internal costs include:
We expense research and development costs as incurred. Costs of certain activities are recognized based on an evaluation of the progress to completion of specific tasks. However, payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our consolidated balance sheets. The capitalized amounts are recognized as expense as the goods are delivered or as related services are performed. Historically, we have not tracked external costs by clinical program. We intend to separately track certain external costs for each clinical program. However, we do not currently track, and do not intend to track, costs that are deployed across multiple programs.
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. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to implement our business strategy; advance our CB-010 product candidate through clinical trials and later stages of development; conduct preclinical studies and clinical trials for our other product candidates; seek regulatory approvals for any product candidates that successfully complete clinical trials; expand our research and development efforts and incur expenses associated with hiring additional personnel to support our research and development efforts; and seek to identify, in-license, acquire, and/or develop additional product candidates.
The successful development of our CB-010, CB-011, CB-012, and CB-020 product candidates, as well as other potential future product candidates, is highly uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of preclinical studies, clinical trials, and development of our product candidates will depend on a variety of factors, including:
The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020:
Years Ended December 31, 2021 2020 Change (in thousands) External costs: Expenses related to licenses, sublicensing revenue, and milestones $ 3,960 $ 6,935 $ (2,975 ) Services provided by CROs, CMOs, and other third parties that conduct preclinical studies and clinical trials on our behalf 20,032 9,900 10,132 Other research and development expenses 9,393 4,636 4,757 Total external costs 33,385 21,471 11,914 Internal costs: Personnel-related expenses 13,361 8,794 4,567 Facilities and other allocated expenses 5,509 4,160 1,349 Total internal costs 18,870 12,954 5,916 Total research and development expenses $ 52,255 $ 34,425 $ 17,830
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel-related costs, intellectual property costs, consulting costs, and allocated overhead, including rent, equipment depreciation, and utilities. Personnel-related costs consist of salaries, benefits, and stock-based compensation for our general and administrative personnel. Intellectual property costs include expenses for filing, prosecuting, and maintaining patents and patent applications, including certain patents and patent applications that we license from third parties. We are entitled to receive reimbursement from third parties of a portion of the costs for filing, prosecuting, and maintaining certain patents and patent applications. We accrue for these reimbursements as the respective expenses are incurred and classify such reimbursements as a reduction of general and administrative expenses. During the years ended December 31, 2021 and 2020, we recorded $7.1 million and $5.8 million, respectively, of patent cost reimbursements as a reduction to general and administrative expense.
We expect that our general and administrative expenses will increase substantially in the future as a result of expanding our operations, including hiring personnel, preparing for potential commercialization of our product candidates, and additional facility occupancy costs, as well as increased costs associated with operating as a public company (including legal, audit, and accounting fees; regulatory costs related to maintaining compliance with the rules and regulations of the SEC and Nasdaq; director and officer insurance premiums; costs for investor and public relations activities; and other accompanying compliance and governance costs). We also expect to increase the size of our administrative function to support the growth of our business.
Other Income (Expense)
Other income (expense) consists primarily of interest income earned on cash and marketable securities, change in the fair value of our equity investments, change in fair value of the MSKCC success payments liability under the MSKCC Agreement, a gain on the PPP Loan extinguishment, and other income from the sale of certain intellectual property rights.
Results of Operations Comparison of the Years Ended December 31, 2021 and 2020 The following table summarizes our results of operations for the years ended December 31, 2021 and 2020: Years Ended December 31, Change 2021 2020 $ (in thousands) Licensing and collaboration revenue $ 9,598 $ 12,361 $ (2,763 ) Operating expenses Research and development 52,255 34,425 17,830 General and administrative 24,322 14,060 10,262 Total operating expenses 76,577 48,485 28,092 Loss from operations (66,979 ) (36,124 ) (30,855 ) Other income (expense) Interest income 148 236 (88 ) Interest expense (8 ) (20 ) 12 Change in fair value of equity securities - (733 ) 733 Change in fair value of the MSKCC success payments liability (1,426 ) - (1,426 ) Gain on extinguishment of the PPP Loan 1,584 - 1,584 Other income 79 514 (435 ) Total other income (expense) 377 (3 ) 380 Net loss before provision for (benefit from) income taxes (66,602 ) (36,127 ) (30,475 ) Provision for (benefit from) income taxes 321 (1,819 ) 2,140 Net loss $ (66,923 ) $ (34,308 ) $ (32,615 )
Licensing and Collaboration Revenue
Licensing and collaboration revenue decreased $2.8 million, to $9.6 million for the year ended December 31, 2021 from $12.4 million for the year ended December 31, 2020. This decrease was primarily due to decreases of $7.5 million in revenue from a private company related party, and $0.8 million in revenue from Genus. These decreases were partially offset by a $4.0 million increase in revenue recognized under the AbbVie Agreement, and the remaining increase was primarily related to other license agreements with various licensees.
The following table summarizes our revenue by licensee for the years ended December 31, 2021 and 2020:
Years Ended December 31, 2021 2020 Change (in thousands) AbbVie $ 3,972 $ - $ 3,972 Genus - 844 (844 ) Private company, related party - 7,500 (7,500 ) Pioneer, related party(1) - (250 ) 250 Other licensees 5,626 4,267 1,359 Total licensing revenue $ 9,598 $ 12,361 $ (2,763 )
(1) Includes the upfront payment to Pioneer for assignment of the chRDNA patent family.
Research and Development Expenses
Research and development expenses increased $17.8 million to $52.3 million for the year ended December 31, 2021 from $34.4 million for the year ended December 31, 2020. This increase was primarily related to increases of $10.1 million in external clinical trial-related activities and contract manufacturing activities for our product candidates, $4.8 million in other research and development expenses, $4.6 million in personnel-related expenses due to incremental hiring (which includes an increase in stock-based compensation expense of $0.6 million), and $1.3 million in facilities and other allocated expenses. These increases were partially offset by a $3.0 million decrease in expenses related to licenses, sublicensing revenue, and milestones.
General and Administrative Expenses
General and administrative expenses increased $10.2 million to $24.3 million for the year ended December 31, 2021 from $14.1 million for the year ended December . . .
Mar 21, 2022
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